1991 was the year that India made a technological leap by developing its own supercomputers (the Param series) at a fraction
of the cost at which they were available. But it was also the year that Saddam Hussein invaded Kuwait – leading to the first gulf war – and Rajiv Gandhi (who had promised much in his brief political career) was assassinated by suicide bombers from the LTTE.
GDP growth fell to 1 percent, inflation touched 17 percent, foreign exchange reserves touched a new low and India looked like it would default on its debt. Given this grim economic scenario – the result of an over centralized and an over regulated economy – India had no option but to approach the IMF (International Monetary Fund) for a multi billion dollar loan…
Step in Manmohan Singh (Finance Minister) and Subramanian Swamy (Commerce Minister) – two reformers with a genuine zeal for reform. The economic reforms that followed removed the licensing controls on industry and trade (the so-called “licensing raj”), reduced customs rates, allowed the market to determine the exchange rate, and privatized certain public sector enterprises.
Rising exports, remittances and foreign direct investments helped India to build up substantial foreign exchange reserves – the lack of which had been used to justify a regime of regulations and controls. Indian firms – allowed to compete in the global markets – benefited from the competition to emerge stronger in the domestic market. Liberalization gave consumers choices that they never had before; and it was the rise of this consumerist middle class that was the most significant legacy of a decade of liberalization. The other lasting impact was on the growth rates of the economy, as India’s entrepreneurial talent was unshackled.
Though India’s profile has risen in the world, the author says that the reforms process has yet to be completed as many parts of the economy (especially in the provision of public services) are still under government control. Corruption is rampant, public administration leaves much to be desired, and labor laws are still primitive.