Twenty-one years after the economic reforms began, India finds itself at a crossroads. While the global economic crisis is still a reality, growth is slowing and there is a paralysis in policy making. With the union budget around the corner, there is an urgent need to boost reforms and take radical policy decisions. Will finance minister Pranab Mukherjee deliver? Time will tell.

1. 21 years of economic reforms:
The journey so far and the road ahead
A report by Hanmer MSL, part of MSLGROUP

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multidiscipline communications firms and a Chennai, Kolkata, Ahmedabad, Hyderabad and
leader in the area of speciality communications Pune, as well as the reach of the MSLGROUP and
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3. Table of contents
04 » EXECUTIVE SUMMARY
06 » REFORMS: A BRIEF HISTORY
a. Launchpad
b. Falling short
10 » KEY ACHIEVEMENTS
a. Growth
b. Innovation
c. Investment
d. The battle against poverty
e. Literacy
15 » WHAT’S LEFT
a. Social sector
b. Hunger
c. Corruption
d. Infrastructure
e. Administrative reforms
f. Fiscal management
19 » WHAT LIES AHEAD
a. Growth
b. Investment
c. Private and public consumption
d. Will the RBI relent?
25 » TOP PRIORITIES
26 » INDIA’S ECONOMIC JOURNEY
27 » INDUSTRY MILESTONES
28 » INDIA AT A GLANCE

4. Executive summary
On July 24, 1991, with the country dangerously
close to defaulting on its debt and with foreign
exchange reserves enough to pay only for
three weeks of imports, then finance minister
Manmohan Singh presented a landmark
budget.
India gave up socialism, adopted liberalisation
and started shaking off the fetters that had
held it back for far too long.
Days earlier, the country had airlifted 47 tons
of gold to the Bank of England as collateral
for debt, and turned in desperation to the
International Monetary Fund (IMF) for aid.
Singh went on to devalue the rupee, started
unravelling the ‘licence raj’ and began opening
the country to foreign capital. Suddenly,
multinationals such as Coca-Cola, which had
been driven out of India years earlier, were
being wooed to return.
Singh concluded his speech in Parliament by
quoting Victor Hugo: “No power on Earth can
stop an idea whose time has come.”
A moment of humiliation was turned into one
of hope. It was historic.
Since then, India has averaged growth of 7%,
second only to China. India has also witnessed
the rise of the middle-class, the world’s
largest, which has contributed to and partaken
of the growth in equal measure.
However, economic reforms are not an end
in themselves. Growth is not a wholesome
indicator. Equally important are quality of
life, literacy, the battle against poverty, and
equitable growth. The last has spawned the
most heated debates. While supporters of
the economic policy say that the effect on the
overall population will inevitably be slow, its
critics assert that reforms have only made the
rich richer and the poor poorer.
In India’s cities, the changes are obvious –
the once-ubiquitous Premier Padmini has
disappeared while Marutis, Hyundais, Hondas,
Mitsubishis, Mercedes and Skodas jostle
4 for space on cramped roads. Flyovers and
become the new places to be seen at.

5. However, the paradox is apparent as you None of this easy, and much of it has serious
travel to the rural heartland. India has fared political connotations. Several crucial
In economics it is a miserably in agriculture, which is growing at a provincial elections are being held this year;
far, far wiser thing mere 2% on average even as grain stocks are the temptation to use the budget as a tool to
to be right than to ravaged by rodents, hundreds of thousands attract votes will be immense.
be consistent. die of starvation and farmers in Vidarbha
The country has also seen a mass campaign
-John Kenneth region and Andhra Pradesh province commit
against corruption and the government has
Galbraith, suicide due to crippling debt.
come off looking badly. There could be a
economist Of what use are reforms if children don’t have tendency to neutralise the sentiment with
schools to go to, child labour is rampant, and populist decisions that would eventually hurt
healthcare and sanitation are all but absent, the economy.
ask the critics. Reforms cannot succeed unless
Finally, India is one of the few shining lights
they are coupled with social renewal. An
amid the turmoil in the global economy. Its
economy that works cannot be built on weak
growth is based on internal demand and the
A study of social foundations.
vibrant services sector. However, India is not
economics usually
The good news is that India is now a resilient insulated against the gloom. The challenge
reveals that the
economy that is relatively insulated from the before Mukherjee is to use the situation to
best time to buy
global crisis. All it needs is another major the country’s advantage by pushing through
anything is last
push. key reform such as FDI in retail, which could
year.
open the floodgates of foreign investment and
This is what India is looking forward to as
-Marty Allen, further bolster the economy.
Finance Minister Pranab Mukherjee rises to
comedian
present the union budget in early March. A Will he? Time will tell.
lot has been achieved in the past 21 years.
Lots more needs to be done – a concrete
policy on FDI in core sectors, a faster pace of
public sector disinvestment, administrative
reforms that are key to maintaining growth
and building a strong economy, elimination
of wastage in social sector programmes and
sustainable spending.
5

6. Reforms: A brief history
When India gained independence from
British rule in 1947, there was hope but no
deliverance.
A country that should have reached out to
the world, giving a wide canvas to its huge
potential and skill instead adopted an inward
looking economic model, sceptical of free
markets and international trade. Socialism,
with an emphasis on self-sufficiency and the
public sector, became the mantra.
As the government decided that the answer
to poverty was tax-and-spend, peak income-
tax rates hit 97.75% in the 1970s, and growth
averaged a mere 3.5% – the so-called Hindu
Rate of Growth – while other Asian economies
managed double that. To top it all, the poverty
ratio was not even dented in the 30 years that
followed.
Unable to fathom why Nehruvian socialism
wasn’t working, the government sought to
put growth on the fast track in the 1980s
by borrowing big. It succeeded for a while,
with growth accelerating to 5.5%, but it was
unsustainable, eventually resulting in the
foreign exchange crisis of 1991.
Ultimately, it fell upon a political lightweight,
PV Narasimha Rao, to turn around the
economy. Rao was the quintessential political
backroom player, crafty and well versed in
the way politics and the bureaucracy worked,
yet never a public icon. After Rajiv Gandhi
was assassinated in 1991 before the general
election and the Congress formed a minority
government, he was the party’s surprise
choice for prime ministership.
While Rao continued to spout the party’s
economic mantra in public, it was clear to
him after the collapse of the Soviet Union
that socialism was past its sell-by date. He
already had a shining example in China of
what reforms could do – Deng Xiaoping had
sparked off an economic revolution, freeing
markets and opening up the country to
investment.
6

7. India, Rao knew, had no choice. Reform, even While India has never been able to match
if slow and pragmatic, was the only answer. China in its manufacturing and export might,
Economics is a largely due to restrictive labour laws, it has
A political storm followed – the opposition
subject that does come to be seen as a services hub.
alleged that Rao had sold out to the IMF – but
not greatly respect two years of financial stability and 7.5% growth Indian laws make it very tough to shed
one’s wishes. changed all that. Soon, most political parties workers, making entrepreneurs wary of setting
-Nikita Khrushchev, were singing the reforms tune. The process up labour-intensive factories for exports. One
Soviet leader had taken deep root and it continued, even if indicator of how this hurt industry was that,
haltingly at times. as a garment manufacturing hub, India was
overtaken by Bangladesh!
Launchpad However, India has several positives to show
for every negative. For instance, in 1991,
While labour law reform remained neglected
Manmohan Singh’s budget lowered the
because of its political implications, India
maximum import duty to a still whopping
emerged as a force in intellect-intensive
150% from an unimaginable 300%. Today,
In economics, the industries such as computer software.
the standard import duty is 10%, roughly the
majority is always By the time the Asian financial crisis hit in average for South-East Asia. At that time,
wrong. 1997, India was financially strong enough to more than 800 items were reserved for
-John Kenneth keep growing – though it slowed – without production by small-scale industries, and
Galbraith, great damage or having to seek aid. This was more for the public sector. These reservations
economist around the time the software industry came have been brought down substantially.
into its own, bagging major Y2K bug-clearing Controls on industries, imports and foreign
contracts. exchange are much more relaxed. Private
The crisis’ second wave in 2001 saw India in investment in previously restricted sectors,
an even stronger position with corporations such as telecom and infrastructure, has shown
outsourcing their software and business great results.
services to Indian firms. The sceptics were proven wrong. In the
2000s, India averaged 8.5% growth. With the
abolition of controls, industry flourished and
many companies went on to make a mark
globally. Indian companies were taken over
by multinationals (Coca-Cola’s acquisition
of Parle brands, for instance) while Indian
firms took over iconic foreign ones (the Tatas’
acquisition of Jaguar is an example).
Falling short
The failures on the social front aren’t due
to lack of resources. In fact, social sector
spending has risen consistently over the last
two decades. The problem lies in the delivery
of service, most notably in the provision
of affordable food to the poor. Corruption
and wastage led to the failure of the Public
Distribution System, through which subsidised
7 Photo by Terinea IT Support on Flickr

8. grain and kitchen fuel were supplied to the Delhi. Social activist Anna Hazare’s call for a
deserving. countrywide agitation to demand an effective
anti-corruption law was answered by citizens
Did you ever There are other worrying signs. India’s
across the socio-economic spectrum. The
think that making proportion of underweight children — a
government’s image — and the polity’s as a
a speech on measure of malnutrition — was the third-worst
whole — suffered.
economics is a lot in the world at 46.7%. There is an internal
like pissing down militant communist insurgency — dubbed India’s journey has been long and arduous.
your leg? It seems Naxalism — that is spread over several As it takes on the challenges listed above, a
hot to you, but provinces and has deprived a large part of longer and tougher struggle lies ahead.
it never does to central India from the economic benefits
anyone else. enjoyed by the rest of the country.
-Lyndon B Johnson, In recent times, there has been an outcry
former US president against corruption, which has affected
the entire administrative chain. Ministers
have been jailed for crimes ranging from
undervaluing telecom spectrum to taking
bribes in return for construction contracts
for the Commonwealth Games held in
First rule of
Economics 101:
our desires are
insatiable. Second
rule: we can
stomach only three
Big Macs at a time.
-Doug Horton,
clergyman
8

9. Excerpts from Manmohan
Singh’s 1991 budget speech
The new government, which assumed office barely a month
ago, inherited an economy in deep crisis. The balance of
payments situation is precarious.
We have been at the edge of a precipice since December
1990 and more so since April 1991. The foreign exchange
crisis constitutes a serious threat to the sustainability of
growth processes and orderly implementation of our
development programmes.
Internal public debt of the central government has
accumulated to about 55% of GDP. The burden of servicing
this debt has become onerous. Interest payments alone
are about 4% of GDP and constitute almost 20% of the
government’s total expenditure. Without decisive action
now, the situation will move beyond the possibility of
corrective action.
There is no time to lose. Neither the government nor the
economy can live beyond its means year after year. The
room for manoeuvre, to live on borrowed money or time,
does not exist any more.
The time has come to expose Indian industry to
competition from abroad in a phased manner.
After four decades of planning for industrialisation, we have
now reached a stage of development where we should
welcome, rather than fear, foreign investment.
Few would disagree that I am one of the most harassed
finance ministers in recent times.
Victor Hugo once said: “No power on earth can stop an idea
whose time has come.” I suggest to this august house that
the emergence of India as a major economic power in the
world happens to be one such idea. Let the whole world
hear it loud and clear. India is now wide awake. We shall
prevail. We shall overcome.
INDIA’s GDP GROWTH
10
8.5%
8
6%
6 5.5%
4 3.5%
2
9 0
1950-80 1980-92 1992-2003 2003-10
Source: Economic Survey 2010-11

10. Key achievements
While India has made rapid strides on various From 2005 onwards, however, growth
counts, its growth has often been outpaced by averaged 9.5%. The recession of 2007-09
the Asian tiger economies. On the other hand, again slowed growth to 6.8%, but it bounced
its emphasis on slower but stronger, risk- back to 8% and 8.5% respectively over the
free growth has held it in good stead during next two years.
troubled times.
Here are some of the long strides taken during GDP GROWTH IN POOR STATES
the last two decades.
Mean % Mean %
States growth growth
Growth (2000–04) (2004–09)
Bihar 4.5 12.4
The quick growth – often touching 8.5% over
Chhattisgarh 6.1 9.7
the last decade – found a paradox in the slow
Jharkhand 1.9 8.5
pace of reforms. The impact was felt after
Madhya Pradesh 1.9 6.6
years.
Orissa 4.8 10.2
It was only in 1994-95 that GDP growth hit Uttar Pradesh 3.3 6.7
7.5% (1994-95 to 1996-97). Growth averaged All India 5.6 8.5
only 5.5% between 1997 and 2002 due to
Source: Central Statistical Organisation data
global economic troubles (1997-99), two
10 droughts (2000 and 2002) and a recession in
2001.

11. The savings rate shot up from 21.5% of the
GDP in 1991–92 to 34% in 2010–11. As a result,
investment levels eventually rose to 37% of
History shows the GDP from 22.1%, enabling sustainable
that where ethics growth of more than 8%. In layman’s terms,
and economics the higher the domestic savings rate the less
come in conflict, dependent India is on foreign inflows. This,
victory is always in turn, makes it easier to tide over financial
with economics. turbulence and strengthens the economy.
Vested interests
have never been SAVINGS RATE
known to have Savings rate 1980–81 1990–91 2000–01 2010–11
willingly divested As % of GDP 18.5 22.8 23.7 34
themselves unless Photo by Balaji.B on Flickr
Source: Economic Survey (2010–11)
there was sufficient
force to compel The savings rate apart, India’s per capita
them. The initial production run cost the equivalent
income is up from $300 in 1991 to $1,700
of $2,000 and has found a rival in a car being
today. This has led to a tax collections spike,
-BR Ambedkar, launched by Bajaj Auto for the equivalent of
which in turn has financed the rise in social
author of the Indian $3,000. The Nano, incidentally, claims to run
and infrastructure spending.
constitution 25 kilometres per litre of petrol – far more
These impressive growth and savings figures than any other car in India.
were not achieved by setting up sweat shops
Most cellphone calls cost less than a rupee,
– factories using cheap, often exploited
while hospitals such as Narayan Hrudalaya
labour to churn out goods for exports – that
provide major surgeries at a fifth of the cost in
are preferred by several Asian countries,
the West.
most notably China. Most of India’s exports
are based on the intellect, such as software Over time, jugaad has come to imply
The first lesson services. innovation.
of economics is
It should be noted that though India is
scarcity: There is
known for software services, they account for Investment
never enough of
only 2% of the GDP. Other services – legal,
anything to satisfy When India began welcoming foreign direct
engineering, R&D – exceeded $10 billion in
all those who investment (FDI), many feared that Indian
2010–11.
want it. The first companies would not be able to compete and
lesson of politics As much as exports of these services matter, would be gobbled up by multinationals.
is to disregard India remains driven mainly by domestic
That didn’t happen. Not only did Indian
the first lesson of demand.
companies hold their own, many used the
economics. opportunity to go global themselves –
-Thomas Sowell, Innovation outbound FDI as a proportion of GDP is 0.9%,
writer higher than China’s 0.6%.
Jugaad has become a buzzword in India.
Loosely translated as ‘making do’, it signifies Tata Steel, for instance, acquired European
Indians’ success in producing goods cheaper steel major Corus and Tata Motors bought
than most other countries can with only a Jaguar Land Rover. The Birla group acquired
fraction of the resources available elsewhere. Canadian firm Novellis to become the sixth
largest aluminum company in the world, while
The Nano, the world’s cheapest car, produced
Bharti Airtel took over Zain and is present in 14
11 by the Tatas is an example of this ingenuity.
African countries.

12. Remittances have helped balance the
volatility of foreign capital in tough times. This
has allowed the government to decline aid
I learned that
from smaller donors, asking them to approach
economics was
non-profits directly.
not an exact
science and that The country has opted instead for debt
the most erudite from the World Bank. It is an indicator of the
men would analyse country’s confidence that its soft loans have
the economic fallen from almost 100% in the 1970s to less
ills of the world than 30% today.
and derive a India, in fact, has become a substantial donor.
totally different Photo by Niyantha on Flickr Among its recent grants was $1 billion to
conclusion. Bangladesh. Credits worth $5 billion to African
India’s FDI norms have been the subject
-Edith Clara countries were also announced recently.
of much debate. The significant barriers,
Summerskill, UK
especially in retail, ensured that inflows were $26 billion
politician
never as high as they could have been – FDI FDI in 2009-10; it slipped to $19.4 billion the
peaked at $26 billion in 2009-10 before next year
slipping to $19.4 billion the next year.
0.9%
That said, most leading multinationals do
business in India. Accenture and IBM have Outbound FDI as a proportion of GDP; in
more employees here than in the US. Intel China, it is 0.6%
and Microsoft use India as R&D hubs, while
A large part of Suzuki, Hyundai, Bosch, Pfizer and others use The battle against poverty
crime is economics it as a manufacturing base.
Many believe that the reforms have
– if people are One reason why FDI has been steady is that bypassed poor sections – such as the Dalits
working and have a India’s stock markets – plagued by price (untouchables as per the now-abolished caste
home and family to manipulations, fraud and delayed settlements system; they still face discrimination across
support, then in the past – have been cleaned up. India) – and regions. This, the critics say, is
I believe you
can reduce the In 1992, following a large securities fraud,
crime rate. India created a fully electronic exchange –
the National Stock Exchange – even before
-Vincent Frank,
London or New York did. This ended most
musician
rigging.
Shares were held only in electronic form
and settlements were down to T+3 levels
(payment after three days of the transaction).
Today, India’s stock markets are among the
most efficient in the world.
Before reforms, India got foreign aid by the
bucketful but had little to show for it. While at
$5.9 billion (2009-10) it still seems like a lot, it
pales in comparison to the foreign investment
of $51.2 billion and remittances from overseas
12 Photo by Tobias Leeger on Flickr
Indians at $53.9 billion in the same period.

13. why the desperately poor have radicalised and The growth and, perhaps, rising literacy levels
taken up Naxalism. Almost one-fourth of India sparked a demographic transformation.
is affected by this campaign against the state. Over the last decade, for the first time since
All of the problems independence, the number of children aged
The fact is that the proportion of people
we’re facing with 0-6 years declined by 3.08%. The sharpest
claiming to be hungry in some or all months
debt are man- decline was in poor states.
fell from 17.3% in 1983 to 2.5% in 2004-05.
made. We created
Six backward states, accounting for half of Again for the first time since independence,
them. It’s called
India’s population — Uttar Pradesh, Bihar, the number of workers is rising and that of
fantasy economics.
Madhya Pradesh, Orissa, Chhattisgarh and dependents is falling.
Fantasy economics
Jharkhand — grew fast, many faster than the
only works in a China reaped a demographic dividend earlier
national average, though admittedly from a
fantasy world. It thanks to Mao’s one-child policy, but that
smaller base.
doesn’t work in could backfire once the country starts ageing.
reality. Between 2004 and 2009, growth surged
The condition of Dalits was thought to be
in poor northern and central states — Bihar
-Michele Bachmann, the worst, especially in Uttar Pradesh – with
(12.4%), Chhattisgarh (9.7%), Jharkhand
US politician a population of 200 million, India’s biggest
(8.5%), Madhya Pradesh (6.6%), Orissa
state. However, Dalits have emerged as a
(10.2%) and Uttar Pradesh (6.7%).
major political force. Today, the state has a
India’s growth could have been possible only Dalit chief minister, Mayawati.
if the bulk of the population improved its
A recent survey in two districts of Uttar
productivity. While national growth raised tax
Pradesh showed great leaps in Dalits’ living
revenues, which was shared with the states,
standards – TV ownership was up from zero
it was a case of trickle-up, not trickle-down
to 45%, cellphone ownership up from zero
Economics has growth.
to 36%, two-wheeler ownership up from zero
never been a to 12.3%, and children eating leftovers down
science - and it is POVERTY RATES from 95.9% to 16.2%.
even less now than
a few years ago. Poverty ratio 1993–94 2004–05 2009–10 The findings on Dalits’ social status were even
% of population 45.3 37.2 32 more striking. Cases of Dalits being seated
-Paul Samuelson, separately at weddings were down from 77.3%
economist Source: Economic Survey (2010–11)
to 8.9%, cases of non-Dalits accepting food
at a Dalit home were up from 8.9% to 77.3%,
HUNGER RATE bonded labour incidence was down from 32%
Homes 1983 1993–94 1999– 2004– to 1%, the Dalit proportion running their own
reporting 2000 05
hunger
businesses was up from 6% to 37% and the
% of 17.3 5.2 3.6 2.5 proportion of those working as agricultural
population labourers was down from 46.1% to 20.5%.
Source: Food and Nutrition in India: Facts and Today, many Dalit businessmen have become
Interpretations, by Angus Deaton and Jean Dreze in millionaires and there is also a Dalit Chamber
Economic and Political Weekly, February 14, 2009 of Commerce and Industry.
While the upliftment of Dalits is far from
complete, they have gained substantially from
reforms.
13

14. Every nation on
the Earth that
embraces market
economics and
the free enterprise
system is pulling
millions of its
people out of
poverty. The free
enterprise system
creates prosperity,
not denies it.
-Marco Rubio, US
politician
Geography
has made us
neighbours. History
has made us Photo by United Nations Photo on Flickr
friends. Economics
has made us
partners, and Literacy
necessity has made Literacy rates are closely linked to the poverty (16.82%), Uttar Pradesh (11.45%), Orissa
us allies. Those ratio. It is no surprise then that as India’s (10.37%) and Jharkhand (16.07%).
whom God has so poverty ratio dropped, the literacy rate shot up.
joined together, Women did even better on the literacy scale.
Since 1991, India’s literacy rate rose by a record Female literacy improved dramatically
let no man put
21.83% to 74.04%. In the earlier two decades, by 11.8% across India, and higher in Bihar
asunder.
it rose only 17.8%. (20.2%), Uttar Pradesh (17.1%), Orissa (13.9%)
-John F Kennedy, and Jharkhand (15.3%)
Again, the poorer states fared better. In
former US president
the last decade, the improvement in all-
India literacy (9.7%) was exceeded by Bihar
LITERACY TRAIL
Literacyrate 1950–51 1960–61 1970–71 1980–81 1990–91 2000–01 2010–11
% of 18.3 28.3 34.4 43.6 52.2 64.8 74
population
14
Source: Census 2011

15. What’s left
A remarkable story has been scripted over the There is little accountability, and
last two decades. Yet, a longer journey awaits. administrative reforms are the need of the
There is a large, unfinished reforms agenda, hour.
I had four or five
not least of which is fixing a basic issue – ease
years in school The lack of education has led to severe
of doing business.
training as a shortage of skilled labour, and the
soprano. I fell The Heritage Foundation’s 2011 Index of shambolic school system ensures that
into pop singing Economic Freedom ranked India 124th among those who pass through it are functionally
because of 183 countries on this parameter. The World illiterate.
economics. I got Bank’s Doing Business report, meanwhile,
India needs to take great strides in
out of high school placed India 134th among 183 nations.
education and vocational training.
and had to go work, Globally, there seems to be consensus that
and they weren’t India has lots to do before it can be called 7.27
hiring opera business-friendly. Spending on social sector, as percentage of
singers. GDP, in 2009-10. In 2005-06, it was 5.49%
From getting building permits to enforcement
-Jo Stafford, of contracts, the Indian story is one of
singer unending red tape, restrictions and delays. • Hunger
India has the dubious distinction of leading the India’s nutritional indicators are
world in terms of legal backlog – nearly 31.5 staggering. Anaemia affects over 80%
million pending cases. Rigid labour laws are of the population in some states. Child
a barrier for those wishing to set up labour- malnutrition, measured by low weight
intensive industries that could provide millions for age, affects 46.7% of all children (on
of jobs, not to mention curbs on investment in this count, we fare worse than any African
infrastructure, retail and education. country).
An economist is Here are a few sectors that require urgent There has been virtually no improvement
a man who states attention. in child malnutrition between 1998-99
the obvious in and 2005-06. Indian children suffer from
terms of the stunting and low weight. Calorie intake
incomprehensible. • Social sector is falling despite rising income, probably
A boom in social spending has been
-Alfred A Knopf, because poor people want to switch to
accompanied by innovations such as the
publisher superior, tasty food rather than get more
National Rural Employment Guarantee
calories out of basic food.
Scheme, the Sarva Shikhsa Abhiyan (a
national education mission), the Right to Hence, nutrition is a bigger problem than
Education and the Food Security Act that hunger, which makes awareness of the
extends subsidised food facilities to the importance of vitamin, iron and iodine
poor. There is also a rural health mission intake critical.
and the Jawaharlal Nehru National Urban 80
Renewal Mission. Estimated percentage of Indian children
Social spending rose from 5.49% of suffering from anaemia
GDP in 2005-06 to 7.27% in 2009-10. 46.7
However, these schemes are beset by Estimated percentage of children who
corruption and waste. Free government suffer from malnutrition, measured by low
schools and health centres are barely weight for age. India fares worse than any
functional, while unions ensure that there African country on this count. There has
is no accountability from teachers, health been virtually no improvement in child
workers and other service providers. malnutrition between 1998-99 and
15
Absenteeism is rampant and bribes are the 2005-06
norm.

16. • Corruption – licenses, foreign exchange norms, etc –
This is the hottest topic of discussion have been deregulated, which reduces the
in India today, and has implications for avenues of corruption.
There can be no businesses. There are, however, areas where corruption
real individual is still rampant – real estate and
After enduring two generations of
freedom in government-financed infrastructure, for
criminals and corruption in politics and
the presence instance. There is too much room here for
the bureaucracy, public anger has boiled
of economic political discretion and favouritism. This
over. A mass campaign for effective
insecurity. affects the business climate and investor
anti-corruption laws led by social activist
-Chester Bowles, Anna Hazare found resonance across the sentiment.
former US country. It was especially popular among As far as criminality in politics goes, 150
diplomat the youth and shook the government into of the Lok Sabha’s 545 seats were won by
action. those with criminal records; in the 2004
While the law that the government tabled election, 128 such politicians won.
in parliament – which was eventually not The glacial pace of the judicial process
voted on – became the subject of heated allows criminals to dominate polls through
debate, there is little doubt that the bribery and intimidation. Obviously, this has
campaign marked the rise of an assertive led to greater corruption in government
middle class and media. Will it affect
election results in the end? The jury’s out An effective Lokpal – an anti-corruption
If all economists on that. ombudsman – that has the powers to
were laid end to investigate ministers, the bureaucracy and
end, they would Most people believe that corruption even the Prime Minister’s Office would go
not reach a is getting worse and that politicians a long way in reducing corruption. Another
conclusion. are catalysing the rot in the system. option is to fast-track cases against
The Corruption Perception Index of politicians.
-George Bernard Transparency International ranks India
Shaw, writer 87th out of 178 countries, behind China 87
(78th). India has actually improved its score India’s rank, among 178 countries, on
slightly, from 2.7 out of 10 in 2002 to 3.3 in Transparency International’s Corruption
2010. This may be because several areas Perception Index
16 Photo by India Kangaroo on Flickr

17. 150 of the economic miracle reach everybody,
Number of Lok Sabha members with it cannot afford to ignore governance
Isn’t it interesting criminal records. The Lok Sabha, the lower reforms.
that the same house of parliament, has 545 members Reform of the judicial system will improve
people who laugh in all. In the 2004 election, 128 politicians detection and lower corruption; it will
at science fiction with criminal records were elected to it also improve contract enforcement and
listen to weather protection of property rights.
forecasts and
economists?
• Infrastructure If national resources such as mines
Lack of infrastructure could prove to be and telecom spectrum are auctioned
-Kelvin Throop III, a major hurdle to the country’s progress. transparently, it too will improve the
fictional character It could impede the delivery of health economic environment and benefit the
created by RAJ services and education, and prevent social consumer more.
Philips schemes from reaching the needy.
Here, too, corruption is endemic because • Fiscal management
roads, power, ports, railways and telecom The country’s fiscal situation is a concern,
are all linked to natural resources, land as is the management of the fiscal deficit
and government contracts – all of which and foreign borrowings. “The union
provide ample opportunity for kickbacks. budget is expected to bring an admission
No agricultural land can be converted into that the fiscal deficit target of 4.6% will
An economist is
non-agricultural land for industry without be missed,” wrote James Lamont in the
an expert who will
state permission, which too provides Financial Times on January 26. “Fiscal
know tomorrow
opportunities for corruption. restraint will become more difficult the
why the things
India requires transparency in policies nearer the Congress party gets to the 2014
he predicted
and procedures, and an end to political parliamentary elections, which are often
yesterday didn’t
discretion in these areas. won by doling out freebies and welfare
happen today.
programmes to the poor. Already a vote-
-Laurence J Peter, winning food security bill is in the works,”
academic • Administrative reforms he added. The impact of this bill on the
While economic reform is deep-rooted deficit is anybody’s guess.
and well on its way, governance reforms
are languishing. If India is to maintain its “External stresses are likely to remain a
growth rate and ensure that the benefits theme for the rest of FY12 and in H1-FY13.
We expect little relief for the trade deficit
as exports slow and the reduction in the
import bill is limited by oil imports and
investors’ huge appetite for gold. Hence,
despite stable flows in the form of services
exports and remittances, funding the
current account deficit – forecast at 3.1%
of GDP in FY12 and 2.8% in FY13 – may
prove challenging,” predicted Standard
Chartered’s Global Focus – 2012 report.
17
Photo by celblau on Flickr

18. Indian banks, meanwhile, are under pressure “Subsidies need to be reduced, particularly
amid the high policy rates and low growth. given that the expected slippage in the FY12
fiscal deficit to 5.6% of GDP from the targeted
In all recorded However, most banks are in good enough
4.6% is driven primarily by the subsidy
history there has shape to absorb the pressure; they are also
burden,” said the Standard Chartered report.
not been one better capitalised than they were in 2008-
This report too said that this year’s provincial
economist who has 09. Also, the government intends to boost
elections would make it tough to curb populist
had to worry about their capital base by March 2012; further
expenditure.
where the next announcements on this are expected in the
meal would budget. At the same time, it pointed out, slower growth
come from. might curb revenues. This would probably
Finally, the focus on increasing the purchasing
keep the FY13 fiscal deficit at a high 5.5% of
-Peter Drucker, power of vulnerable groups without a
GDP.
management guru corresponding emphasis on supply-side
policies has resulted in inflation. Hence, Barclays Capital’s The Emerging Markets
expenditure reforms are critical. Quarterly report also predicted that the
government would miss its fiscal deficit target.
STANDARD CHARTERED FORECASTS FOR INDIA
2011 2012 2013 2014
GDP (real % y/y) 7.0 7.4 8.0 8.0
Economics is the
WPI (% y/y) 8.7 6.5 6.0 6.0
painful elaboration
of the obvious. Repo rate (%)* 8.5 7.0 7.0 7.0
USD- INR* 51.5 48.5 46.5 44.0
-Friedrich von
Hayek, economist Current account -3.1 -2.8 -2.6 -2.5
balance (% GDP)
Fiscal balance -5.6 -5.5 -5.0 -5.0
(% GDP)
Note: All forecasts except USD-INR refer to the April-March fiscal year starting in the year in the column heading;
*end-period. Source: Standard Chartered Research
18

19. What lies ahead
According to a recent Business Monitor International (BMI) report,
real GDP growth is expected to slow to a three-year low of 6.8%
in FY2011-12 on the back of the rising cost of capital (the central
bank has been raising interest rates regularly to curb inflation that
hit 12% at one stage), receding export growth and slowing credit
expansion. “We expect activity to recover somewhat in FY2012-13
(with our full-year growth forecast currently at 7.3%) as the central
bank starts to cut its policy rates, which have essentially choked the
Indian economy over the past year,” said the report titled Economic
Analysis – An Economic Resurgence or the Calm Before the Storm?
Growth
While it’s widely expected that India will escape the pain that many
Euro zone economies as well as the US are experiencing, the BMI
report states that purchasing managers’ indices (PMI) suggest a
rebound in overall economic activity. Manufacturing PMI rose from
its September 2011 low of 50.4 to 57.5 in January 2012 – an eight-
month high. The PMI for services rose to 58.0 from a low of 49.1 in
October 2011.
This could lead to a reassessment of BMI’s growth projection for
India. However, if growth does not exceed the 6.8% predicted, it
would mean a sustained slowdown through H2 FY2011-12. If that
happens, growth could fall to 6.4% year-on-year (y-o-y) in H2 from
7.3% in H1.
Also, a Financial Times report on January 26 said that many
industrialists have been discouraged by growth slipping from
forecasts of 9%. Double-digit growth, said Richard Iley, economist
at French bank BNP Paribas, to the newspaper, is firmly in the “rear
view mirror”.
Despite the encouraging PMI data, macroeconomic trends suggest
a weakening economy. Q3 of FY2011-12 started badly, with Industrial
production falling for the first time on a y-o-y basis since June 2009.
Exports fell too. November trade data showed growth falling to
3.9% y-o-y.
Finally, commercial credit growth, which has been falling since the
beginning of 2011, dropped to 13.4% y-o-y in December 2011 – a
level last seen in December 2009.
“Until the Reserve Bank of India (RBI) loosens its official stance
on monetary policy, which we do not see happening until Q212…,
consumption and investment activity are likely to remain weak.
Furthermore, we do not see the country exporting its way out of this
downturn, nor is the government in a position to enact stimulative
fiscal measures,” the BMI report said.
19

20. The deteriorating global situation will also high inflation is a warning signal that policy
impact Indian exports this year. World GDP inaction needs to be addressed and reforms
growth could slow to 2.8% (it was 3.1% in 2011), need to be accelerated. The economic outlook
the US economy will continue to stagnate and for the rest of FY12 and FY 13 will hinge on
Economic statistics the Euro zone seems to be on the brink of a the government’s ability to restore investors’
are like a bikini, recession. BMI expects net exports to contract, confidence in India’s long-term story”
what they reveal with their growth clocking -6% and -3.6% in
is important, what FY2011-12 and FY2012-13 respectively.
they conceal is Investment
vital. High inflation, delays in government approvals
An Ernst & Young report released at the World
and rising interest rates have also affected
-Sir Frank Economic Forum in Davos in January said FDI
business sentiment. Expectations that Prime
Holmes, professor in India is set to swell as investors look beyond
Minister Manmohan Singh, said the Financial
issues transparency, poor infrastructure and
Times, “would use his second term for bold
policy paralysis in search of growth.
reforms have quickly drained away. Instead,
the Congress party-led coalition has suffered “The fundamentals that make India attractive
repeated setbacks at the hands of the to investors remain intact,” Farokh T Balsara,
opposition, its allies and civil society activists”. head of markets at Ernst & Young India,
wrote. “However, our respondents continue
“We in India have had our share of problems.
to cite inadequate infrastructure and a lack
The Indian economy has slowed down
of governance and transparency as major
Doing and Inflation edged up. Concern about
obstacles to investment.”
econometrics corruption moved to the centrestage,” Singh
is like trying to acknowledged. FDI in India rose 13% to $50.81 billion in the
learn the laws first 11 months of 2011 from a year earlier,
This was reflected in the Bombay Stock
of electricity by while the total number of projects rose 25%
Exchange index, the Sensex, turning stagnant
playing the radio. to 864, the report said, quoting additional data
and the rupee falling 16% over 2011.
from the Financial Times’ FDI Intelligence
-Guy Orcutt, It’s clear, said Standard Chartered’s Global service.
economist Focus – 2012 report, that “the current
combination of relatively slow growth and
20 Photo by SknaB noIA on Flickr

21. Most of the companies surveyed for the report consumerist mode, India is one of the world’s
were confident of the long-term prospects for most attractive retail markets. However,
investment in India. Of the 382 international pushing through FDI in retail is an uphill
The First Law of firms surveyed, 70% planned to increase or battle, as the government discovered recently.
Economists: For maintain operations in India, while 19% said
In November 2011, New Delhi said it
every economist, they didn’t plan to enter the country or were
was throwing open the market to global
there exists an preparing to withdraw.
supermarket chains such as Wal-mart and
equal and opposite The areas of concern, Barclays Capital’s The Carrefour and Tesco only to be forced by its
economist. The Emerging Markets Quarterly report said, allies to withdraw the move.
Second Law of were weaknesses in private sector capital
Economists: The proposal to permit foreign groups to own
expenditure (a result of monetary tightening)
They’re both up to 51% of supermarkets sparked protests
and slower government investments due to its
wrong. and paralysed parliament. Critics predicted it
poor fiscal health.
would it would kill family-run shops that make
-David Wildasin,
Automakers led investments in India last year, up more than 90% of India’s retail sector.
professor
boosting spending by 46%, the Ernst & Young
Tesco branded the U-turn a “missed
report said. Technology and life sciences
opportunity”. Harsh Mariwala, the head
companies came next, while spending by
of consumer products firm Marico, called
foreign firms on infrastructure and retail
it a “highly regressive move”, reported
projects declined. Ford had said earlier
the Financial Times. Rajiv Kumar, of the
that it would spend $142 million on Indian
Federation of Indian Chambers of Commerce
operations, while Renault-Nissan also said it
and Industry, said opponents of FDI in retail
would step up investments.
had whipped up xenophobic sentiments about
An economist is
While foreign investment in several industries the return of colonialism.
someone who,
has been facilitated, it remains a touchy issue
when he finds Almost as a consolation for reform’s
for retail.
something that proponents and to reassure global investors,
works in practice, With a market of 1.2 billion people and worth the government allowed 100% foreign
tries to make it about $450 billion, and a middle class in ownership of single-brand stores.
work in theory.
-Joan Violet
Robinson,
economist
21 Photo by Greenbelf Alliance on Flickr

22. Expect brands such as Ikea, Adidas and Marks on household budgets over the last 18
and Spencer, which were allowed to own up months. As a result, the outlook is grim on
to 51% of a store, to flock to India without private consumption, which accounts for
Having an in-house domestic partners. The decision “is likely to roughly 65% of the GDP.
economist became result in more foreign companies entering
Interest rates (the repo rate, the benchmark
for many business the market or expanding their presence”, said
at which the central bank buys government
people something Fitch, the credit agency.
securities from banks to control money supply,
like having a
“This is a welcome move with a clear potential was at 8.5% at the time of writing) are pretty
resident astrologer
to lift the general mood in the economy,” high too with a wary RBI refusing to lower
for the royal
chimed in Rajan Bharti Mittal, vice-chairman them until it is certain inflation has been
court: I don’t quite
and managing director of Bharti Enterprises, tamed.
understand what
one of the country’s largest retailers, to
this fellow is saying The stock markets aren’t doing great either,
Financial Times.
but there must be staying range-bound between 16,000 and
something to it. However, the fear of policy reversal still lurks. 17,500 points. Even the rupee has weakened
That’s why Ikea, the Swedish furniture giant, is more than 19% since its July 2011 peak.
-Linden, writer
not expected to come to India soon, though it
BMI expects private consumption to grow by
is keen to.
6.0% and 6.2% in FY2011-12 and FY2012-13
It doesn’t help that policy flip-flops aren’t respectively – a considerable slowdown from
the only challenge; land acquisition and a the 8.8% growth in FY2010-11.
market that is anything but homogenous are
“While household consumption – currently
problems too. That’s why the World Bank
at its weakest level on record – is likely to
ranks India 132nd out of 183 countries for ease
find a floor thanks to government spending
of doing business.
in rural areas and a healthy labour market,
Economics is the
The evolution of the retail sector, it now weak consumption will weigh on investment
only field in which
seems, will be long drawn out. in a feedback loop,” said Standard Chartered’s
two people can get
Global Focus – 2012 report.
a Nobel Prize for
saying exactly the 13% On the public consumption front, the
opposite thing. Rise in FDI in India in the first 11 months of government has been hamstrung by the
2011 from a year earlier; total FDI for the global financial crisis. One indicator of this is
-Heard at the
period was $50.81 billion, according to an the fall in public spending growth – in 2008,
London School
Ernst & Young report government spending averaged 26.7% y-o-y
of Economics
growth. Spending over the 2011’s four quarters
25% expanded only at 3.2%.
Rise in number of projects; total number of
Combine negative revenue growth and a
projects in the period was 864, said the report
growing expenditure bill due to the various
social schemes announced and what you
70% get is little room for the government to push
Proportion of firms, of the 382 surveyed, that through fiscal stimulation.
planned to increase or maintain operations in
BMI projected public consumption to grow
India; 19% said they didn’t plan to enter the
by 3% and 5% in FY2011-12 and FY 2012-13
country or were preparing to withdraw
respectively.
Private and public consumption
65
Though food inflation has come down to
22 Percentage of GDP accounted for by private
manageable levels, there was great pressure
consumption

23. 6.2% might only be in the mid-teens for the current
Expected rise in private consumption in fiscal year, in marked contrast with the average
FY2012-13, according to BMI, a considerable of more than 20% rate of recent years.”
Inflation is the one
fall from the 8.8% growth in FY2010-11 However, food inflation is falling fast. As
form of taxation
that can be Pranab Mukherjee pointed out the “substantial
imposed without
3.2% improvement”, Kaushik Basu, the finance
Growth in government spending over the four ministry’s chief economic advisor, told the
legislation.
quarters of 2011. In 2008, it averaged 26.7% Financial Times: “We have seen the worst of
-Milton Friedman, year-on-year growth the [rate] rises.”
economist
The Barclays Capital report estimated that
Will the RBI relent? repo rate – the RBI drops the rate to expand
money supply and raises it to squeeze supply
As FY2012-13 approaches, the easing of key – cuts could be introduced from mid-2012.
interest rates could be crucial, providing a
much-needed boost. Through FY2012-13, BMI The rate increases, though, found support
expects cuts of 75 basis points on the back of in some quarters. C Rangarajan, Manmohan
falling inflation. The cuts could be higher if Singh’s chief economic adviser, said that India,
Having a little inflation recedes faster than expected. which has a high poverty rate, must keep
inflation is like inflation below 5% to achieve sustainable
India’s policymakers have battled over the growth. His views found an echo in the RBI.
being a little
past 18 months to bring down inflation, the The Financial Times reported that RBI officials
pregnant—inflation
highest among BRIC (Brazil, Russia, India, felt that the economy cannot grow more than
feeds on itself and
China) nations. 8% without inflicting high inflation on the poor.
quickly passes the
‘little’ mark. While inflation fell to acceptable levels at the Besides, not everyone is impressed with the
beginning of 2012, it has come at the cost of “excessive pessimism”. Arvind Panagariya,
-Dian Cohen, growth. economist at Columbia University, told the
economist
“Rather than economic growth, we expect newspaper that India can quickly recover the 2
downside surprises to come through on percentage points of economic growth it lost
inflation,” Robert Prior-Wandesforde, during the global financial crisis.
economist at Credit Suisse in Singapore, told Former World Bank chief economist Joseph
the Financial Times. Stiglitz pointed to the achievement of 7%
This because policymakers have resorted to growth amid the downturn.
monetary tightening to rein in prices, raising The risk remains, though, of global commodity
benchmark lending rates 13 times over prices surging as they did in 2010, flaming
the past two years despite other emerging inflation again and delaying rate cuts.
markets despite critics pointing out that other
emerging markets cut them to protect growth. The RBI has one other worry – a weakening
They accused the RBI of acting timidly, while rupee. Currency depreciation in a country that
industrialists blamed higher borrowing runs a current account deficit and imports
costs for choking off growth and deterring most of its oil may fuel inflation again.
investment. The weakening is a result of the rupee’s
As Barclays Capital’s The Emerging Markets overvaluation and deteriorating risk sentiment.
Quarterly report pointed out: “…higher interest The Barclays Capital report said the rupee
rates and prolonged tightness in liquidity are would remain weak in the near term, clawing
visibly hurting several rate-sensitive sectors back to 49/$ in six months and to 48/$ in a
such as manufacturing, construction, real year.
estate, banking and finance. Credit growth has Keeping prices in check while maintaining
23
already slowed considerably and, we estimate, growth will be a key challenge for Mukherjee.

24. GROWTH AND INFLATION (% CHANGE)
2007 2008 2009 2010 2011 2012 2013 2014 2015
When goods don’t
Real GDP growth 9.3 5.7 5.2 8.3 6.5 6.1 6.8 6.5 6.6
cross borders,
soldiers will. ASEAN 6.7 4.3 1.1 7.9 5.2 5.2 5.7 5.7 5.8
China 14.2 9.6 9.2 10.4 9.2 8.1 8.4 7.9 7.9
-Fredric Bastiat,
India 9.6 5.1 9.1 8.8 7.1 6.3 8.3 8.2 8.4
economist
Inflation 4.9 7.1 2.8 5.1 5.9 4.9 4.6 4.4 4.2
ASEAN 5.6 9.9 2.6 4.4 6.0 4.9 4.7 4.6 4.7
China 4.8 5.9 -0.7 3.2 5.6 3.5 4.9 4.3 3.9
India 6.4 8.3 10.8 12.0 8.9 7.8 7.9 7.7 7.5
Source: Economist Intelligence Unit
The primary
reason for a tariff EYE ON INDIA
is that it enables
the exploitation 2012 2013 2014 2015 2016 2017
of the domestic
Nominal GDP 1,4 104,241.3 f 118,401.2 f 133,486.1 f 150,232.6 f 168,945.7 f 189,900.4f
consumer
(in Rs bn)
by a process
Nominal GDP 2,4 2,287.6 f 2,620.2 f 3,108.8 f 3,669.8 f 4,223.6 f 4,747.5 f
indistinguishable (in $ bn)
from sheer Real GDP growth 2,4 7.3 f 7.8 f 7.7 f 7.5 f 7.5 f 7.4 f
robbery. (% change, y-o-y)
-Albert Jay Noc, GDP per capita 4 1,818 f 2,055 f 2,407 f 2,805 f 3,189 f 3,542 f
(in $)
author
Population5 (in mn) 1,258.4 f 1,275.1 f 1,291.8 f 1,308.2 f 1,324.4 f 1,340.4 f
Ind’l prod’n index 0.0 f 7.5 f 7.9 f 7.6 f 7.5 f 7.5 f
(% y-o-y, average) 3,4
f: BMI forecasts. 1 GDP at market prices,fiscal years ending March 31 (1990=1990/91). 2 2011=FY2011/12,factor
cost, f=BMI forecast. 3 New series used from 2005/06 onwards. Sources: 4 Central Statistics Organsation/BMI; 5
World Bank/UN/BMI
24

25. Top priorities
As the country looks ahead to the budget, here • Bring back reforms
are the issues that are likely to be on Pranab Political constraints have pushed
Mukherjee’s mind. reforms to the backburner. This has
In the long run we contributed to the slowdown and loss
• Fiscal consolidation
are all dead. of investor sentiment. The introduction
Growth has slowed along with a slippage in
-John Maynard and subsequent withdrawal of a policy
investment. Interest rates have been raised
Keynes, allowing FDI in retail is an example. The
to arrest inflation, which has squeezed
economist government needs to send a clear signal
funds available to fuel growth. To top it all,
that it is serious about reforms.
the fiscal deficit target of 4.6% is likely to
be missed. The budget would do well to lay • Agriculture
a roadmap for fiscal consolidation, allowing Growing at a mere 2%, agriculture is a
the RBI to lower rates and stimulate worry. If food security is to be achieved,
demand. The threat of Inflation could be India will have to do better on this front.
neutralised by easing supply constraints. The farm-to-consumer chain is far too
long; it’s time to link farmers to markets.
It is difficult • Helping markets
This will make agriculture more lucrative
to get a man With growth slowing and rates rising,
and lower food prices. India spends the
to understand Indian markets have been stagnant for far
equivalent of $20 billion on food and
something too long. The abolition of the Securities
fertiliser subsidies, but that hasn’t eased
when his salary Transaction Tax to make transactions
supply or made farmers richer. It’s the
depends on his not cheaper and resisting the temptation to
delivery mechanism that has failed; better
understanding it. raise taxes in order to boost revenues
subsidy management is the need of the
would aid the return of market buoyancy.
-Upton Sinclair, hour.
Two other policy changes are critical:
author and
public sector disinvestment needs to get
politician
on the fast track again and pension and
provident funds should be allowed to
invest more in stocks.
• Job creation
India’s unemployment rate fluctuates
between 9% and 10%. However, as the
workforce gets increasingly younger,
even 7% growth may not be enough.
What’s urgently needed is investment in
and, perhaps, cheaper credit for labour-
intensive industries. Skill development is
important, but there are few incentives for
industry to upgrade employees’ talents.
Most importantly, inclusive growth would
ensure that all industry sectors and
sections of society would flourish, creating
more employment.
25

26. India’s economic journey
500 BC : Silver punch-marked coins minted; it’s a period of intensive trade and urban
development
1 AD : India has 32.9% share of global income, the largest in the world
Far better an
1000 : India has 28.9% share of world income, the largest in the world
approximate
1500 : India has 24.5% share of world income, second largest in the world after China,
answer to the right
which has 25% share
question, which is
1600 : India’s income of £17.5 million (under Akbar’s Mughal empire, population of
often vague, than
roughly 150 million) was greater than the entire treasury of Great Britain in 1800
an exact answer (£16 million)
to the wrong
1700 : India has 24.4% share of world income, largest in the world, under Aurangzeb’s
question, which empire
can always be
1793 : Cornwallis’ Permanent Settlement Instituted in Bengal
made precise.
1820 : China is world’s largest economy followed by the UK and India. Industrial
-John Tukey, revolution in the UK, British begin treating India as an unequal partner
statistician 1850 : India’s GDP estimated at 40% of China’s. British cotton exports reach 30% of
Indian market
1868 : First estimation of India’s national income by Dadabhai Naoroji
1870 : India has 12.2% share of world income
1913 : India has 7.6% share of world income
1947 : India gains Independence
1950 : Government sets up Planning Commission, Jawaharlal Nehru is chairman.
Objective is to streamline resource allocation, put economy on development path
In general, the art
1951 : First Five-Year Plan launched. Major portion of resources directed to agriculture,
of government rural infrastructure. Food production rises by 18%
consists in taking
1952 : India has 3.8% share of world income
as much money
1973 : Economy at $494.8 billion, has 3.1% share of world income
as possible from
one party of the 1980–1991 : Economy virtually closed
citizens to give to 1991 : Balance of payments crisis. External debt rises to $70 billion, exacerbated by Gulf
the other. War. Rising oil prices deplete country’s foreign exchange reserves. India is on the
verge of default; has enough to pay for only three weeks worth of imports. In May,
-Voltaire, government sells and pledges gold to raise $605 million. Rupee devalued on July
philosopher 1 and 3. Economic reforms begin
1992 : Government switches from fixed exchange rate system to dual exchange system.
Boost for the economy, but inflation rate is high and poor industrial growth cause
concern. Securities and Exchange Board of India established to oversee financial
markets
1993 : Unified exchange rate system introduced
1993-2010 : Reforms continue. Public sector disinvestment introduced, as are various
administrative reforms. Stock market booms, crossing 20,000 points at one stage
before falling due to an economic slowdown
2009 : Global slowdown impacts economy, jobs; India, however, maintains a growth rate
of over 6%
2010 : India’s economy is at $4.06 trillion, accounting for roughly 6% share of world
income, the fourth largest in the world
2011 : Fuel prices deregulated. Inflation hits record highs, crossing 12%. Numerous rate
hikes follow
26
2012 : Inflation brought under control, but fears of slowing growth persist