Union budget will unveil a whole set of second generation reforms – FM. What does it mean?

Nice to hear such kind of kind of statements, isn’t it? Indian politicians cleverly use many jargons and one such jargon was used by our Finance Minister yesterday. In this article, I have made an attempt to decode the jargon – Second generation reform. Hope this helps you all

Meaning of reforms – for the purpose of this article, read ‘Reforms’ as economic reforms. Economic Reforms means changing the economic policy of the country in order to improve the living standards of the people. When the government believes that the current policy is not sufficient to improve the quality of life, they will introduce a wide range of policy changes which will help to augment the growth.

First Generation Reforms – Till 1991, India’s growth was very slow. The average Gross Domestic Product (GDP) growth was less than 3.5% since Independence. Due to balance of payment crisis (will discuss this issue separately) and other compelling reasons, India had to go for policy changes. The policy changes starting from 1991 till date is considered as first generation reforms. Some of the major reforms are –

• Income Tax rates were reduced. For example, Income tax rates were brought down to around 30% (earlier the tax rates were as high as over 90%)

• Customs duty rates were also reduced (from 110% to 12.5%)

• Simplification in Indirect taxation procedures

• Industry licensing system was abolished (popularly known as license raj)

• Major changes in infrastructure – roads, telecom, power, etc.

• Disinvestment in public sector undertakings

There are many more reforms which are noteworthy. The bottom-line is that due to various reforms, India has witnessed a sound economic growth in the last 2 decades.

Second Generation Reforms – The government feels to accelerate the growth from where we are now, the existing policies are not sufficient. We need to do more to sustain and increase the growth rates. How the growth can happen?

Some of the reforms could be –

• More private players in banking and insurance sector

• Opening up retail to foreign players (and other FDI liberalization)

• Tax and labour laws reforms (introducing Goods and Service Tax (GST) is one among them)

• Change in land acquisition policies, allocation of natural resources, etc      

That’s all? No. There is no specific definition for Second Generation Reforms. Broadly, it means the major changes in Economic policy, tax reforms, privatization, private participation, change in the implementation of schemes, reduction in subsidies, market driven pricing, etc.

All reforms will promote competitiveness among people.

Thought for the day

Every generation thinks they can change the world. 

True success comes only when every generation continues to develop the next generation.

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