Three decades of economic reform: A retrospective

Like 1947, India made a tryst with its destiny in 1991. The sovereign, socialist, secular republic decided to adhere to "less government and more governance", handing over the reins of the economy to free markets, entrepreneurs. The result has been an economic revolution still unfolding before us.


Shailesh Jha

3 years ago | 4 min read

At 5:30 pm on July 24, thirty years ago, India’s then-Finance Minister Manmohan Singh began his budget speech with a famous quote from the French literary titan Victor Hugo – “No Power on earth can stop an idea whose time has come”. In these powerful words of Hugo, was the desire to channelise and embrace the revolutionary spirit of France in the mid-1800s, which had prompted Hugo to write these immortal words.

India too, from that day on, was embarking on to a journey of economic self-discovery, having been pushed to the brink by repeated economic crises of the last five years. Through the 1980s, the government had spent more than it earned by a wide margin; despite strict controls on imports, foreign exchange reserves had sharply dwindled to less than $600 million by June 30, 1991.

A nation that had defied predictions of a political collapse by its naysayers for 44 years now had to put its gold reserves as a collateral with the Bank of England to borrow enough money for essential imports (mainly petroleum products). It was then, when by a belated political consensus across parties at the centre and states that the government decided that less, and not more, controls by the government on the means of production were the answer.

What followed was a gradual liberalisation of the economy, beginning with the banking sector, where complex interest rate structures and lending caps were gradually done away with. SEBI was created the following year, in 1992, to allow the development of a deep and diverse capital market.

Incremental reforms at the local government levels reduced the bureaucratic discretion in entrepreneurial decision making. But perhaps most importantly, barring a few exceptions, politicians across the ideological spectrum – from Congress’ Narasimha Rao and later Dr Manmohan Singh himself to United Front’s Inder Kumar Gujral to NDA’s Vajpayee and Narendra Modi – agreed on the principle of “Less Government and More Governance” to unleash India’s economic potential.

For someone who was born after late 1980s, it is hard to imagine how the world looked like prior to 1991.

It might just be so easy to startup in a college dorm today, but back then, being an entrepreneur meant navigating a byzantine labyrinth of permits and licenses even to branch out to a new store in the same city. And this too, was possible if you were born in the right circles, in a fortunate caste, with access to family-based networks of capital, especially since Venture Capital as a concept was very nascent – having been authorized just three years ago and with very limited remit.

Thirty years hence, the Indian economy has grown more than 10x in nominal terms ($2.97 trillion in 2020 from $266 billion in 1991). Promising a 6-6.5 percent GDP growth, which was broadcast as an achievement in the 1980s, is today considered as somewhat below par for any politician looking at a successful career.

For a country that had humiliatingly submitted its gold reserves as a collateral to its former colonial masters, our foreign exchange reserves at $600 billion plus are 1,000 times greater than what they had been when Dr Singh stood in the Parliament to deliver his landmark speech.

For a country that shied away from FDI, governments compete to attract capital from private equity and venture capital funds, so much so that as China turns more hostile and imposes conditions on foreign capital, India with its 58 unicorns stands as a rising alternative in the form of a vast, young and digitally connected economy.

And yet, this is just the beginning of a revolution. In democratic societies, ideas are not foisted from above, but rather realised from within and then integrated into a system of thought. When we measure India’s progress towards economic freedom in the past thirty years, perhaps China or other Asian tigers (Korea, Singapore and Taiwan) are not right to compare. A better comparison would be to go back in history and look at where France was in 1819 (30 years after the French revolution) or the United States in 1813 (30 years since European powers accepted it as an independent state).

The former was still healing itself from the defeat of Napoleon and was in disarray, the latter had recently been defeated by British forces and was a mere republic on the east coast of the North American continent trying to expand into the interior.

But both at the time, and India now, were undergoing a massive change in attitudes towards institutions, a true percolation of the philosophy of economic freedom and a stronger faith in the agency of individuals.

As Indians, with our per capita income increasing by 6.3x since 1991 – the thirty years of growth has created more prosperity at an individual level than the 240 years between 1750-1990, prior to which India was one of the economic giants at the global stage.

So, in a sense, economic liberalisation is about casting aside our colonial past, about turning the clock back to the age of an India that thrived and dominated the global trade, as an intricate patchwork of medieval entrepreneurs, craftsmen, and agriculturists.

At YourStory, we see ourselves as children of this economic revolution. We salute the sagacity of the political leaders across the spectrum, the grit of entrepreneurs who delivered on the hopes of the government and eagerly look forward to the day when entrepreneurship and innovation becomes accessible to every Indian, regardless of their gender, race, religion, caste or disabilities.


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Shailesh Jha







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