Twenty years of liberalization: India's Balance sheet
Twenty years of liberalization: India's Balance sheet
The last two decades have seen a metamorphosis of Indian economy. From an era of license raj when everything was state controlled to unleashing of reforms which led to high growth, India’s balance sheet has drastically changed after liberalization.
What India could not achieve in the 40 years after independence has been done in less than twenty years after the then Finance Minister Manmohan Singh and Prime Minister PV Narsimha Rao took first steps of unshackling Indian economy. None could have envisaged the country would be clocking close to a double digit growth rate and would be the second fastest growing economy in the world.
Since 1991, Indian exports have steadily surged and the country has become a trillion dollar economy. Besides that, India has also managed to not only have a good crop production but has also exported several surplus foodgrains. From a situation of hardly any foreign exchange, Indian foreign exchange currently stands at over 18,000 billion. The unshackling also resulted in a sudden surge in the number of entrepreneurs.
Even though a number of policy reforms and bureaucratic hurdles hinder better growth, the country still looks to elevate its position from the tenth largest economy to being the third largest economy in 2030.
A large number of companies have made Foreign Direct Investment in the country setting up large factories and employing thousands of people. The confidence expressed by some of these firms with respect to Indian business climate have led to more companies turning to India for setting up offices as well as hiring manpower. Bihar, one of the least developed states, since a long time, has witnessed a sea change in its development during the last two decades.
But, the country has transformed itself into a service economy and an outsourcing hub creating millions of jobs for its youth.
And yet, despite so many developments, basic necessities such as the lack of power, road and water have not been provided and that the delay in reforms have often resulted in both delaying as well as cancellation of projects.
It needs to focus more on developing manufacturing more in order to create more jobs and ensure a steady growth as its neighbor China has managed to do. Two decades may have resulted in creating an economy that is growing reasonably well when the world economy is shrinking. However, it would need to maintain the momentum and introduce subtle changes in existing policies and alter some practices in order to ensure a faster growth.
Discussion
- Twenty years of liberalization: India's Balance sheet -Rishika Jalan (03/27/14)
Twenty years of liberalization: India's Balance sheet
The beginning of the economic reform and the opening up of the Indian economy in 1991 marked the start of the liberalization period in India. And now India is in its 21st year of liberalization. We cannot say that in these 20 long years nothing has changed. Saying that would be very pessimistic.
India has embarked on a definite change in direction. Undoubtedly many positive changes have taken place in the country, but it hasn’t been possible to remove the malice in the system. The planned economic development was formulated on the idea that the country would come out of poverty and there would be prosperity all over. Unfortunately, it did not work like that completely.
India is viewed as the second fastest growing economies of the world after it reached the highs of the 9% GDP growth in 2007. It is regarded as a major player at the world stage, although it hasn’t been able to eradicate corruption and inefficiency. Official laxity still prevails in the country. One of the recent hurdles on the road to reform was when the government had to roll back its allowance for FDI in multi retail brands.
The major focus of the economic reforms since 1991 has been the industrial sector. Many reforms took place in 1991 including abolishing the industrial licensing policy for all except 18 industries, reducing the number of sectors reserved for the public sector from 12 to 8, liberalizing imports and relaxing the Monopolies and Restrictive trade Practices (MRTP).
Apart from this various sectoral measures also took place. The Automobile Policy opened the gates for the auto sector to foreign manufacturers and the New Power Policy gave allowance for private participation in the power generation. In 1993 the telecom industry also became a part of the private sector and they were also allowed defense equipment manufacture.
All this led to the greater operational flexibility among the industries. Companies could freely decide their areas of investment, location of plants, volume of production and all other major decisions. Indian multinationals were setting up their manufacturing firms abroad and were also buying companies abroad. Many big corporations have entered and succeeded in India, like KFC, McDonalds, Pepsi, Apple and many more. The flip side to this is the issue of less than favorable domestic investment environment for Indian companies investing abroad.
Unfortunately permit quota raj and inspector raj still continues to thrive at the state level. Some amount of rule and regulation is mandatory on matters like safety. Abundance of discretionary power to the inspectors increases the scope for corruption and also inflates the transaction costs for business.
Liberalization is thus seen as a mixed bag of achievements and failures. The balance sheet of India of the past 20 years is both green and red. The failures have led to a lot of skepticism with liberalization and globalization and are mainly attributed to either the lack of reforms or the wrong type of reforms from which only a certain group is benefitted. Hence, with no doubt we know that liberalization is inevitable but is also desirable and has to be taken forward.
