Q. What is the second phase of Economic Reforms? Explain its role in economic growth of India. [44 BPSC/2002]

Q. What is the second phase of Economic Reforms? Explain its role in economic growth of India. [44 BPSC/2002] ©crackingcivilservices.com
Ans:
Post 1991 reforms seen the economy benefits. Encouraged by the benefits, the second generation/phase reforms were initiated by the end of 1990’s.
The reason for calling these set of reforms as the second generation/phase reforms is that they followed the initial reforms which laid the foundation for the reform process to deepen. It is a matter of sequencing in line with prioritization; economic preparation; consensus-building and so on.
In fact, unless the success in material and human terms of the initial reforms was demonstrated, the next round of ‘difficult’ reforms would not be possible.

The second phase of reforms includes:

• Labour law flexibility;
• Pension reforms based on employee contribution and the pension funds being deployed in the stock market;
• GST;
• Liberalized FDI including FDI in retail etc.

These reforms touch the lives of the ordinary people and need successes in other sectors- first generation reform- to make a convincing case. Otherwise, they may not be aliowed by public opinion as we’have seen in the case of FDI-Multibrand retail( Walmart etc) debate.

Second generation reforms are difficult as they are directly involved with the daily lives of people like.

• User charges need to be rationalized to make these utilities viable but there are bound to be protests.
• Man power rationalization-in banks and PSUS through VRS faced resistance.
• Labour law flexibility will make trade unions agitate.
• Interst rate cut, for example, for small savings will mean less returns for the middle class etc
• Agro reforms may mean small and marginal farmers’ resistance

Role in economic growth of India:

• These reforms witll investment and growth in long term.
• Will help in poverty alleviation and employement generation.
• May further boost the growth rate that will help the government spend on social welfare.
• Flexible labour laws will promote professionalism and efficiency in industry.
• GST created one nation one market and encouraged formalisation of economy by creating incentive for organisation to get registered (to be eligible for input tax credit).
• These reforms will help India to be prepared for the upcoming 4th Industrial revolution.

Some of the examples of second generation reforms in recent years are codification of 29 labour laws into four codes, Deregulation of petrol and diesel prices and introduction of dynamic pricing implementation of GST, contactless and faceless tax assessments etc. Thus, government is constantly moving forward with the 2nd generation reforms. While these reforms are expected to bring more economic growth, we must ensure that some deficiencies of the first generation reforms which created inter-sectoral and inter-regional inequalities are addressed by 2nd generation reforms. ©crackingcivilservices.com