Ch-7 - CHAPTER 7 Economic Reforms since 1991 Background We...

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Background We had indicated in the last chapter that we did not follow a single set of policies in the forty years since 1951. We made many changes in many spheres but they were all perhaps in the same direction: interventionist state, centralised planning and expansion of public sector within the framework of mixed economy. In fact, we were following no charted path but were experimenting in a big way. We recount here some major developments during the forty years before the onset of current spate of reforms. In the late 1960s, many things came into notice as a result of certain committees formed to investigate the working of many policies. It was found that the industrial licensing policy that was followed in practice was not in tune with the Industrial Policy Resolution of 1956. It was, therefore, tightened. It was also discovered that the large industrial houses were in control of financial resources because they owned the commercial banks. Fourteen major banks were, therefore, nationalised in 1969 (and six in 1980) so as to make funds available for development of agriculture and small and cottage industries. It was further discovered that many industrial houses were monopolising certain activities and were adopting practices restricting trade (competition); an Act ( MRTP ) against such practices was, therefore, put in place and, with a view to discouraging such practices, a Commission ( MRTPC ) was set up. In the late 1970s, a movement towards further promotion of cottage, tiny and small-scale industries, enlargement of responsibility of public sector for decentralised development, and making sick industries taken over from private sector to show results, was suggested. But, it could not be pursued much. Towards the end of the seventies, however, it came to be widely perceived, particularly by the industrialists, that the Government has been unnecessarily restricting industrial activities of private sector in the name of protecting small scale industries (from competition by reserving items, ensuring availability of raw material, purchasing products and subsidizing sale), putting high tariffs, restricting flow of foreign capital and technology, and pampering public sector undertakings that were actually incurring huge losses. Foreign interests expressed a view that the government had been checking foreign trade by imposing quota (though C HAPTER 7 Economic Reforms since 1991
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96 INDIAN ECONOMIC DEVELOPMENT necessitated by limitation of foreign exchange) and high custom tariffs and choking flow of foreign capital except aid and debt. Middle class consumer thought that domestic industry was overpro- tected from foreign competition by high tariff wall and public sector undertakings were doing no good to the economy. In order to address some of these issues, a little opening was made in the eighties itself. A new industrial policy statement was announced in 1980. The 1956 resolution, it was clearly stated in this statement, formed the basis of the present statement but the new policy accepted the erosion of government’s
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