From the Hindu Rate of Growth to the Hindu Rate of Reform
Though economic liberalisation in India can be tracked back to the late 1970s, economic reforms began in earnest only in July 1991. Due to the existence of Licensing Raj, the Hindu rate of growth existed prior to 1991. India was a very slowing- growing economy at an average rate of 2.4 percent per year. India’s economy was much below not just East Asia and China but also Latin America and even Sub-Saharan Africa.
Those were the times when Life expectancy was one of the world’s lowest, only a small proportion of the adult population was literate
The Licensing Raj brought with it many restrictions on the setting up and running of businesses in India. The Planning commission centrally administered the economy of the country. There was intervention by the state in most of the matters including influence over resource allocation, what the ...view middle of the document...
Wide differentials existed for lending rates depending on the sector and the size of loan.
Foreign exchange reglulations complemented restrictive trade regulations. Firms with more than 40 percent foreign equity could only access domestic financing, or acquire assets with central bank authorization.
During the 1980s India started having balance of payment problems. The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. India’s oil imports increased, exports lessened, credit dried up and investors took their money out. The fiscal deficit rose to a high value. Since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly. The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of Imports. In return for an IMF bailout, Gold bullion was transferred to London as collateral, the Rupee devalued and economic reforms were forced upon India. Industrial licensing was abolished for almost all product categories. The only industries which are now reserved for public sector are defence equipment, atomic energy generation and railway transport. In many industries, the market has been allowed to determine the prices. The forex reserves started picking up with the onset of the liberalisation policies. Liberalization reduced prices and transportation costs. The outcome of ten years of reform is that India has opened to the world
economy. Trade barriers have declined further than anyone thought possible when reforms started in 1991, both on exports and imports, and led to the emergence of a highly competitive trucking industry. Import licensing was abolished relatively early for capital goods and intermediates which became freely importable. Further, restrictions that existed on the import of foreign technology were withdrawn. The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP growth rate of 9%