This month marks the 30th anniversary of the economic reforms launched by our then finance minister Manmohan Singh in his budget speech of 24 July 1991. Three decades is a sufficiently long time to take stock of what they meant for the economy as a whole and for various sections of society.
They certainly contributed to a marginal increase in the growth rate of our economy as measured by gross domestic product (GDP). Average annual growth over the past three decades has been 5.8% per annum, slightly higher than 5.6% in the decade before 1991. But even this growth has been uneven, with the rate sliding to only 5% in the last decade. Clearly, our growth acceleration was not sustained, despite a pick-up in the pace of reforms. However, on a long-term comparison, the economy did better than its 4.1% average of the first 40 years of independence. But then, growth rates are deceptive. In any case, our first four decades should be compared with the pre-1947 phase, and on that score, we saw a massive growth improvement.
Yet, a proper assessment of 1991’s reforms must go beyond growth rates. Perhaps their biggest contribution was a change in India’s economic paradigm, which redefined the vocabulary of Indian policymaking. Every government after 1991 has embraced the philosophy of liberalization and privatization that those reforms initiated and has tried to outdo the previous regimes on that. The same policy framework of greater private-sector participation at the cost of the government’s role has been a slogan of the present dispensation.
Still, 30 years on, the situation for most of our population remains unchanged. The reforms created a class of rich entrepreneurs and a small but vocal middle class in urban areas, but it also contributed to widening inequality, which has worsened after 1991 and is now at its worst level since 1947 on almost all dimensions. The widening of disparities is not limited to gaps across households in income or consumption, but also between urban and rural areas, between laggard states and developed ones. Disparities have increased even further in terms of access to health and education and several other human- development indicators. On most of these, be it education, health, women’s workforce participation and hunger, we remain at the bottom of any global chart of comparison. The logic of reforms meant that expenditure on welfare and investment in human development were not a policy priority.
The situation is no different on employment, with our latest data suggesting an absolute decline on this count and a historic rise in unemployment rates. An official consumption survey that was junked about two years ago by the Centre had shown, perhaps for the first time, a decline in real consumption and a rise in poverty. Today, a declining share of wages in manufacturing and for the economy as a whole means sluggish growth in worker incomes. Rising informalization and contractualization of the country’s workforce has been a factor in the worsening of most workers’ working conditions. The past decade has seen almost stagnant real wages for a majority of casual workers.
Such outcomes on these indicators is not surprising, given the philosophy of the 1991 reforms. In many ways, they are no different from our pre-reform economic policies, all of which were supply- side responses. While our pre-1991 plans also focused on supply-side responses through state intervention and control, the reforms attempted to use the private sector for the task through a liberalized regulatory framework and business-friendly fiscal and monetary policies. But an absence of concern for distributional inequities and aggregate-demand management has continued as the defining feature of our economic policymaking.
The consequences of supply-side- biased reforms will show up in a further worsening of income distribution and eventually slow growth down. This is what the Indian economy appears to be going through currently. Even before the pandemic, it was showing signs of distress, driven by a decline in demand. This slowdown is not an aberration, but an expected outcome of the nature of our economic reforms.
Things have taken a turn for the worse with the pandemic. But the chorus for more reforms and supply-side interventions is unlikely to ease our demand situation. The problem this time is not like the 1991 crisis. It needs a response based on a proper understanding of our condition. What is needed at this point is not more of the same reforms, but a fundamental shift in the way economic policy is designed, keeping people and workers at the centre of the exercise.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi
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