Criticism of Economic Reforms

1. Growing Agriculture:

Despite the fact that the GDP growth rate has grown during the reform period, the country has not witnessed enough job opportunities created as a result of this expansion. 

2. Neglect of Agriculture:

The agriculture sector has been overlooked by the new economic policy in favour of industry, trade, and services.

(i) Reduction of Public Investment: There has been a decline in public investment in the agriculture sector involving irrigation, power, market ties, roads, research, and advancement.

(ii) Liberalisation and Reduction in Import Duties: There have been several policy changes influencing this sector, which include (a) lowering of import taxes on agricultural goods (b) Elimination of minimum and fair support prices (c) removing quantitative constraints on agricultural products. Due to growing international competition, all of these policies had a negative impact on Indian farmers.

(iii) Removal of Subsidy: Lifting of fertilizer subsidies increased production costs, which adversely impacted the small and marginal farmers.

(iv) Shift towards Cash Crops: Agricultural production has switched from food crops to export crops as a result of export-oriented policy measures.

3. Ineffective Disinvestment Policy:

The government has always set a goal for selling its holding in Public Sector Enterprises. For example, in 1991-92, the government targeted that disinvestment will generate ₹2,500 crores. The government has raised ₹3,400 crores more than the target. In 2017-2018, the aim was ₹1,00,000 crore; however, the actual figure was ₹1,00,057 crore.

But, the government’s disinvestment policy was unsuccessful because:

• Public Sector Enterprises were sold to the private sector at a reduced price.
• Furthermore, rather than using it for the development of public sector enterprises and building social infrastructure in the country. The government used proceeds from disinvestment in compensating shortage of government revenue.

4. Low Level of Industrial Growth:   

The following reasons led to the slowdown in Industrial growth:

(i) Cheaper Imported Goods: There was a great flow of goods and capital from developed countries like the USA, and as a result, domestic industries were exposed to imported goods because of globalisation. The demand for domestic products was replaced by cheaper imports, and domestic producers started to face import competition.

(ii) Non-Tariff Barriers by Developed Countries: The Government removed all quota restrictions on exports of textiles and clothing. However, several developed countries like the USA have not removed their quota restrictions on the import of textiles from India.

(iii) Lack of Infrastructure Facilities: There was a lack of investment in the infrastructure facilities, which include power supply. Thus it remained inadequate.

5. Ineffective Tax Policy:

During the reform period, tax reduction was done to generate larger revenue and to curb evasion of tax. But, it did not result in an increase in the tax revenue for the government.

• The scope for raising revenue through customs duties was decreased by Tariff Reduction.
• To attract foreign investment tax incentives were provided, which further reduced the scope of raising tax revenues.

6. Spread of Consumerism:

An unfavourable trend has been driven by the new economic policy by encouraging the production of luxuries and items of superior consumption.

7. Unbalanced Growth:

Growth has been limited to limited areas of the service sector like telecommunication, information technology, finance, entertainment, real estate, trade, and hospitality rather than essential sectors such as agriculture and industry, which employ millions of people in the country.

Pre-Reform Scenario

Since independence, India has followed a mixed economic system in which the advantages of both capitalist (market) and socialist (planned) economies are combined. Under this system, the government and private sector play an equivalent role in the economy. Although there is some economic freedom in the use of capital, the government also interferes in economic activities to promote social welfare. India started its development from stagnation to an economy that achieved growth in savings and experienced expansion of agricultural output, which ensured food security. Moreover, there was a diversification of the industrial sector that helped in producing goods and services. 

The economic situation prior to reform can be summarized as follows:

1. Following independence, Indian economic policy was primarily influenced by the exploitative colonial experience and Fabian socialism (aimed to promote equality of power, wealth, and opportunity).
2. The Indian leaders (like Jawahar Lal Nehru) found an alternative to extreme cases of the socialist and capitalist economy, which is the mixed economic system.
3. In this, both the public and private sector exists in the economy, with a solid public sector but also private property and democracy.
4. This policy focuses on ‘protectionism’ in which domestic industries are protected, along with import substitution, which includes regulating the import of foreign goods and promoting products in the domestic market.
5. Later, there was monitoring of industries, state interference at the micro level in businesses like financial markets, and the existence of a substantial public sector in the economy.

In reality, the private sector was neglected, and the public sector controlled the economy. Significant investments were made in the public sector and minor in the private sector. It established several rules and regulations that focus on regulating the economy. It resulted in preventing growth and development. 

In 1991, the economic crisis hit India related to external debt. The government was unable to make payments of the borrowings abroad. The foreign reserves used to manage imports declined to a level that was not even enough for two weeks. It further leads to a rise in the prices of essential goods.