6.2        ndian    onom
                                                           economy. Once the Soviet Union went for
        IntroductIon                                       the planning model (Later the East European
     The economic reforms initiated in 1991 is now         countries and finally China in 1949) most of the
     into the 26th year. In this period there was hardly   developing countries after their independence
     a day that some news, news analysis, write-up or      were influenced by socialism and the governments
     article did not appear in the newspapers regarding    there took a central role in planned development.
     the reform process. Several highly acclaimed          As these economies were dominated by foreign
     books have been authored on India’s economic          colonisers, they worried that opening the
     reforms by some of the best experts of economics      economy to foreign investment would lead to
     from India and abroad. Still students, especially     a new form of domination, the domination by
     coming from non-economics background, are             large multinationals. That is why most of these
     generally at a loss on the ‘pros’ and ‘cons’ of the   countries went for ‘protectionist’ economic policy
     reform process.                                       with import substitution as one method, side
                                                           by side. But by the 1970s, the world was having
        EconomIc rEforms                                   convincing proofs that the socialist as well as the
                                                           planned economies1 were inclined to follow their
     Popularly, economic reforms denote the process in     kind of development strategies—either because
     which a government prescribes declining role for      they had very slow and lower growth rates or were
     the state and expanding role for the private sector   stagnating. The experiences of these economies
     in an economy. So let’s unravel the reform process    gave rise to a new ideology which became popular
     based on the author’s classroom interactions with     as the ‘Washington Consensus’.
     students. It is safer to see economic reform as a
     policy shift in an economy from one to another or     2. WAshington consensus
     ‘alternative development strategies’. Economists      By the early 1980s, a new development strategy
     attribute the differences in the performance of       emerged. Though it was not new, it was like
     economies to the differences in the ‘strategies’ they the old idea getting vindicated after failure of
     follow. The different strategies of development       a comparatively newer idea. After the world
     evolved through a long period of trial and error      recognised the limits of a state-dominated
     by different countries under the influence of         economy, arguments in favour of the market, i.e.,
     different sets of ideologies. But the process has     the private sector, was promoted emphatically.
     been like an educational trip. To understand the      Many countries shifted their economic policy just
     term ‘economic reform’ and more so to clarify the     to the other extreme arguing for a minimal role of
     confusion concerning it in the Indian context, we     the government in the economy. Governments of
     must see the different ‘alternative development       the socialist or the planned economies were urged/
     strategies’ which evolved through time. A brief       suggested to privatise and liberalise, to sell off
     description is given below:                           state-owned companies and eliminate government
     1. PlAnning moDel                                        1.  There were many developing non-socialist countries
                                                                  which also accepted the economic planning as their
     Till the rise of the Soviet Union, the prevalent             development strategy (France should not be counted
     development strategy in the Euro-American                    among them as it was a developed economy by then).
     countries was the capitalist system of economy,              These countries were following the ‘mixed economy’
                                                                  model, but their form was closer to the command
     which promoted the principles of laissez-faire               economies, i.e., the state economy or the socialist
     and dominant role for private capital in the                 economy.