ABSTRACT
The basic hypothesis on which the economic philosophy of reforms rests is that the unfettered market mechanism is a better guide or signal for allocation of resources. It brings out greater efficiency in the process and pattern of allocation, and the use of financial and real resources. Higher efficiency means gains in productivity and higher rate of growth. The disturbing side effect of reform is that the process of transition or change in allocation is painful, and the greater the degree of regulation of market forces and the faster its reversal, the more dislocating is the change emerging from altered allocation of resources. Reforms have to cover several sectors of the economy, such as industry, agriculture, fiscal, banking, financial and capital market, trade and tariff, BoP and exchange rate. They could cover all sectors at one go with speedier implementation. Alternatively, they could be sequenced and implemented gradually in phases. Many economies have gone in for total reforms at one go, replacing all major economic regulations by the freer market mechanism. Others have taken a more secure route for dismantling controls and regulations in phases. This approach of gradualism has its advantages in mitigating the pains of reform in the initial phases. Pains of reform are reflected in higher unemployment, increasing inflation and growing inequality. Gains of reforms are higher growth, lower prices, better allocative efficiency, higher productivity and productivity-based gains in wages and salaries, and return on capital. Yet, the marketization of economy may not benefit those in the lower strata of society who are beyond the reach of the market economy. The reforms have also to ensure higher consumption especially among the lower strata of society to elevate their living standards through direct government action. This alone can guarantee the execution of reforms with a human face.
