1991 Liberalisation : Analysis – UPSC GS3

India Before Liberalization:
  • The important sectors of the economy were reserved for the public sector, and the private sector could not invest in them even if it wanted.
  • In all other sectors, private companies could make new investments, but only if they got industrial licenses from the government.
  • However, these were given on a very non-transparent basis and were especially difficult for large companies, lest it increases economic dominance.
  • Imports of consumer goods were completely banned, effectively insulating producers from foreign competition.
  • Imports of capital and intermediate goods needed for production were allowed, but only with import licenses.
Criticism leveled against Economic Liberalisation
  • Some developing countries that retained significant state control (like China) did much better.
  • India’s HDI rank slipped from rank 114 to 131.
  • The Multidimensional Poverty Index (MPI) shows 28% of India’s population in multidimensional poverty, with another 20% vulnerable to it.
  • Stated goals of the 1991 reforms were higher rates of income growth with more employment generation and diversification into higher value-added activities.
    • Of these, only higher-income growth was achieved at the expense of massive environmental destruction and without enabling structural change.
    • Industrialization did not take off beyond what was already achieved before 1991.
  • Most workers remain stuck in low-paying informal work.
  • Women’s employment participation declined significantly.
  • Declining per capita calorie consumption.
  • Extreme crony capitalism: Big business demanded ever more incentives and next-generation ‘reforms’,
    • Only large corporations or extremely rich people were benefiting from subsidies and access to ‘cheap’ natural resources.
  • Growing disparities: The non-agricultural part of the economy for the 30-year period ended 31 March 2020 grew by 7.1% per year.
    • Employment in agriculture as of 2019 still formed 42.6% of overall employment, against 63.3% in 1991.
Why the criticisms are unfounded?
  • Economic growth:
    • The major objective of the reforms was to lift the economy’s growth rate, and this was achieved.
    • In the period of four decades up to the fiscal year 1990-91, the Indian economy grew by an average of 4.1% annually.
    • However, In the last 23 years, India’s economic growth averaged about 7%.
  • Inclusive Development
    • Growth was not the only objective. As growth accelerated, the government  adopted a strategy of ‘inclusive growth’, to ensure that the benefits of growth also reached the poor.
    • The strategy included accelerating growth in agriculture and supporting incomes of rural wage earners through rural employment guarantee programmes.
    • The result was that agricultural growth did accelerate, and there was also greater poverty reduction.
    • Between 2004 and 2011, the last year for which data is available, about 140 million people were pulled above the poverty line.
  • Conditions for most Indians have improved.
    • Per capita income went up more rapidly than before.
    • India’s overall Human Development Index (HDI) score improved from 0.433 in 1991 to 0.645 in 2019.
  • Wider choices for consumers and greater economic activity.
    • In the 1990s, one could withdraw money from a bank only for a few hours during the day.
    • Now one can walk over to an ATM at any point in time.
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