Context: While the reform agenda must continue, social cohesion and equity considerations must be guaranteed.
Characteristics of the 1991 economic reforms
A crisis turned to an opportunity: In response to the severe balance of payments crisis, we launched a wide-ranging economic programme to reform, restructure and modernise the economy.
Elements of new policy regime: The objective has been to improve productivity and efficiency of the system by creating a more competitive environment.
Liberalisation: Dismantling vast network of licences, controls and permits that dominated the economic system.
Privatisation: Redesigning the role of the state and allowing the private sector a larger space to operate within.
Globalisation: Abandoning inward-looking foreign trade policy and getting integrated with world economy and trade.
Achievements of 1991 reforms
Phase of highest growth rate: Between 1992 2000, GDP at factor cost grew annually by 6.20%.
Between 2001-02 and 2010-11, it grew by 7.69%, and the growth rate between 2011-12 and 2019-20 was 6.51%.
Balance of payments situation had remained comfortable:
The opening up of the external sector, which included liberal trade policy, market-determined exchange rate and a liberal flow of external resources, has greatly strengthened the external sector.
Foreign exchange reserves touched $621 billion as of August 2021.
Reduction in poverty ratio:
Going by the Tendulkar expert group methodology, the overall poverty ratio came down from 45.3% in 1993-94 to 37.2% in 2004-05 and further down to 21.9% in 2011-12.
The per year reduction in percentage points in the poverty ratio between 2004-05 and 2011-12 was 2.18.
Way Forward: Lessons from the 1991 reforms experience:
Growth requires more than reforms: In a developing economy, growth is driven by investment.
The growth slowdown in the 2010s can be explained by the decline in investment rate of nearly five percentage points since 2010-11.
While reforms create conditions for investment but other factors such as social cohesion also plays an equally important role.
Thus, growth and equity must go together as it is only in an environment of high growth, equity can be pushed aggressively.
Need for continuity: The reform agenda must continue. It must be incremental in character.
From this angle, we need to take a relook at the financial system, power sector and governance, in terms of creating a competitive environment and improving performance efficiency.
In terms of government performance, there should be an increased focus on social sectors such as health and education.
In terms of the provision of services, the emphasis must be not just on quantitative expansion but also quality.