India's Economic Reform And Economic Development

Post-independence India chose the "middle road" as its development direction. The so-called Mixed Economic Model can be defined as the economic strategy of India till 1991. Mixed Economic Model emphasized the development of heavy industries, spearheaded a vast expansion of the public sector. In such a system, the state played the dominant role in the economy and made controls over private economic action to implement it. Import substitution was made by using quantity restriction, high tariff and other non tariff barriers. Social equity was set as an important objective through variety of subsidies and reservation for small scale and cottage industries. Mixed Economic Model indeed generated a diversified industrial base for India but it retarded the rapid economic growth at the same time. The consequence was a high cost, inefficient and globally uncompetitive economy, which made India far behind other East Asia countries in the race of economic development. The systematic economic reform initiated in 1991 has turned a new page in the history of Indian economic development. Symbolized by "liberalization", "privation" and "globalization", the reform abandoned traditional insulation from the world economy, transform import substitution to export-oriented strategy, from state overcontrol to market freedom. The economic reform involved delicensing of some industries, abolishing QRs, disinvestment in public sector and some other liberalization in external sector and bank sector. Accompanied by the economic reform, positive effects have been made and incentive system has been created. Economic situation has been improved rapidly. Nevertheless, the economic reform itself has to confront some difficulties and challenges, including sensitive and massive-involved problems. Still some tough problems remained unsolved, such as high fiscal deficit and infrastructure bottleneck. The future of Indian economy depends upon effective resolving of these problems. As the current economic situation, there is little possibility to achieve the annual 8% growth rate in the tenth five year plan.