Context
This month marks the 30th anniversary of the economic reforms launched by our then finance minister Manmohan Singh in his budget speech of 24 July 1991.
After and before reform comparison
- The average annual growth over the past three decades has been 5.8% per annum.
- It is slightly higher than 5.6% in the decade before 1991.
- Clearly, our growth acceleration was not sustained, despite a pick-up in the pace of reforms.
- However, on a long-term comparison, the economy did better than its 4.1% average of the first 40 years of independence.
- But if we compare our first four decades with the pre-1947 phase, and on that score, we saw a massive growth improvement.
Impact of reforms
- Their biggest contribution was a change in India’s economic paradigm.
- Every government after 1991 has embraced the philosophy of liberalization and privatization that those reforms initiated and has tried to outdo the previous regimes on that.
- Still, 30 years on, the situation for most of our population remains unchanged.
- The reforms created a class of rich entrepreneurs and a small but vocal middle class in urban areas.
- But it also contributed to widening inequality, which has worsened after 1991 and is now at its worst level since 1947 on almost all dimensions.
- The widening of disparities also occurred between urban and rural areas, between laggard states and developed ones.
- Disparities have increased even further in terms of access to health and education and several other human- development indicators.
- On most of these, be it education, health, women’s workforce participation and hunger, we remain at the bottom of any global chart of comparison.
- The logic of reforms meant that expenditure on welfare and investment in human development were not a policy priority.
- The situation is no different on employment, with data suggesting an absolute decline on this count and a historic rise in unemployment rates.
- An official consumption survey that was not accepted about two years ago by the Centre had shown, a decline in real consumption and a rise in poverty.
- Rising informalization and contractualization of the country’s workforce has been a factor in the worsening of most workers’ working conditions.
Why reforms failed to deliver
- In many ways, they are no different from our pre-reform economic policies, all of which were supply- side responses.
- The reforms attempted to use the private sector for the task through a liberalized regulatory framework and business-friendly fiscal and monetary policies.
- But an absence of concern for distributional inequities and aggregate-demand management has continued as the defining feature of our economic policymaking.
- The consequences of supply-side- biased reforms will show up in a further worsening of income distribution and eventually slow growth down.
Conclusion
Things have taken a turn for the worse with the pandemic. The problem this time is not like the 1991 crisis. What is needed at this point is a fundamental shift in the way economic policy is designed, keeping people and workers at the centre of the exercise.
