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Liberalization of Indian Economy


India was known as ‘caged tiger’. It was predicted that if cage is broken, then India will run at the speed free tiger. It showed the potential of Indian economy which has been caged by populist policies. It is unfortunate that India took so long to make structural adjustments. India waited for crisis to happen. One of the major situational factor which accelerated the crisis was Gulf War and collapse of USSR.

According to Amartya Sen, contrary to prediction, the sprint of tiger was not as it should have been. There is lack of consensus among scholars whether external factors or internal factors led to the change in economic policy. There is also a debate on the consequences of new model.

According to Bimal Jalan, it is good that at present there is no debate over desirability of reforms. Now all major parties agree that there is no alternative.

Current state of liberalization.

According to Economy Survey 2016-17, there has been remarkable transition from closed and list-less economy to open and thriving economy. Progress is not only qualitative, it is also measurable. The survey has evaluated liberalization on the basis of 4 standard models.
1] Openness to the trade.
In comparison to size of economy, India is trading with international economy more than expected.
2] Openness to foreign capital.
Despite capital controls, the net inflow of foreign capital is as normal as any other emerging economy. India has received FDI at normal rate of $75 billion, which is not far short of what China was receiving at the height of its economic boom in 2000.
3] Extent of PSUs.
Contrary to the myth that India has large PSUs, India has significantly rolled back public sector including in sectors like civil aviation, telecom and financial services. However, China continues with the policy of state PSUs.
4] Government Expenditure.
Contrary to the opinion that there is over bloated expenditure by govt. in India, the expenditure is not more than what is normal for a country in accordance to the level of development.

To sum up, India is a normal emerging market economy, pursuing the standard Asian path of development. Since 1980 there is 4.5% per capita increase in income.

According to survey, the achievement is remarkable as it has been achieved under extremely competitive democratic system. It is achieved even in a situation when govt. policy making is severely constrained [SC activism]. However, survey mentions about ineffective redistribution, welfare schemes suffer from considerable miscalculations.

[Refer recent economic survey as well, and add/subtract accordingly.]

Impact of Liberalization.

Montek Singh Ahluwalia

According to Montek Singh Ahluwalia, in his article Economic Reforms, a Retrospective View, Reforms have done well in some areas and have neglected some areas.
1] Reform and poverty alleviation. The percentage of the population living below poverty line in 1983 was 44.5% and in terms of number 323 million.
2] In 1993-94, immediately after reforms, there was marginal increase in no. of poor below poverty line. It became 43.5% and in terms of number 404 million.
3] Between 1993-94 and 2004-05, based on Tendulkar Committee estimates, poverty declined from 45.3% to 37.3%. In terms of absolute numbers, there was growth. It became 407 million.
4] Between 2004-05 and 2011-12, there is a faster decline from 37.2% to 21.9% (based on Tendulkar Committee report). For the first time, even absolute number declined from 407 million to 260million in 2011-12.

Even 269 million is a huge number and the situation of people just above poverty line is also not qualitatively different. We do not have good record in delivering basic services like education, health, sanitation, clean drinking water.
If we want to reduce poverty to the truly marginal level, we require 8% rate of growth of economy for next 20 years. With unskilled and unhealthy population, we cannot achieve the target.
The another failure of reforms is that it has not resulted into growth of employment opportunities and whatever employment has been created is of bad quality. There is exploitation of workers in SEZ and primarily women. The wages have been low, and only unskilled jobs are available compared to other Asian countries.

Indian economy has moved into ‘middle income status’. India is bound to face challenges of getting stuck in ‘middle income trap’, if we do not design our reforms carefully. He suggests:
1) First tackle corruption.
2) End red tapism.
3) Invest in human capital.
4) Reform factor market.
5) Inclusion by job.
6) Rehabilitate state capacity.

For complete article, please refer

Views of Amartya Sen

The question is not overall growth, but growth pattern. It has not resulted into corresponding transformation in the living standards. Progress in social indicators have gone down compared to pre-reform period. There is stagnation in agriculture and the jump in service sector has not resulted into benefits at the ground level because people lack skills.
There has also increase in poverty in so called Bimaru states. The problem of hunger amidst plenty exists. He appreciates China. As China has invested in Basic human capabilities and has been in a position to take the benefits of globalization.


There is no doubt that reforms released creative energy, accelerated growth and productivity. But India’s record in social indicators is among the bottom countries. It would be grave mistake if we do not go for critical reforms.

Posted in PSIR 1B

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Please add topic of politics of economic growth in india

Mahantesh b w

i just solute you for this work.