From the Hindu Rate of Growth to the Hindu Rate of Reform

Policy reform in India is conventionally dated from the time of the macroeconomic crisis in 1991, in response to which the Indian government initiated a range of liberalizing microeconomic reforms in addition to a (temporary) tightening of fiscal policy and a devaluation of the rupee. However, the significant acceleration in economic growth occurred a decade or so earlier. Aggregate growth in the 1970s was even lower than what used to be termed the "Hindu rate of growth", at an average of 2.4 percent per year. In the 1980s Indian growth accelerated, and the 1990s brought only a very modest further acceleration. The paper starts by sketching the situation in India prior to reform, and then provides a broad-brush description of the reforms that took place in the 1980s. This is followed by a description of the Indian reforms in the 1990s, and then a discussion of the unfinished business of reform. We conclude by examining the principal policy issue posed by the Indian story: the old question of gradualism versus shock treatment.