Anusha Iyer is a Research Trainee at Outline India. She has completed her M.A. in Development Studies from Tata Institute of Social Sciences, Hyderabad and B.A. in Economics from St. Xavier’s College, Ahmedabad. She has also worked at a CSR consultancy firm for a year and holds a post-graduate diploma in Journalism. Avneet Singh is a research intern at Outline India. He is currently pursuing B.A. Economics Hons from S.G.T.B. Khalsa College, University of Delhi. The following piece emphasizes on looking at 25 years of the economics reforms through a different lens.
India crossed a major milestone recently by completing 25 years of its existence as a liberalized, privatized and globalized economy. 52% of India’s population was born after the historic year of 1991 and thus grown up in an era of Cartoon Network instead of Doordarshan and used Palmolive instead of Vicco turmeric. This is just how an average Indian consumer sees it while the story of the 1991 reforms and its implications have many more complexities.
Shankkar Aiyar, in his book Accidental India, describes how every landmark move in the history of India has been a response to a crisis that needed to be solved urgently and not a result of years of research and planning. The reforms of 1991 is a prime example of this and finds its way to the very first chapter of the aforementioned book. The inefficiency of both the public and private sectors, the balance of payments crisis, political instability and, insufficient foreign reserves to last two weeks of imports collectively pressurized the Indian economy into adopting the reforms. Thus, on July 24 1991, the Union budget presented by the then Finance minister and former Prime Minister Dr. Manmohan Singh became a turning point in the history of Indian economy. Why does everyone keep referring to it as the turning point or a landmark moment for India? From the stagnant Hindu rate of growth of 3.5% per annum, the Indian economy started growing at a phenomenal rate of 6.5% per annum after the reforms. From foreign exchange reserves that could last for only two weeks, India’s reserves have now summed up to approximately 363 billion USD. From a closed economy with fixed exchange rates, India has become a globalised economy with foreign direct investments pouring in from all the sectors reaching a total FDI amount equalling 40,001 million USD in the year 2015-16.
Post the 1991 reforms, the face of Indian economy has transformed manifold and all the numbers and data put together tell a story of growth and prosperity. But the essential question is about the perception and penetration of growth in the Indian context. Do we still understand growth in the strictest sense of GDP and foreign reserves or can we expand its scope so that we can better analyse the impact of the 1991 reforms? Although the above mentioned indicators are important; measuring progress in terms of inclusive indicators will give us a better picture of the effectiveness of the 1991 reforms.
Higher national incomes can be considered progressive only when its fruits can be shared among all the sections of the society, more or less equally. A report published in The Mint authored by Manas Chakravarthy pointed out that the top 10% of India’s population have 76.3% of India’s total wealth while the poorer half struggles for 4.1% of the nation’s wealth. When one looks at the Human Development Index, that considers indicators of health, education and standard of living cumulatively; India falls in the lower half of the spectrum at the rank of 130 among 188 countries as per the 2015 HDI report. With respect to steps initiated for environmental protection and sustainability, the country is doing no better with a 155th ranking on the Environmental Performance Index (EPI 2014). The reforms have created a wave of globalization that focuses on merging and collaborating with international companies but it overlooks the environmental threats and violations of human rights. Take for example, Vedanta Resources, a mining company headquartered in London that expressed its interest of drilling into the bauxite-rich Niyamigiri hills in Orissa. This move not only violated environmental regulations in an otherwise ecologically rich Eastern Ghats but also violated basic rights of the village dwellers nearby through water and air pollution.
A number of sectors were privatized post 1991 which proved to be successful in certain instances like banking and insurance but detrimental in some others like the coal sector leading to what is publicly known as the Coalgate scam. Instead of an efficient and transparent bidding process of coal blocks, private entities were allocated coal blocks randomly that resulted in huge losses for the ex-government’s ex-chequer and thus lesser allocation of budgets on social policies. Liberalization has led to establishment of manufacturing companies and factories and were expected to hike the employment rates in the country and thus assure better standards of living for their families. What has sadly occurred is that the country has entered into a phase of ‘jobless growth’ where new businesses are coming up without creating enough employment opportunities. This was clearly witnessed when the textile mills were shut down in Mumbai and lakhs of people were rendered jobless while the textile industry is still incurring huge profits but, with the use of machines and modern equipment. As opposed to the Lewis model of transitioning from an agricultural economy to an industrial economy, the Indian economy has skipped one level and is turning into a service economy leaving a large proportion of disguisedly unemployed population in the agricultural sector and a slow-paced industrial sector.
The new wave of reforms has definitely ushered in a phase of increasing incomes and higher growth rates but going forward, we need to assess how these reforms are going to help in putting India on the path of development. The parameters to be assessed henceforth should be improvement in the lives of individuals, better health and education outcomes, equal distribution of incomes and cleaner environments to live in that is accessible to all sections of the society across classes, castes and genders. May we celebrate the golden jubilee of 1991 reforms as a step that helped India achieve overall development with higher GDP and incomes even for the people at the bottom of the pyramid.