India in the 1980s and 1990s

WP/04/43

India in the 1980s and 1990s: A Triumph of Reforms

Arvind Panagariya

© 2004 International Monetary Fund

WP/04/43

IMF Working Paper Research Department India in the 1980s and 1990s: A Triumph of Reforms Prepared by Arvind Panagariya1 Authorized for distribution by Raghuram Rajan March 2004 Abstract This Working Paper should not be reported as representing the views of the IMF.

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Bradford DeLong and Dani Rodrik have argued that reforms in India cannot be credited with higher growth because the growth rate crossed the 5 percent mark in the 1980s, well before the launch of the July 1991 reforms. This is a wrong reading of the Indian experience for two reasons. First, liberalization was already under way during the 1980s and played a crucial role in stimulating growth during that decade. Second, growth in the 1980s was fragile and unsustainable. The more systematic and systemic reforms of the 1990s, discussed here in detail, gave rise to more sustainable growth. The paper concludes by explaining why the growth rate in India nevertheless continues to trail that of China. JEL Classification Numbers: 019, 024, 053. Keywords: India, reforms, growth, liberalization, 1980s, 1990s. Author’s E-Mail Address: Panagari@econ.umd.edu

1

The author is a Bhagwati Professor of Indian Political Economy and Professor of Economics at Columbia University, New York, NY 10027. I am grateful to Jagdish Bhagwati and Kalpana Kochhar for numerous helpful comments and to T.N. Srinivasan for extended email exchanges that led to many improvements in the paper. I also thank Rajesh Chadha, Satish Chand, Douglas Irwin, Raghav Jha, Vijay Joshi, Vijay Kelkar, Ashoka Mody, Sam Ouliaris, Jairam Ramesh, Jayanta Roy, Ratna...