Thirty years of economic reforms of 1991-II

Thirty years of economic reforms of 1991 is remembered on major way to look ahead for next decade, or more. 

The following are some of very interesting analysis of what went right and wrong in the last thirty years while implementing various reforms in Indian economy.

If there is any big takeaway from India’s post-Independence history, it lies in the effects of the 1991 reforms. Those reforms essentially consisted of the government retreating from large parts of the economic space of the country. The result: A doubling of GDP growth and the lifting of over 200 million people out of poverty in the two decades that followed. This was the effect of individual and corporate enterprise being unleashed under relatively less controlled regulatory conditions.

To counter the liquidity problem, the government ushered in policy reforms aimed at speeding up the pace of economic growth. The reforms began with the devaluation of the rupee on July 1, 1991, followed by a second round of transfer of a total of 46.91 tonnes of gold from the reserve assets of the RBI in Mumbai to the Bank of England, which enabled India to borrow $400 million to solve its liquidity problems.

The demographic dividend will go into reverse gear. Government programmes in earlier years aimed at population reduction but will now switch to promoting larger families. The old slogan “Do ya teen bas” will be replaced by “Sirf do ya teen, bas?”

The character of higher education and the governance and standards of the professions in India are likely the principal reasons why the social and political role of the Indian middle class has been so wanting.

Another problem is that most of our public discussion of reforms focuses on what the central government should do, but water, electricity distribution and health are critical areas which are all in the state sector. If you check what politicians are saying in state elections you will see that it does not reflect an awareness of the need for reforms.

Looking at the recent discussions on agricultural marketing reforms, the best course of action now may be to leave these measures to each state to decide whether they want these legislations or not. That will set the stage for experimental economics and farmers themselves will be able to see the best possible solution for different crops and conditions.

Wealth will thus migrate from developed countries to India. Of course, a critical requirement to achieve this goal is rapid re-skilling of our workforce and reforms in our education system to make our children and youth futureready. Specifically, we must expeditiously build world-class universities and research centres and also upgrade existing institutions to serve India’s 21st century needs.

India proved resistant to the sweeping transformation that would boost many East Asian economies. Too often, Indian politicians packaged measures designed to aid an individual business or industry as economic reform, when the measures in fact retard competition and growth. Pro-business is not the same as pro-capitalist, and the distinction continues to elude us.

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.

One of great Indian women economist, Dr. Isher Judge Ahluwalia passed away

Today, one of rare and great Indian woman economist Dr. Isher Judge Ahluwalia has passed away.

She was known as multi-personality as professional economist, institution builder and public policy expert. She was internationally well known economist and public policy expert on range of issues from industrial development, urban development, social sectors, etc.

She was one of few economists in India who boldly criticized the economic policies of socialist era which failed miserably by creating poverty and scarcity killing of millions of people.

A decade ago, she wrote column in The Indian Express about case studies of urban issues and challenges which is not only a bottom up approach to read the public policies but also provided a global view upon which she was closely connected and bridged the policy nexus. Later,the articles were put together in book form, which again was most interesting reading.  

Here are few links to news items on her career and achievements over many decades.

Economist Isher Judge Ahluwalia passes away after 10-month battle with brain cancer

Noted economist Isher Judge Ahluwalia, who broke many glass ceilings, dies at 74

Isher Judge Ahluwalia, noted economist and Padma Bhushan awardee, passes away

Padma Bhushan Economist Isher Judge Ahluwalia Dies Aged 74, Punjab CM Mourns Loss

More: 1, 2, 3

Free the market in Indian agriculture sector

Very insightful thoughts from Ashok Gulati. Many interesting things he shares with BS. I did met him in one of the conference in Delhi recently. Inf act, he had shared most the following things in that talk he gave:

• "export controls is one way of taxing the peasantry by suppressing prices"
• “The problem is the government is trying to achieve equity through price policy and not using income policy, so you have massive misallocations. This is how Soviet Russia collapsed. We need to get out of this socialist mindset and allow markets to function,”
• “This is the area where the second Green Revolution is supposed to happen. It was a bumper year, but you had export controls so you didn’t allow foodgrain to go out, you restrict the private sector domestically, plus you are not procuring. So the market collapsed for farmers in Bihar. Yet you are procuring from Punjab, which earns Rs 4,000 crore extra by charging a tax of 14.5%, what the heck!”
• “He said, ‘Tumne saare desh ka theka le rakha hai? [are you responsible for the whole country?] The government has made you a chairman. Enjoy life’.”
• He found Agriculture Minister Sharad Pawar “progressive, more market oriented than other ministers and with a broad vision.”
• “Well, the food minister wanted to protect consumers, the agriculture minister the farmer. Each ministry works in a silo, so, really, it is for the prime minister to take a call. That’s when you need a leader.”
• “Vajpayee didn’t say much but he listened. Once, there was a discussion on deficit financing and Montek talked about how we need to disinvest in Maruti, Ashoka Hotel and so on. Vajpayee’s response was, ‘Bawaal khada ho jayega’ [it will become a problematic issue]. Yet, 15 days later, that’s exactly what the government announced. That’s leadership.” 

Some links

"We are working with 19th century file-based procedures which require every individual to pronounce sequentially on a file. All of that becomes open to questioning—Under Secretary wrote this, why did the Deputy Secretary write that, etc—and it is absolutely impossible to fix responsibility in the system."

"Good education can be imparted only by good teachers, whatever their caste may be. RTE will not work, so long as it prevents the most knowledgeable teachers from being recruited."

"Communism swept a large part of the globe to abolish feudalism in the name of freedom. According to The Black Book of Communism authored by many European academics, edited by Stéphane Courtois, the excesses under Communist regimes have taken 94 million lives. Democracy is a great liberating step from other forms of subjugation like dictatorships,"

Of that ruining tales of Indian growth story

Some links:

Shankkar Aiyar quotes while analyzing the current political economy of India:

Voltaire said, “We never live; we are always in the expectation of living.”

Mark Twain said “invest in land as they don’t make it anymore”.

Free marketeers turn Marxists- At least, I am not surprised to see these free marketeers turning to Marxists. 

Very interesting thoughts on health economics. "Master the gold standard of strength training first.".

Poverty-wallas, toilet-wallas to LPG cylinder-wallas

Prof Bibek Debory writes quite interestingly on LPGGasnomics in India:


"But not long ago, every time we ran out of a cylinder, there would be a problem. We were told there was a norm of no refills for 21 days, which works out to something like 17 cylinders a year.

I understand this quantitative cap no longer exists. However, it is some kind of norm to indicate how many subsidised cylinders you should be entitled to every year, and there is also a proposal floating around that each household should get no more than five subsidised cylinders a year.

If you now milk data on that portal, there should be a tear in every eye. In the year ended May 31, 2012, these are the kinds of numbers we have: Naveen Jindal (369), Hamid Ansari (171), Preneet Kaur (161), Vijay Bahuguna (83), Rajnath Singh (80), M S Gill (79), Maneka Gandhi (63), Suresh Kalmadi (63), Mulayam Singh Yadav (58), Ram Vilas Paswan (49), Sharad Yadav (49), Ashok Gehlot (45), Lalu Prasad Yadav (43), A Raja (47), Sharad Pawar (31) and Jaipal Reddy (26).

You can mess around with the portal for other nuggets. Why did A Raja need LPG cylinders if he was in jail? Is the late Prime Minister Chandra Shekhar dead or alive? How come he still receives 48 cylinders? Isn't there a norm that there can be only one connection per household?
How did Salman Khurshid get two connections and consume 62 cylinders? Isn't there a norm that the same individual cannot get two connections under two names? How did Mayawati get two connections and consume 91 cylinders? Naveen Jindal at the head of the league is symptomatic."


More you can track your own house and your enemies house how many cylinder they get in a year from the website http://111.118.215.211/


After committing significant reporting error on Indian economist Montek, the Tehelka apologises now!! What is the use?


"An earlier version of this story stated, incorrectly, that Pavan Ahluwalia worked for Price Waterhouse Coopers, in London, and that he was appointed by them to work on a project to privatize the Delhi Jal Board. Mr. Ahluwalia has never worked for Price Waterhouse or lived in London. He worked as a consultant to the Government of Delhi on a project to undertake institutional reform of the Delhi Jal Board, and was not involved in any discussions or decisions to related to its proposed privatization. The story also quoted Arvind Kejriwal as saying that the Delhi Jal Board project was initiated by the Department of Economic Affairs, when Mr. Montek Ahluwalia was Secretary (Economic Affairs). Online records of the correspondence between the World Bank, the Government of the National Capital Territory of Delhi (GNCTD), and the DEA, however, show that Mr. Ahluwalia was not involved in initiating this project, which was put forward by the Chief Secretary of the GNCTD The DEA was simply playing its nodal role, as the agency responsible for forwarding state requests for World Bank assistance, and this involvement was at the level of Additional Secretary V Govindrajan.


Tehelka regrets these errors, which have unfortunately been carried in the print edition. We apologise to Mr. Ahluwalia for the inconvenience this has caused. The error will be corrected in the next print edition as well. http://www.delhijalboard.nic.in/djbdocs/reform_project/docs/docs/doc_project_prep_docs/pdf/correspondence/27_04_1998.pdf" 

Good time, bad news

First, Gujarat CM gave very interesting interview to ET but not surprising at least to me. It is must read whether you like him or not. Also read this news story.


Second, Arvind had nice piece on healthcare law of United States of America in the DNA. 


Third, read the cover story on economist Montek titled The Riddler on the Roop.


Forth, read this Mint news item carefully written: "But that in no way diminishes our respect for a man who has been part of a group of able policy economists which helped redesign Indian economic policy after 1980. By helping put India on a path of faster growth, these men have done far more for the poor than the busybodies and peddlers of poverty porn who are now attacking him."

No Planning, please

Centralization is of course particularly dangerous where governance is poor but even when governance is not a serious problem, centralization is likely to be inefficient because bureaucratic decision-making, subject to multiple levels of accountability, is inherently sluggish, rule bound and unlikely to promote risk-taking. It suffers from greater inertia being less likely to acknowledge mistakes and change course when evidence begins to suggest that it should.

The age of foolishness or slaves of defunct economists

• To go back to Dickens, it was also the worst of times. It was the age of foolishness. It was the epoch of incredulity. It was the winter of despair. “In economics, there is no accountability for the consequences of your advice. And that is particularly so in an ascriptive society like India.” Jagdish Bhagwati said this and this is relevant because today’s policy-making environment is increasingly harking back to the late 1960s to mid-1970s, policies that led India to losing two development decades. It is fashionable to blame policy-makers for what went wrong then. But one tends to forget that those policy-makers were, to quote Keynes, slaves of defunct economists. We had the Hazari Committee report in 1967, Dutt Committee report in 1969 and the Wanchoo Committee report in 1971. We also had the Dagli Committee report in 1978. There were several such committee reports.

• It was economists who were important in policy-making who drew the wrong conclusions from Hazari/Dutt/Wanchoo and ignored Dagli. Without naming them, they have never quite been held to task. On the contrary, they have been rewarded with awards. In simple terms, what did those policies do? They restricted supply and made India a shortage economy.

• Post-1991 policies removed supply bottlenecks, where reforms were introduced. We now have a situation where policy-makers don’t know what is driving either growth or inflation. On inflation, we were earlier told it would slow down, hopes riding on the base effect. The base effect is wearing thin, and food price inflation shows no signs of easing, because agri-products are still supply-constrained. The finance minister, the deputy chairman of the Planning Commission and the Chief Economic Adviser have now told us inflation is a good thing, because it is reflective of higher growth and greater demand in rural areas.

• How about including policy-making economists within the ambit of the proposed Public Services Delivery Act, making them liable for the opportunity costs of lost economic growth? 

From Bibek’s Wonky policy wonks.

Well said

The government is about creative tensions. We criticise many things the ministries do. I don’t think there is anything wrong with ministries criticising us. The Prime Minister also chairs the Cabinet: on that basis, everything we do when we criticise other ministries could be shot down.

The notion that the government just sits there and agrees on everything is a dream. We better get used to the idea: Government is full of intense disagreements. And, it is good. These disagreements get sorted out at different levels, there is nothing wrong in that.

in imagining that India

Martin Wolf writes in FT:

"Fortunately, a country as big as India could sustain fast growth even if the external environment remained less friendly than before. But that would make lifting internal obstacles to growth even more urgent.

India and China are both ancient civilisations. But China’s ancient state has a powerful legitimacy. India’s state is young. Politics are a permanent negotiation. Democracy is not, as some argue, an obstacle to India’s progress, but a necessary condition for its existence as a state. For all the frustrations and failures, the political system is workable.

As a chapter in the Economic Survey on the “Micro-foundations of Growth” argues, even “India’s unpardonably large bureaucratic costs are like a valuable resource buried under the ground”. So much could be achieved if the state got out of the way. I have little difficulty in imagining that India can sustain growth of close to 10 per cent a year for a long time. Under conservative assumptions, the Indian economy would be bigger than the UK’s, in market prices, in a decade and bigger than Japan’s in two. I argue in a chapter on “India in the World” that India is following China as a “premature superpower”, by which I mean a country with low living standards, but a huge economy."

The myth of “Inequality and Equity during Rapid Growth Process”

As I have earlier posted here about few facts of Prof Suresh Tendulkar new paper published in the book.

Sandy requested for the link.

Now the presentation of this paper is available here.

Also see other presentations/papers here.

Review by Saubhik Chakrabarti This book is a festschrift for Montek Singh Ahluwalia.

Going back to no-reforms

Prof Arvind Panagariya point out in his piece in Yesterday ET titled “Indian growth miracle faces threat”

Some excerpts:

“Even those such as Prime Minister Manmohan Singh, home minister P Chidambaram and Planning Commission chief Montek Singh Ahluwalia, who had fought hard for economic reforms in the 1990s, show little keenness for continued pro-market reforms. Indeed, the fear is no more that still-incomplete reform process will not move forward under the present government — that is now old hat — it is that there are realistic prospects of the clock being turned back.

Attempts to enforce the minimum wage are bound to give rise to exactly the same problems in the unorganised as in the organised sector. Producers will shift into more capital-intensive sectors and technologies. Mechanical car washes, construction equipment, agricultural implements, washing machines and power-driven lawnmowers will gradually replace many activities currently performed by hands. And when that happens, the workers so released will have nowhere to go.

The third and final example of a recent policy that potentially sets back progress is the refusal by the environment minister Jairam Ramesh to allow the cultivation of genetically modified (GM) brinjal. Just as the ultra-high standards of social legislation in the area of labour have led to stunted industrial growth, environmental concerns that ignore scientific evidence can thwart a second Green (Gene?) Revolution. Indian farmers have already handsomely reaped the benefits of GM cottonseeds.

GM foods are also not new: they have existed in north and south America for more than a decade. Moreover, based on extensive study by agricultural research institutes, universities, and expert panels , one of which had been appointed by the Supreme Court, our government’s Genetic Engineering Approval Committee has given the brinjal a clean chit. Yet, bowing to groups such as Greenpeace that are committed to opposing GM foods under all circumstances, minister Ramesh has denied our farmers the benefit of the new variety.”