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INDIA’S ECONOMIC REFORMS: AN APPRAISAL
Montek S. Ahluwalia

India’s economic reforms began in 1991 when a newly elected Congress government, facing an exceptionally severe balance of payments crisis, embarked on a programme of short term stabilisation combined with a longer term programme of comprehensive structural reforms. Rethinking on economic policy had begun earlier in the mid-eighties by when the limitations of a development strategy based on import substitution, public sector dominance and pervasive government control over the private sector had become evident, but the policy response at the time was limited to liberalising particular aspects of the control system without changing the system itself in any fundamental way. The reforms initiated in 1991 were different precisely because they recognised the need for a system change, involving liberalisation of government controls, a larger role for the private sector and greater integration with the world economy.

The broad outline of the reforms was not very different from the reforms undertaken by many developing countries in the 1980s. Where India’s reforms differed was the much more gradualist pace at which they were implemented. The compulsions of democratic politics in a pluralist society made it necessary to evolve a sufficient consensus across disparate (and often very vocal) interests before policy changes could be implemented and this meant that the pace of reforms was often frustratingly slow. Daniel Yergin (1997) captures the mood of frustration when he wonders whether the Hindu rate of growth has been replaced by the Hindu rate of change! Yet even a gradualist process can achieve significant results over time and India’s reforms have been underway now for seven years.

This paper attempts to evaluate what has been achieved by gradualism in this seven year period which has seen three different governments in office - the Congress government which initiated the reforms in 1991, the United Front coalition which continued the process in 1996 and 1997 and finally the BJP led coalition which took office in March 1998 and has also declared its intention of strengthening the reforms. The paper distinguishes between end results in terms of the actual performance of the economy in this period and achievements in terms of policy reforms actually implemented. The distinction is important because dramatic policy changes may not always lead to comparable improvements in actual performance, as has happened in many countries. Part 1 of the paper documents achievements in terms of the performance of the economy in the post-reform period. Parts 2 and 3 attempt to evaluate the extent to which the reforms were successful in bringing about policy changes. Part 2 focusses on the achievement in reducing the fiscal deficit, which was a key macro-economic policy objective and Part 3 reviews achievements in bringing about various types of structural reforms. Part 4 presents a summary assessment of achievements thus far and of the challenges that lie ahead.

  1. Economic Performance under the Reforms
  2. Macro Economic Balance and the Fiscal Deficit
  3. Structural Reforms
  4. Conclusions

References 

  • Guhan. S, "Social Expenditure in the Union Budget, 1991-96" Economic and Political Weekly May 6-13, 1995
  • Yergin. Daniel, "The Commanding Heights" Simon and Schuster 1998
  • Ahluwalia Montek S, "Infrastructure Development in India’s Reforms" in "India’s Economic Reforms and Development Essays for Manmohan Singh" edited by Isher J. Ahluwalia at IMD Little (eds) Oxford University Press, Delhi 1998
  • Ahluwalia, Montek S, "Financing Private Infrastructure: Lessons from India" in Choices for Efficient Private Provision of Infrastructure in East Asia, Harinder S. Kohli, Ashoka Mody and Michael Walton (eds) The World Bank Washington DC 1997
  • Parikh, Kirit. "Who gets how much from PDS; How effectively does it reach the poor" Sarvekshana Vol 17, No.3, 1994.
  • Tendulkar, S. "Indian Economic Policy Reform and Poverty; An assessment" in "India's Economic Reforms and Development Essays for Manmohan Singh" edited by Isher J Ahluwalia and IMD Little (eds) OUP 1997
  • Dreze Jean and Amartya Sen." India : Economic Development and Social Opportunity" Oxford University Press, Delhi 1995.
  • The author is currently serving as Member of the Planning Commission, Government of India. The views expressed in this paper do not necessarily reflect the views of the Commission. Thanks are due to Isher Ahluwalia, Surjit Bhalla, Nirvikar Singh and T.N. Srinivasan for helpful comments on an earlier draft.

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