India After a Quarter Century of Liberalisation Reforms

Tue, 26 Jul Pre-Open

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The path breaking reforms that were laid on 26 July 1991 by Manmohan Singh - then the Finance Minister - helped India become one of the fastest growing economies in the world. A lot of other factors also helped the India earn this status, although there were considerable challenges as well. Despite the Indian economy slowing down during the reign of the erstwhile UPA government, lot of hopes have been pinned on PM Modi's promise for structural reforms. So, going by these developments, India should be well on its way to ride the growth story ahead. Unfortunately, there appears to be enough evidence that suggests otherwise.

If one has to rewind, a quarter of a century has passed since the reforms in 1991 were introduced. However, one thing that remained constant is that India continues to underperform. True that the country still continues to be one of the fastest growing in the world. But it has the potential to grow faster. Policy paralysis and lack of reforms have kept it from tapping its true potential.

An article in Livemint has made a similar case. As per the article, the reform process in India remains woefully incomplete.

While many reforms have been introduced since 1991, only a few have been actually implemented.

If we have to limit our focus to the present state, there are many areas of the economy that are weighing heavy on India's growth story.

Take agriculture for instance. The sector, despite its importance to the Indian economy, is largely untouched by change. There are many middlemen in the process of marketing. These middlemen have become monopoly buyers and are the real cause behind the food inflation that is witnessed every now and then in India. Vivek Kaul, editor, Vivek Kaul's Diary, has explained this issue in detail in one of his recent articles.

Another major issue that has weighed on the Indian economy comes from the ill state of the PSUs. There are rarely any major reforms seen here. In fact, the government keeps on wasting billions of taxpayer money to keep these loss-making PSUs going.

Talking of the public sector, we have public sector banks that are drowning in NPAs. Poor credit appraisal, over leveraging, the practice of taking fresh loans to pay off old ones, and leaving the mess for the successor to clear up are some of the factors that depict the government's apathy towards reforms.

Then there is the problem of labour laws. The present laws make it very difficult for companies with 100 employees or more, to fire an employee without the permission from the government. This prevents entrepreneurs from expanding. And this is a binding constraint on manufacturing expansion too.

Manufacturing expansion is often halted on account of erratic power supply, wretched roads, bureaucratic regulations, and inadequate credit.

India may very well be the fastest growing economy. But there are considerable challenges that lie ahead that the government seriously needs to address. RBI governor, Raghuram Rajan was right when he said that India is a one-eyed king in the land of the blind. He was right because the common man in India doesn't seem to be doing much better now than he did a few years ago. One of our editions of The 5 Minute WrapUp confirms this fact while stating the common thread between most of India's economic problems.

We believe that the need of the hour is for the government to embrace reforms and remove all the binding constraints that lie in the implementation process. This would be critical in ensuring a sustained high GDP growth for the country in the long-term. Is Mr Modi listening?

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