Political Economy of Reforms in India

The Left & the UPA itself is responsible for the slowdown in reforms.


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Abstract:

When reforms slow down, two explanations are commonly given: lack of consensus and vested interests. While these are powerful and plausible explanations, they also raise a curious puzzle: why do we observe periods of mega reform punctuated by long spells of inaction?

Surely neither consensus nor vested interests can shift dramatically within a short period to produce the wide swings in the pace of reforms.

Thus, recall that as the 1980s drew to a close, the spurt in reforms during 1985-86 and 1986-87 under Prime Minister Rajiv Gandhi seemed to peter out. Yet, in 1991-92, Prime Minister Narasimha Rao and finance minister Manmohan Singh began to lay down the foundation of systematic reforms. They did away with investment licensing as also with import licensing on capital goods and raw materials, substantially lowered industrial tariffs, opened most industries to foreign investment, dramatically reformed both direct and indirect taxes, substantially cut fiscal deficit, considerably liberalised the financial sector, and made the rupee convertible on the current account.