An Overview of Indian Economy (1991-2013)

Abstract

Since 1951, India has fully-fledged as a planned economy. The first few plans focused on growth with strengthening of the manufacturing and industrial sector to form the backbone of the Indian economy. Other principal areas of planning were agriculture, poverty alleviation, employment generation, social development etc. Back in 1991, India saw itself battling its most critical economic and currency crisis ever, but after economic reforms and adopting the policy of LPG (Liberalization, Privatization, and Globalization) Indian economy performed well. Then again due to global financial crisis in 2008 Indian economy again interrupted and going through another turbulent phase. This paper analysis Indian economy from 1991-2013. The economy of India is the tenth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011, according to the IMF. Back in 1991, India saw itself battling its most critical economic and currency crisis ever. The government then did not have many options but to take up some tough reforms. Many barriers and restrictions were taken off. The new economic policy of 1991 was characterized by liberalization, globalization and privatization. What followed these radical changes is now history. Two decades have passed since then. And the ghosts of 1991 have come again to haunt us. Take the twin deficits during both these period. The fiscal deficit was at 5.39% of GDP in 1991-92. In 2011-12 it was at 6.9%. Similarly, the current account deficit was at 3% of GDP in 1991. The same stood tall at 4.3% in March 2012. Short term external debt has shot up from 10% of GDP in 1991 to 22% currently. 1990s and 2000s witnessed major changes in the Indian economy due to economic liberalization in India. This revitalization took place in the whip of balance-of-payment emergency. The government of India allowed private infusions in Indian market which facilitated monetary infusion from FDI and FII. As per the estimate by Ministry of Statistics and Programme Implementation, GDP of India in the year 1990 stood at 5,542,706 in comparison with 842,210 in 1975. Of course, it would be an overstatement to liken the current scenario to the 1991 crisis. The Indian economy has indeed come a long way since then. Back in 1991, India had foreign exchange that wouldn't last beyond two weeks. With current reserves of about US$ 290 bn, the economy can meet its import requirements of about 7 months. India's domestic savings rate has gone up from 20% of GDP to 31.6% during this intervening period. Even Indian companies are in much better financial health today than in 1991. But there are also several new challenges now that didn't exist back then. One very major difference is the state of the global economy. Back in 1991, the overall economic environment in the global arena was favourable. Today we are quite integrated with the global economy. This has tremendously increased our vulnerability to external shocks. As a fledgling democracy, India's economic experiment of planned development was held out as an example to many aspiring low-income countries in the 1950s. While some countries raced ahead in the development process, India lagged behind. This is evident from the fact that it took 40 long years from 1950-51 for India's real per capita GDP to double by 1990-91. But, 1991-92 was a defining moment in India's modern economic history as a severe balance of payments (BOP) crisis prompted far reaching economic reforms, unlocking its growth potential.