Implement 2nd Generation Reforms to Shield Growth

THE two decades since 1980-81 have been easily the best in India's economic performance in the last century.

After averaging about 3.6 per cent a year in GDP (gross domestic product) growth rate during the 30 years between 1950-51 and 1980-81 and less than 1 per cent a year in the half century before that, GDP growth accelerated to 5.6 per cent in the 1980s (5.3 if 1991-92 is included) and averaged even higher at 6 per cent in the final decade up to 2000-01. Indeed, if the crisis-affected year of 1991-92 is omitted, GDP growth in the past nine years (1992-93 to 2000-01) averaged an unprecedented 6.3 per cent (Table 1). And between 1992-93 and 1995-96, the growth rate averaged even higher at over 7 per cent a year.

This vindicates the stand of this author since 1971 that economic liberalisation, de-regulation, and market principles were essential for raising the growth rate in the economy that required eschewing the then current command economy ideology copied from the USSR, and which failed there too. In his 1971 book Indian Economic Planning, an Alternative Approach (Vikas, New Delhi), this author had predicted that such a transformation in policy toward market economy would raise the growth rate to 10 per cent a year, but alas had then found little acceptance because of Indian economists: that India was bound by the "Hindu rate of growth" of 3.5 per cent a year.

The past trend in decadal growth rates looks increasingly better, partly because of the declining population growth rate over the years. When we look at per capita GDP growth, we find that it has accelerated from 0.8 per cent in the 1970s to 4.6 per cent in the last nine years. Furthermore, while the growth performance in the 1980s was bedevilled by unsustainable fiscal deficits and increasing drain in external reserves, which led to the balance of payments crisis of 1990-1991, in the last nine years, the external sector has been manageable despite the fiscal imbalances deteriorating.

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