Economic Reforms in India

Before 1991, India was a nation with political independence but no economic freedom. If the license and permit tied India down, they also stifled individual aspiration, ambition and achievement. That’s why the touchstone of the economic reforms launched in 1991.

India initiated the reforms in 1991, after financial crisis led by P.V. Narasimha Rao the then Prime Minister in June, the crisis forcing him to rope in Manmohan Singh as Finance Minister, who unshackled what was then called the 'caged tiger'. The Narasimha Rao government ushered in several reforms that are collectively termed as liberalization in the Indian media. Although, most of these reforms came because IMF required those reforms as a condition for loaning money to India in order to overcome the crisis. In this process, India liberalized the industrial sector from license-permit raj which has accelerated the growth of Indian economy. Indeed economic reforms, aided by the rapid diffusion of technology, have enabled individuals, groups and companies to tap talent to not only create new businesses but set off a virtuous cycle of growth and entrepreneurship but on the other side agriculture sector adversely affected.

The need for a policy shift had become evident much earlier, as many countries in east Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation and encouragement of the private sector. India took some steps in this direction in the 1980s, but it was not until 1991 that the government signaled a systemic shift to a more open economy with greater reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring of the role of government. Foreign Direct Investment, exports and other related variables of external sector showed a positive outcome growth of Indian economy.

We review policy changes in five major areas covered by the reform program: fiscal deficit reduction, industrial...