ECONOMIC REFORMS IN

INDIA
BY
Shubham Goel

Period 1947- 1990

The historical discontinuity after

independence

The Plan strategy

A nation building exercise

The experiment with socialism

WHY ECONOMIC REFORMS

A rate of growth of average 3.2

per cent
High population growth denies a
significant dent on poverty
A huge public sector with
minimum returns
A protective private sector

WHO DID IT?

These reforms (1990s) were brought
in by a team led by Dr.Manmohan
Singh, who was Finance Minister at
the time, and is currently the Prime
Minister.

Philosophy of Reforms

To free the economy from the

circumspection of socialist equity in the
form of pervasive state control on
production, low productivity, a distorted
and dis-functional price system and a
complacent over-protective private
sector.

To establish the supremacy of individual

and the role of economic freedom

Perspective: year 1990-91

International reserve came down to $ 1.3

billion, less than 1 month import bill, and
India was on the verge of default in
foreign obligations [ short term debt]

Stagnant exports
Indias ratings down
High deficits in domestic budget
Public sector banks having large NPA
PSU incurring huge losses

International Scene

USSRs disintegration the currency trouble

weakened

Overall confusion on the efficacy of command

economy

Some east European countries came out of

socialist economic structure

Loss of credibility of the command economy as

disturbing revelation came out on lower
productivity and disinformation about planning

Role of IMF

The Washington consensus about

the transition economies

Dismantle command economy

structure
Reduce the size of government
Privatization of state undertakings
Reduce and remove budget deficit
Make currency stable and current
account convertible

Mechanism

Dismantling of the license and

permit raj so that the rent-seeking
system is abolished
Minimize the role of the state in
production except in some core and
strategic areas
Reform of the legal system to end
monopoly of any group/ sector
Financial sector reforms

Financial Sector Reforms

Reforms--- change in the budgetary

process makes the government
accountable--- discipline in revenueexpenditure process

Low inflation- low interest regime

Changes in the banking sector making the system of

bank credit more transparent_ efficient appraisal
system and accountability for decision taking

Results of F.S. reforms

Role of capital is appreciated and effort

are on to make capital cheaper at par
world standard

More transparent estimate of the need for investment in

the infrastructure sector--- how to mobilize the resources
One estimate puts the requirement as $50 billion
equivalent---role of foreign direct investment as
perceived by the government. Whether FDI is good for
the country is no longer the issue

India Growth rates in 1990s

ECONOMIC GROWTH
OF INDIA
8

2002

2000

1998

1996

1994

1992

1990

PERCENT REAL GDP

Growth Rates (% p.a)

1980s v/s 1990s
1980s

1990s

Higher Growth
in
1980s
1990s

(1983-1994)

(1993-2000)

GDP Per Capita

2.9

4.9

Real Income Per Capita

3.1

4.2

Private Consumption p.c.

1.7

3.6

Private Consumption p.c.

1.2

1.3

All India

2.6

4.4

Rural

2.7

4.1

Agricultural Households

2.8

3.1

Agricultural Workers

2.4

3.1

2.2

4.9

Real Wages per worker

Urban

India__ international liquidity

45

INTERNATIONAL RESERVES AND

FOREIGN DEBT OF INDIA

40
35

INTERNATIONAL
RESERVES

30
25
20
15

DEBT SECURITIES
ISSUED ABROAD

10

SHORT-TERM
COMPONENT

1993-Q3

1994-Q3

1995-Q3

1996-Q3

1997-Q3

1998-Q3

1999-Q3

Source: Joint BIS-IMF-OECD-World Bank Statistics

2000-Q3

2001-Q3

The biggest drop in

inflation
9.1

9.5

7.4

1970s

1980s

1990s

% decrease in inflation

2000-4

The fastest rise in

incomes.

70

36
20

1950s

13
1960s

7
1970s

1980s

% rise in per capita income

1990s

Real GDP growth rates of selected

countries during 1990--- 2000 [ per cent]

China 10.3
Ireland
7.3
India 6.0
USA 3.5
Japan 1.3
Russia
-4.8
Ukraine
-9.3

NEW GENERATION ECONOMIC

REFORMS
TELECOM
Telecom sector opened up to the private sector
and for foreign investors with 74% equity cap

As many as 61 million new phones have been

added since 1998-99 which is more than thrice
the number of lines added in the preceding five
decades
INSURANCE
Insurance sector was opened up in August 2000.
Insurance Regulatory and Development Authority
(IRDA) regulates the insurance business.

India in 2050

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-

..with the highest growth rate of BRICs

8
5-Year Period Average Percent Per
Annum

US 2003 $ billions

India will be the 3rd largest

economy.

7
6
Brazil

China

India

Russia

2
1
0
2005-10 2015-20 2025-30 2035-40 2045-50

Reform: Progress &

Prospects
Prospects
Infrastructure
External Economy
shine
Privatization
disinvestment
Labour Reforms
Bureaucracy

Progress so far
4/10
7/10

Progress to be slow
Will continue to

4/10

Selective

3/10
3/10

Unlikely under UPA

No significant changes

Current position of
Reforms

The reforms process has been slowed down__

Reasons

Inability to carry out reforms in some crucial

sectors like legal infrastructure and
education
Resistance by interested groups
Lack of political will
Role of powerful bureaucracy as they feel
threatened with diminutive public sector
A section of
corporate sector beneficiary
of old system

Reforms slowed down?

Low literacy message of reforms

not reaching
Lack of genuine administrative
reforms at the grass-root levels
Transparency in public policy
lacking that creates credibility gap
a breeding ground of violence

Need of the hour

Reforms of the infrastructure sector

Education_ universities
Legal system
A proper perspective of market
mechanism
Redefine the role of Government

Conclusion

We are in the middle of the process

of reforms.

Only expectations about the better

future

End of discussion