Reforms and Economic Transformation in India: A Stocktaking

Abstract

In early 1991, a major economic crisis occurred in India due to worsening balance of payments situation. To tackle the problem the country introduced a policy of macroeconomic stabilization and structural reforms. The widening gap between the public revenue and public expenditure resulted in growing fiscal deficit which was financed by borrowings. The internal imbalance in the fiscal situation and the external imbalance in the payments situation wee closely related. A widening current account deficit and fiscal deficit precipitated the crisis. To counter the worsening economic situation India launched a programme of economic reforms that principally had two components: Structural reforms and Macroeconomic stabilization. In the last three decades or so the Indian economy has flourished by registering sustained economic growth. There is improved fiscal management and the external payments situation has substantially got better. The economy is much bigger in size and the per capital income an indicator of rising living standard has risen substantially. India currently is the fifth largest economy in the world. Rising economic growth has been accompanied by sharp decline in poverty, expansion of trade, industry and services and rural transformation.