New Economic Policies, Instability and Policy Ineffectiveness

New Economic Policies, Instability and Policy Ineffectiveness Arun Kumar A comparison of the trends and the amplitude of fluctuations in several key macro-economic variables in the pre- and post-1991 periods suggests increased economic instability which facilitates speculative activity, especially with financial sector liberalisation and the opening up of the economy, The author also argues that the increased amplitude of economic fluctuations is a result of the nature of state intervention under the new economic policies which has reduced policy effectiveness. The government is unable to control or regulate the impact of shocks (external or internal) since it lacks the policy instruments or has given up some of them or they are greatly circumscribed by the requirements of the new policies precisely at a time when the economy has become far more complex and is subject to more external shocks.