Three Decades of Indian Economic Reforms 1991: GDP Growth Landscape

As the reform process in India completes three decades, an assessment of the Indian economy reveals a mixed scenario. Growth is primarily gauged by the Gross Domestic Product (GDP).

Evaluating Post-Indian Economic Reforms 1991: GDP Growth, Sectoral Dynamics, and Policy Impacts

• Post- Indian Economic Reforms 1991: India saw a substantial rise in GDP growth, from 5.6% during 1980-91 to 8.2% during 2007-12, mainly driven by the service sector. Refer to the table.
  • However, the agriculture sector saw a decline in growth, while the industrial sector showed fluctuations.
  • Despite a setback in growth rates across sectors during 2012-15, the service sector continued to thrive, notably with a 9.8% growth rate in 2014-15.

Growth of GDP and Major Sectors (in %)

• Foreign Investments and Reserves: The reform era ushered in a significant increase in foreign direct investment (FDI) and foreign exchange reserves, with FDI and foreign institutional investment (FII) rising from about US $100 million in 1990-91 to US $30 billion in 2017-18.
  • Foreign exchange reserves surged from about US $6 billion in 1990-91 to about US $413 billion in 2018-19, making India one of the largest foreign exchange reserve holders globally.
• Export Dynamics:  India emerged as a successful exporter of auto parts, pharmaceutical goods, engineering goods, IT software, and textiles post-1991.
• Employment and Growth: Criticism surrounds reform-led growth for not generating adequate employment opportunities, indicating a disconnect between GDP growth and employment generation.
• Agricultural Reforms and Impact: The agriculture sector hasn’t significantly benefited from the reforms.
• Declining public investment:  In infrastructure and adverse policy changes like reduction in import duties on agricultural products, impacting the farmers negatively.
• Industrial Reforms and Globalization: Industrial growth has faced a slowdown due to factors like cheaper imports and inadequate infrastructure investment.
  • Globalization has been viewed as a double-edged sword,
  • Potentially harming local industries and employment.
  • While not providing sufficient market access in developed countries.
• Disinvestment of Public Sector Enterprises (PSEs): Targets for disinvestment of PSEs were set annually.
  • With the proceeds used to offset government revenue shortages rather than reinvesting in PSEs or social infrastructure, drawing criticism regarding the undervaluation and sale of public assets.
• Fiscal Policies and Reforms:  Economic reforms have curtailed public expenditure growth, especially in social sectors.
  • Tax reductions and tariff reduction policies aimed at enlarging revenue and attracting foreign investment, haven’t significantly increased the government’s tax revenue, adversely affecting developmental and welfare expenditures, raising concerns about the overall impact  since Indian economic reforms 1991.

India and World Trade: Fairness and Challenges

• The WTO, established in 1995 as a successor to the General Agreement on Trade and Tariff (GATT, 1948). WTO aims,
  • To administer multilateral trade agreements, 
  • Providing equal trade opportunities to all member countries and 
  • Establishing a rule-based trading regime.
• Its broader objectives include
  • Expanding the production and trade of services, 
  • Ensuring optimum utilisation of world resources, and 
  • Environmental protection.
• India and WTO: 
  • India being an important member of WTO, has been proactive in framing fair global rules and advocating for the interests of the developing world. 
  • India has adhered to its commitments towards trade liberalisation as per WTO agreements by eliminating quantitative restrictions on imports and reducing tariff rates.
• However, there is a discourse questioning the benefit of India’s membership in WTO, highlighting the perceived unfairness in trade relationships, especially concerning the developed nations that dominate international trade.

Conclusion

• India’s shift from a mixed economy to embracing globalisation post-1991 has brought both opportunities and challenges. 
• Key reforms aimed at attracting foreign investment and integrating India with the global economy yielded mixed outcomes.
• While urban consumers and certain sectors like IT benefited, the agrarian sector and small producers faced hurdles. 
• The chapter underlines the need for a balanced approach to ensure ‘fair globalisation’, safeguarding the interests of the less privileged while fostering inclusive growth.