The neoliberal reforms of 1991 didn’t work as claimed

Context: The view that economic progress and modernization in India really occurred only after ‘liberalizing’ economic reforms were introduced three decades ago is nothing but a travesty of the truth.

Achievements since LPG reforms of 1991: 

• Per capita income went up more rapidly than before, and poverty went down.
• Life expectancy went up, infant and maternal mortality decreased.

Critical analysis of the role of LPG reforms:

• Poor performance in comparative perspective: Rest of world did better than India.
• Countries like China with heterodox strategy retained significant state control and did much better.
• Human Development Index (HDI) trend: India’s overall HDI improved from 0.433 in 1991 to 0.645 in 2019, but India’s HDI rank slipped from No. 114 to No. 131.
• Poor status in other social indicators: 
• Multidimensional Poverty Index (MPI) shows 28% of India’s population in multidimensional poverty, with another 20% vulnerable to it.
• Nutrition indicators are poor, with declining per capita calorie consumption and worse outcomes for women and young children, even before covid hit.
• Environmental cost: Higher growth rate since 1991 came at the expense of massive environmental destruction and without enabling structural change.
• Precarious employment scenario: Employment stagnated and then fell from 2011.
• Most workers remain stuck in low-paying informal work, and women’s employment participation declined significantly.
• Farming is under threat, and small and micro enterprises that employ the bulk of workers face an extreme crisis.
• Stagnation in industrialization: Industrialization did not take off beyond what was already achieved before 1991.

Why did higher GDP growth not translate into better conditions for most Indians?

• Inequity in pattern of growth: Growth was highly unequal and provided benefits mainly to a small minority of people.
• Issues in industrial policy approach: Process of incentivizing large capital became an endless one, as big business demanded ever more incentives and next generation reforms.
• ‘Incentivizing business’ led to resource grabs and sometimes scams. Later phase of extreme crony capitalism is an evident consequence of this policy.
• Restricted capital market integration: International financial integration created domestic asset bubbles and vulnerabilities to global capital movements.
• This restricted fiscal expansion for fear of capital flight and losses due to interest rate differences between India and advanced economies.
• Inadequate state capacity: Failed to ensure basic rights of most workers and declining ability to tax the rich, be it large corporations or extremely rich people.