Growth Won’t Be Automatic

Context: Today, India doesn’t need a paradigm shift of the 1991 reforms but sector-specific reforms.

Significance of 1991 LPG reforms

     

• Crisis converted into opportunity: In the wake of severe economic crisis triggered by balance of payments (BoP) issues.
• Liberalisation – Barriers to entry and growth were dismantled: Dismantled complex regime of licences, permits and controls that dictated almost every facet of production and distribution.
• Privatisation – Areas once reserved exclusively for state were thrown open to private enterprise: Reversal of strong bias towards state ownership of means of production and proliferation of public sector utilities (PSUs) in almost every sphere of economic activity.
• Globalisation – Abandoning inward-looking trade policy: Embracing international trade, jettisoning export pessimism and accepting challenges and opportunities of integrating into the world economy.

Positive implications of 1991 LPG reforms

• Effective management of the external sector: Though India continues to run a current account deficit (CAD), financing it is not a problem, as there are sufficient forex reserves from strong financial flows.
• Strong post-liberalisation GDP growth: Between 1992-93 and 2019-20, the rate of annual growth was 6.4%, whereas between 1951-52 and 1990-91, it was 4.2%.

Present-day economic challenges

• Steady decline in growth since 2016-17: Partly due to cyclical slowdown and the issues created by economic reforms.
• Steep fall in investment rate: From 39% of GDP in 2011-12 to 34.7% in 2019-20. 
• Deteriorating employment situation.

Way forward: We don’t need a paradigm shift - 

• Call for sectoral reforms: Identify each sector to reform in terms of creating a competitive environment and improving efficiency. For e.g. in the power sector, financial system, governance and agricultural marketing need reforms.
• Effective implementation of reforms: Need a lot more discussion and consensus-building.
• Optimising timing and sequencing: Labour reforms best introduced when the economy is on upswing.
• Revisiting agri-reforms implementation: In wake of confrontation, better step now will be to leave these measures to each state to decide whether they want these legislations or not.
• Democratisation of reforms – Upholding equity: Reforms must not only result in higher growth but also benefit all sections of society.