The 1991 Reforms and the Quest for Economic Freedom in India

Abstract

This paper studies the 1991 reforms, as the beginning of the transition towards a market economy from the socialist policies in the first four decades of the Indian republic. Tracking the major reforms in the three decades since 1991, I argue that economic control and statist policies are the norm and that reforms enhancing economic freedom are the outliers. After an excellent start by the Rao-Singh team in 1991, and a gaining of momentum during the Vajpayee government (1999-2004), India’s liberalization and reform process has slowed down considerably in the last decade. The slowdown in the reform process, ad hoc regulation, as well as disastrous policies like demonetization, have become the new trend in Indian economic policy. Simultaneously, India’s high rates of growth post-liberalization have also slowed down, especially in the last five years, a trend that was visible before the pandemic. The reason is that Indian policymakers pursued socialism for the first four decades after independence and never fully committed to the pursuit of economic freedom after the initial set of reforms in the 1990s and early 2000s. The main lesson from the history of India’s reforms is that the problem is systemic and structural and requires a deeper commitment to markets to fix its upside-down state-market relationship.

Keywords: India,liberalization,markets,socialism,1991 reforms,economic freedom

JEL Classification: B52,G18,P21,E42