Economic Ideology for Well-defined Policymaking

The setting at the time of independence and the thinking of the leaders influenced the economic policies, particularly the import substitution policies followed in the first three decades of independent India. By the end of the 1970s, many countries, particularly in East and South East Asia, including China, introduced economic reforms. In India, there were attempts at deregulation in the 1980s but the economic reforms were initiated only in mid-1991 due to problems such as insurmountable external debt, unmanageable balance of payments and the underlying fiscal problems. After the big-bang reforms in the early 1990s, India has followed a gradualist approach regarding reforms. Two reasons are given to justify gradualism or calibration. First, it is better to be cautious instead of taking too many risks as India cannot afford too many risks with so many poor people. Second, there is no need to be cautious but to be gradual and slow due to compulsions of the democratic process in a very large and heterogeneous country.

In the last three decades of the post-reform period, there have been several studies which analysed success and problems of the Indian economy. The roles of both the “state” and “market” have been recognised in development. But there have been significant variations in the approach towards development. First, several variants of “Washington Consensus” which advocate more opening of the economy, free trade and markets. Second is the South East and East Asian model of export-led growth and state intervention. India has undergone a radical transformation of the centrally planned and state-controlled economy with the reforms aimed at fundamental shift towards greater reliance on the market mechanism to allocate resources and influence decision-making. However, there has been no coherent economic doctrine on India’s development.