India Shining: 32 years of economic liberalisation and the journey into the future

"There are decades where nothing happens, and there are weeks where decades happen" —

These words from Russia's socialist icon Vladimir Lenin pretty well sum up those tumultuous weeks of July 1991. 

Enough has been written about the weeks and months preceding the reforms. But if one has to refresh memories in a few lines, here is a quick summary: Unsustainable levels of debt from the mid-1980s onward reached a tipping point during the Gulf War. This affected India’s ability to pay its import bills, putting the country on the brink of bankruptcy. 

Now, coming back to the transformative month of July 1991. It began with the back-to-back rupee devaluations on July 1 and 3, done in a bid to keep the ballooning current account deficit in check. This was followed by changes in the export-import policy and the introduction of a new industrial policy. A little-known fact: PM PV Narasimha Rao himself held the industries portfolio. 

Finance Minister Dr Manmohan Singh's Budget speech on July 24 gave the final touches to the reform process. Quoting novelist Victor Hugo's popular words, "No power on earth can stop an idea whose time has come", Dr Singh declared the impending emergence of India as a major economic power.

“India is now wide awake. We shall prevail. We shall overcome,” Dr Singh concluded as India formally began its transformational journey. 

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Thirty-two years on, not only has India prevailed and overcome the crisis, it is now the fifth-largest economy in the world. India, once a "begging bowl", is now the fastest-growing large economy in the world, with a recent UN report stating that India received the third-highest Foreign Direct Investment in 2022. 

The ‘India growth story’ is a continuing process that began in July 1991 and credit must be given to a series of governments, irrespective of their ideological variations and contradictions. Though it is also an unsaid reality that economic reforms are more or less irreversible. But to the credit of successive governments, all have added their own flavour to the reform process. 

Recently, the ‘India growth story’ got a big thumbs up from a US-based financial services firm Capital Group, which said that India is poised for a “period of secular growth”, fueled by significant expansion in direct and fixed asset investment. 

The report also highlighted that reform measures like Aadhaar, Goods and Services Tax (GST), Unified Payment Interface (UPI) and Production-linked incentive programmes have made India an attractive emerging market economy. 

The glowing tribute to the ‘India growth story’ prompted PM Narendra Modi to tweet: “India is a global bright spot with a strong desire to grow even more!"

Perhaps, the biggest advantage that India has is its young demography. "With a median age of 29 years, India in our view has one of the most attractive demographic profiles among the world’s largest economies and can reap benefits from its productive capacity," the report said.

Moreover, India’s billion plus population, once considered a resource burden, is now a boon as it translates into the world’s biggest workforce as well as consumer market. But in an increasingly tech-driven world, it won’t take for this population to turn into a liability if the right policies – upskilling is a major concern – are not put in place.

There are several other red flags too. By and large, reforms in India have been half-hearted, hasty and irregular. It also does not help India’s reform agenda that the country sees at least 3-4 Assembly elections every year. Thus, political compulsions have often compelled the Union and state governments to prioritise populism over hardcore reforms, in fear of losing popular votes. 

While a country like Singapore – the city-state is essentially authoritarian – has had one of the best bureaucratic systems in the world, India has always found itself in the bottom of the global bureaucracy list. Moreover, ‘red tapism’ has been one of the key reasons for India’s historically low rankings in ease of doing business. Notwithstanding the massive improvement in the last few years, a lot needs to be done before India truly becomes a ‘business-friendly’ hub. 

But the biggest drawback of India’s economic reforms has been the failure of trickle-down economics. The benefit of the reforms has been largely confined to the urban middle class, while the gap between the rich and the poor has widened sharply in the last three decades. 

Take these numbers for some perspective: In 1991, the top 1 per cent owned 16 per cent of India’s total wealth. In 2022, this figure reached 42.1 per cent. In the same period, the bottom 50 per cent saw its share of wealth decline from 12.3 per cent to 2.8 per cent. 

Perhaps, India needs another ‘1991’ moment, but this time to correct the mistakes of the country’s ongoing reform process. As India marches ahead on the world stage, the country needs to take everyone along. 

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)  

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