This is a silver jubilee to remember. The economic reforms launched by PV Narasimha Rao in July 1991 have transformed India so much that it’s difficult to recall how bad things used to be.
Back in 1991, lndia pretended to be a Third World leader. In fact, its development model evoked derisive laughter among many developing countries that had grown twice as fast. They found Indians good at drafting resolutions in international meetings, but little else.
Today, India is called a potential superpower by journals ranging from Forbes to The Guardian. India is called the only Asian power that can check China in the 21st century. This is why the US arranged for its entry into the nuclear club and now backs it for a permanent seat in the UN Security Council.
In 1991, India was a member of the G77 group of developing countries. In 2016, India is a proud member of the G20, the most-powerful countries in the world.
In 1991, India was infamous as the world’s biggest beggar, a bottomless pit for foreign aid. It soaked up 40% of the funds of the International Development Association (IDA), the soft-loan window of the World Bank. Today, India is as much a donor as a recipient.
It is still a substantial aid recipient in gross terms. But the inflow is barely half-a-billion dollars net of debt service. Meanwhile, India itself has become a substantial donor, including a line of credit of $10 billion to Africa, $2 billion to Bangladesh.
Remittances from NRIs total $73 billion a year, and foreign direct and portfolio investment often exceed $60 billion per year. Commercial loans exceed $35 billion. India now finances itself overwhelmingly on commercial terms, not through aid.
Its per capita income has shot up from $375 in 2011 to $1,700 today, taking it from low-income to middle-income status. However, China is almost six times better off, and has transformed itself far more than India.
In 1991, the Indian economy was immaterial to the world. Today, in purchasing power parity terms, India is the third-largest economy in the world after China and the US. It has overtaken all European economies and Japan.
India today is the fastest-growing major economy in the world, touching 7.6% in 2016 after a similar rate in 2015. Against expectations, India has overtaken China. The World Economic Outlook of the International Monetary Fund portrays the US and India as two pillars holding up a wobbling world economy.
India was historically an economic laggard. For decades it grew at just 3.5% per year, derisively called the ‘Hindu rate of growth’. This accelerated in the 1980s to 5.5%, because of creeping liberalisation plus an unsustainable borrowing spree that was ended in tears in 1991. India then embarked on economic reforms in 1991.
All Opposition parties denounced this as a sell-out to the IMF, and predicted that India would suffer a “lost decade” of growth, just as Africa and Latin America had in the 1980s. In fact, India accelerated to become a miracle economy, averaging 8% growth after 2003.
Critics say economic reforms have benefited only a thin rich layer. Dead wrong. Between 2004 and 2011, a record 138 million Indians were raised above the poverty line. China was earlier hailed for raising 220 million people above the poverty line between 1978 and 2002.
India’s rate of poverty reduction was much faster. Arvind Panagariya and Vishal More have shown that poverty among Dalits and Muslims fell faster than for all communities.
Before 1991, India begged for food aid if the monsoon failed. When it suffered two successive droughts in 1965 and 1966, mass starvation was avoided only by US food aid. India lived a ‘ship-to mouth’ existence.
William and Paul Paddock’s famous 1967 book, Famine 1975! claimed the world was running out of food, so food aid should be conserved for viable countries, and unviable ones like India should be left to starve.
The Green Revolution changed that, and private seed production further improved productivity after 1991. India suffered two successive droughts in 2014 and 2015. Yet this time, it remained a net food exporter. It became the world’s largest rice exporter in 2014.
In 1991, it took years to get a telephone landline. Today, India has a billion cellphones, instant availability and the cheapest telecom rates in the world. Even people below the poverty line have phones. In 1991, only 20% of Indians had a TV set. Now two-thirds do. In 1991, Doordarshan had a TV monopoly. Today, the country has over 900 TV channels.
Many flaws still remain. Thousands of projects remain stuck in red tape. All government services remain lousy. Corruption, waste and sloth are visible everywhere. Education and health remain deplorable. Indian institutions are low-quality, weak and subservient to political interference.
The police-judicial system is moribund, with a backlog of 31million cases. The future agenda must include much better governance, better social services and high-quality, independent institutions. But for now, let us toast the silver jubilee of economic liberalisation.