Indian Economic Reforms: A Stocktaking

Indian economic reforms of 1991 represent a radical shift from the dysfunctional development strategy of the previous four decades. The pre-reform strategy pursued import-substituting industrialization, with the state playing the dominant role in the economy. Its foundations were laid prior to independence and attracted wide support across the political spectrum. As such, there was no significant political support for reforms until 1991, when a serious macroeconomic and balance of payments crisis forced a rethinking of the development strategy. The major thrusts of the reforms of 1991 related to measures to address the macroeconomic and balance of payments crisis through fiscal consolidation and limited tax reforms, removal of controls on industrial investment and on imports (other than consumer goods initially), reduction in import tariffs, creation of a less unfavorable environment for attracting foreign capital, prudent management of movements in the exchange rate while allowing market forces to play a major role in its determination, making the rupee convertible for current account transactions and finally, opening energy and telecommunication sectors for private investment (domestic and foreign).