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Doing Business in India: What Has Liberalization Changed?

Feb 2001
Working Paper
93
Naushad Forbes

The Indian economic reforms that began in 1991 have unleashed progressive forces in the Indian economy in the past decade. During the economic boom of 1991-96, domestic and foreign private investment surged, without significantly altering the structure and operation of existing Indian firms. The ensuing slowdown during 1996-99 revealed the internal weaknesses of Indian industry and started to drive changes. The evolving relationship between Indian and foreign firms reflects the changes ushered in by the reforms. This paper suggests two relatively neglected areas of pending reform: the need for reform to percolate to the local level and the need to build a public lobby for reform. Because technology lies at the heart of international competitiveness, this paper then reviews technology and innovation in the periods before and after 1991. Before 1991, the tremendous investment in R&D, with its heavy emphasis on indigenisation, failed to enhance the efficiency and productivity of Indian industry. The pressure brought by the liberalization of 1991-99 spurred fundamental changes in technology and innovation, especially at the micro-level. Indian firms have become more efficient, imported more foreign technology, and restructured and increased in-house R&D.

Geographic Regions: 
South Asia