Although many feel that the process began on June 21, when PV Narasimha Rao took over as Prime Minister and discovered that the economy was on the verge of collapse, Manmohan Singh’s budget address on July 24, 1991, is seen as the forerunner of India’s economic reforms. While political administrations had begun to loosen the grip of India’s command and control economy since the 1980s, it was the 1991 budget that signalled a strategic and fundamental shift toward liberalisation. The Indian economy reaped significant benefits as a result of the freeing of markets, and development accelerated.
As India celebrates three decades of economic reforms, the question is no about whether the reforms were beneficial to the country’s economy. It’s about whether the best of the reform years are already behind us, and what it means for India’s still-low per capita earnings.
Reforms boosted growth significantly, but has India’s growth narrative reached its apex?
In terms of economic growth, the 1960s and 1970s were poorer than the 1950s. India’s GDP in 1961-62 was 1.5 times that of 1951-52, according to the 2004-05 GDP data. Between 1961-62 and 1971-72, and 1971-72 and 1981-82, this multiple decreased. This tendency began to reverse in the 1980s and accelerated for the next four decades. In terms of economic growth, the decade between 2001-02 and 2011-12 was the best, with India’s GDP increasing by a factor of 2.1. The decade from 2011-12 to 2021-22 (if the RBI’s prediction of 9.5 percent growth in 2021-22 holds) is the weakest in terms of GDP growth in the post-reform period, thanks to a slowdown since 2016-17 and a pandemic-driven recession in 2020-21. This begs the question of whether India’s growth storey has reached its apex. Even pre-pandemic government goals like making India a $5 trillion economy by 2024 appeared to have given up on double-digit growth objectives.
But this skewed development has left a huge economic imbalance
In any economy, growth by itself does not guarantee everyone’s happiness. Additional incomes must accrue to a large majority of the population in order for living standards to improve. In a modern economy, income distribution is a function of income and employment distribution across sectors. When a small percentage of the workforce is employed in highly productive (and well-paying) jobs while the majority of the workforce is employed in low-wage jobs, an economy can continue to grow at a high rate while the majority of the population lives in poverty. This is a good description of the Indian economy. Even though agriculture accounts for less than 15% of India’s total Gross Value Added, it employs at least 40% of the country’s workforce (GVA).
