From UPSC perspective, the following things are important :
Prelims level : 1991 reforms
Mains level : Paper 3- Changes brought about by 1991 reforms
It has been 30 years since the spirit of liberalisation was unleashed in 1991 economic reforms. The private sector, which had been seen very differently up to 1990, was placed at the centre of the reform process. And this has continued and grown since then.
Challenges and opportunities for Indian industry after economic reforms
1) Entry of MNCs and centrality to consumers
- The first challenge was the entry of MNCs through the joint venture (JV) route.
- Centrality to consumers: The reforms gave centrality to the consumer who till 1991 did not have a choice.
- The Indian consumer was given choices and companies, both foreign and Indian, wanted to be their first choice.
- Growth in demand: The surge of new demand from the marketplace transformed the scenario, reflected in GDP growth rapidly moving up to 7 per cent per annum.
2) Increased competition
- For the first time, Indian companies faced real competition from other Indian as well as foreign companies.
- But, many corporates restructured themselves and transformed into competitive forces.
- The new reality of reduced customs duties and industrial licensing disappearing, removed the protection umbrella and Indian companies, by and large, who had been planning for this day, were ready to face this challenge.
3) Government-industry partnership
- Till June 1991, the government and industry were at a distance from each other.
- June 1991 changed all of that, the government’s dialogue with industry deepened, consultations were frequent.
- Feedback on what was happening on the ground was taken regularly.
- A government-industry partnership became a reality.
4) Boost to aspiration of industries
- The most significant change brought about by the reforms pertained to the level of “aspirations” of the industry.
- There was excitement and ambition to be world-class.
- Rise of IT industry: In this, the IT industry led by TCS, Infosys and Wipro played a major role.
- They showed that Indian engineers and managers were the best in the world.
- They exuded confidence which spread to others.
5) Boost to entrepreneurship
- Not just the big industry, but also, the small and medium sectors that became part of the new energy in industry.
- Component manufacturing and exports were new initiatives from ancillaries and suppliers of major manufacturers.
- The public sector had a monopoly over infrastructure.
- This changed and the private sector was invited to participate, to get into public-private partnerships and end the government’s monopoly.
7) Birth of new private sector bank
- Banking had been nationalised in 1969.
- But the reforms of 1991 gave birth to a new private sector bank — HDFC Bank — which, after due diligence by the government and the Reserve Bank of India, opened its doors in 1994.
- This was a huge step forward in the reform process.
8) Improvement in corporate governance
- An industry-led initiative brought out the first-ever task force guidelines and report on corporate governance.
- This was followed by many other actions and policies.
There is still a long way to go, but the die that was cast in 1991 has led to a new tsunami of change.