Indian Economic Growth and Social Progress

Abstract

This paper analyzes the effects of the reforms initiated in India following the balance of payments (BOP) crisis of 1991 on the development strategy adopted by the government, its policies and the actual economic performance. The significance of the 1991 reforms as there is a debate on when reforms started, as a number of analysts claim that reforms started in the mid-eighties and that is why growth started accelerating in the
1980s. India’s growth experience is often contrasted with that of East Asia and more particularly China. It is claimed that savings rates though increasing are considerably lower than in East Asia growth in India is based on the services sector rather than manufacturing which was the leading sector in East Asia and again unlike East Asia India has not attracted much foreign direct investment. While there were certain changes in policies in the 1980s as there had been in earlier years, these did not mean a basic change in the policy framework. The resilience of the economy as it recovered quickly from economic crises encouraged the government to persist with the import substituting industrialization strategy it had adopted. However, research conclusions of various
committees set up by the government to study the effects of licensing and import controls and the experience of other countries especially China resulted in policy makers believing that a change in the growth model was needed and the 1991 crisis provided the opportunity to carry out such a change. There is an accelerating rate of growth of GDP after the mid 1970s and it is difficult to relate this gradual acceleration to specific policy
changes. Furthermore, since corporate investment as a share of GDP did not increase in the 1980s it is difficult to identify the mechanism by which the more pro-business policies of the government were translated into higher growth as claimed.