2nd Generation Reforms
Economic Reforms in India since 1991
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.
In 1980s growth was unsustainable, fuelled by a buildup of external debt which culminated in the crisis of 1991. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the East Asian crisis. Poverty also declined significantly in the post-reform period, and at a faster rate than in the 1980s according to some studies.
In the following paper, five major areas are covered by the reform program: fiscal deficit reduction, industrial and trade policy, agricultural policy, infrastructure development and social sector development.
Savings, Investment and Fiscal Discipline
Fiscal profligacy was seen to have caused the balance of payments crisis in 1991 and a reduction in the fiscal deficit was therefore an urgent priority at the start of the reforms. The combined fiscal deficit of the central and state governments was successfully reduced from 9.4 percent of GDP in 1990-91 to 7 percent in both 1991-92 and 1992-93 and the balance of payments crisis was over by 1993.
The fiscal failures of both the central and the state governments have squeezed the capacity of both the center and the states to undertake essential public investment. High levels of government borrowing have also crowded out private
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.
In 1980s growth was unsustainable, fuelled by a buildup of external debt which culminated in the crisis of 1991. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the East Asian crisis. Poverty also declined significantly in the post-reform period, and at a faster rate than in the 1980s according to some studies.
In the following paper, five major areas are covered by the reform program: fiscal deficit reduction, industrial and trade policy, agricultural policy, infrastructure development and social sector development.
Savings, Investment and Fiscal Discipline
Fiscal profligacy was seen to have caused the balance of payments crisis in 1991 and a reduction in the fiscal deficit was therefore an urgent priority at the start of the reforms. The combined fiscal deficit of the central and state governments was successfully reduced from 9.4 percent of GDP in 1990-91 to 7 percent in both 1991-92 and 1992-93 and the balance of payments crisis was over by 1993.
The fiscal failures of both the central and the state governments have squeezed the capacity of both the center and the states to undertake essential public investment. High levels of government borrowing have also crowded out private
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. Davis, Jeffrey, Rolando Ossowski, Thomas Richardson, and Steven Barnett, “Fiscal and Macroeconomic Impact of Privatization,” IMF Occasional Paper 194, (2000). Expert Group on Indian Railways, “The Indian Railways Report – 2001 Policy Imperatives for Reinvention and Growth,” NCAER/IDFC (2001). Nambiar, R.G., B.L. Mumgekar, and G.A. Tadas, “Is Import Liberalization Hurting Domestic Industry and Employment?” Economic and Political Weekly, February 13, 1999.