Editorial: Reforming India, a work in progress

Critical reforms in labour, land, agriculture, education, healthcare, infrastructure and the justice system are still pending

This month 35 years ago, India took a leap of faith by initiating economic reforms that marked a defining moment in the country’s history. Centred on liberalisation, privatisation, and globalisation (LPG), the path-breaking policy dismantled the Licence Raj, eased import barriers, opened up the economy to competition, private investment and global trade, and accelerated economic growth. Looking back at the eventful journey that saw the country transform from a licence-permit economy into one of the world’s fastest-growing major economies, one would acknowledge the unmistakable signs of growth and development. There are several positives to India’s post-liberalisation growth story. The dismantling of industrial and trade controls gave a boost to economic growth and also helped in reducing the poverty rate. The economy has multiplied eight-fold. Absolute poverty has dropped sharply. As the sixth-largest economy, India has among the world’s biggest markets for a whole range of products and services. These reflect the birth of a large middle class with money to spend. However, it is still a work in progress as the reform process remains incomplete. Critical reforms in labour, land, agriculture, education, healthcare, infrastructure and the justice system are still pending. As a result, India has been unable to build the labour-intensive manufacturing base that transformed economies such as China and Vietnam. While liberalisation boosted the GDP and reduced poverty, it fell short of delivering broad-based prosperity. The unfinished economic reforms have been the missing link. Agriculture remains largely unreformed, with significant productivity shortfalls when compared with world averages. Manufacturing remains stunted despite many policy initiatives and has not generated employment on the scale witnessed in East Asian economies.

The biggest success story post-reforms is that India has emerged as the global IT outsourcing hub, software export leader and a major provider of digital services. The country has transformed from an import-substitution economy into an export-oriented participant in global markets. Large forex reserves, diversified exports, greater resilience to external shocks and expanded services exports are among the key achievements. However, India continues to grapple with unemployment, uneven income distribution, rural distress and global economic uncertainties. Many reforms have been partial and uneven. Labour productivity remains low, judicial delays discourage investment, land acquisition remains contentious, and human capital indicators continue to lag behind those of developed economies. India has become richer, but not yet sufficiently productive. As it aspires to become a developed nation under the “Viksit Bharat 2047” vision, the next phase of reforms must focus on improving institutions, governance, innovation, human capital and competitiveness. Much more would have been achieved if the country had followed through with the core logic of the 1991 reforms: to leave to the private sector and markets what they can deliver, open up to the world and focus government efforts on what governments alone can deliver: law and order, justice, public health, quality state schools and the proper regulation of markets.