The central point of argument of the ‘Lucas Critique’ is that the parameters estimated from an econometric model are dependent on the policy prevailing at the time the model was estimated and will change if there is a policy change. In other words, the econometric model estimated on the basis of data of the past ‘regime’ will have no or little forecasting value in the new regime (Lucas, 1976). In India, economic policy planners have tried different ‘economic policy’ agenda since Independence; they took 43 years to settle on the much publicized and optimistic model of ‘free economy’. In this transformation process, they tried two major systems—‘Controlled’ and ‘Semi-controlled’ economy models. In the control regime, the major emphasis was given on ‘creation of wealth’ through the State directed and State controlled financial system, with special focus on the banking sector as the mobilizer of surpluses and purveyors of credits.

In pursuance of the broad economic and social aims of the State, the scheme of planned economic development along with the “mixed-economy” model was adopted during this regime. A complementary role was earmarked for the private and public sectors. The period 1980-90 saw India move away from the values of socialism towards the pro-business policies. Over this period, Indian planners have sought to shift from the controlled (‘import-substitution’) model to the semi-free (‘export-oriented’) model of development. The emphasis was on efficiency of investment accompanied by a general move away from administrative and financial control (Jha, 1982, 1984; Kohli, 1989). Finally, in 1991 they have suggested the freeeconomy model and emphasized on ‘development by creation and distribution of wealth’. Emphasis was laid on the development of the stock market because the development of the capital market was made an integral part of restructuring strategy (Correa, 2001; Joseph, 2001; Kanagasabapathy, 2001; Reddy, 2002 and Bhole, 2005).