India Twenty Years Later

Economic opening, starting in 1991, may have created wealth in India. But it hasn’t created a political constituency for reform. The Indian government’s annual budget statement later this month will mark close to 20 years since India finally turned its back on most of the economic policies that had placed it on the edge of an abyss in the early months of 1991.

The dramatic liberalization of that year and further policy changes by governments in the late 1990s were a smashing success in some ways—India has a far more stable economy and is far more prosperous than before. But the failure to push reforms over the past six years, along with the shortcomings of past reforms, tell us a lot about why liberal economic policies have little political resonance in India.

Say what you will about the quality of reforms, India has come a long way since 1991. Back then a profligate government, an uncompetitive and heavily protected economy, high tax rates, an overvalued exchange rate, and sudden capital flight had brought India within 15 days of an embarrassing default on its international loans. In response, the government cut tariffs, did away with industrial licensing and opened the economy up to foreign investment. Though New Delhi is battling similar problems today—a large budget deficit and a wide current account deficit, for instance—the Indian economy is on a much firmer footing thanks to the discipline imposed by those reforms.

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One thought on “India Twenty Years Later

  • Marisa SungPost author

    This great change is one major contributing factor to the soaring prices of energy and food. Befriend a farmer. That is my new motto.

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