Economic reforms: slow march to glory

Font Size

Print

Feedback

Email

Discuss

: What could have been the reason for the slowdown in GDP growth to 5.4% in the latter half of the first decade of economic reforms (1991-2000)? This was how Montek Singh Ahluwalia, one of the chief architects of reforms, wondered in 2001 in a signed article. He had reasons to be concerned. For, even in the 1980s, the average annual GDP growth was higher at 5.7%. Further, Ahluwalia asked if the cumulative outcome of 10 years of “gradualist” approach to reform had created an environment that could support 8% growth (which was then the target). And now, 15 years later, we have seen two years of stellar 8%-plus growth — the economy grew 8.5% in 2003-04 and 8.4% in 2005-06.

In 2005-06, manufacturing posted robust 9% growth. In the fourth quarter of the last fiscal, the GDP grew 9.3% compared with 8.6% a year ago. Policy managers are now setting higher targets. Finance minister P Chidambaram believes, India has hit the growth path of around 8%, and is looking at 10% growth. Prime Minister Manmohan Singh is more ambitious. He thinks India is poised for double-digit growth, with manufacturing fuelling it with 12% growth.

Have reforms paid? Rather, is it now certain that the basic tenets of reforms — globalisation, liberalisation, privatisation and facilitation of market economy — represent a better economic paradigm ? Well, the answer to the question should more be in the affirmative now, after 15 years of reforms, than five years ago, when Ahluwalia discussed the question with apparent despondency.

India’s policy managers required a balance of payment (BoP) crisis to embolden themselves and weather the anticipated political storm over the dismantling of the command economy. In 1991, India had a grave fiscal deficit of 8.5% of GDP, precarious forex reserves of just $1 billion, and a current account deficit close to 3.5% of GDP.