Economic liberalisation in India: Difference between revisions

The '''economic liberalisation in India''' refers to the [[economic liberalisation]] of the country's economic policies with the goal of making the economy more market and service-oriented and expanding the role of private and foreign investment.<ref name="originalreport">{{cite journal |title=India – Structural Adjustment Credit Project (English) – Presidents report |pages=1 |url=http://documents.worldbank.org/curated/en/999451468260069468/India-Structural-Adjustment-Credit-Project |publisher=World Bank |access-date=30 October 2018|date=12 November 1991 |last1=Bank |first1=The World }}</ref><ref name="worldbank">{{cite web |title=Structural adjustments in India – a reportof the Independent Evaluation Group (IEG |url=http://lnweb90.worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/0586CC45A28A2749852567F5005D8C89 |publisher=World Bank |access-date=30 October 2018 |archive-url=https://web.archive.org/web/20190509212112/http://lnweb90.worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/0586CC45A28A2749852567F5005D8C89 |archive-date=9 May 2019 |url-status=dead }}</ref>  Indian economic liberalisation was part of a general pattern of economic liberalisation [[Neoliberalism|occurring across the world in the late 20th century]].<ref>“Industry and Enterprise in India”, in ''Industry and Enterprise: An International Survey of Modernization and Development'', ISR/Google Books, 2013, updated 2019. ISBN 9780906321584. Chapter 9.</ref>  Although some attempts at liberalisation were made in 1966 and the early 1980s, a more thorough liberalisation was initiated in [[1991 Indian economic crisis|1991.]] The reform was prompted by a balance of payments crisis that had led to a severe recession and also as per [[Structural Adjustment Programs|structural adjustment programs]] for taking loans from IMF and World Bank.<ref>{{Cite web|date=2010-09-17|title=How WB,IMF got India to adopt reforms in 1991|url=https://indianexpress.com/article/news-archive/web/how-wb-imf-got-india-to-adopt-reforms-in-1991/|access-date=2022-01-29|website=The Indian Express|language=en}}</ref><ref name=":9">{{Cite journal|last1=Leblebicioğlu|first1=Asl|last2=Weinberger|first2=Ariel|date=3 December 2020|title=Openness and factor shares: Is globalization always bad for labor?|url=http://www.sciencedirect.com/science/article/pii/S0022199620301215|journal=Journal of International Economics|volume=128|language=en|pages=103406|doi=10.1016/j.jinteco.2020.103406|issn=0022-1996}}</ref>

Liberalisation policies of Indian government have been criticised for increasing inequality and concentration of wealth.<ref>{{Cite journal|last=Ghosh|first=Jayati|date=2020-12-15|title=Hindutva, Economic Neoliberalism and the Abuse of Economic Statistics in India|url=https://journals.openedition.org/samaj/6882|journal=South Asia Multidisciplinary Academic Journal|language=fr|issue=24/25|doi=10.4000/samaj.6882|issn=1960-6060}}</ref> The reforms have also been criticised for worsening rural living standards and unemployment and [[Farmers' suicides in India|increasing farmer suicides]].<ref name=":10"/> Poverty continues to persist with 59 million people living under $2 a day and 1,162 million people living between $2.01 to $10 before COVID-19 Pandemic.<ref name=":11">{{Cite web|last=Kochhar|first=Rakesh|title=In the pandemic, India’s middle class shrinks and poverty spreads while China sees smaller changes|url=https://www.pewresearch.org/fact-tank/2021/03/18/in-the-pandemic-indias-middle-class-shrinks-and-poverty-spreads-while-china-sees-smaller-changes/|access-date=2022-01-31|website=Pew Research Center|language=en-US}}</ref> Environmental issues such as pollution which [[Gross domestic product#Limitations and criticisms|GDP does not account for]] has also worsened.<ref name=":13">{{Cite web|title=When will India be able to control pollution ?|url=https://www.downtoearth.org.in/coverage/when-will-india-be-able-to-control-pollution--17950|access-date=2022-01-31|website=www.downtoearth.org.in|language=en}}</ref><ref name=":14">{{Cite web|last=Deshpande|first=Tanvi|date=2021-12-15|title=India Has 9 Of World's 10 Most-Polluted Cities, But Few Air Quality Monitors|url=https://www.indiaspend.com/pollution/india-has-9-of-worlds-10-most-polluted-cities-but-few-air-quality-monitors-792521|access-date=2022-01-31|website=www.indiaspend.com|language=en}}</ref>

Indian [[economic policy]] after [[Indian independence movement|independence]] was influenced by the colonial experience (which was exploitative in nature) and by those leaders', particularly prime minister [[Nehru]]'s exposure to [[Fabian socialism]].<ref>{{cite book |last1=Misra |first1=O.P |title=Economic thought of Gandhi and Nehru: a comparative analysis |date=1995 |publisher=MD Publications Pvt. Ltd |location=New Delhi |isbn=978-81-85880-71-6 |page=66 |url=https://books.google.com/books?hl=en&lr=&id=IxGDqOU03h4C&oi=fnd&pg=PP17&dq=1995.+Economic+Thought+of+Gandhi+and+Nehru:+A+Comparative+Analysis.+M.D.+Publications&ots=ZiOVL4bDQO&sig=7KZMA8maZcok1FYiFqkIQ2wYFqU#v=onepage&q=1995.%20Economic%20Thought%20of%20Gandhi%20and%20Nehru%3A%20A%20Comparative%20Analysis.%20M.D.%20Publications&f=false}}</ref> Under the Congress party governments of Nehru, and his successors  policy tended towards [[protectionist|protectionism]], with a strong emphasis on [[import substitution industrialization]] under state monitoring, [[state intervention]] at the micro level in all businesses especially in labour and financial markets, a large public sector, business regulation, and [[central planning]].<ref name="kirit-1">{{cite journal|author1=Kelegama, Saman|author2=Parikh, Kirit|title=Political Economy of Growth and Reforms in South Asia|year=2000|version=Second Draft|url=http://www.eldis.org/static/DOC12473.htm|url-status=dead|archive-url=https://web.archive.org/web/20060211121955/http://www.eldis.org/static/DOC12473.htm|archive-date=11 February 2006}}</ref> [[Five-Year Plans of India]] resembled central planning in the [[Soviet Union]]. Under the Industrial Development Regulation Act of 1951, steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalised.<ref name="staley">{{cite web|url=http://www.reason.com/news/show/36682.html|title=The Rise and Fall of Indian Socialism: Why India embraced economic reform|author=Sam Staley|year=2006|access-date=10 January 2009|archive-url=https://web.archive.org/web/20090114053740/http://reason.com/news/show/36682.html|archive-date=14 January 2009|url-status=dead}}</ref> Elaborate licences, regulations and the accompanying [[red tape]], commonly referred to as [[Licence Raj]], were required to set up business in [[India]] between 1947 and 1990.<ref>[http://www.swaminomics.org/articles/20011125_streethawking.htm Street Hawking Promise Jobs in Future] {{webarchive|url=https://web.archive.org/web/20080329023451/http://www.swaminomics.org/articles/20011125_streethawking.htm|date=29 March 2008}}, [[The Times of India]], 25 November 2001</ref> The Indian economy of this period is characterised as [[Dirigisme|Dirigism]].<ref name=":12">{{Citation|last=Chandrasekhar|first=C. P.|title=From Dirigisme to Neoliberalism: Aspects of the Political Economy of the Transition in India|year=2012|work=Developmental Politics in Transition: The Neoliberal Era and Beyond|pages=140–165|editor-last=Kyung-Sup|editor-first=Chang|series=International Political Economy Series|place=London|publisher=Palgrave Macmillan UK|language=en|url=https://eprints.soas.ac.uk/29360/1/10731455.pdf|doi=10.1057/9781137028303_8|isbn=978-1-137-02830-3|access-date=4 September 2020|editor2-last=Fine|editor2-first=Ben|editor3-last=Weiss|editor3-first=Linda}}</ref><ref name=":2">{{Cite web|last=Mazumdar|first=Surajit|year=2012|title=Industrialization, Dirigisme and Capitalists: Indian Big Business from Independence to Liberalization|url=https://mpra.ub.uni-muenchen.de/93158/|access-date=4 September 2020|website=mpra.ub.uni-muenchen.de|language=en}}</ref>

In August 1991, the [[Reserve Bank of India]] (RBI) Governor established the Narasimhan Committee to recommend changes to the financial system.<ref>{{Cite web|title=First Narasimham Committee – GKToday|url=https://www.gktoday.in/gk/first-narasimham-committee/|access-date=11 September 2020|language=en-US}}</ref> Recommendations included reducing the [[statutory liquidity ratio]] (SLR) and [[cash reserve ratio]] (CRR) from 38.5% and 15% respectively to 25% and 10% respectively, allowing market forces to dictate interest rates instead of the government, placing banks under the sole control of the RBI, and reducing the number of public sector banks.<ref>{{Cite web|last=Akrani|first=Gaurav|title=Narasimham Committee Report 1991 1998 – Recommendations|url=https://kalyan-city.blogspot.com/2010/09/narasimham-committee-report-1991-1998.html|access-date=12 September 2020}}</ref> The government heeded some of these suggestions, including cutting the SLR and CRR rates, liberalizing interest rates, loosening restrictions on private banks, and allowing banks to open branches free from government mandate.<ref>{{Cite web|title=First Narasimham Committee – GKToday|url=https://www.gktoday.in/gk/first-narasimham-committee/|access-date=12 September 2020|language=en-US}}</ref><ref name=":7" />

Foreign investment in the country (including [[foreign direct investment]], [[portfolio investment]], and investment raised on international capital markets) increased from US$132&nbsp;million in 1991–92 to $5.3&nbsp;billion in 1995–96.<ref name="Asiaweek">[http://www.asiaweek.com/asiaweek/96/0412/nat1.html Local industrialists against multinationals]. Ajay Singh and Arjuna Ranawana. ''[[Asiaweek]]''. Retrieved 2 March 2007.</ref> After the reforms, life expectancy and literacy rates continued to increase at roughly the same rate as before the reforms.<ref>{{Cite web|url=https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=IN-CN|title = Life expectancy at birth, total (Years) - India, China &#124; Data}}</ref><ref>{{Cite web|url=https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=IN|title = Literacy rate, adult total (% of people ages 15 and above) - India &#124; Data}}</ref> For the first 10 years after the 1991 reforms, GDP also continued to increase at roughly the same rate as before the reforms.<ref>{{Cite web|url=https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2002&locations=IN&start=1975|title=GDP growth (Annual %) - India &#124; Data}}</ref><ref>{{Cite web|url=https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2002&locations=IN&start=1971|title=GDP (Current US$) - India &#124; Data}}</ref>

By 1997, it became evident that no governing coalition would try to dismantle liberalisation, although governments avoided taking on powerful lobbies such as [[Trade unions in India|trade unions]] and farmers on contentious issues such as reforming labour laws and reducing [[agricultural subsidy|agricultural subsidies]].<ref name="Gandhi-2">{{cite news|date=27 November 1997|title=That old Gandhi magic|work=The Economist|url=http://www.economist.com/world/asia/displaystory.cfm?story_id=107076|access-date=17 January 2011}}</ref> By the turn of the 21st century, India had progressed towards a [[Free market|free-market]] economy, with a substantial reduction in state control of the economy and increased financial liberalisation.<ref>{{Harvnb|Kumar|2005|p=1037}}</ref>{{Citation needed|date=January 2021}}

Poverty continues to persist in India, before COVID-19 Pandemic there were 59 million Indians living below $2 a day and 1,162 million living between $2.01 and $10 a day.<ref name=":11" />

Environmental issues such as pollution which [[Gross domestic product|GDP doesn't account for]] has also worsened.<ref name=":14" /><ref name=":13" />