Thirty Years of India's Economic Reforms

This year marks the journey of thirty years of major economic reforms of India which started in 1991 although not in a systematic manner. All the major steps taken to push the country out of abject poverty were really paid off much more than it was thought out to be by many experts. The reform journey is still yet to complete full square.

The following articles reflects on the India's 1991 economic reforms with a strong note on what should be done to complete the circle of the reforms both structural and systematic process of making the country not just rich by GDP but by every individual's prosperity with better standards of living.

Delhi based public policy think tank Centre for Civil Society has documented with well thought out articles on India Before 1991 major crisis, the economy that was crawling for decades to take off. 

Like 1991, 2021 is an opportunity by C. Rangarajan

‘More than just a BOP issue’ by Montek Singh Ahluwalia

"India’s path to capitalism is yet to credibly create markets that embrace competition and create conditions for widespread prosperity." Says Yamini Aiyar.

Reforms and Indian capitalism By Yamini Aiyar.

India after 1991: Towards East Asia or Latin America? by Niranjan Rajadhyaksha

The 30 years that changed the country

30 years after 1991, liberalisation 2.0 needed by Shankar Aiyar

From 1991, the lessons for the India of 2021 By Montek Singh Ahluwalia

India's reform story, a series of articles and interviews and discussions of experts.

Indian Government Budget and Others

India's latest central government's budget is the last budget for the decade first two decades of 21st century. First time, a woman Finance Minister presented without many jargans of numbers and percentages!

The below are some interesting article on the budget with new ideas:

Is the Budget WorthWhile by economist Ashok Desai

No East Asia Economic Model please, India has its own unique model of economic growth with always confusing the best thinkers

Why no more Congress please

Chakrayya was suppose to be first President of India in Independent India.

Budget 2019-20: Right Direction, But Where’s The Money?

"It’s because they are smart people who understand well that elections have nothing to do with solving people’s problems. On the contrary, it is elections that create problems for people. In fact, elections are the biggest threat to human life and well-being — bigger than air pollution, road accidents and cancer."

Aspirations of emerging giants

That is the title of my latest column in the Pragati magazine out today. The special thing about the article are the below paras:

• The difference in fundamental comparisons between India and China are best encapsulated in the prophetic words of Wuttke, who said “Chinese educate for practical life, the Indians for the ideal; those for earth, these for heaven; those educate their sons for entering the world, these for going out of it; those educate for citizenship, these for priesthood; those for industrial activity, these for knowledge; those teach their sons the laws of the state, these teach them the essence of the Godhead; those lead their sons into the world, these lead them out of the world into themselves; those teach their children to earn and enjoy, these to beg and to renunciate.” Whether one agrees or not, it is difficult to better these words, which capture the difference between India and China in its ethos and antiquity. The economic, social and political developments in these two countries have to be seen through the words of Wuttke.
• On the similarities between the two nations, Chie Nakane, a Japanese anthropologist wrote in 1998 that “…their respective great civilizations were formed along the two great rivers: the Indus and Ganges in India, the Huang-he and the Yangtze River in China, all of which originated in the Tibetan Plateau. The modern capitals of both countries, Delhi and Beijing, are situated in the north. In the south-east are situated two large cities, Calcutta and Shanghai, each at the mouth of the great rivers of the Ganges and Yangtze, backed by the fertile and productive areas of Bengal and Jiangsu. Both cities received the first impact from the West, its citizens were earliest exposed to Western culture and the two cities become the centres of modern rich cultures. Similarly, the southern regions of both countries have a high population density: Tamil Nadu and Kerala in India, and Kwangtung and Fukien in China. Further, both countries possess rich granary regions in the inland area of the Punjab and Sichwan. It is interesting that the names of these two regions connote rivers- the Five revers and Four rivers. Both societies possess a certain similarity, being composed of wheat-producing areas in the north and wet paddy cultivation in the south…”

Some links

Interesting readings:

How far ahead of India is China?

Why Chinese capital outflows need to be watched in India

What I Learned From Reading Every Last Word of India Today

"Here is a moment for considerable serious reinventing of capitalism"

Bloomed vs Doomed

Shankar Aiyar rightly asks a serious of questions which needs to be pondered:

• There was, however, no explanation on why the economy was in a crisis. The Prime Minister says an “unsustainable increase in government expenditure vis-a-vis government income” would lead to “steep rise in prices and loss of confidence in our economy” as indeed had happened in 1991. The question is did this happen overnight? How did we get here? And who let this happen? Was the writing on the wall in Greek? 

Razeen Sally on Asianeconomies and its need for “Limited government—a strong but small state that performs its core functions well—and free markets at home and free trade abroad: These are the ingredients for a new Asian century.”

Growth mania

Mostly today's Indian newspapers are talking about growth vs poverty.


While Indian Express expressed "Any public debate on poverty tends to blend reason and emotion." The ET says that economic growth helps in reducing poverty but interventionist scheme like NREGA is an important tool for that makes limited sense.


Prof Panagariya has a piece in ET which argues that Rajiv Gandhi had no political game of fame of his own in winning elections. All he used was the political game developed by his mother and grandfather.


Budgeted failure: The left people never try to see other side of the same coin as far as the freeing of gold import is  concerned. Here is poor professor who argues for more restriction of gold import.


Liberal economist Dr Ashok V. Desai says: "The finance minister has chosen to tax gold. This in my view is stupid; gold is so easy to smuggle that taxing it will collect no revenue and revive gold smuggling." 


Other readings


In India, History Literally Rots Away
India will be superpower 
Writing on the wall

Morning Readings

In today's Bare Talk column. Dr Ananth says that "On the international stage, the Group of 20 (G-20) is dead." And therefore the "only way the world can find a sustainable way to grow in future is to abandon the US intellectual framework that defined the post-World War II global economy. For that, the US economic and intellectual dominance have to be replaced with wisdom appropriate and relevant to developing nations with their own long civilizational histories. That, in turn, requires that developing nations stop fighting with one another, bury their differences and forge a durable alliance."


Instead of "who wants a federal front?" where is the "federal front"?


Many of you may not know, late Prof V K R V Rao's close relative is S L Rao. He says that:

"It is wrong to attribute the budget’s deficiencies only to coalition compulsions. The budget does do something right, especially on investment, but fails on many other fronts. It does not ensure growth or assure that inflation will remain under control. With general elections due in 2014, this is the last year that the United Progressive Alliance could take bold decisions. It has not taken them. This will ensure that the economy will be under stress and that the 2014 elections will be fought on economic grounds. And with a Congress that had let the country down badly on what was assumed to be its strength, namely economic management."

Asian Swaraj

The iron lady of today's opposition politics in India argues (rightly so) that:

• "A maritime perspective necessarily means sea power but I do not imply by this just the need for a strong navy. It is rather a web of economic, commercial and political ties with the countries in Southeast Asia and North Asia, as well as the wider Pacific community, that we have to reach out to. This perspective, in fact, means also returning to our roots in ancient maritime history — the Mauryas, the Chalukyas, the Cholas and other kingdoms and dynasties who were flourishing maritime entities... It is my view and conviction that in the next decade or two we will see a full flowering of this maritime perspective in India with its attendant scholarship and also retrieving from the annals of history our ancient and historical links with the countries of Southeast Asia and beyond."

Blinking links

school talk is often just an oblique way of hinting at pedigree

Basic knowledge of economics has become a prerequisite to enter any sector of the economy

"Last year I wrote, “... the seas east of Singapore hold the key to the lands west of the Indus.” I should have added that the rules made on the banks of the Yamuna hold the keys to those seas."

"Between them Pranab Mukherjee, Manmohan Singh and P Chidambaram have presented 18 of the past 30 budgets. The UPA also has in its Cabinet nine former chief ministers of whom four are two-time chief ministers. This Government has set up over 90 committees, so there is no dearth of ideas either. Which begs the question why the UPA cannot get its act together on fixing inflation that has dogged voters and the economy since 2004?"

Eastern vibration of liberty

During the MPS meeting I met Razeen Sally whose talk was one of the greatest I ever listened. Here is a para from his article in Business Standards:

“The zenith of economic freedom outside the West in pre-modern history was medieval Indian Ocean trade beforeEuropean colonisation, a Golden Age of south and south-east Asian commerce. Before the Portuguese muscled in, the Indian Ocean was Mare Liberum, not controlled by any power and fully open to trade. Coastlines were dotted with “port-polities”, independent towns and cities whose lifeblood was overseas trade. Aden, Hormuz, Cambay, Goa, Calicut, Aceh, Malacca and Macassar were religiously tolerant, polyglot, cosmopolitan places, energised by trading diaspora. Freewheeling economic competition went in tandem with decentralised, flexible political institutions and advanced legal structures. Fractured geography and competing polities combined to promote economic freedom, growth and prosperity.”

No “Vande Mataram” please, but “Chak de”

It is only a 60-year political history which divides India and Pakistan; a several- thousand-year history unites us. We are the same people, and a North Indian, especially a Punjabi, has a lot more in common with a Lahori than with a Chennai-based Tamil. And the latter has a lot more in common with a Sri Lankan than with me.

Central banks-The super-fiction

During the MPS 2011 Asia Regional Meeting, I met Dr. Jim Walker, who is an Austrian economist and CEO of Asianomics Ltd.

The following is from his interview with ET:

Is the US economic recovery real? Will more money flow back from Indian stocks to the US this year? 

No, the US recovery is weak, because it's based on artificial stimulus. Once that fades, there would be problems again. But money may still flow back from India if risk-aversion rises. It will go into bonds and gold in 2011. I will remain bullish on gold till central banks change the way they operate. Most central banks are losing their credibility, be-cause of the way they are handling the crisis by pumping in more and more money. For Ben Bernanke, the best thing is to quit the job, because he is not really solving the crisis. 

Do you think the spike in oil price is justified when the US is yet to recover and emerging markets are slowing? 

The jump in oil is an outcome of the loose US monetary policy. There is no shortage of oil supply at the moment. The real problem is Ben Bernanke here. The real economy doesn't want the money he is pumping. So, it is spilling into other assets. A lot of commodities are at least 20-30% higher than what they should be.

Three beautiful books

This is the first time in my life received three beautiful books in January (2011) month. First (received on January 1^st) one on “Institutional Theory of Poverty: A General Theory of Change from Poverty to Plenty” by Prof. Vedagiri Shanmugasundaram. It is a must read one. Few lines from his this book is worth to validate my likeness (don't forget to read the last line in the below points): 

• Many errors in reasoning left the economist blindly trailing one or other of the hypotheses… 
• The blind adherence of Keynesian deficit financing by Dr. VK.R.V Rao and his associates preferred their advice to Pandit Jawarhalal Nehru thus “Buckets of cement in Bhankra Nangal were better than of gold in the Reserve Bank of India vaults” 
• The brilliant brains in the bureaucracy were put to work in wrong directions and much of the blame attributable to those in authority and policy making….. Bureaucracy to my mind is more sinned against than sinned. 
• Keynesian fiscal extra veganza or model builders who are oblivious of important limitations which the centralized planned economy is unable to overcome.. 
• ……the blunders of socialism in early decades 
• Bureaucrats have kept the experts under their thumb, and politicians in their turn have sent the bureaucrats on wrong scent. The consequence is domestic poverty of ideas under the illusion of planning.  
• Poverty is real. It is deliberately caused, and purposefully maintained. 

The second book (received on 10th) is “The New Asian Hemisphere: The Irresistible Shift of Global Power to the East” by Professor Kishore Mahbubani. I have already posted about the book here.

And the third book (received on 21st) is “Remaking India: One Country, One Destiny” by Arun Maira.

 I am currently reading this book and will post few things about the book and perhaps need of writing it!

Societies: Open vs closed

On Saturday I attended the Distinguished Gust Lecture delivered by Professor Kishore Mahbubani. The topic was “Will China and India grow together or grow apart?"

No doubt, the lecture was good one. Because it was amazing in two ways: it was simple words but quite meaningful at large and it was also clear in layman language. Among other things which had discussed, one very interesting thing (at least to me) was he said China is sending different teams to study the functions of democracy in different parts of the world. This is something new to me and I wonder what would be the china’s take on Indian democracy?

I was lucky to get a copy of his 2008 book The New Asian Hemisphere: The Irresistible Shift of Global Power to the East. It is very interesting particularly the first chapter. Read the book reviewed by Sunanda K. Datta-Ray.

But two things remains unquestioned, no matter minor or major that may be.

Mr.Kishore writes in his book and also he has written elsewhere that:

• Indian political scientist Pratap Bhanu Mehta once compared India and China by saying,  “India is an open society  with a closed mind; China is a closed society  with an open mind.”

But I read and heard several times the same words as below:

According to Brahma Chellaney:

• Henry Kissinger once said China is a closed society with an open mind, while India is an open society with a closed mind…

The other question which I consider was not at all touched during the lecture was the planning process adopted in china vis-à-vis in India especially during the process of economic reforms in these countries. Because what makes different to masses is the more realistic and decentralized planning process rather than other way around.

Conditional Cash Transfers (CCT) Regulation Act

From Right to food: Getting it right by Ashok Gulati & Kavery Gangul:

• Many countries have moved away from physical handling of grain to alternatives such as conditional cash transfers (CCT), food coupons, smart cards, etc. Some of the success stories of conditional cash or food transfers are Bolsa Família as part of Zero Hunger programme in Brazil, Food For Education programme in Bangladesh, Progresa and later Oportunidades in Mexico, etc.
• Studies suggest that such programmes have made considerable impact on educational, nutritional and health outcomes and poverty alleviation.
• India can adopt and innovate upon such programmes. Food coupons can be used in any retail outlet, not just for food grain but a larger list of food items. This is likely to remove the hegemony of fair-price shop dealers. CCT for girl child in school or the woman in the household can help ensure proper utilisation of benefits.
• The smart card or biometric card approach can be piloted in urban areas, particularly the 35 cities with a million-plus population each. There is scope for involving private players, be it retailers or IT companies, and even dovetail the efforts underway through the unique identification system.

Koreans are fanatic about education, so there is receptive demand for experiments.

From Prof. Tarun Khanna’s new column in Mint

• From Megastudy in Seoul we can rethink the provision of incentives to our teachers, so that the better ones get more attention and the underperforming ones understand how they must improve.
• Megastudy’s core idea is that good teachers are videotaped, and then others can subscribe to their lectures via online access to the videos. Good teachers keep a substantial share of incremental revenue, and the best are compensated at superstar Wall Street-like levels, while mediocrity is penalized (the poorest performers earn less than the median Korean college graduate). Measurement is taken seriously, so that the effort is not inadvertently rewarding only rote learning. And relatively simple online technology magnifies these incentive effects.
• Of course, Megastudy’s is not the only solution to poor incentives. The charter school model under way in the US is another interesting experiment, but no reason not to let several proverbial flowers bloom on this front. Education in the West deserves introspection.

No license please!!

Nearly 60 per cent of software programs installed on personal computers around Asia in 2009 were unlicensed.

Birth of Banyan Tree in Asia

The Economist

London based The Economist has come out a separate column for Asian Economies to track the change in it but confused where it stand in the world as it saying goes “There has also been confusion about quite where Asia is.” 

Further it says “So why Banyan? A dearth of pan-Asian images speaks volumes, but the banyan tree serves better than most, for it or similar trees are found somewhere in most Asian countries. The banyan spans Asia’s spirituality and its entrepreneurialism. The Bodhi tree, under which Buddha attained enlightenment, was a banyan by another name. Gujarati merchants conducted business under it, and the Portuguese lent their name, banyan, to the tree. It stuck.”