AFTER a long silence the spell has finally been broken. The second phase of reforms in the country has begun with almost the same conviction as the first but under different conditions. The 1991 reforms were under compulsion but the present reforms are voluntary. This is because the last 20 years have been a test to prove to ourselves that reforms help and they have substantially helped to make the country an emerging market economy.

The first phase of reforms was dramatic and resulted in a total change in the structure of policy. Industry was protected from the market in a closed economy, but with reforms they had to prepare themselves to face competition within the country and from outside. That meant restructuring of managements, technologies and scale of production. It therefore took quite a while for industry to position itself in the new environment and show results.

The time taken to show results in different sectors vary. Stock and currency markets react instantly. It's no wonder that with the recent announcement of reforms — which are yet to be completed -- the Sensex shot up from around 16,500 to over 19,000 and the rupee hardened from 56 to 52 to the dollar. Both markets are important not only because they restore business confidence but enable companies to mobilise capital.

But the real question is: when will industry respond to the present reforms?

After 1991, industrial growth remained low for more than three years. It picked up gradually but it

was only after 2003 that industry blossomed and growth bounced to more than 10 percent to take the economy among the fastest growing in the world.

The present reforms are in the nature of taking the 1991 reforms further and do not call for any fundamental adjustments. Hence the time lag between reforms and results should be much shorter.

Considering the corporate decision making process, it can be expected that foreign direct investment should come in retail and insurance in one or two years. That should energise domestic investment as well.

Results from the reforms could be faster had the economy been buoyant. But industrial growth is currently less than one percent, mainly due to structural imbalance between industry and agriculture and fiscal imbalance resulting in high budget deficit. Both combine to double the rate of inflation and rate of interest.

Also, food inflation is diverting demand from industry to agriculture, and excessive borrowing to cover budget deficit diverts savings to consumption. Stagnation in the U.S. and EU and increase in domestic costs have made also exports difficult. All these issues will delay the fruits of reforms.

That said, reforms are not for the short term. They show real results only after a time lag. But this is not 1991. If short term problems are addressed and resolved early, the results from the present reforms will be much faster.

The writer undertakes research on current macroeconomic issues of interest, mainly to industry, as president of RPG Foundation, a private think tank.