Impact of 25 Years of Indian Economic Reforms

The prime objective of the 1991 economic reform was to accelerate the pace of economic growth and eradication of poverty. The sweeping reforms initiated since 1991 led to profound economic consequences.

It has been 25 years since that landmark event and India has come a long way since then:India is one of the world’s biggest market with major global brands vying with each other to have a foothold in India.The gradual relaxation of FDI in different sectors has ushered in greater competition and thus has increased efficiency.Major consequences are summarised below:

Transformation of ‘Seller’s Market’ to a ‘Buyer’s Market’

The pre-liberalisation era was characterised by the dominance of sellers. Pre-empting of licenses by profiteering businessmen and restrictive provisions like MRTP Act ensured chronic shortages. In the 1970s the waiting period for a Bajaj Chetak scooter was eight years. Customers used to pay more or less Rs. 8600 under on and wait for three years to get a telephone connection. This seller’s market is now history. Liberalisation and competition have ensured easy availability of quality products. FDI in the automobile industry has transformed the industry beyond recognition.

Transformation of Command Economy to a Market Economy

The pre-liberalisation economic strategy based on comprehensive planning, leadership role for the public sector, import substitution and government intervention produced a command economy. This command economy has been replaced, since liberalisation, by a market economy responding to impulses from the market.

Transformation of Semi-closed Economy to an Open Economy

The pre-liberalisation Indian economy was characterised by restrictions on trade and severe curbs on foreign investment. Peak import duty was 300% in 1990. With such absurd levels of protection, there was no pressure on domestic producers to perform. Liberalisation of trade and investment and rationalisation of duties slowly transformed the Indian economy from a semi-closed economy to an open economy. Trade – GDP ratio expanded from 15% in 1991 to 35% by 2010.

Transformation of Low Growth Economy to a High Growth Economy

The annual average growth rate in India during 1950-80 was a dismal 3.5% the so-called ‘Hindu Growth Rate.’ Introduction of initial dose of reforms in the 1980s saw the Indian economy moving up to a growth rate of 5.6%. In the 1990s the growth rate picked up momentum exceeding 6%. During 2000-2010 India became the second fastest-growing economy in the world with an average growth rate of 7.3%. In 2015-16 India emerged as the fastest-growing large economy in the world with a growth rate of 7.6%.

Decline in Poverty

Higher growth has generated millions of jobs and reduced poverty. According to the estimates of the Planning Commission (Tendulkar methodology), the poverty ratio declined from 45.3 % in 1993-94 to 21.9 % by 2011-12. There is huge disparity in poverty among states with the highest poverty in Chhattisgarh at 39.93% and the lowest in Goa at 5.09 %.

Spurt in Foreign Exchange Reserves

In June 1991 at the height of the Balance of Payments crisis, India’s foreign exchange reserves had dipped to a mere $1 billion just sufficient for two weeks of import requirements. Presently (August 2016) India’s foreign exchange reserves have touched $ 366.776 billion – one of the highest in the world. Remittances into the country from abroad and software exports – two major benefits of globalisation – contributed substantially to the accretion in foreign exchange reserves.

Growth in FDI

Liberalization of Foreign Direct Investment (FDI) led to sustained increase in FDI. In 2015- 16, India emerged as the largest recipient of FDI among emerging nations with FDI inflows of $55. 56 billion. FDI inflows along with Foreign Portfolio Investment (FPI) enabled India to finance her current account deficit.

Emergence of Globally Competitive


In many areas like ITIITES, pharmaceuticals, petroleum refining, metals, telecom, auto-ancillaries etc. Indian companies emerged strong and globally competitive. Presently, there are 40 Indian MNCs with an annual turnover exceeding $1 billion. India’s ITIITES exports shot up from $100million in 1990- 91 to $110 billion in 2015-16.

Massive Spurt in Social Sector


A major benefit of the high growth was the spurt in tax- GDP ratio from 8% in 1991 to 11.5% by 2008. This tax buoyancy enabled the government to undertake ambitious social sector projects like MGNREGS, Bharath Nirman etc. The annual outlay for MGNREGS IS higher than the total tax revenue of the central government in 1990-91. The ambitious food security programme being implemented now entails huge expenditure. The insurance programmes targeted at the poor and the Micro Units Development & Refinancing Agency (MUDRA) initiatives are laudable inclusive programmes. For sustaining such ambitious social sector programmes, it is very important that India should sustain a high growth rate for a long time.

The Challenges Going Forward

India’s spectacular economic performance since liberalisation is, indeed, a great achievement. India was one of the few large economies of the world, which did not experience recession or sharp economic slow- down during the Great Recession of 2009. However, it is important that some deficiencies of this growth be recognized and addressed. A major deficiency of India’s spectacular growth is that the growth has not been adequately ‘inclusive’. Large number of poor, marginalised, vulnerable sections of the society has been left out of the growth process. This deficiency has to be addressed and growth has to be made more inclusive.

Another major deficiency is the infrastructure deficit, which is becoming a major constraint on sustainable high growth. Land acquisition, environmental clearances and speedy execution of infrastructure projects brook no delay.

Hence, we can say India’s achievements of 25 years of reforms are laudable. The deficiencies, too, are glaring and need to be addressed seriously. Though India has a long way to go in achieving stable, sustainable and inclusive growth, the economy is on the right path.

25 Years of Indian Economic Reforms

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One response to “Impact of 25 Years of Indian Economic Reforms”

  1. Ramadevi says :

    Thank you 😊 for sent the article about impact of 25 years Economic Reforms


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