25 years of reforms

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Bikky Khosla | 26 Jul, 2016
India's economic liberalization began in July, 1991 and it is now 25 years since our economic policy was completely overhauled. The transformation began with a crisis, however. The economy was near to bankruptcy; foreign exchange reserves were too weak to finance more than three weeks' worth of the country's imports. As part of an IMF bailout deal, tonnes of gold was transferred to Union Bank of Switzerland and Bank of England as collateral; the rupee was devalued; economic reforms were forced upon. But it was a blessing in disguise. The reforms, besides helping the country to come out of the BoP crisis, set a new platform for future generations of reforms.

The Indian economy became eight times bigger in 2015 than it was in 1991, with GDP at market prices growing from $274.8 billion to $2073.5 billion. Our exports of goods and services grew nearly 20 times, with the sector's contribution to GDP growing from 8.3 percent in 1991 to 22.9 percent in 2014. Annual GDP growth was 1.1 percent in 1991 while today it stands at 7.6 percent. Per capita income grew over 13 times from what it was in 1991. These data sets clearly show how the economy has transformed itself in the last 25 years. The first generation of reforms was later followed by the second, third and fourth generations of reforms, which played a key role in lifting the economy to today's position.

Economic reforms hit a bump, however, once the UPA came to power in 2004. It was due to the nature of the coalition government, with the Left front supporting it from outside. The situation changed little when the UPA came to power again in 2009 and coalition politics continued to hold economic reforms on several fronts, including LPG pricing, GST and DTC, FDI in retail, etc. In addition, as pointed out by the Economic Survey 2011-12, several high-profile corruption scandals during the period led to a sense of caution among civil servants and this further fueled policy stagnation.

The scenario fortunately changed with the coming of the Modi government to power. Several steps have been taken since then, including steps to improve the ease of doing business, revamp the tax administration, curtail inspector raj, opening up of several sectors for FDI, legislation to auction coal and other natural resources, the Insolvency and Bankruptcy Act, 2015, fiscal consolidation, cooperative federalism, social sector initiatives, repeal of more than 1,000 redundant laws, and so on. It is true that we still have a long a way to go, but what has been achieved until now is certainly encouraging.

I invite your opinions.