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.