What economic reforms did India bring about after 1990?
Answers
conomic liberalisation in India
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The economic liberalisation in India refers to the economic liberalisation, initiated in 1991, of the country's economic policies, with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment. Specific changes include a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment. Liberalisation has been credited by its proponents for the high economic growth recorded by the country in the 1990s and 2000s. Its opponents have blamed it for increased poverty, inequality and economic degradation. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet solved a variety of politically difficult issues, such as liberalising labour laws and reducing agricultural subsidies.[1] There exists a lively debate in India as to what made the economic reforms sustainable.[2]
Indian government coalitions have been advised to continue liberalisation. Before 2015 India grew at slower pace than China which has been liberalising its economy since 1978.[3] But in year 2015 India outpaced China in terms of GDP growth rate.[4] The McKinsey Quarterly states that removing main obstacles "would free India's economy to grow as fast as China's, at 10% a year".[5]
There has been significant debate, however, around liberalisation as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth.[6] As India's gross domestic product (GDP) growth rate became lowest in 2012–13 over a decade, growing merely at 5.1%,[7] more criticism of India's economic reforms surfaced, as it apparently failed to address employment growth, nutritional values in terms of food intake in calories, and also exports growth – and thereby leading to a worsening level of current account deficit compan 1967. Thereafter, a stronger version of socialism was adopted. The second major attempt was in 1985 by prime minister Rajiv Gandhi. The process came to a halt in 1987, though a 1967 style reversal did not take place.[13]
In the 80s, the government led by Rajiv Gandhi started light reforms. The government slightly reduced Licence Raj and also promoted the growth of the telecommunications and software industries.[14]
The Chandra Shekhar Singh government (1990–1991) took several significant steps towards the much needed reforms and laid its foundation.[15]
Prevailing situation during 1980s
The low annual growth rate of the economy of India before 1980, which stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%.[16] At the same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and Taiwan by 12%.[17]
Only four or five licences would be given for steel, electrical power and communications. Licence owners built up huge powerful empires.[12]
A huge private sector emerged. State-owned enterprises made large losses.[12]
Income Tax Department and Customs Department became inefficient in checking tax evasion.[citation needed]
Infrastructure investment was poor because of the public sector monopoly.[12]
Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country"[18] and corruption flourished under this system.[19]
The fruits of liberalisation reached their peak in 2006, when India recorded its highest GDP growth rate of 9.6%.[20] With this, India became the second fae minister Manmohan Singh, initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj, reduced tariffs and interest rates and ended many public monopolies, allowing automatic approva