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25yearsofreforms:Wherewearenow
AquarterofacenturyafterIndiaembarkedonajourneytounshackleitseconomy,thereisvisiblechange
NewDelhi:ManmohanSingh,thethenministeroffinance,endedhis
budgetspeechof19911992withaquotefromFrenchnovelist
VictorHugo:Nopoweronearthcanstopanideawhosetimehas
come.Hethenwentontoconcludewiththedeclaration:Letthe
wholeworldhearitloudandclear.Indiaisnowwideawake.We
shallprevail.Weshallovercome.

Itisevidentthattheeconomicgrowthratesaretransformed
notonlywasIndiasgrowthinthisquartercentury
substantiallyhigherthaninthepast,itwasalsolessvolatile
thaninthehighgrowthperiodofthe1980s,whenitwas
hoveringatanaverageofaround6%.Photo:PTI

Stirringwords,indeed.Apttoo,becausethisspeechsetthestagefor
thecleanestdeclaredbreakfromthepastthatIndiahasseenonthe
economicfrontbothinyearspriorandsince.Importantly,whilethe
1991reformswereonascalenotseenbefore,theywereinmany
waysacontinuationoftheliberalizationbystealthreformsinitiated
inthe1980s.Piecemealandlimitedastheywere,these1980s
reformswereneithermarginalnorinconsequential,asnotedby
economistArvindPanagariya.
Itsdifficulttodojusticeinproseindescribingtheprotectionist
regime,orlicenceraj,thatexistedinIndiaforfourdecadesuntil
1991.Nodoubtthatregimewasdesignedpartlybyawellfounded
(atthattime)beliefinthebenefitsofaplannedeconomyandpartly
bythestillfreshcolonializationexperiencethatreinforcedthemerits
ofselfreliance.

Althoughthispolicyresultedinanumberofimportantinstitutionsandincreaseddomesticcapacityandcapabilities,itsfailurewasreflected
inthemuchmalignedHindurateofgrowth(annualpercapitaincomegrowthof<1.5%).
Additionally,licencerajhadtheunintendedconsequenceofgivingbirthtoavastandunendingbureaucracy,significantpublicexpenditure
andthedevelopmentofafewlargecorporationsthatwoulddominatetheprivatesector.Ironically,aforeignexchangecrisisinthe1950s
helpedintensifythelicenceraj,andasimilarcrisisbroughtanendtothepolicyin1991.
Theexternalshockof1991setthestageforafundamentalmindsetshift.Forexample,thegovernmentnolongerselectivelyremoved
restrictionsandrules,thoughtheywereonlyselectivelyapplied.Thegovernmentalsodidawaywithlicenceraj,endedmanypublic
monopolies,andopenedseveralsectorstoautomaticapprovalofforeigndirectinvestment.Itwasanundeniableparadigmshift,andone
thatchangedIndiadramatically.
Singhidentifiedthebroadgoalsofthistransformation:toincreasetheproductivityofinvestmentofIndianindustries,toimprovethe
performanceofthepublicsectorinordertogainacompetitiveedgeinafastchangingglobaleconomy,andtoachievegreatersocialequity.
Twentyfiveyearshence,itisevidentthattheeconomicgrowthratesaretransformednotonlywasIndiasgrowthinthisquartercentury
substantiallyhigherthaninthepast,itwasalsolessvolatilethaninthehighgrowthperiodofthe1980s,whenitwashoveringatanaverage
ofaround6%.
Asaresult,Indiahastakenitsplaceontheglobaleconomicstagebothasakeymarketformostmultinationalcorporationsandasaglobal
providerofservices.
Thereformsspurredanewageofentrepreneurship,makingIndiathefourthlargestcountryandoneofthefastestgrowingcomputerand
digitalstartuphubsintheworld.
Clearly,notallofSinghsgoalshavebeenmet:Incomeinequalityhasgrown,andtheratiobetweenthetopandthebottomwageearners
hasdoubledin20years.Conglomeratescreatedduringthelicenserajstilldominatemanysectors.IndiaisNo.130intheglobalEaseof
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8/14/2016

25yearsofreforms:WherewearenowPrintViewLivemint

DoingBusinessrankings.AndindustrialIndiaisplaguedbyalackofskilled,educatedworkers.
Additionally,somesectorssuchasbroadcasting,telecom,retail,andinformationtechnologyhaveleapfroggedintheirdevelopment
cycle,whileotherssuchasagriculture,roadways,manufacturingandelectricityhaveyettochangemuch.
Structurallytoo,despiteconsensusatthecentrallevelwhichhastranscendedgovernmentsledbydifferentpartiesandcoalitionsreforms
havebeendeployedinfitsandstartsandnotasacontinuousprocess.Andthereformmindsethastakenholdinstatestodifferentdegrees,
asevidencedbyvariableprogressonstatelevelfiscalandsocialindicators(educationandhealth).
Theprocessofreformhasbeenfarfromsmoothinfact,ithasbeenquiterocky.Therehavebeenmanycriticsandnotjustofthepaceor
processbutalsoofthepathitself.
Undoubtedly,thesechangeshavecomewithcoststhatincludeecologicaldegradation,strainsinsocialfabric,individualdistortions
emanatingfromconspicuousdisparities,andothers.
Manycriticisms,exaggeratedorotherwise,arebasedonsubstantiveissues.Giventhepathofeconomicsandpolitygloballyoverthis
period,though,thecounterfactualisdifficulttoenvision,muchlessargueordefend.
Aswelookforwardtothenext25years,realizingIndiasfullpotentialwilltaskallofuswithsimultaneouslymakingprogressonfurther
economicreformsandaddressingthecritiques.Inessence,thereformsinitiatedin1991havetransformedmuchofthecountry.Whileany
shortnoteonthispastquartercenturycanonlycomeupwithamixedverdict,theviewaheadisbestsummedupbyafewlinesofRussian
writerVictorSergespoem:Theardentvoyagecontinues,thecourseissetonhope.
NikhilPrasadOjhaisapartnerwithBain&Co.andthecoeditoroftheMintBainserieson25YearsofReforms.SriRajanistheChairman
ofBain&Co.India.

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