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8/13/2019 Indian Economy After Liberalisation Full 978-93-8117-614-6 2012 (1)
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Indian Economyafter Liberalisation
Performance and Challenges
Edi ted by
Dilip Saikia
SSDN Publishers & Distributors
New Delhi
Published by
Sat parkash Katla
SSDN PUBLISHERS & DISTRIBUTORS
5A, Sahni Mansion, Ansari Road
Daryaganj, New Delhi 110002 (India)
Ph: 011- 47520102
E-mail: [email protected], [email protected]
www.ssdnbooks.com
Indian Economy after Liberalisation Performance and
Challenges
Editor
[All rights reserved. No part of this publication may be reproduced, storedin a retrieval system or transmitted, in any form or by any means,mechanical or photocopying, recording and otherwise, without prior
written permission of the editor and the publisher.]
First edition: 2012
ISBN No 978-93-8117-614-6
PRINTED IN INDIA
Printed at Asian Offset, New Delhi
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Indian Economyafter Liberalisation
Performance and Challenges
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To my dear teacher,
Prof. Madhurjya Prasad Bezbaruah,
who inspires me to reach higher
8/13/2019 Indian Economy After Liberalisation Full 978-93-8117-614-6 2012 (1)
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Forword
Indias economy after l iberalisation is filled with challenges
and opportunities, which warrants keen introspection into
structure and performance of various sectors alongside its
human face. This collection of papers drafted by young scholars
of the Centre for Development Studies, Trivandrum demonstrates
an exemplary cohesion of issues concerning the economy during
the post-reform era. They address contentious issues like slowing
down of agricultural growth, deviations from the ideal pattern
of inter-sectoral linkages, poverty comparisons and regionalvariations.
While this volume may not be exhaustive in terms of
addressing all possible areas of the economy having the potential
bearing of liberalisation, it undoubtedly deliberates on the
essential domains of the economy with i ts evolving perspective.
Apart from agriculture, industry and services, the content
extends to an understanding of poverty, regional variations
and human development. As such, it serves as an ideal reading
of the liberalised Indian economy in a wide-ranging perspective.
Varying issues and pertinent questions are being addressedwith conceptual justification and empirical exploration, which
makes this volume distinct from others on the same topic.
This collection of research papers, originated as term papers
during the course work of M.Phil course in Applied Economics
at the Center for Development Studies, has undergone substantial
revision to assume its current shape. I ts rigour, veracity, and
analytical strength owes a great deal to the suggestions and
interventions made by the Centres faculty during its presentation
in the seminar. Needless to mention that this initiative of
putting together works of young budding researchers in a
comprehensive volume is enviable on one hand and reassuring
on the other.
I put on record my sincere appreciation for Mr. Di lip Saikia
and the individual contributors to this volume for this remarkablejob, which will encourage peers to make similar attempts at
disseminating their early career works. Finally, it is a dream
come true for a sincere teacher and I wish many more
similar collections of works to take shape in future.
Udaya S. Mishra
Associate Professor
Centre for Development Studies
Trivandrum
(viii)
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Preface
Indias economic reform since 1991 has been catalyst in shaping
the performance of the economy. No doubt the economy has
been brought to a higher growth trajectory, emerged as one
of the fastest growing economies in the world and minimised
many of the apparent inefficiencies that were persistent before
the reform; however, it is overwhelmed by various socio-
economic problems and there are new challenges in the process
and backlashes in various areas, such as growing inequalities,
low levels of employment, and agrarian distress, etc. Thebook provides a comprehensive review of the performance of
Indias economy in the context of two decades of structural
reforms and the growth and development challenges thereof.
I t covers the main features of Indias post-reform economic
development and addresses issues such as sluggish growth
of agriculture, inter-sectoral linkages, poverty, rural
development and human development in the context of the
economic reforms.
The book grew out of a series of term papers carried out
by the authors during the course work of M.Phil Programmein Applied Economics at the Centre for Development Studies,
Trivandrum. I am thankful to the authors for their contribution
and their diligence in revising the chapters according to the
broader theme of the book Their suggestions helped me incalculably
at various stages during editing the book.
The editor and the other authors are all grateful to the
Centre for Development Studies for providing a radiant
academic ambiance and research facilities. Sincere thanks
are due to the concerned faculties under whose able guidance
these studies were formulated and to all the faculties and fellow
students for their insightful comments during the presentation
of the studies. I express my sincere gratitude to Dr . U. S.
Mishra of Centre for Development Studies for his guidance and
encouragement as the Coordinator of M.Phil Programme and
for writing the forward of the book.
I also take this opportunity to record my sincere thanks
to Prof. M. P. Bezbaruah (of Gauhati University) for his
consent encouragement and inspiring me to reach higher. I
also extend my gratitude to the administration of the Insti tute
for F inancial Management and Research (IF MR), Chennai,
where I am currently pursuing PhD programme, for providing
a workable environment and to the faculties and fellow research
scholars of the Institute for exchanging their ideas on diverse
areas.
I am indebted to the SSDN Publishers & Distributors for
publishing the book. Mr. Sat P arkash K atla of the SSDN
Publishers & Distributorsprovided indispensable oversight
for getting the book to publication.
I owe grati tude to my family for the care and support I
received throughout my li fe. Lastly, but not the least, I duly
acknowledge my sincere thanks to all those who helped me
in the course of this work. All may not be mentioned but
none is forgotten.
Needless to say, the views expressed in the book are of
the views of the authors, and do not necessarily reflect the
views of the organisations they belong to and the editor of the
book. Nevertheless the editorial errors are mine.
Dilip Saikia
(x)
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SWATI DUTTAis doing Ph.D in Economics under Madras
University at Institute of Financial M anagement and
Research. She did her M.Phil in Applied Economics from
Center for Development Studies under J awaharlal Nehru
University. Previously she worked as project linked
personnel in the project entitledConstru ction and An alysis
of Regional V ar iat i on of Social D evelopment In dices in
I nd i a, sponsored by Ministry of Statistics and Programme
Implementation, Government of India in Indian Statistical
Institute, Kolkata. Her area of interest is Development
Economics.
KHANINDRA CH. DAS is research scholar at I nstitute for
Financial Management and Research (IFMR), Chennai,
India. H e received Masters Degree in Economics from
Gauhati University, Guwahati and M.Phil in Applied
Economics from Centre for Development Studies,
Trivandrum. His research interests are diverse that include,
among others, Development Economics and International
Trade & Finance. H is recent publications includeRisk
Behaviour of Commercial Ban ks under Reform : The Ind ian
Experience.
KALYANY SANKAR is currently a Project Assistant at Centre
for Development Studies (CDS), Trivandrum. She completed
M.Phil in Applied Economics from Centre for Development
Studies. Her areas of interest are Poverty and Human
Development and worked on the Social and EconomicMobility of Slum Dwellers.
List of Contributors
DILIP SAIKIA is research scholar of Economics at Institute
for F inancial Management and Research, Chennai (I ndia).
He received M.Phil in Applied Economics of J awaharlal
Nehru University from Centre for Development Studies
(CDS), T rivandrum and Masters Degree in Economics
from Gauhati University, Assam. His research interests
include macroeconomics, economic development and trade,
industrial organisation, r egional economics and economic
geography. H is recent books include Ind ust r ia l L ocat ion
under Gl obal isat ion in In dia: E vidence from Unorganised
Manufacturing I ndustriesandAgricultu re-In dustry Li nkages
in In dia: Some Issues and Evid ences.
VACHASPATI SHUKLA is currently research scholar at
Centre for Development Studies (CDS), Trivandrum, India.
He received M.Phil in Applied Economics from Centre
for Development Studies and MA in Economics from
Faculty of Social Science, Banaras Hindu University,
Varanasi. His research interests include labour economics
and human development.
KIRAN KUMAR KAKARLAPUDI is currently doctoral
scholar in E conomics at the Centre for Development
Studies, Trivandrum. He has completed M.Phil in Applied
Economics from Centre for Development Studies during
2008-10 and M.A. in Economics from University of
Hyderabad. His area of interest includes labour economics,
economics of technological change, issues related to
globalisation and inequality. H e is currently working on
implications of technological change on growth and
employment.
(xii)
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3.5 Summary and Conclusion 115
Refer ences 117
4. Agriculture and Industry: Analysing
Linkages for Pre- and Post-reform
Periods in India 122Di l i p Saik ia
4.1 Introduction 122
4.2 Nature of Agriculture-Industry Linkages 123
4.3 A Reprise of Theories 127
4.4 Methodologies of Estimating Sectoral Linkages 131
4.5 Trends of Agriculture-Industry Interlinkages in
I ndia 135
4.6 Conclusion 155
Refer ences 157
Annexur e 4.1 164
Ann exur e 4.2 169
5. Differential Growth of Poor and
non-Poor and I ts Implication on
Poverty Reduction 174
Vachaspat i Shu kla
5.1 Introduction 174
5.2 Conceptual Framework 176
5.3 An Alternative Way to Measure the
Poverty Reduction 183
5.4 Empirical Evidence from Indian States 185
5.5 Conclusion 191References 193
6. Regional Patterns of Agricultural Growth
and Its Bearing on the Incidence of
Poverty in India 194
Swat i Du t t a
6.1 Introduction 194
6.2 Literature Review 197
6.3 Objectives 200
6.4 P erformance of I ndian Agriculture 200
Forwor d vi i i
Pr eface ix Cont r i bu tor s xi
L i st of Tables xv i i
L i st of F i gu r es xxi
L i st of Boxes xxi i i
Abbr evi at i ons xxv
1. Introduction: Indias Economy after
Liberalisation 1
Di l i p Saik ia
1.1 Introduction 1
1.2 Indias Performance: 1951-52 to 2009-10 61.3 Overview of the Volume 39
References 44
2. Indias Road to Economic Reforms 47
Di l ip Saik ia and Vachaspat i Shukl a
2.1 Indias Development Strategy in the
Post-Independence Period 47
2.2 Reforms of the 1980s 53
2.3 The Crisis of 1991 57
2.4 Major Reforms of the 1990s 64
2.5 Conclusion 75
Refer ences 77
Ann exur e 2.1 80
3. Agricultural Growth in the Post-reform Era:
A Critical Assessment 81
K i ran Kumar Kaka r l apu r i
3.1 Introduction 81
3.2 Review of L iterature 84
3.3 Sources of Agricultural Growth since
Independence 89
3.4 Factors Affecting Agr icultural Growth 104
(xiv)
Contents
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6.5 Present Scenar io of Pover ty in India 207
6.6 How Increased Agricultural Productivity
Reduces Poverty 211
6.7 Analytical Framework 217
6.8 Results 221
6.9 Conclusion 224
Refer ences 226
7. Access to Finance and Its Association
with Development in Rural India 228
Khan ind ra Ch . Das
7.1 Introduction 228
7.2 Access to Finance and Development:
A Brief Review 231
7.3 Extent of Inequality in the Access to
F inance from Institutional Sources 2357.4 Association of Inequality in Institutional
Access to F inance and Development 237
7.5 Conclusion 245
References 248
8. Human Development in India:
An Analysis of Inter-state and
Intra-state Convergence/Divergence 251
Kalyany Sankar
8.1 Introduction 251
8.2 Review of L iterature 2538.3 Data Source and Methodology 258
8.4 Analytical Framework 259
8.5 Results 262
8.6 Conclusion 279
References 282
Annexur e 8.1 286
Annexur e 8.2 288
I n d ex 2 93
(xv)
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List of Tables
1.1 Selected Indicators of Indias Economy:
1950-51 to 2009-10 4
1.2 Indias Growth Performance during
Planning period 9
1.3 Indias Economic Growth during
Pre-independence period 11
1.4 Growth during Selected Pre-reforms periods 13
1.5 Post-reform Growth Performance 18
1.6 Volatility in Growth Rate: Coefficient of
Variation 20
1.7 Contributions to Growth 21
1.8 Combined Deficits of Central and State
Governments 25
1.9 Gross Domestic Saving and Gross Domestic
Capital Formation 28
1.10 Selected Balance of Payments Indicators 29
1.11 Percentage of People below Poverty L ine 33
1.12 Rate of Growth of Organised Sector E mployment 34
1.13 Unemployment Rate (per 1000) according to
Usual Status, Current Weekly Status (CWS)
and Current Dai ly Status (CDS) approach 35
2.1 Selected F iscal I ndicators during the 1980s
(as percentage of GDP) 58
2.2 Selected Balance of Payment (BoP)
Indicators (as percentage of GDP) 61
3.1 Growth Rate in GDP Agriculture and
non-Agriculture before and after
Reforms 923.2 Growth Rate in Output of various Sub-
Sectors of Agriculture 93
3.3 Share of Foodgrain and Non-Foodgrain Crops in
Cropping pattern and Value of Output in
I ndia 95
3.4 Sources of Agricultural Growth in different
Regions of India during 1980s and 1990s 96
3.5 Share of different Commodities in the Sources
of Agricultural Growth in India during 1980sand 1990s 99
3.6 Rate of Growth of Area, Production, Yield and
Area under I rrigation for major Crops percent 102
3.7 Growth Rate in Area, Input Use, Credit and
Capital Formation in Agriculture before and
after Reforms 104
4.1 Sectoral Share Matrices (Production L inkages) 146
4.2 Sectoral Demand Matrices [(I - A)-1] (Demand
Linkages) 152
4.3 Changes in Sectoral L inkages: Summery 154
4.1.A Sectoral share of GDP at factor cost 169
4.2.A Sector-wise Trend Growth Rate of
GDP 169
4.3.A Share of Agro-based and non Agro-based
Industries (Organised Sector) 170
4.4.A Share of Agricultures Final and
Intermediate Consumption 171
(xviii)
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4.5.A Share of Modern and Traditional I nputs
in Agriculture 171
4.6.A Consumption of Fertilisers and Pesticides 172
4.7.A Per H ectare Consumption of Fertil isers and
Pesticides 173
5.1 An I llustration 183
5.2 Number and Proportion of People below
Poverty Line across I ndian States 187
5.3 Decadal Population Growth across India
States 188
5.4 Average Household Size of Poor and non-
Poor across States in 1993-94 192
6.1 Annual Average Growth Rate in Agriculture
and the GDP 201
6.2 Growth Rate of Yields for Foodgrains and
Oilseeds: 1980-1 to 2005-6 202
6.3 Growth Rate of GDP in Agriculture 204
6.4 State-wise Incidence of Poverty 209
6.5 Correlation Matrix among Poverty Head
Count Ratio, Yield and NSDP per worker
in 1994-95 level values 218
6.6 Correlation Matrix among Poverty HeadCount Ratio, Yield and NSDP per worker
in 2004-05 level values 220
6.7 OLS Estimates 1 222
6.8 OLS Estimates 2 223
7.1 Percentage of Rural Households getting
Access to Finance from different Sources
across Asset-holding Classes (All India) 240
7.2 ANOVA Test of Di fference of P ropor tion 241
7.3 Correlation Matrix of Poverty, Li teracy,
Electricity Use, Access and Inequality in
Access to Finance 243
7.4 Classifying Poverty and Inequality in
Access to F inance into Low and H igh 2437.5 Classification of States by Inequality in
Access to Finance and Poverty 245
7.6 Poverty, Inequality, NSDP, Electricity
Usage, L iteracy Rate, 2002 246
8.1 State-wise Literacy Rate, I MR, P roportion
of Households with Safe Water, Electricity
and Toilet Facilities 263
8.2 District-wise Literacy Rate, I Mr,Proportion
of Households with Safe Water,E lectr ici ty and Toi let Faci li ty in Kerala 267
8.3 District-wise L iteracy Rate, IMR and
Proportion of Households with Safe Water,
E lectri city and Toi let Facil ity in Bihar 270
8.4 Sigma- Convergence of SDI 276
8.5 Summary Statistics of all India SDI in 1991
and 2001 277
8.6 Summary Statistics of SDI for Kerala in 1991
and 2001 278
8.7 Summary Statistics of SDI for Bihar in 1991
and 2001 279
(ixx) (xx)
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List of Figures1.1 Annual Growth Rate of GDP and Per
Capita NNP: 1951/52-2009/10 8
1.2 Combined Deficits of Central and State
Governments 24
1.3 Annual Inflation Rate in India in the
Post-reform period 37
2.1 Average Annual Growth Rates of
Non-Oil Merchandise Exports and
Imports 56
2.2 Merchandise Non-oil E xports and Imports
as Percentage of GDP 56
2.3 Annual Inflation Rate 59
2.4 Real Exchange Rate 60
2.5 Indias Foreign Exchange Reserves
(as percentage to GDP) 63
2.1.A E xternal Debt (as percentage to GDP ) 80
2.2.A Indias Current Account (as percentage
to GDP) 80
3.1 Share of different Sources of Growth in
Agriculture in India 97
3.2 Capital Formation in Agriculture 107
4.1 Sectoral Composition of GDP at factor cost 140
4.2 Sector-wise Trend Growth Rate of
GDP 140
4.3 Comparison between different TOT Series 150
4.4 Relative Prices of Agriculture and
Industry 151
4.1.A Agricultures Purchase from non-
Agricultural Sector 173
5.1 Decomposition of total Increase in
Population of non-Poor 191
6.1 Theoretical Framework 219
7.1 Percentage of Rural Household getting
F inance from I nstitutional Sources 238
7.2 Percentage Share of Institutional Agencies
in Cash Debt Outstanding of Rural Households 239
8.1 State-wise Social Development Index,
1991 and 2001 265
8.2 Social Development Index for K erala,
1991 and 2001 268
8.3 Districts with below Bihar State
Average SDI 273
8.4 Districts with above Bihar StateAverage SDI 274
(xxii)
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List of Boxes1.1 Major Econmic Reforms of 1991-93 65
1.2 Construction of Variables and Data Sources 244
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Abbreviations
ADB Asian Development Bank
CAD current account deficit
CDS current daily status
CGE computable general equilibrium
CMIE Centre for Monitoring I ndian E conomy
CPI consumer price index
CRR cash reserve ratio
CSO Central Statical Organisation
CV coefficient of variation
CWS current weekly status
EPW Economic and Political Weekly
FEMA Foreign E xchange Management Act
FER foreign exchange reserveFERA F oreign Exchange Regulation Act
FODI outwar d foreign direct investment
FRBM Fiscal Responsibility and Budget Management
FYP Five Year Plan
GDCF gross domestic capital formation
GDP gross domestic product
HCR head count ratio
HDI Human Development Index
HYV high yielding variety
IEM I ndustrial Entrepreneur M emorandum
IMF International Monetary Fund
IMR infant mortality rate
INC Indian National Congress
IRDP Integrated Rural Development P rogramme
IRRI I nternational Rice Research I nstitute
J GSY J awahar Gram Samridhi Yojana
J RY J awahar Rojgar Yojana
MoU Memorandum of Understanding
MRTP Monopolies and Restrictive Trade Practices
MSP minimum support prices
NF BS National F amily Benefit Scheme
NNP net national product
NOAPS National Old Age Pension Scheme
NREGP National Rural Employment Guarantee
Programme
NRE P National Rural Employment P rogr amme
NSAP National Social Assistance Programme
NSDP net state domestic product
NSS National Sample Survey
POL petroleum, oil, and lubricants
(xxvi)
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PPP purchasing power parity
PSU public sector undertakings
RBI Reserve Bank of India
RDP Rural Development Programme
RLEGP Rural Development and Poverty Alleviation
Programme
SAM social accounting matrix
SDI Social Development Index
SE BI Secur ity and E xchange Boar d of I ndia
SGRY Sampoorna Grameen Rozgar Y ojna
SGSY Swar njayanti Gram Swarozgar YojanaSI A Secretariat of I ndustrial Approvals
SLR statutory liquidity ratio
TFP total factor productivity
ToT terms of trade
TPDS Targeted Public Distribution System
U BSP U rban Basic Services Programme
UPA United Progressive Alliance
UPDS Union Pacific Distribution Ser vices
VAT value added tax
WPI wholesale price index
WSBI World Saving Bank Institutes
WTO World Trade Organisation
(xxvii)
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Introduction 1
1
Introduction: Indias Economyafter Liberalisation
Dil ip Saik ia
1.1. IntroductionIndia had undergone structural changes in policies from
import substitution regime to free market regime in the early
1990s. I t has been two decades since India liberalised its
policies. Therefore, it is now reasonable to review the
performance of I ndias economy during this period, and look
at the future challenges. The stabilisation-cum-structural
adjustment reforms, (see chapter 2 by Saikia and Shukla
for a discussion) have become one of the landmarks for the
recent spate of Indias economic development. Following the
economic reforms, the economy has been performingextremely well and presently the economy is regarded as one
of the fastest growing economies in the world. I t has been
growing at an annual average rate of 6.86 per cent during
the two decades of economic reforms (1992-93 to 2009-10)
as against 4.07 per cent during the four decades prior to the
economic reforms (i.e. 1950-51 to 1991-92). Moreover, the
growth of the economy scaled up particularly after the year
2000, with the growth averaging at an annual rate of 7.32
per cent during 2000-01 to 2009-10 and 8.46 per cent during
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Introduction 32 Indian Economy after Liberalisation
2003-04 to 2009-10. As per World Bank data1India is now
the 10thlargest economy in the world in terms of nominal
Gross Domestic Product (GDP) which stood at US$1377.26
billion in 2009 and the 4th largest in terms of purchasing
power parity (US$ 3808.44 billion in 2009). The countrys
GDP per capita (PPP) recorded at US$ 2,993 (at constant
2005 international dollar) in 2009, as against US$ 1831.66
in 2001 and US$ 1232.19 in 1991.
The success story of the economy is mainly attributed to
the rise in the quantum of investment during this period.
The gross domestic capital formation (GDCF) stood at 36.5
per cent of GDP in 2009-10 as against 26 per cent in 1990-
91 and gross domestic savings stood at 33.7 per cent of GDP
in 2009-10 as against 22.8 per cent in 1990-91 (Table 1.1).
The industry and services sectors continued to fuel the
economic growth. Industrys contribution (including
construction sector) to GDP has steadily increased from
25.92 per cent in 1990-91 to 28.47 per cent in 2009-10, while
services sector continued to contribute about 57 per cent to
GDP in 2009-10. The economy has been doing well in the
external sector, especially in trade, foreign investment, and
accumulating foreign reserves. The volume of exports and
imports recorded at Rs. 845534 crore and Rs. 1363736 crore
respectively and the foreign exchange reserves stood at Rs.
1149650 crore in 2009-10 (Table 1.1). The economy has not
only become a major destination of foreign investment; butalso emerged as one of the emerging source of outward
foreign direct investment (OFDI ). The macro-economic
condition of the economy has been stronger over the period
compared to the pre-reform decade, albeit inflation has been
a major concern from time to time.The social sector
performance has also been impressive during this period.
Birth rate has declined to 22.5 per thousand of population,
death rate declined to 7.3 per thousand of population, life
expectancy at birth increased to 64.1 years and l iteracy rate
increased to 74 per cent in 2009-10 (Table 1.1). The
spectacular performance of the economy in the last two
decades helps in improving the investors confidence and
business environment in India. In this regard The Economist
(2010) quotes, Indian firms are increasingly global and
sometimes world-class. Arcelor Mittal, based in Luxembourg,
is the worlds largest steel firm. Tata Motors, best known for
making cars that cost only $2,000, also owns J aguar and
Land Rover, two luxury brands. Bharti Airtel, a mobile-
phone firm with 140m subscribers in I ndia, is rapidly
expanding into Africa, too.
Thus, we can see that the economy has been doing
superbly since the initiation of the free market principle
through economic reforms in the early 1990s. To summarise
the present scenario of I ndias economy it is worthwhile to
quote Acharya and Mohan (2011), Overall economic growth
has accelerated, inflation has moderated, and financial
stability has been maintained. The fiscal position has
fluctuated, registering periods of both successful
consolidations and backsliding. The economy has seen
substantial opening to the rest of the world as the currency
has become convertible on the current account, and the
capital account has been liberalised subsequently. Theindustrial sector has been deregulated and exposed to
international competition, thereby making it more
competitive. The services sector has exhibited a new vibrancy
in some areas, with the information technology sector showing
the potential of Indian enterprise.
The aim of this book is to uncover some aspects of Indias
development in the post-reform period and highlight on the
future challenges. Before presenting an overview of the
book we briefly review Indias performances in the post-
1. World bank onli ne database available at http://
data.worldbank.org
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Introduction 54 Indian Economy after Liberalisation
Table1.1:Selec
tedIndicatorsofIndias
Economy:1950-51to2009-10
1950-5
1
1960-6
1
1970-7
1
1980-8
1
1990-9
1
2000
-01
2009-1
0
ECONOMIC
INDICATORS
GDP
atfactorcost:atconstant
prices(inRsCr.)%
224786
329825
474131
641921
1083572
1864
300
4493743Q
PercapitaNNPatconstant
Prices(inRs)%
5708
7121
8091
8594
11535
161
72
33731Q
GrossDomesticCapitalFormation
(as%
ofGDP)
8.4
14
15.1
19.9
26.0
24.3
36.5
GrossDomesticSavings
(as%
ofGDP)
8.6
11.2
14.2
18.5
22.8
23.7
33.7
Indexofagriculturalproduction
(Base:1981-82=100)
46.2
68.8
85.9
102.1
148.4
165
.7
179.9
Indexofindustrialproduction
(Base:1993-94=100)
7.9
15.6
28.1
43.1
91.6
162
.6
316.2
WholesalePriceIndex
6.8
7.9
14.3
36.8
73.7
155
.7
130.4
CPIforIndustrialworkers
17
21
38
81
193
44
4
163
Exports(RsCr.)
606
642
1535
6711
32553
203571
845534
Imports(RsCr.)
608
1122
1634
12549
43198
230873
1363736
Foreignexchangereserves
@
(RsCr.)
911
186
438
4822
4388
184482
1149650
SOCIAL
INDICATORS
Population(million)
359
434
541
679
839
1019
1170
AverageAnnualExponential
PopulationGrowth(%)*
1.25
1.96
2.20
2.22
2.14
1.9
3
-
BirthRate(per1000)
39.9
41.7
36.9
33.9
29.5
25.4
22.5
DeathRate(per1000)
27.4
22.8
14.9
12.5
9.8
8.4
7.3
LifeExpectancyatBirth(Years)
32.1
41.3
45.6
50.4
58.7
62.5
64.1
$
(a)Male
32.5
41.9
46.4
50.9
58.6
61.6
64.9
$
(b)Female
31.7
40.6
44.7
50.0
59.0
63.3
62.0
$
LiteracyRatio(%)
18.3
28.3
34.4
43.6
52.2
64.8
74.04#
(a)Male
27.2
40.4
46.0
56.4
64.1
75.3
82.14#
(b)Female
8.9
15.4
22.0
29.8
39.3
53.7
65.46#
No
te:Q-quickestimate;%
Datarelatesto1999-2000pricesupto2000
-01.For2009-10dataarebasedon
new
series
(2004-05)prices;@
Excludinggold,SDRsandReverseTranchePo
sitionattheIMF;#Figuresarefor
2011andtaken
from
Census2011;$Figures
arefor2009andtakenfrom
UNICEFIndiaStatistics;*Figuresarefor
thecensusyear
anddatacollectedfrom
Cens
us2001.Source:EconomicSurvey,2
009-10
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Introduction 76 Indian Economy after Liberalisation
reform period as compared to pre-reform period and look at
the major challenges facing the economy. In the next section
we review Indias growth performance since independence.
Thereafter, we will highlight some of the major challenges
facing by the economy and finally,we will provide an overview
of the book.
1.2. Indias Performance: 1951-52 to 2009-10
I t is relatively a challenging task to review the
performance of Indias economy, since there have been many
well-known studies on the topic that have evaluated Indias
growth story since the independence and specifically after
economic reforms both at macro and micro level in different
dimensions. One way to look at a countrys performance is
to look at the pace of economic growth and its macroeconomic
condition during the period (Acharya and Mohan, 2011). Itwil l provide an aggregate assessment of the overall economic
performance of the economy. Here, we look at Indias growth
performance since 1950-51.
Figure 1.1 presents the annual growth of GDP and per
capita Net National Product (NNP) for the period 1951-52
to 2009-10. From the figure it is hard to characterise Indias
economic growth during this period, though it is clear that
there were very few years in the first three decades when
the growth rate exceeded 5 per cent. None of the Five Year
Plans, during the first three decades, recorded an average
annual growth rate of over 5 per cent and the decadal
average growth rate hardly exceeded 4 per cent per annum
(Table 1.2). The growth that picked up from 3.5 per cent per
annum during the First Five Year Plan (FY P) to 4.3 per cent
per annum during the Second FYP came to a halt during
the Third FYP as growth rate dropped to 2.88 per cent per
annum, which slowly bounced back during the Fourth and
Fifth FYPs. The performance of industrial sector was average
during the period except during the Fourth FYP, while
agriculture sector performance was poor and service sector
grew at an average rate. Looking at the decadal annual
average growth rate there was continuous decline in each
decade compared to previous decade for overall GDP and
well as sectoral GDP. Further, there were four years when
GDP growth recorded negative rates: 1957-58, 1965-66,
1972-73 and 1979-80. The result was a much slower growth
of 3.6 per cent per annum during the first three decades of
planned development, what is often referred as the Hindu
Rate of Growth.2However, this 3.6 per cent growth rate
during the first three decades was four times greater than
the 0.9 per cent estimated for the period 1900-46 during the
British rule (Table 1.3), though the post-independence
growth was far below potential and much less than the 7-
8 percent rates being achieved in some countries of East Asia
and Latin America (Acharya, 2008). Singh (2009) remarked,Using the colonial period as a benchmark, India certainly
has done well. I ts GDP growth and improvements in human
development indicators were both well above the earlier
era Infrastructure investment was greater than before,
industries were developed in support of modernisation goals,
and higher education, in particular, grew dramatically
also sustained relatively low inflation rates On the other
hand, as early as the 1960s, several East Asian countr ies
began to outstrip Indias economic performance. (emphasis
added). Another feature of the pre 1980s growth was high
volatili ty in growth rates as we can see from Figure 1.1. Thevolatility was highest during the 1970s compared to the
previous two decades and agriculture growth remained
highly volatile during the entire period (Table 1.6).
2 The Hindu rate of growth, as Basu (2007) noted, is the tongue-
in-cheek expression coined by the Indian economist, the late
Raj K rishna, to capture the frustrations Indias planners faced
with growth.
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Introduction 98 Indian Economy after Liberalisation
Source:Basedondatafrom
Ec
onomicSurvey2011
Note:Dataareat1999-00seriesupto2004-05,afterwhichat
2004-05series.
Ta
ble1.2:IndiasGrowthPerformanced
uringPlanningperiod
(percen
tagepery
ear
)
GDP
Pr
imary
Seco
ndary
Tra
de,
Financ
ing,
Pu
blic
Ho
tels,
Insurance,
Adm
inistra
tion,
Transpor
t&
Rea
les
tate,&
De
fense
Commun
ica
tion
Bus
iness
an
do
ther
Serv
ices
FirstPlan(1951-56)
3.58
2.92
6
.12
4.66
3.12
2.98
SecondPlan(1956-61)
4.28
3.46
6
.50
6.12
2.82
4.32
ThirdPlan(1961-66)
2.88
-0.02
6
.90
5.64
3.30
5.80
AnnualPlans(1966-69)
4.03
4.33
3
.97
3.90
3.13
4.33
FourthPlan(1969-74)
3.26
2.70
3
.34
3.84
3.98
4.28
FifthPlan(1974-79)
4.80
3.64
6
.38
6.86
5.30
3.60
AnnualPlan(1979-80)
-4.90
-12.20
-3.50
-0.40
1.00
7.30
SixthPlan(1980-85)
5.60
5.94
5
.08
5.44
7.36
4.90
SeventhPlan(1985-90)
5.66
3.40
6
.36
6.48
9.96
6.86
AnnualPlans(1990-92)
3.35
1.50
3
.30
3.85
8.50
3.50
EighthPlan(1992-97)
6.56
4.68
7
.74
8.74
6.96
5.64
NinthPlan(1997-2002)
5.52
2.60
4
.34
7.96
8.02
7.66
TenthPlan(2002-2007)
7.78
2.68
9
.72
11.18
9.80
5.20
EleventhPlan(3Years)#
8.03
2.27
7
.70
9.40
11.20
10.47
Figure1.1:Annu
alGrowth
RateofGDP
and
Pe
rCapitaNNP:1951/52
2009/10
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Introduction 1110 Indian Economy after Liberalisation
Table 1.3: Indias Economic Growth during Pre-
independence period
(percent age per year )
Year GDP Popu l at i on Per Capi ta GD P
1900-29 0.9 0.5 0.4
1930-46 0.8 1.3 -0.5
1900-46 0.9 0.8 0.1
Source: Sivasubramonian (2000), cited in Acharya (2007)
The gloomy performance of the economy during the first
three decades was mainly due to the development strategyadopted by the policy makers during this period (Singh,
2009). I t is well known that India had followed an inward-
looking development strategy with import-substitution policy,
restrictions on exports, and many industries were reserved
for the public sector until the early 1980s. (These policies
have been discussed in Chapter 2 of this book.) The
restrictions on trade and international investment did not
allow the economy to enjoy the benefit of trade as an engine
of growth, whi le some East-Asian economies such as South
Korea and Taiwan had benefited from opening their economy.
Krueger (2008) pointed out three policies, viz. a neglect of
infrastructure, higher regulations in the labor market, and
the license raj that deterred the growth during this period.
However, growth rate picked up during early years of
the 1980s. The Sixth and Seventh FYPs recorded over 5.5
per cent annual average growth rate and a decadal growth
rate of 5.4 per cent (Table 1.2). The growth of agriculture
sector was impressive compared to the earlier three decades,
while industry continued to grow above the average andDecadalAverageGrowth
1951-52to1960-61
3.93
3.19
6.31
5.39
2.97
3.65
1961-62to1970-71
3.78
2.58
5.61
5.01
3.43
5.30
1971-72to1980-81
3.17
1.95
3.96
4.86
4.09
3.98
1981-82to1990-91
5.40
3.83
5.97
5.90
9.09
5.91
1991-92to2000-01
5.60
2.90
5.75
7.69
7.84
6.50
2001-02to2009-10
7.64
2.90
8.28
10.37
9.99
6.83
Note:
*Upto
2004-05thedataisin1999-00series,afterthatitisin2004
-05series
#Forthefirstthreeyearsof11thP
lan
(2007-08to2009-10)
Source:Calculatedbasedondatafrom
EconomicSurvey2011T
able1.2:(Contd.)
(
percen
tagepery
ear
)
GDP
Pr
imary
Seco
ndary
Tra
de,
Financ
ing,
Pu
blic
Ho
tels,
Insurance,
Adm
inistra
tion,
Ttanspor
t&
Rea
les
tate,
De
fense
Commun
ica
tion
,&B
us
iness
an
do
ther
Serv
ices
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Introduction 1312 Indian Economy after Liberalisation
service sector picked up. However, the growth during the
second half of the 1980s was more pronounced compared to
the first half (Table 1.4). Dur ing 1981-82 to 1985-86 growth
recorded at 4.92 per cent per annum, which jumped to 5.88
per cent per annum during 1986-87 to 1990-91.The
interesting part of the decade was the exceptionally high
growth rate of 7.2 per cent per annum during the three
years period between 1988-89 and 1990-91, which is also
coincide with the crisis period due to which Panagariya
(2005) remarked, [...] any explanation of growth in the
1980s must explain the exceptionally high growth during
1988-91. Panagariya further noted some facts of Indias
growth during the 1980s [] the earliest break in the
growth rate occurs in 1977-78 [] though the average growth
rate over a whole decade hit the 5 per cent mark for the
first time during 1980-90, year-to-year growth during thisperiod exhibited considerable fragility [] the average of
the growth rates over the ten-year period spanning from
1978-79 to 1987-88 was an unimpressive 4.1 per cent []
the economy was still on the Hindu growth path. Even the
average of growth rates during the seven-year period from
1981-82 to 1987-88 [recorded] at 4.8 percent [] I t is only
when we include the ultra-high growth rates [7.6 per cent]
of the last three years of 1980s that the average growth rate
from 1981-82 to 1990-91 jumps to 5.6 percent [...] Without
these three years, there would be no debate on growth
during 1980s versus 1990s. (emphasis added).
However, there have been diverse explanations about
the acceleration of growth during the pre-reform period. For
instance, DeLong (2003) pointed out that the post-1984
reforms was responsible for growth acceleration, whereas
Table 1.4: Growth during Selected Pre-reform
periods
(percent age per year )
Year GDP Pr imary Secondary Trade, Financing, Publi c Hotel s, I n su rance, Admi n i st ra -
Transpor t Real t i on D efense
& Commu ni - est at e,& a nd ot her
cation Business Services
1981-82 5.60 5.10 7.50 6.20 8.10 2.10
1982-83 2.90 0.40 0.50 5.40 9.50 7.70
1983-84 7.90 9.70 8.70 5.10 9.80 3.70
1984-85 4.00 1.60 4.50 4.80 7.50 6.90
1985-86 4.20 0.60 4.20 7.90 9.80 5.70
1986-87 4.30 0.30 5.10 6.00 10.50 7.50
1987-88 3.50 -1.20 5.80 5.30 7.30 7.20
1988-89 10.20 15.70 8.20 5.80 9.80 6.00
1989-90 6.10 1.60 8.50 7.40 12.40 7.90
1990-91 5.30 4.50 6.70 5.10 6.20 4.40
1951-52 to
1980-81 3.63 2.57 5.29 5.09 3.50 4.31
1981-82 to1985-96 4.92 3.48 5.08 5.88 8.94 5.22
1986-87 to
1990-91 5.88 4.18 6.86 5.92 9.24 6.60
1988-89 to
1990-91 7.20 7.27 7.80 6.10 9.47 6.10
Note: Up to 2004-05 the data is in 1999-00 series, after that it is in 2004-
05 series
Source: Calculated based on data from Economic Survey 2011
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Introduction 1514 Indian Economy after Liberalisation
Rodrik and Subramanian (2004) argued that the transition
to a higher growth path had been achieved more than a
decade earlier; not 1984 as argued by De-Long but 1980,
the year Mrs. Gandhi came back to power. Bhalla (2011b),
on the other hand, remarked that [] 5 percent per annum
growth in I ndia prior to the 1980s wasnt that unusual;
several times the two-year growth average [] had exceeded
5 percent in the period prior to the 1980s [...] the conclusion
about a large accelerationor breakout in GDP growth seems
to be based on a comparison of 1980s vs. 1970s. But for
most countri es, 1970s is a bad benchmark and most
countries would anyway show a marked acceleration in the
1980s [...] GDP growth in the 1950s and 1960s averaged 4
percent; the 1970s average was only 2.8 percent. So the real
acceleration in the 1980s is about 1.7 percentage point
(emphasis added).
This acceleration in growth was mainly due to a series
of deregulation measures initiated during the mid 1980s by
the Rajiv Gandhi government in the areas of industrial and
trade policies and fiscal reforms (see Chapter 2 by Saikia
and Shukla), along with a number of initiatives such as a
step-up in public investment, better agricultural performance,
etc. (Acharya, 2008). According to Panagariya (2005) two
major factors are responsible for the growth in the 1980s,
First, liberalisation played a significant role. On the external
front, policy measures such as import liberalisation, exportincentives, and a more realistic real exchange rate
contributed to productive efficiency. On the internal front,
freeing up of several sectors from investment licensing
reinforced import liberalisation and allowed faster industrial
growth. Second, both external and internal borrowing
allowed the government to maintain high levels of public
expenditures, and thus, boost growth through demand.
J oshi and Little (1994) attributed this growth to the fiscal
expansion financed by external and internal borrowing,
whereas Ahluwalia (2002) remarked that growth of the
1980s was unsustainable and was fuelled by a buildup of
external debt that culminated in the crisis of 1991. Like
Ahluwalia, many others also argued that the fiscal profligacy
in terms of huge unproductive expenditure in areas like
defense spending, interest payments, and subsidies, etc.
through mounting external borrowing led to the 1991 crisis
(see among others, DeLong, 2003; Panagariya, 2004a,b;
Basu and M aertens, 2007; Bhalla, 2011b). To quote Basu
and Maertens (2007), By the late 1980s, even though the
country was growing fast, it was beginning to borrow heavily
from its future, which makes us believe that the growth
impulse of the 1980s would not have been sustainable
without sharp changes in policy. The fiscal deficit was
growing, international debt was reaching record levels, and
the debt-service ratio had become untenable. The meltdownhappened in 1990/1. As Saikia and Shukla discussed in
Chapter 2 of this book, following a rising current and trade
account deficit and mounting external debt and debt servicing
burden, along with the Gulf War of 1990 and the consequent
oil price hike Indias balance of payments (BoP) tapped into
crisis in 1990-91. Under such situation India adopted a
series of stabilisation-cum-structural adjustment reforms
under the leadership of Pr ime Minister P. V. Narasimha Rao
and his Finance Minister Manmohan Singh (see Chapter 2
for the changes in policy under reforms).
The economy responded quickly and positively to the
policy changes after stagnation in 1991-92. The growth
jumped to 5.4 per cent in 1992-93 and then averaged above
7.4 per cent for three consecutive years 1994-95 to 1997-
98 (Table 1.5) and 6.56 per cent per annum during the 8 th
FYP (Table 1.2). The performance of all the three sectors
(agriculture, industry and services), especially agriculture
sector, were noticeable during the 8thFYP, as all the sectors
grew faster than the pre-reform period. However, growth
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Introduction 1716 Indian Economy after Liberalisation
declined noticeably to 5.52 per cent during the 9thFYP and
then increased to 7.78 per cent during 10thFYP and 8.03
per cent during the first 3 years of 11thFYP (Table 1.2). The
average annual growth rate recorded 6.86 per cent during
the entire post-reform period, with 5.60 per cent during the
first post-reform decade (1991-91 to 2000-01) and 7.64 per
cent during the second decade (2001-02 to 2009-10). I t can
be seen from Table 1.5 growth has accelerated during the
first five years of economic reforms, it declined in the next
five years before it picked up to 8.5 per cent in 2003-04 and
then continued to acclerate. Thus, we have three sub-periods
in the post-reform period: (a) the first period 1992-93 to
1996-97 accounted an annual growth rate of 6.56 per cent,
(b) the second period 1997-98 to 2002-03 where growth rate
declined to 5.52 percent and (c) the third period 2003-04 to
2009-10, which recorded an annual growth rate of 8.46 percent.
Thus, regarding Indias post-reform growth there are
three puzzles, and thereby, debate in the literature. Firs t,
what cause Indias growth to accelerate immediate after
reforms; second, what cause Indias growth to decelerate
during 1997-98 to 2002-03 after having an accelerated
growth rate in the first five years of economic reforms, and
t h i r d, what caused the growth rate to sharply accelerate
after 2003-04. There have been a corpus of literature dealing
with these issues (among others, Ahluwalia, 2002; Basu andMaertens, 2007; Panagariya, 2004a, 2004b, 2005; Acharya,
2007; Bhalla, 2011b), but they differ in opinions. Acharya
(2007) listed out a number of factors that contributed to the
acceleration of growth during 1992-93 to 1996-97: (a)
productivity gains resulting from deregulation of trade,
industry and finance, especially in industry and some services
sectors; (b) the surge in export growth at about 20 percent
per year for three successive years beginning 1993-94,
attributable to the substantial devaluation in real effective
terms in the early nineties and a freer policy regime for
industry, foreign trade and payments; (c) the investment
boom of 1993-96 that exerted expansionary effects on both
supply and demand, especially in industry; (d) the success
in fiscal consolidation, which kept a check on government
borrowings and facilitated expansion of aggregate savings
and investments; (e) improvement in the terms of trade for
agriculture resulting from a combination of higher
procurement prices for important crops and reduction in
trade protection for manufactures; (f) availabil ity of capacity
in key infrastructure sectors, notably power; and (g) a buoyant
world economy which supported expansion of foreign trade
and private capital inflows.
The slowdown of growth during 1997-98 to 2002-03 has
been treated seriously, by among others, Ahluwalia (2002),
Basu and Maertens (2007), and Bhalla (2011b). Ahluwalia
(2002) invalidated the possibility of the impact of the
slowdown of World economic growth in the second half of
the 1990s by saying that Indias dependence on the world
economy is not large enough for this to account for the
slowdown. But he has not provided any conclusive
explanation for the same; rather he remarked that Critics
of liberalisation have blamed the slowdown on the effect of
trade policy reforms on domestic industry []. However, the
opposite view is that the slowdown is due not to the effects
of reforms, but rather to the failure to implement the reformseffectively. For Acharya (2007), the factors that contributed
the deceleration of growth include: (a) the significant
worsening of the fiscal deficits, mainly due to large public
pay increases following the Fifth Pay Commission; (b) the
consequent decline in public savings, (c) slackening of
economic reforms after 1995 as coalition governance became
the norm, (d) significant slowdown in agricultural growth,
(e) a marked downswing in the industrial cycle, and (f) an
increasingly unsupportive international economic
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Introduction 1918 Indian Economy after Liberalisation
Table 1.5: Post-reform Growth Performance
(percent age per year )
Year GDP Pr imary Secondary Trade, Financing, Publi c
Hotel s, I n su rance, Admi n i st ra -
Transpor t Real t i on D efense
& Commu ni - est at e,& a nd ot her
cation Business Services
1991-92 1.40 -1.50 -0.10 2.60 10.80 2.60
1992-93 5.40 6.20 3.60 5.60 5.40 6.00
1993-94 5.70 3.20 6.30 6.90 11.20 4.50
1994-95 6.40 5.10 9.30 9.90 3.90 2.30
1995-96 7.30 -0.20 12.20 13.20 8.10 7.30
1996-97 8.00 9.10 7.30 8.10 6.20 8.10
1997-98 4.30 -1.60 3.10 7.50 11.70 8.30
1998-99 6.70 6.00 4.30 7.60 7.80 9.70
1999-00 6.40 2.70 4.70 8.20 9.20 11.50
2000-01 4.40 0.00 6.80 7.30 4.10 4.70
2001-02 5.80 5.90 2.80 9.20 7.30 4.10
2002-03 3.80 -5.90 6.90 9.40 8.00 3.90
2003-04 8.50 9.30 7.80 12.00 5.60 5.40
2004-05 7.50 0.80 10.50 10.70 8.70 6.80
2005-06 9.50 4.60 10.70 12.20 12.70 7.00
2006-07 9.60 4.60 12.70 11.60 14.00 2.90
2007-08 9.30 5.50 10.30 11.00 11.90 6.90
2008-09P 6.80 0.00 4.70 7.50 12.50 12.70
2009-10Q 8.00 1.30 8.10 9.70 9.20 11.80
1992-93 to
2009-10 6.86 3.14 7.34 9.31 8.75 6.88
Post-reform Sub-periods (Average)
1992-93 to
1996-97 6.56 4.68 7.74 8.74 6.96 5.64
1997-98 to
2002-03 5.23 1.18 4.77 8.20 8.02 7.03
2003-04 to
2007-08 8.88 4.96 10.40 11.50 10.58 5.80
2003-04 to
2009-10 8.46 3.73 9.26 10.67 10.66 7.64
Note: Up to 2004-05 the data is in 1999-00 series, after that i t is in
2004-05 seri es.
P-Provisional estimate; Q- Quick estimate
Source: Based on data from Economic Survey 2011
environment, which includes the Asian financial crisis of1997-98, rising energy prices and the global recession of
2001. Bhalla (2011b), on the other hand, pointed out the
mindset of the Indian politicians and policymakers towards
the acceleration of GDP growth to above 7 per cent per
annum: In the mindset of the Indian politicians, and most
policy makers, it was inconceivable that the Indian economy
could grow at East Asian growth rates; [] the 7 plus
percent growth rate was considered as an overheating phase
deserving a strong policy response. [] When this acceleration
coincided with global and domestic inflation, the RBI panicked
and tightened monetary policy to an unprecedented degree.Further, the RBI did not cut interest rates in response to
the decline in worldwide, and domestic, inflation in the mid
to late 1990s. By keeping deposit rates at high double digit
levels, and inflation collapsing, the RBI ensured that real
rates reached double digit levels. This caused the growth to
collapse [] (emphasis added).
Whatever the reasons of acceleration during 1992-93 to
1996-97 and the deceleration during 1997-98 to 2002-03,
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Introduction 2120 Indian Economy after Liberalisation
sectors growth as compared to 1980s. This suggests that
though the overall growth was more consistent in the 1990s,
the sectoral growth was less consistent in the 1990s compared
to the 1980s. These observations are consistent with that of
Ahluwalia (2002), Panagariya (2005), Acharya (2007), Basu
and Maertens (2007), and Bhalla (2011b). These authorsargued that growth in the 1980s was not sustainable, since
it relied too much on deficit financing and excessive foreign
borrowing, and finally, culminated in the crisis of 1991;
whereas growth of the 1990s has been sustainable, as it was
accompanied by remarkable external stability despite the
East Asian crisis. Bosworth et al. (2007), as quoted by Basu
and Maertens (2007), observed that the pre-1980 growth
was mainly associated with an increase in factors, whereas
the post-1980 growth has been associated with some increase
in factors, but more importantly an increase in total factorproductivity (see Table 1.7).
Table 1.7: Contributions to Growth
(in annual percentage rate of change)
Years Output Employ- Out- Contr i bu t i on of-
men t pu t
per Ph ysi cal L an d Ed ucat i on F actor
w or ker capi tal pr odu -
ct iv i ty
196073 3.3 2.0 1.3 1.1 -0.2 0.1 0.2
197383 4.2 2.4 1.8 0.9 -0.2 0.3 0.6
198393 5.0 2.1 2.9 0.9 -0.1 0.3 1.7
199399 7.0 1.2 5.8 2.4 -0.1 0.4 2.8
19992004 6.0 2.4 3.6 1.2 0.1 0.4 2.0
19602004 4.7 2.0 2.6 1.2 -0.1 0.3 1.2
196080 3.4 2.2 1.3 1.0 -0.2 0.2 0.2
19802004 5.8 1.9 3.8 1.4 0.0 0.4 2.0
Sour ce: Bosworth et al. (2007, Table 3); cited in Basu (2007, Table 4)
3 The coefficient of variation (CV) measures the variation of a
variable and is defined as the standard deviation divided by
mean. A higher value of the CV means that there is more
variation in the variable.
Table 1.6: Volatility in Growth Rate: Coefficient
of Variation3
Year GDP Primary Secondary Trade, Financing, Publi c
Hotel s, I n su rance, Admi n i st ra -
Transpor t Real t i on D efense & Commu ni - est at e,& a nd ot her
cation Business Services
1951-52
to 1960-61 0.707 1.368 0.666 0.384 0.356 0.230
1961-62
to 1970-71 0.915 2.629 0.492 0.334 0.277 0.216
1971-72
to 1980-81 1.367 4.343 0.977 0.585 0.681 0.351
1981-82
to 1990-91 0.409 1.482 0.412 0.165 0.305 0.326
1991-92
to 2000-01 0.337 1.267 0.600 0.354 0.368 0.464
2001-02
to 2009-10 0.252 1.519 0.381 0.149 0.288 0.498
Source: Based on data from Economic Survey 2011
the post-reform period performance is more sustainable as
compared to that of the 19980s. Looking at Figure 1.1 one
can understand that the volatility was higher during the1980s as compared to the 1990s. This is further confirmed
by the coefficient of variation of decadal growth in the 1980s
and 1990s as shown in Table 1.6. However, 1990s
experienced higher volatility in the industry and services
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Introduction 2322 Indian Economy after Liberalisation
The momentum of growth picked up in 2003-04 and
since then the economy has not looked back. The growth
rate thrice crossed 9 per cent mark (years 2005-06, 2006-
07 and 2007-08) and has not dropped below 7.5 per cent
until 2008-09 when the global financial crisis hit the economy
(but still managed a comfortable growth rate of 6.8 percent). With the impressive growth of secondary sector
(including industry, construction and water supply,
electricity and gas) and services sector, GDP growth
averaged at 8.88 per cent during the five years before the
crisis (2003-04 to 2007-08) and 8.46 per cent during the
entire post 2003-04 period (2003-04 to 2009-10) including
the period of global financial crisis; despite the gloomy
performance of the agriculture sector (though the sector
started with an impressive growth rate of 9.30 per cent in
2003-04). Regarding the sources of the latest economic surgeBhalla (2011b) remarked that [the high growth] was
preceded by a decline in real interest rates of around 600
basis points [] in a matter of four years (1999 to 2002).
However, many commentators, and analysts, believe that
the recent high growth has been a consequence of
overheating, and not because of a structural shift in the
economy; []. Some others believe that the recent
acceleration was part of a global phenomena of a rising
tide lifting all boats; all emerging economies grew faster,
and India was part of this upliftment (emphasis added).
On the other hand, Acharya (2007) suggested seven majoringredients of the recent surge in economic growth: (a) the
momentum of a quarter of a century of strong economic
growth, (b) a much more open economy to external trade
and investment, (c) a growing middle class fuell ing domestic
consumption, (d) the demographic dividends of a young
population, (e) strong companies in a modernised capital
market, (f) some recent economic reforms, and finally, (g)
a supportive international economic environment.
There have been many positive features of Indias post-
reform performance apart from the recent surge of economic
growth. One of the urgent priorities of the policy makers at
the start of economic reforms was to reduce fiscal deficit, as
fiscal profligacy was seen as the major cause of BoP crisis
in 1991 (Ahluwalia, 2002). The combined fiscal deficit of thecentral and state governments was successfully reduced to
7 per cent of GDP in 1991-92 and 1992-93 from 9.41 per
cent in 1990-91 (Figure 1.2). The primary deficit came down
from 5.02 percent of GDP to 2.27 per cent and revenue
deficit came down from 4.19 per cent to 3.35 per cent during
the same period.
The intensive effort by the government kept the fiscal
deficit at a manageable level of 6.47 and 6.28 per cent per
cent of GDP respectively in 1995-96 and 1996-97, and an
average of 6.98 per cent of GDP between 1991-92 and 1996-
97 (Table 1.8). However, the increase in public pay since
1996-97 along with low revenue buoyancy and weak
expenditure control policies reversed the fiscal position and
for 4 consecutive years between 1998-99 and 2002-03 fiscal
deficit recorded above 9 per cent of GDP. For the five years
period between 1998-99 and 2002-03 fiscal deficit averaged
at 9.42 per cent of GDP, while primary deficit and revenue
deficit averaged at 3.52 and 6.62 per cent. However, due to
governments sustained efforts at fiscal consolidation after
2002-03, fiscal deficit reduced to 4.09 per cent in 2007-08and revenue deficit to 0.19 per cent during the same. The
five years period between 2003-04 and 2007-08 averaged
fiscal deficit at 6.31 per cent and revenue deficit averaged
at 2.73 per cent, whereas between 2005-06 and 2007-08 the
fiscal position was even better with fiscal and revenue deficits
averaged at 5.31 and 1.39 per cent respectively. However,
both the fiscal and revenue deficits shot up during 2008-
09 and 2009-10 (Figure 1.2).
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Introduction 2524 Indian Economy after Liberalisation
Table 1.8: Combined Deficits of Central and State
Governments (as % of GDP)
Gross Gross Revenue
fi scal pr im ar y defi ci t
defi ci t defi ci t
5 years average
1981-82 to 1985-86 7.18 4.60 0.92
1986-87 to 1990-91 9.11 5.21 3.11
1991-92 to 1995-96 7.12 2.19 3.53
1996-97 to 2000-01 8.24 2.84 5.42
2001-02 to 2005-06 8.29 2.20 5.19
2006-07 to 2009-10 6.77 1.57 2.61
Selected periods
1991-92 to 2000-01 7.68 2.52 4.47
2001-02 to 2009-10 7.61 1.92 4.04
1991-92 to 1996-97 6.98 2.03 3.54
1997-98 to 2004-05 8.74 2.88 5.84
1998-99 to 2002-03 9.42 3.52 6.62
2003-04 to 2007-08 6.31 0.63 2.73
2005-06 to 2007-08 5.31 -0.06 1.39
2008-09 to 2009-10 8.81 3.71 4.47
Source:Handbook of Statistics on Indian E conomy, 2010-11
Figure1.2:CombinedDeficitsofCentralandStateGovern
ments
Source:HandbookofStatisticsonIndianEconomy,2010-11
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Introduction 2726 Indian Economy after Liberalisation
Another area where the economy has achieved
remarkable success in the post-reform period is the level and
composition of savings and capital formation. The gross
domestic capital formation increased from 22 per cent of
GDP in 1991-92 to 35.8 per cent in 2009-10 (Table 1.9). The
increase in capital formation was more pronounced in thepost 2002-03 periods, whereas in the 1990s and initial
years of 2000s capital formation fluctuated around 24 per
cent. This increase is mostly contributed by the private
capital, which increased from 18.6 per cent in 2002-03 to
24.9 per cent in 2009-10, whereas public sector capital
increased from 6.1 per cent to 9.2 per cent during the same
period. This increase in capital formation is accompanied by
substantial increase in domestic savings, which increased
from 21.5 per cent of GDP in 1991-92 to 26.3 per cent in
2002-03 and then to 33.7 per cent in 2009-10. The householdsector is the largest single component of domestic savings,
which share rising from 15.8 per cent in 1991-92 to 23.5 per
cent in 2009-10. The private corporate sector savings has
steadily increased in the post 2003-04 periods, with its
share rising from 4 to 8.1 per cent between 2002-03 and
2009-10. The public sector savings in India has been very
small and it was negative between 1998-99 and 2002-03.
However, there has been steady increase in the public sector
savings from 1.1 per cent to 5 per cent between 2003-04 and
2007-08, but it declined to 0.5 per cent in 2008-09 and then
increased to 2.1 per cent in 2009-10.
The performance of the economy in the external sector
is also satisfactory in the post-reform period. Considering
the current account balance, which is the single most widely
monitored indicator of a nations external balance position
(Acharya, 2008) Indias external balance position has been
comfortable throughout the post-reform period (1991-92 to
2009-10), with highest surplus of 2.3 per cent of GDP in
2003-04 and lowest deficit of 2.9 per cent in 2009-10 (Table
1.10). At the same time the ratio of merchandise trade to
GDP steadily increased from 14.8 per cent in 1991-92 to 22.5
per cent in 2000-01 and then 36.7 per cent in 2009-10.
However, the gap between exports to GDP and imports to
GDP increased substantially from -1.0 per cent in 1991-92
to -2.7 per cent in 2000-01 and then -8.9 per cent in 2009-10. Some other aspects of I ndias post-reform BoP position
are- steady rise in net invisibles, increase in current account
balance, increase in foreign exchange reserves and relatively
steady exchange rate (Table 1.10). The ratio of net invisibles
to GDP increased from 0.7 per cent in 1991-92 to 7.4 per
cent in 2008-09 (though it declined to 6 per cent in 2009-
10), of which half of the share came from software exports
in the later period. The economy experienced a steady surge
of foreign capital in the post-reform period, especially after
2002-03, with foreign investment to GDP ratio increasedfrom 1.2 per cent in 2002-03 to 4.9 per cent in 2009-10. With
a steady current account balance during this period, the
improvement in the current account balance led to increase
the foreign exchange reserves. These reserves increased
from US$ 42.28 billion in 2000-01 to US$ 309.72 billion in
2007-08 and then declined to US$ 279.06 in 2009-10. This
amount of reserves is sufficient to cover the imports
requirement of the country for about 11.2 months in 2009-
10. However, this capital surge and the consequent
accumulation of foreign exchange reserves poised
macroeconomic challenges for the country, especially in theareas of exchange rate, convertibility of BoP accounts and
monetary policies (see Acharya, 2008).
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Introduction 2928 Indian Economy after Liberalisation
Table 1.9: Gross Domestic Saving and Gross
Domestic Capital Formation
(as % of GDP)
Years Gross Domest i c Sav ing Gross Domest i c Cap i t a l Fo rma t i on
H ouse Cor por at e P ubl ic T ot al P ubl ic P ri va te V al ua- T ot al
hold sector sector sector sector bles
sector
1950-51 5.7 0.9 2.0 8.6 2.9 7.4 - 10.3
1960-61 6.5 1.6 3.1 11.2 7.2 7.2 - 14.4
1970-71 9.5 1.5 3.3 14.2 6.7 8.9 - 15.6
1980-81 12.9 1.6 4.0 18.5 8.9 9.6 - 18.5
1990-91 18.4 2.7 1.8 22.8 10.0 14.2 - 24.2
1991-92 15.8 3.1 2.6 21.5 9.5 12.5 - 22.0
1992-93 16.4 2.7 2.2 21.2 9.1 14.7 - 23.8
1993-94 17.3 3.4 1.2 21.9 8.8 12.5 - 21.2
1994-95 18.6 3.5 2.3 24.4 9.3 14.2 - 23.5
1995-96 16.9 5.0 2.6 24.4 8.2 18.4 - 26.6
1996-97 16.0 4.5 2.2 22.7 7.5 14.6 - 22.1
1997-98 17.7 4.3 1.8 23.8 7.1 16.8 - 23.9
1998-99 18.8 3.9 -0.5 22.3 7.0 15.6 - 22.6
1999-00 21.1 4.5 -0.8 24.8 7.4 17.9 0.8 26.1
2000-01 21.6 3.9 -1.8 23.7 6.9 16.6 0.7 24.2
2001-02 22.1 3.4 -2.0 23.5 6.9 16.7 0.6 24.2
2002-03 22.9 4.0 -0.6 26.3 6.1 18.6 0.6 25.2
2003-04 24.1 4.6 1.1 29.8 6.3 19.6 0.9 26.8
2004-05 23.6 6.6 2.3 32.4 7.4 23.8 1.3 32.5
2005-06 23.5 7.5 2.4 33.5 7.9 25.2 1.1 34.3
2006-07 23.2 7.9 3.6 34.6 8.3 26.4 1.2 35.9
2007-08 22.5 9.4 5.0 36.9 8.9 28.1 1.1 38.0
2008-09P 23.8 7.9 0.5 32.2 9.5 24.6 1.3 35.4
2009-10Q 23.5 8.1 2.1 33.7 9.2 24.9 1.7 35.8
Note: Up to 2004-05 the data is in 1999-00 series, after that it i s in 2004-
05 series P-Provisional estimate; Q- Quick estimate
Source: E conomic Survey, 2011
Table1
.10:SelectedBalanceofPaymentsIndicators
(Percen
tageo
fGDP
atcurre
ntmar
ke
tpr
ices
)
1990-9
1
1991-9
2
1992-9
3
1993-9
4
1994-9
5
1995-9
6
1996-9
71997-9
8
19
98-9
9
1999-0
0
Exports
5.8
6.9
7.3
8.2
8.3
9.1
8.8
8.7
8.2
8.3
Imports
8.8
7.9
9.6
9.7
1
1.1
12.3
12.6
12.5
11.4
12.3
TradeBalance
-3.0
-1.0
-2.3
-1.5
-
2.8
-3.2
-3.8
-3.8
-3.2
-4.0
NetInvisibles
-0.1
0.7
0.6
1.0
1.8
1.5
2.6
2.4
2.2
2.9
CurrentAccountBalance-3.0
-0.3
-1.7
-0.4
-
1.0
-1.6
-1.2
-1.4
-1.0
-1.0
ForeignInvestment
0.0
0.1
0.2
1.5
1.5
1.4
1.6
1.3
0.6
1.2
Foreign
Exchange
Reserves(US$billions)
5.83
9.22
9.83
19.25
25.19
21.69
26.42
29.37
3
2.49
38.04
Importcoverof
Reserves(inmonths)
2.5
5.3
4.9
8.6
8.4
6.0
6.5
6.9
8.2
8.2
ExchangeRate
(Rs/US$)
17.94
24.47
30.65
31.37
31.40
33.45
35.50
37.17
4
2.07
43.33
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Introduction 3130 Indian Economy after Liberalisation
No doubt that I ndias economy has achieved fabulous
growth in the post-reform period, especially in the first
decade of the 21stcentury, emerged as one of the fastest
growing economies in the world and substantially managed
her external as well as internal balances; but the
performance of the economy has been debated throughoutthe period (even before reforms) in some areas such as
poverty and inequality, human development, agriculture
growth, employment, inflation management, and so on.
Reduction of poverty and inequality has been one of the
oldest agenda of planning in I ndia. The post-reform period
witnessed significant decline in poverty and at a faster rate
than the 1980s (Ahluwalia, 2002). Table 1.11 reports the
percentage of population below poverty line by both the
planning commission estimates based on the Lakdawala
Committee method (for 1951-52 to 2004-05) and the new
Tendulkar committee estimates (for 1993-94 and 2004-05).
The poverty estimates of the Tendulkar committee are
higher than the planning commission estimates, but both
the estimates show decline in poverty. However, the pace
of reduction is very slow; from 36.0 to 27.5 by the planning
commission estimates and from 45.3 to 37.2 by the Tendulkar
committee estimates between 1993-94and 2004-05. The
estimates by Abhijit Sen (2010), as quoted by Ahluwalia
(2011), showed that poverty has declined from 37% in 2004-
05 to 29% in 2007-08, which is much more than the 11th
FYPs target of reducing poverty by 2 percentage points per
year. Another estimate by C. Ravi reported the percentage
of population below poverty line at 32 per cent in 2009-10
(cited in Ahluwalia, 2011). Though these estimates showed
decline in poverty in the post-reform period, poverty in
absolute term remained at a higher level, with about 303
million population living below the poverty line. Further,
there have been substantial differences across the states in
poverty reduction. This is, further, fuelled by increased
Table1.1
0:Contd
...
2000-0
1
2001-0
2
2002-0
3
2003-0
4
2004-0
5
2005-0
6
2006-0
72007-0
8
20
08-0
9
2009-1
0
Exports
9.9
9.4
10.6
11.0
1
2.1
13.0
13.6
13.5
15.6
13.9
Imports
12.6
11.8
12.7
13.3
1
6.9
19.4
20.1
21.0
25.4
22.8
TradeBalance
-2.7
-2.4
-2.1
-2.3
-
4.8
-6.4
-6.5
-7.5
-9.8
-8.9
NetInvisibles
2.1
3.1
3.4
4.6
4.4
5.2
5.5
6.2
7.4
6.0
CurrentAccountBalance-0.6
0.7
1.2
2.3
-
0.4
-1.2
-1.0
-1.3
-2.4
-2.9
ForeignInvestment
1.5
1.7
1.2
2.6
2.2
2.6
3.1
5.0
1.7
4.9
Foreign
Exchange
Reserves(US$billions)
42.28
54.11
75.43
112.96
14
1.51
151.62
199.18
309.72
251.99
279.06
ImportcoverofReserves
(inmonths)
8.8
11.5
14.2
16.9
1
4.3
11.6
12.5
14.4
9.8
11.2
ExchangeRate
(Rs/US$)
45.68
47.69
48.40
45.95
44.93
44.27
42.25
40.26
4
5.99
47.42
Source:HandbookofStatisticson
IndianEconomy,2010-11
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Introduction 3332 Indian Economy after Liberalisation
differences across the states in terms of growth and
development. The post-reform period witnessed significant
increase in inter-state and intra-state inequality in terms
of rate of economic growth, level of income and level of
industrialisation. Ahluwalia (2011) observed that the inter-
state Gini coefficient of GSDP growth increased from 0.145in 1980-81 to 0.17 in 1992-93 and then 0.22 in 2001-02 and
0.25 in 2008-09. Thus, the increase in inter-state inequality
was much faster in the 1990s compared to 19980s, but it
has stabil ised in the 2000s. In recent years, intra-state
inequality is seen as another critical form of inter-regional
inequality, which hinders achievement of inclusive growth,
the high profile objective of the 11thFYP.
Inequali ty among different sections of the population
has also remained a major issue over the years. Ahluwalia
(2011) found that consumption inequality (measured by
Gini coefficient) modestly increased in the urban areas
between 1993-94 and 2009-10, where in the rural area it
increased between 1993-94 and 2004-05 and then declined
in 2009-10. The caste and social group based inequality has
received a new momentum in recent years. Thorat (2010),
as quoted by Ahluwalia (2011), showed that the percentage
of the SC/ST and Muslim minority population in poverty is
much higher than for the population as a whole, though the
reduction in the percentage in poverty for these groups is
roughly comparable to that for the population as a whole.There are more issues associated with the inclusive growth
debate in India, for instance gender inequality, inter-personal/
group/caste and inter-regional inequality in access to basic
services such as education, finance, health care, safe drinking
water, sanitation, etc. These issues should be addressed with
care as they are sensible and improvements on these areas
not only represent welfare gain, but also social development.
Table 1.11: Percentage of People below Poverty
Line
Year Ru r al U r ban A l l I nd i a
1951-52 47.4 35.5 45.3
1977-78 53.1 45.2 51.3
1983 45.7 40.8 44.5
1993-94 37.3 32.4 36.0
2004-05 28.3 25.7 27.5
1993-94* 50.1 31.8 45.3
2004-05* 41.8 25.7 37.2
* Tendulkar Estimates. The remaining are the Planning Commissionestimates based on official poverty line.
Source: Planning Commission, Government of India
One of the key strategies for achieving inclusive growth
has been generation of productive and gainful employment.
The 11th FY P aims at generating 58 mil li on work
opportunities and bring the unemployment rate to 4 per
cent by the end of the plan.4 Looking at the growth of
organised sector employment, it is observed that employment
growth has decelerated in the reforms period. The organised
sector employment grew at 1.2 per cent per annum during1983 to 1994, which decelerated to 0.05 per cent during
1994 to 2008 (Table 1.12). The decline is mainly due to the
severe deceleration of public sector employment growth,
which averaged at -0.65 per cent during 1994 to 2008 as
against 1.53 per cent during 1983 to 1994. However, the
private organised sector experienced significant increase in
4 Economic Survey- 2010-11, Government of India, Chapter 12,
pp. 291-331.
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Introduction 3534 Indian Economy after Liberalisation
employment growth from 0.44 per cent during 1983 to 1994
to 1.75 per cent during 1994 to 2008, so that the overall
employment during the post-reform period recorded a positive
growth (though very small). However, the organised sector
accounted for only 15 per cent of employment in India, and
the remaining 85 per cent engaged in informal sector(including agriculture).
Table 1.12: Rate of Growth of Organised Sector
Employment
(per cent per annum )
Sect or s 1983-1994 1994-2008
Public Sector 1.53 -0.65
Private Sector 0.44 1.75
Total Organised 1.20 0.05
Source: Economic Survey, 2010-11
As per National Sample Survey (NSS) data on the basis
of current daily status about 24 mill ion work opportunities
were created between 1993-94 and 1999-00, which increased
to 47 million between 1999-00 and 2004-05; and thus an
acceleration of employment growth rate from 1.25 per cent
per annum during 1993-94 to 1999-00 to 2.62 per cent
during 1999-00 to 2004-05. The 64thround of NSS surveyreported creation of about 4 million work opportunities
during 2004-05 to 2007-08. However, the unemployment
rate (per 1000) has steadily increased between 1993-94 and
2004 in both the rural and urban areas in terms of all the
three concepts of employment (Usual, CWS and CDS), though
it marginally declined in 2007-08 (Table 1.13). This is mainly
because of the faster rate of labour force growth compared
to the growth in work opportunities in the 1990s and the
first decade of the 2000s. The unemployment rate is high
in terms of CDS approach being it the broadest approach,
which implies a higher degree of underemployment in the
economy.
Table 1.13: Unemployment Rate (per 1000) accordingto Usual Status, Current Weekly Status (CWS) and
Current Daily Status (CDS) Approach
Rur al U r ban
U su a l CWS CDS U su al CWS CDS
64thRound (2007-08)
Male 23 41 85 40 47 69
Female 19 35 81 66 65 95
Person 22 39 84 45 50 74
60th round (2004)
Male 24 47 90 46 57 81
Female 22 45 93 89 90 117
Person 23 46 91 53 64 88
55thround (1999 2000)
Male 21 39 72 48 56 73
Female 15 37 70 71 73 94
Person 19 38 71 52 59 77
50th round (1993-94)
Male 20 30 56 45 52 67
Female 14 30 56 83 84 105
Person 18 30 56 52 58 74
43rd round (1987-88)
Male 28 42 46 61 66 88
Female 35 44 67 85 92 120
38th round (1983)
Male 21 37 75 59 67 92
Female 14 43 90 69 75 110
Sour ce: NSSO E mployment-Unemployment Survey, various rounds
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Introduction 3736 Indian Economy after Liberalisation
Another weak spot of I ndias economic performance in
the post-reform period is the inflationary pressure in the last
couple of years. Though a modest rate of inflation is tolerable
and may even be necessary to accommodate relative price
changes, inflation beyond this level- usually put at 5 to 6
per cent by the government and 4 to 5 per cent by theReserve Bank of India- is regressive and distortionary
(Ahluwalia, 2011). Without looking at the issues related to
measurement of inflation in I ndia, we have reported three
available series of inflation namely GDP deflator, wholesale
price index for all commodities (WPI AC) and consumer
price index for industrial workers (CPI IW) for the period
1991-91 to 2010-11 in Figure 1.3. I t is obvious that the
annual inflation has been steadily declining during 1991-
92 to 1999-00 and then it fluctuated within a comfort zone
of around 5 per cent til l 2008-09. However, in the last twoyears, inflation has been well above the comfort zone. The
GDP deflator, which is perhaps the best measure of overall
inflation, averaged at 4 per cent during 2000-01 to 2008-
09 and then jumped to 7.5 and 9.6 per cent respectively in
2009-10 and 2010-11. Similarly, CPI (AC) reached double
digit level during 2009-11 and WPI (AC) shot up to 8.2 per
cent in 2010-11 from 4.6 per cent during 2000-01 to 2008-
09. The high rates of inflation in food prices, especially
vegetables, fruits, milk, eggs, etc., have been a matter of
special concern in the last couple of years. According to
Acharya (2008) the factors that contributed to the favourableinflationary situation until 2008-09 include- low world
inflation (until 2008), more liberal Indian foreign trade
policies, alert and anticipatory monetary policy, declining
fiscal deficits and downward revision of inflationary
expectations; which have turned sharply adverse since March
2008 and giving rise inflationary pressure in the last two
years.Figure1.3:AnnualInflation
RateinIndiainthePost-reform
period
Source:HandbookofStatisti
csonIndianEconomy,2010-11
No
te:WPI(AC)-WholesaleP
riceIndex(AllCommodities),CPI
(IW)-ConsumerPriceIndex(Indust
rial
Workers)
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Introduction 3938 Indian Economy after Liberalisation
The economy has confronted with many other challenges
since the initiation of reforms in the early 1990s (or even
before), which have been discussed in well referred sources
(see Ahluwalia, 2002 & 2011; Acharya, 2008; Bhalla, 2011a
& 2011b; Singh, 2009; Kelkar, 1999). In discussing Indias
development strategies, Singh (2009) pointed out thatdevelopment of human capital, reduction of income and
regional inequality, achieving social and gender equity,
improving agricultural productivity, developing physical
infrastructure, macroeconomic management on the fiscal
and monetary sides, etc. are the major future challenges of
Indias economy. Acharya (2007 and 2008) listed a number
of risk factors and key issues for I ndias sustainable future
growth, which include: restoring fiscal balance, infrastructure
bottlenecks, labour market rigidities, weak performance of
agriculture, pace of economic reforms,