Indian Economy: A journey of last 65 years
Reforms in India (Post 91 reforms)
Though economic liberalization in India can be traced back to the late 1970s, economic reforms began in earnest only in July 1991.
The collapse of the Soviet Union, which was India`s major trading partner, and the Gulf War, which caused a spike in oil prices, resulted in a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans.India asked for a USD1.8 billion bailout loan from the International Monetary Fund (IMF), which in return demanded reforms.
In response, Prime Minister Narasimha Rao, along with his finance 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 approval of foreign direct investment in many sectors.
Since then, the overall thrust of liberalisation has remained the same, although no government has tried to take on powerful lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws and reducing agricultural subsidies.
By the turn of the 20th century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy and increased financial liberalisation.
This has been accompanied by increases in life expectancy, literacy rates and food security, although urban residents have benefited more than agricultural residents.
But, perhaps, the greatest change in the last 20 years has been in the attitude toward reforms. Whereas the vocal supporters of reforms within India were rare during the 1980s, virtually every political party today recognizes the need for continued reforms.
Differences on which reforms to undertake first and at what pace still exist, but few disagree that reforms must continue. Initial fears that changes in governments will bring the reform process to a halt or even reverse it have proven to be without foundation.
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