ISLAMABAD: GDP growth in India in Manmohan Singh government during 2004 to 2013 was as high as 7.8 percent but it declined by almost one percent to 6.9 percent per annum during the Modi government in 2014 to 2023.
This was stated by Surjit Sindh Bhalla, an Indian economist who was the Executive Director for India at the IMF while speaking at a PIDE webinar on Thursday through Zoom from India on “Economic Reforms for Redistribution and Growth in India (1991-2023)”.
Bhalla stated that one reform that the Congress government instituted was in 1991 in agriculture and this was a much-needed reform in the public distribution system to prevent corruption that led to a huge impact on growth.
Govt’s ‘overwhelming’ involvement in economy major reason behind stagnant growth: PIDE study
Then in 2021, Montek was again asked by the Punjab government to suggest reform in the agriculture sector and the very same reforms in the agriculture sector were produced by Modi as part of farm laws.
The growth rate in Manmohan government was faster 7.8 per cent during 2004-2013 and growth under Modi BJP government 2014-2023 was 6.9 percent per annum.
He said that India is an amazing story of growth for 30 to 35 years now and an amazing story and model case for reform, how it is done and how it can be done and their continuity.
He said that the unemployment rate amongst educated people has gone up in all the countries and this is the problem of all, however, the unemployment rate amongst college-educated is relatively low in India.
Montek Ahluwalia, an economist, Deputy Chairman of the India Planning Commission and the man who has designed 1991 economic reforms in India, said Dr Nadeem Ul Haq moderator and head of PIDE while inviting Montek to speak. Montek said that one of the papers he wrote for internal discussion during VP Singh government got leaked in the press and when no one confirm took the responsibility, the paper was named as M-Document.
This paper has been instrumental to the economic reforms in India as M-Documents main focus was that the world is changing and those who turned towards globalization are getting benefits.
Montek Ahluwalia further stated that subsequently, VP Singh government in India fell and money stopped coming to India besides the country’s reserves were left only for two weeks’ worth of imports.
At that point there after the election, Narasimha Rao-led Congress government decided to induct Manmohan Singh as finance minister to fix the economic problems. Rao persuaded coalition partners that India needed to move in the direction of big changes in the industrial investment control regime, industrial licensing was removed and people were allowed to invest, and expand industries, foreign investment was allowed freely and the most important thing was the abolishment of import licenses for a vast majority of goods.
Along with that exchange rate was freed as the industry was in favour of getting rid of import licensing. He said that to do so, it was important to free the exchange rate, thus, the exchange rate was freed.
Montek added that reforms devalued the Indian rupee by 24 per cent in the first two days of so and there was much criticism of Dr Manmohan Singh but he was able to convince the politicians and public that if the economy is not strong, maintaining the rupee strong would only weaken the economy. This was not easy to sell to the politicians and the public but he was able to convince them.
He said that basically getting rid of control, freeing the economy and freeing the exchange rate has dome job but they did not do a complete job as they did not initially get rid of the small-scale industry reservations which were removed gradually.
He said that this set of reforms along with gradual reforms in the banking sector and also opened up the free capital market in stages once the fiscal balance is restored was undertaken. Subsequent governments also carried the economic reforms, thereby, giving them continuity. Montek said that the role of digitalization in India is a big positive thing which is now increasing productivity, increasing ease of doing business, etc.
He said that the easiest way to get votes is a welfare programme for every government which in turn put burden on fiscal balance.
He said that India needs to do more in agriculture and energy sector given the climate change impacts as initially it would be done by the public sector investment, however, in the longer run it could be handed over to the private sector.
He said that the reforms introduced in 1991 were pretty fundamental as in the previous decade of 1980 there was recognition in India that policies are not yielding desired results.
Ahluwalia said had the privilege of being in the office of Rajiv Gandhi when he was the Premier of India and stated in his first speech in the parliament that how India can compete with other countries when it is using the systems that are 20 years out of date.
This was the first time that the prime minister of India had ever said that there was something wrong with the systems, he said while adding that he was encouraged that India was going to see systematic reforms but that did not happen.
He said what they saw was an incremental change as Rajiv Gandhi was not able to implement systematic reforms. And obviously, politics was an important part of that. He said that around 1991, India ran into a very set of circumstances that was conducive to rethinking him.
He added that first of all the deficiencies of the old system, excessive control over industry, excessive control of the private sector, suspicion of the private sector, clear preferences for the public sector as well as negative attitude to both foreign technology and foreign direct investment were known to be the problems.
He said what happened was that in 1990, India ran into a series of economic constraints. Often triggered by Saddam Hussain’s invasion of Kuwait and the US reaction to that and the huge increase in oil prices and this was happening after one year of political instability in India because Rajiv Gandhi’s government went out of office in 1989 followed by a different government which was cobbled together with no strong party with credible majority.
That government managed to do something but was mainly preoccupied with pieces together and VP Singh who was the prime minister at that time went to Malaysia for the Commonwealth Heads meeting.
Copyright Business Recorder, 2024
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