...Economic Reforms in India since 1991: Has Gradualism Worked? by Montek S. Ahluwalia* 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. This growth record is only slightly better than the annual average of 5.7 percent in the 1980s, but it can be argued that the 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...
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...Economic Reforms in Asia: The Indian Case Study The Asian economy has seen a rapid rise over the past decade with countries such as China, India and South Korea making major headways. China, being the leader of the group, has been largely tipped by many economists to overtake the US as the world’s superpower by 2025. Asian GDP Performance (1997-2005) Source: http://www.treasury.gov.au The success of these nations came on the back of major economic reforms which transformed these sleeping giants into what it is today. China went through a major economic reform in 1979 and soon thereafter success followed. India, followed the same path, but much later than China, and it was not until the turn on the 1990s that India went on the path of economic liberalisation. This paper will focus on the economic reforms that took place in India and its impact on the country in terms of trade and macroeconomics growth and the birth of new economy. A section of this paper will also be comparing the growth of India in comparison to its Chinese counterparts as well as discuss reasoning behind critics who believe liberalisation was not the main contributor to the growth India is achieving today. Pre-Reform Period Post independence, India saw the need to move from an agrarian economy to an industrial one and as such building its competency in crucial sectors of the economy was important. The role of government therefore included economic management...
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...thousands of years. Globalization is the term ascribed to the interaction of economics and societies all over the world. Globalization involves technological, economic, political and cultural exchanges made possible largely by advances in communication, transportation and infrastructure[1]. Globalization bring people are the world more choices and opportunities and can have a significant impact in developing countries such as India. India has made a substantial amount of progress in the last two decades in terms of its economic development. Development is a qualitative measure of progress in an economy and closely linked with globalization. It refers to development and adoption of new technologies, transition from agriculture-based to industry-based economy and general improvement in living standards[2]. Although in some cases, globalization has not held true to benefit in India’s development, it has undoubtedly improved overall economic growth and living standards since 1990. This paper will explore the following question: how has social and economic development in India been affected by the implementation of the structural adjustment program (SAP) and its policies over the past twenty years? It will examine the effects of the SAP; more specifically how its policies have benefited social and economic development. Through the exploration of foreign direct investment (FDI), I will examine how direct investment in India by other nations has allowed for growth in trade and industry and greater...
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...Income Trend since 1951 Rate of Change of National Income 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Rate of Change of National Income 1951-1965: Post independence the country was wrought with economic stagnation and extreme poverty, as a result this phase witnessed rapid industrialization. While the agricultural sector contributed more than 50% to the GDP, the consumer goods industry were completely neglected. As a result the growth rate kept fluctuating during this period. 1966-80: During this period, India’s economic growth can be characterized by one word – “volatile”. The 1971 war with Pakistan, successive changes In Government in the late 1970’s and the huge drought in 1979 which affected nearly 200 million people in the agricultural sector, had a major impact on the national income. 1981-1991: In the 1980s, the businesses were able to drive efficiency and react to supply and demand incentives, the economy took off. The plan laid stress on improving the productivity level of industries by upgrading of technology. So, the national income always increased as depicted by the graph shown. Progress toward that goal was slow but steady. In the late 1980s, however, India relied on foreign borrowing to finance development plans to a greater extent than before. Trend since 1991: Economic liberalization of India began in 1991. The economic abolished license raj, reduced tariffs, removed entry-exit barriers and ended various trade barriers. The period from 1991 saw the Indian...
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...1991 Indian economic crisis By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had been reduced to such a point that India could barely finance three weeks’ worth of imports which lead the Indian government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts Recovery With India’s foreign exchange reserves at $1.2 billion in January 1991[2][3][4] and depleted by half by June,[4] barely enough to last for roughly 3 weeks of essential imports,[3][5] India was only weeks way from defaulting on its external balance of payment obligations.[3][4] Government of India's immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[9][2][10] National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan. Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed.[1] A chartered plane ferried the precious...
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...Journal of Economic Perspectives—Volume 16, Number 3—Summer 2002—Pages 67– 88 Economic Reforms in India Since 1991: Has Gradualism Worked? Montek S. Ahluwalia I ndia 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 that 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 postreform period has many positive features. The average growth rate in the ten-year period from 1992–1993 to 2001–2002 was around 6.0 percent, as shown in Table 1, which puts India among the fastest growing developing countries in the 1990s. This growth record is only slightly better than the annual average of 5.7 percent in the 1980s, but it can be argued that the 1980s growth was unsustainable, fuelled by a buildup of external debt that culminated in the crisis of 1991. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the east Asian crisis...
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...INTRODUCTION After the independence, the policymakers in India have tried to liberalise the economy. Out of all those attempts, two are considered to be the major, one of which took place in 1980s during the post emergency rule of Indira Gandhi (1980-1984), Rajeev Gandhi’s regime (1984-1989) and the other one started in 1991 during the congress government in the centre. Although the government has the more favourable condition during the earlier attempts (especially in Rajiv Gandhi regime, he came to the power with a clear cut majority, he had the sympathy from the large population of India after the assassination of his mother) but the extent to which the policies of liberalization was pursued after 1991 was incomparable to that of previous regimes. Even the World Bank in 1996 remarked that “the India has changed its developmental strategy fundamentally. Government initiatives since 1991 to restructure the basis of Indian economy have ended the four decades of planning and have initiated a quiet economic revolution”. Since the liberalization is a continuous process, the policy landscape continues to grow. New approaches on the policy on trade, foreign exchange, banking, industry, foreign investment and many others are the part of the evolving policies. Even the change of the government in power e.g. in 1996, 1998 and most...
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...IMPACTS OF GLOBALIZATION ON INDIAN ECONOMY INTRODUCTION TO GLOBALIZATION: Globalization has many meanings depending on the context and on the person who is talking about. It refers to the increasing global relationships of culture, people and economic activity. Guy Brainbant: says that the process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC’s, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution. The term globalization refers to the integration of economies of the world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge. Ideally, it also contains free inter-country movement of labour. The United Nations Economic and Social Commission for Western Asia defines globalization as: "a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour... although considerable barriers remain to the flow of labour... Globalization is not a new phenomenon. It began towards the end of the nineteenth century, but it slowed down during the period from the start of the first World War until the third quarter of the twentieth...
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...INDIA TRYING TO LIBERALISE: INTRODUCTION The foundation of credible national security is based on the level of economic prosperity and well-being of the population of any country. This is especially so for developing countries like India. The attainment of sustained high economic growth is a necessary condition for improving the national security and the quality of life of the people throughout the country Many developing countries in the Asia-Pacific region, including China and India where nearly one third of the world’s population live, are currently going through economic transitions. India launched its market-oriented economic reforms in 1991. China launched similar reforms from 1978 and is now well ahead of India in integrating its national economy with the global economy. However, India is slowly but surely catching up in this race. The contrast in the experiences of these two countries with economic reforms under radically different political systems is remarkable. In India, post-1991 economic reforms have been evolutionary and incremental in nature. There have been delays and reverses in some areas due to the interplay of democratic politics, coalition governments, and pressure groups with vested interests. However, each of the five successive governments that have held office in India since 1991 have carried on these economic reforms, which have been based on market liberalization and a larger role for private enterprise. REFORMS IN INDIA...
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...Globalization in India Overall Rating: [2/5]Total Votes [ 13 ] | Rate this page:12345 | | The economy of India had undergone significant policy shifts in the beginning of the 1990s. This new model of economic reforms is commonly known as the LPG or Liberalization, Privatization and Globalization model. The primary objective of this model was to make the economy of the seventh largest country in the world the fastest developing economy in the globe with capabilities that help it match up with the biggest economies of the world. The chain of reforms that took place with regards to business, manufacturing, and financial industries targeted at lifting the economy of the country to a more proficient level. These economic reforms had influenced the overall economic growth of the country in a significant manner. Liberalization Liberalization refers to the slackening of government regulations. The economic liberalization in India denotes the continuing financial reforms which began since July 24, 1991. Privatization and Globalization Privatization refers to the participation of private entities in businesses and services and transfer of ownership from the public sector (or government) to the private sector as well. Globalization stands for the consolidation of the various economies of the world. ------------------------------------------------- LPG and the Economic Reform Policy of India Following its freedom on August 15, 1947, the Republic of India stuck to...
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... Introduction Before diving into the specific details of the topic, let’s first understand what Liberalization, Privatization and Globalization (LPG) mean and the reasons for them to being implemented. Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities; the doctrine is associated with classical liberalism. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody. Thus, liberalization in short refers to "the removal of controls", to encourage economic development. Most first world countries, in order to remain globally competitive, have pursued the path of economic liberalization: partial or full privatization of government institutions and assets, greater labor-market flexibility, lower tax rates for businesses, less restriction on both domestic and foreign capital, open markets, etc. In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. The fastest growing developing economies today; Brazil, China and India,...
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...to the Hindu Rate of Reform Though economic liberalisation in India can be tracked back to the late 1970s, economic reforms began in earnest only in July 1991. Due to the existence of Licensing Raj, the Hindu rate of growth existed prior to 1991. India was a very slowing- growing economy at an average rate of 2.4 percent per year. India’s economy was much below not just East Asia and China but also Latin America and even Sub-Saharan Africa. Those were the times when Life expectancy was one of the world’s lowest, only a small proportion of the adult population was literate The Licensing Raj brought with it many restrictions on the setting up and running of businesses in India. The Planning commission centrally administered the economy of the country. There was intervention by the state in most of the matters including influence over resource allocation, what the private firms will invest in and how much they can invest, how the goods capacity was to be utilised, the price of the product at which it would be sold. The licensing to running businesses was given to a select few under the LICENSE RAJ. Firms in the formal economy became ever more dependent on government approvals for the most basic business decisions. In agriculture, private investment in storage was controlled indirectly by ceilings on the amount and in some states the period for which commodities can be stored. The central pillar of the policy was import substitution, the belief that India needed to rely on internal...
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...The Agrarian Crisis in India: The Root Causes The declining contribution of the agriculture sector towards India’s GDP is questioning the status of this sector as the backbone of the economy. With time agriculture is turning into an economically unviable activity with almost no profitability pushing the sector in a state of crisis. The following report analyses how the agrarian crisis can largely be attributed to the economic reforms in India since 1991. Lack of Easy Credit to Agriculture and Dependence on Money Lenders In 1969, 14 major commercial banks were nationalized with one of the objectives of developing banking sector in rural areas and providing easy institutionalized credit to the farmer. Soon these banks became the major source of affordable credit in the rural market particularly for the small and marginal farmers. However in the era of neo liberalization, since 1991, the nationalized banks started reducing their commitment below the prescribed 18 per cent, while the cooperative banks turned sick and failed to provide credit. With the implementation of the recommendations of the Narasimham Committee on Banking Reform post 1991, some of which included the decontrol of interest rates, large scale closure of rural branches for rationalized branch networks, the national effort towards developmental and social banking for farmers came to an end. This squeezed credit lines to farmers and led to a drastic fall in the credit flow to agriculture. In Andhra...
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...Economic Reforms in India since 1991: Has Gradualism Worked? by Montek S. Ahluwalia* 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. This growth record is only slightly better than the annual average of 5.7 percent in the 1980s, but it can be argued that the 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...
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...India suffered a financial collapse in 1992, but had been growing at almost 6% annually by 2002 making it one of the fastest growing economies of the world. India removed almost all its import and capacity licensing restrictions and adopted the Washington Consensus. Financial controls were enforced by the International Monetary Fund (IMF), thus making major economic reforms in India that would grant them loans in order to move it along toward a more market-oriented economy. The focus of these reforms was to reduce the governments’ bureaucracy and stabilize the country’s macroeconomic balance. Competition barriers became less burdensome, inflation was lowered, and the current account was balanced. Even though these issues illustrate a road to improvement, huge fiscal deficits still existed and interruptions and corruption in Pakistan continued. Foreign investment became slow to enter India due to the continued restrictions on foreign ownership, the slow progress of privatization, and India’s substandard infrastructure. To achieve growth in India, significant reforms needed to be passed. Success in India’s growth performance plan for economic and social growth into reality would be the country’s’ biggest obstacle. 1. Why did India experience relatively slow economic growth from independence until 1991? India’s population had reached 1.05 billion by 2002 and was growing at 1.5%, more than the country could support at the time. Domestic issues existed between numerous...
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