A Decade of Economic Reforms - Review by RBI
[Source: RBI Report on Currency and Finance 2001-2002 dated March 31, 2003]

The Epilogue - An Overview of Economic Reforms at end of First Decade

India’s experience with reforms has reflected the pursuit of an open-ended, eclectic and pragmatic approach on questions of economic policy. The issue of the supremacy of markets over Government and of the private sector over the public sector is now in the realm of ideology without practical relevance. Recognising that both market and State failures exist, the practical issue is about harnessing the productive resources available in each. This could be done on the basis of identification of the dynamic comparative advantage that the public and the private sectors have in the various segments of the economy. A policy of entry and exit and economic restructuring on lines of competitiveness needs to be put in place. There is also the practical issue of reinforcing the markets by providing a wider menu of instruments. This would need to be backed by a stronger legal and institutional system, which is a necessary pre-condition for successful transition to a market oriented economy. In this regard, the State has to establish the regulatory framework that minimises the regulatory burden on the market players and hindrance to the free-play of market forces, for the ultimate objectives of growth and development with financial stability. As observed by Jalan (1992), ‘The historical lesson is that most of the successful cases of development are those which have managed to combine the virtues of conflicting paradigms rather than rely exclusively on a single-set of pre-ordained theoretically right policies’. The challenge today is to take the reforms further by addressing the remaining agenda. Policy reforms would need to focus more sharply on the gaps mentioned in this Report, specially in the areas of real and fiscal sectors.

Approaching reforms with gradualism had a well-founded rationale and on the whole this has placed Indian reforms on a firm footing that have transcended political regime shifts. Changes have been carried out with broad consensus. The road to economic restructuring has been traversed in the 1990s by four different Governments. The country has gained significantly from policy reforms in the 1990s.Further gains are there for taking. With broad consensus driving the course, the unfinished agenda could be addressed in the coming years.