Twenty Five Years of Economic Reforms in India

After centuries of subjugation, India was a typically backward economy at the time of Independence in 1947. It exhibited the following features: (a) traditional and stagnant agriculture, (b) poor technological and scientific capabilities, (c) limited and lop-sided industrialisation, (d) underdeveloped means of transport and communications, (e) grossly inadequate health and educational facilities, and (f) virtually non-existent social security arrangements. In short, the country suffered from the twin problems of rampant poverty and widespread unemployment, both making for low general standard of living. During the formative years after Independence, the development pattern of India was characterised by strong centralised planning, government ownership of basic and key industries, excessive regulation and control of private enterprise, trade protectionism through tariff and non-tariff barriers and a cautious and selective approach towards foreign capital. It was quota, permit and license regime guided and controlled by a bureaucracy trained in colonial style. Indian economy grew at an average dismal rate of 3.5 percent per annum during the first 30 years (1950-80) of planned economic development. This so-called state-controlled inward-looking, and import substitution strategy of economic development began to be widely questioned with the beginning of 1980s. Policymakers started realising the drawbacks of this strategy which inhibited competitiveness and efficiency and produced a much lower rate of growth than expected. Consequently, economic reforms were set in motion -- though on a modest scale -- when controls on industries were reduced by the 1985 Industrial Policy. The economic reforms programme got a big boost when the Government announced a new industrial policy in the Indian Parliament on July 24, 1991. Since then, it is liberalisation, privatisation and globalisation all the way and the process is underway. In the new liberalised industrial and trade environment, the Government is progressively assuming the role of a promoter, facilitator and catalytic agent instead of a regulator and controller of economic activities. The liberalisation process which started in the early 1990s encompassed wide-ranging reform measures in the areas of industry, public finances, banking and insurance, foreign trade and exchange rate management. The purpose of these economic reforms was two-fold: (a) to restore macroeconomic stability on both domestic and external fronts, and (b) to place the economy on a higher growth path through enhanced levels of investment, and improvements in productivity, efficiency and competitiveness. After the reforms, the Indian economy has been growing faster than its historical growth rate. Tenth Five Year Plan (2002-07) recorded an annual growth rate of 7.2 percent and the Eleventh Five Year Plan (2007-12) achieved a 7.9 percent growth rate per annum. It is now widely agreed that the Indian economy is capable of achieving high growth rates in response to the implementation of appropriate and timely economic reforms. India is now Asias third largest economy and has the worlds fourth largest foreign exchange reserves. Indias gradual and cautious approach to economic reforms has proved well-founded and the country is placed on a firm footing for future forays into domestic and global economic activities. Presently, India is one of worlds fastest growing economies. Lately, it has emerged as a global economic power, a leading outsourcing destination and a favourite of international investors. The new Government at the Centre, which took charge in May 2014, under the dynamic leadership of Prime Minister Shri Narendra Modi has a vision to make India a modern and vibrant economy. Policies and programmes to rejuvenate the economy have already been announced in this regard. These have included, inter alia, Start-up India Initiative, 2016, eBiz Project, Make in India Campaign, Stand-Up India Scheme, Ease of Doing