Economic Reforms since 1991
Economic Reforms in India since 1991: Has Gradualist Approach Worked?
By Vadapalli.Tilak Kumar,
India was a latecomer to economic reforms, embarking on the process in earnest only in 1991, in the wake of an exceptionally severe balance of payments crisis. The need for a policy shift had become evident much earlier, as many countries in east Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation and encouragement of the private sector. India took some steps in this direction in the 1980s, but it was not until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of government.
India’s economic performance in the post-reforms period has many positive features. The average growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent, as shown in Table 1, which puts India among the fastest growing developing countries in the 1990s. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the east Asian crisis. In addition, the annual average growth rate for the periods 2002-03 to 2011-12 is 7.97 percent. Poverty also declined significantly in the post-reform period, and at a faster rate than in the 1980s according to studies.
India still remained among the fastest growing developing countries in the second sub-period because other developing countries also slowed down after the east Asian crisis, but the annual growth of 5.4 percent was much below the target of 7.5 percent which the government had set for the period. Inevitably, this has led to some questioning about the effectiveness of the reforms.
Opinions on the causes of the growth deceleration vary. World economic growth was slower in the second half of the 1990s and that would have had some effect, but India’s dependence on the
By Vadapalli.Tilak Kumar,
India was a latecomer to economic reforms, embarking on the process in earnest only in 1991, in the wake of an exceptionally severe balance of payments crisis. The need for a policy shift had become evident much earlier, as many countries in east Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation and encouragement of the private sector. India took some steps in this direction in the 1980s, but it was not until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of government.
India’s economic performance in the post-reforms period has many positive features. The average growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent, as shown in Table 1, which puts India among the fastest growing developing countries in the 1990s. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the east Asian crisis. In addition, the annual average growth rate for the periods 2002-03 to 2011-12 is 7.97 percent. Poverty also declined significantly in the post-reform period, and at a faster rate than in the 1980s according to studies.
India still remained among the fastest growing developing countries in the second sub-period because other developing countries also slowed down after the east Asian crisis, but the annual growth of 5.4 percent was much below the target of 7.5 percent which the government had set for the period. Inevitably, this has led to some questioning about the effectiveness of the reforms.
Opinions on the causes of the growth deceleration vary. World economic growth was slower in the second half of the 1990s and that would have had some effect, but India’s dependence on the
References: Ahluwalia, Isher J., “Industrial Growth in India: Stagnation since the mid-sixties,” Oxford University Press, New Delhi, 1995. Ahluwalia, Montek S., “India’s Economic Reforms: An Appraisal,” in Jeffrey Sachs and Nirupam Bajpa’s (eds.), “India in the Era of Economic Reform,” Oxford University Press, New Delhi, 2000. Bhagwati, J., and Srinivasan, T.N., “Outward-Orientation on Development: Are the Revisionists Right,” in Trade, Development and Political Economy, by Deepak Lal and Richard Snape eds. Palgrave, 2001. Chaudhuri, Sudip, “Economic Reforms and Industrial Structure in India,” Economic and Political Weekly, January 12, 2002.