Prime Minister PV Narasimha Rao with then finance minister Manmohan Singh, and other cabinet colleagues and senior officials at the Delhi airport, before leaving for a visit to Russia in June 1994
Prime Minister PV Narasimha Rao with then finance minister Manmohan Singh, and other cabinet colleagues and senior officials at the Delhi airport, before leaving for a visit to Russia in June 1994

25 years of the Open Era: Reviewing India’s post-liberalisation economy

The focus of India’s post-liberalisation economy has been the quest for better incomes. But the trickle of
By Gaurav Choudhury | Hindustan Times
UPDATED ON JUL 24, 2016 03:58 PM IST

The 1901 novel Buddenbrooks: The Decline of a Family by Nobel winner Thomas Mann is a story of how ambitions and fortunes change over generations. Economists sometimes call it the `Buddenbrooks’ effect.

The first generation toils a lifetime to earn money, buying means of comfort and securing a better future. The second aspires to climb up the social ladder by occupying positions in bureaucracy and politics. When the third generation comes along, social prestige and opulence become a given. So, they look for a life of music and arts, worrying little about the rather earthy anxieties that occupied their ancestors. India, Asia’s third largest economy, after China and Japan, is a veritable jumble of all the three generations. A quarter century of economic reforms mean some have made their millions, while millions continue to earn their keep from farms but their children aspire to match upscale lifestyles.

At the level of the household, the visible face of the 1991 reforms is the quest to beat poverty through enterprise. It is sometimes said the elephant, a popular metaphor for the Indian economy, has begun moving.

Read: Before the change: When austerity and simplicity ruled everyday middle class life

UPWARD MOBILITY

The average earning of an Indian, measured as per capita income, has risen nearly 15 times since 1991 — from Rs 6,295 to Rs 93,293. Even after adjusting for inflation, incomes have jumped five-and-a-half times, mirroring rising spending power.

Desirable jobs for the young have expanded from the fields of medicine, engineering and government service to working in coffee shops and large retail floors. Sixty-five-year-old Jai Singh took a giant leap of faith 20 years ago when he quit his job in an electrical equipment store in central Delhi and started as a newspaper vendor in east Delhi.

This was an era when softer loans, easy land-buying rules and a string of cooperative group housing projects enabled hundreds of middle-class families to own apartments in metropolitan cites.

When the families moved in, captive business opportunities followed. “These societies (apartment blocks) were a market for English newspapers,” Singh told HT. “Sales of business dailies went up in particular, despite their higher issue price. Our sales incentives were hiked,” the last-mile delivery man said.

It may not be statistically rigorous, but the correlation between growing appetite for business information and rising spending capacity is too obvious to miss.

Read: 25 Amul ads that show how economic reforms changed India

BORROW, SPEND

The Reserve Bank of India (RBI) opened up the banking sector to private participation in 1993. This one move was like unclogging a bottlenecked financial services highway.

The RBI wanted to infuse competition, raise efficiency and productivity, while making the consumer the focus of banks.

Private banks, such as HDFC Ltd, ICICI Ltd and UTI Ltd (now Axis), set up shop. Heavy dog-eared ledger books gave way to an era of digital finance. With ATM machines and debit cards, depositing or withdrawing cash could be done on-the-go, a huge transformation from queueing up before tellers. This also dismantled social barriers as an ATM machine does not distinguish between a CEO and a daily wage earner.

Forced to tone up, public-sector banks computerised their services too, but had to contend with strikes from employees’ unions, who felt threatened.

“Technology-driven solutions are the way forward. It saves money, delivers quicker services and also helps bridge the digital divide. A bank account is like financial liberation, giving a sense of empowerment to those at the bottom of the pyramid,” said SS Kohli, former chairman and managing director of Punjab National Bank and former chairman of IIFCL, an infrastructure finance company. Alongside, faster access to loans opened up private enterprise. Singh, the newspaper vendor, for instance, remembers borrowing 4 lakh from a bank to pay for the engineering education of the second of his three daughters and for expanding his business. “Our elder daughter is an MBA, working for an MNC in Gurgaon. The younger one is working for a publishing house and moving overseas shortly. My daughters are my lifetime investments,” he said.

Manmohan Singh at a press conference in 1991. (SN Sinha/HT File Photo)
Manmohan Singh at a press conference in 1991. (SN Sinha/HT File Photo)

Some, however, learnt it hard.

Thousands of small savers allegedly duped by promoters of a deposits-collecting firm Saradha in West Bengal a few years ago is emblematic of a bustling cash economy that still has millions outside the formal, banking sector.

The current government’s Pradhan Mantri Jan Dhan Yojana aims to bring banking services to every adult. Arguably the world’s largest financial inclusion scheme, it was launched in 2014 to give access to formal banking services to a vast majority of India’s poor. About 200 million new accounts have been opened so far, with a combined deposit corpus of more than 40,000 crore.

For those who still lack access to formal credit, the only way to seek a better future is to loan money at exorbitant rates from private lenders.

“Kya bachta hai (I have no savings),” said Sikander, a roadside tea-seller, who makes Rs 15,000 a month.

As RBI governor Raghuram G Rajan wrote in a paper “India and Economic Freedom”, that in order to take advantage of expanded opportunities in a market economy as an adult, children first need access to nutrition, healthcare and education. “Moreover, going forward, she has to have access to finance so that the lack of wealth does not hamper her,” Rajan stated in the paper written while he was at Chicago University’s Booth School of Business.

For small informal borrowers such as Sikander, a formal, tenured loan from a finance company is also a ticket to a world of financial services. Besides freeing them from the clutches of private money lenders, it also gives them a “credit score” that vouches for their credit worthiness.

“Nearly 70% of our customers do not have credit score and they don’t have the access for loan. We are trying to educate the customer. As soon as they pass the first loan, we help get them their first credit score,” said Tomas Hrdlicka of Home Credit India Finance, a Czech Republic-based company offering small sized loans in smaller Indian towns.

GROWING UP

Indian industry is a perfect example of the text-book “infant industry” model. An Indian company, Tata Motors, owns and runs Jaguar Land Rover— one of the world’s most iconic auto brand.

In 25 years, the infant has grown up. No longer protected in a state-guided cocoon and surviving global competition. From the iconic software industry that has fuelled middle-class aspirations to conventional brick-and-mortar companies, there’s an entrepreneurial success story out there.

“The early 1990s were the first heady years of India’s post-reforms era. The opening up of the economy meant that India’s manufacturing sector had to stand up to the multinational corporations and from cheap Chinese products as import barriers were lifted,” said Anil Rai Gupta, Chairman and Managing Director of Havells.

Havells, which stands shoulder-to-shoulder with the likes of GE and Phillips in the global electrical goods markets, now has group revenues of about 5,500 crore) with brands such as Havells, Standard, Crabtree, Reo and Promptec in its bouquet. “This required unflinching commitment to quality control,” Gupta said.

Most experts reckon that India is now in the “age of high mass consumption” characterised by widespread use of consumer goods, mirroring economist Walt Whitman Rostow’s theory of the stages of economic growth expounded in 1960.

Rural households now pay for most goods and services usually associated with urban lifestyles -- from cars and microwaves and laundry services to air travel and even out-of-home dining.

A recent government survey showed that rural households now spend about 21 per cent of their monthly service-related budget on eating out compared to 22 per cent by city dwellers, a sign of converging lifestyles. Former Coca-Cola Company executive Neville Isdell, when he came out of retirement to become the beverage giant’s chief executive in 2004, surprised many by including India among his first international visits. The tour had an important lesson: summers in India were crucial to offset weaker consumer demand in the home markets of North America.

Read: Manmohan blames NDA’s ‘mindset’ for lack of consensus on reforms

STILL HUNGRY

Even as India posted stunning growth rates post-reforms, averaging 6.8 per cent between 1991-92 and 2015-16, its poor socio-economic indices tell a different story.

The World Bank reckons that India is home to nearly a quarter (270 million) of the world’s poor. Indian estimates of poverty range from 270 million to 450 million people. By most standards, India has been a “welfare laggard,” despite the massive strides in overall growth. India’s per capita income is set to cross 1,00,000 a year in the next few years. The figure gives an idea of the standard of living of the people, although it hides a stark reality: much of the growth in income may have been driven by the richest Indians.

In 2015, according to Forbes, the 100 richest in India had a combined net worth of $345 billion or 23 lakh crore, representing 18 per cent of the India’s GDP. Yet, official data also shows that almost 200 million people in the country are malnourished.

With a $2 trillion GDP, India may be counted among the richest in the world, but it still has a long way to go before it can reach food into every mouth.

Nobel laureate Amartya Sen has long argued for expanding both “hard” and “soft infrastructure”. As India’s economy expands, it will need a skilled workforce to support the expansion.

If India’s billionaires are routinely weighed on an international scale, the poor deserve the privilege too. And it cannot happen without reforms and more reforms for many years at a stretch.

Text and research: Gaurav Choudhury

Graphic: Anand Sinha; Web presentation: Amit Mathur

Read: Social peace and political consensus important for economic reforms: Manmohan Singh

Read: The brands that shaped pre-reforms India still live on in our national memory

SHARE THIS ARTICLE ON
Close
BJP national president JP Nadda. (File photo)
BJP national president JP Nadda. (File photo)

BJP chief Nadda to be in Varanasi on two-day visit beginning Feb 28

By HT Correspondent | Edited by Smriti Sinha
PUBLISHED ON FEB 26, 2021 09:50 AM IST
Nadda is also likely to address a rally in Rohania where he would be inaugurating party’s regional office, BJP leaders said. They added there could be some last-minute changes in Nadda’s itinerary.
Close
The number of active cases of Covid-19 has gone up further and now stands at 155,986. (Bloomberg)
The number of active cases of Covid-19 has gone up further and now stands at 155,986. (Bloomberg)

India’s active Covid-19 cases climb to 155,986; tally over 11.06 million

By hindustantimes.com | Written by Meenakshi Ray, New Delhi
PUBLISHED ON FEB 26, 2021 09:40 AM IST
The recoveries from the viral disease have gone up to 10,750,680 and the national recovery rate is now at 97.17%.
Close
The Supreme Court. (HT archive)
The Supreme Court. (HT archive)

Supreme Court to hear contempt plea on tigress Avni killing today

By Abraham Thomas
PUBLISHED ON FEB 26, 2021 09:33 AM IST
Earlier this month, the top court had issued notices on the contempt petition which claimed that Maharashtra government officials violated the SC order to declare no reward for killing the man-eater tigress
Close
Indian Air Force's Sukhoi 30 plane (PTI).
Indian Air Force's Sukhoi 30 plane (PTI).

2 years of Balakot: Rajnath Singh, Amit Shah lead tributes to Indian Air Force

By hindustantimes.com | Written by Karan Manral, New Delhi
UPDATED ON FEB 26, 2021 09:33 AM IST
On February 26, 2019, the IAF had struck a Jaish-e-Muhammed camp in Pakistan’s Balakot in retaliation to February 14’s Pulwama suicide attack.
Close
Jammu: A BSF personnel keeps vigil along the International border in Jammu, Thursday. (PTI)
Jammu: A BSF personnel keeps vigil along the International border in Jammu, Thursday. (PTI)

India, Pakistan armies announce ceasefire: All you need to know

By HT Correspondent | Edited by Sameer
PUBLISHED ON FEB 26, 2021 09:29 AM IST
Pakistan Prime Minister Imran Khan’s adviser on security affairs, Moeed Yusuf, said in an audio statement that the agreement on the ceasefire was the outcome of “behind-the-scenes” contacts
Close
Nirav Modi. (HT file)
Nirav Modi. (HT file)

UK court clears Nirav Modi’s extradition: All you need to know about case, what follows

By HT Correspondent | Edited by Sameer
PUBLISHED ON FEB 26, 2021 09:23 AM IST
The court dismissed Modi’s claims that he would not get a fair trial at home as the Central Bureau of Investigation and Enforcement Directorate provided detailed evidence against the billionaire diamond merchant
Close
Nirav Modi. (HT archive)
Nirav Modi. (HT archive)

Nirav Modi’s extradition: CBI, ED submitted over 40,000 docs to prove conspiracy

By Neeraj Chauhan
UPDATED ON FEB 26, 2021 09:17 AM IST
The UK court clearing Modi’s extradition praised the evidence the CBI and the ED submitted before it while dismissing claims that he would not get a fair trial
Close
An Indian Air Force Apache helicopter flies over the Ladakh region. (REUTERS)
An Indian Air Force Apache helicopter flies over the Ladakh region. (REUTERS)

IAF strengthened capabilities after Balakot, deployed new acquisitions in Ladakh

PUBLISHED ON FEB 26, 2021 08:57 AM IST
Front-line platforms, inducted over the last two years, form a critical part of IAF’s force projection in eastern Ladakh, and have demonstrated its capability to carry out combat missions in the sensitive theatre
Close
A photographer has a cloth wrapped around his head to beat the heat at India Gate in New Delhi. (HT file)
A photographer has a cloth wrapped around his head to beat the heat at India Gate in New Delhi. (HT file)

Early onset of summer in NW India despite La Nina’s cooling effect?

By Jayashree Nandi
PUBLISHED ON FEB 26, 2021 08:56 AM IST
According to an IMD, higher temperatures over the north-western plains is mainly attributed to absence of any weather system, and prevalence of south-westerly surface winds which is causing advection of heat from West Rajasthan towards the region.
Close
Congress spokesperson Randeep Surjewala.
Congress spokesperson Randeep Surjewala.

News updates from HT | Congress asks DMK for 54 seats in assembly polls

By hindustantimes.com, Hindustan Times, New Delhi
PUBLISHED ON FEB 26, 2021 08:52 AM IST
  • Here are today’s top news, analysis, and opinion. Know all about the latest news and other news updates from Hindustan Times.
Close
The traders’ body has said that all commercial markets across the country will remain shut. (HT File Photo )
The traders’ body has said that all commercial markets across the country will remain shut. (HT File Photo )

Transport, trade unions call for ‘Bharat Bandh’; farmers' unions to join

By hindustantimes.com | Written by Kanishka Sarkar, Hindustan Times, New Delhi
PUBLISHED ON FEB 26, 2021 08:34 AM IST
The participants will stage sit-in demonstrations in more than 1,500 towns and cities across states. Several services across the country are likely to be affected as more than 40,000 traders' associations are taking part in the bandh.
Close
The Bank of Maharashtra has around 1,900 branches all over India.(Bloomberg/Picture for representation)
The Bank of Maharashtra has around 1,900 branches all over India.(Bloomberg/Picture for representation)

Bank holidays in March 2021: Banks to remain closed for 11 days, check dates her

By hindustantimes.com | Edited by Shivani, Hindustan Times, New Delhi
PUBLISHED ON FEB 26, 2021 08:28 AM IST
  • However, bank holidays are not observed by all states and it may vary as per the specific state or region. Only gazetted holidays are observed by banks all over the country.
Close
The Supreme Court struck down the life imprisonment punishment awarded to the man and referred his case for fine to the local juvenile court.(HT photo)
The Supreme Court struck down the life imprisonment punishment awarded to the man and referred his case for fine to the local juvenile court.(HT photo)

Juvenile convict to be let off with fine in 22-years old murder case

By Abraham Thomas, New Delhi
PUBLISHED ON FEB 26, 2021 08:02 AM IST
  • The question before the Supreme Court was whether the accused should be tried as a juvenile as under the Juvenile Justice Act, 1986 as it then prevailed when the crime was committed as those under 16 years were termed juvenile under the act.
Close
Under the UK Extradition Act, 2003, the judge will now send his findings to the UK secretary of state for home affairs, Priti Patel. (HT Photo)
Under the UK Extradition Act, 2003, the judge will now send his findings to the UK secretary of state for home affairs, Priti Patel. (HT Photo)

Nirav Modi's extradition to India cleared: What next

By hindustantimes.com | Written by Meenakshi Ray, New Delhi
PUBLISHED ON FEB 26, 2021 07:57 AM IST
The district judge at the Westminster Magistrates' Court Samuel Goozee said that there is no evidence to suggest Nirav Modi would not receive a fair trial in India.
Close
Nodeep Kaur was arrested on January 12 after she had participated in the peaceful farmer's protests at Kundli in Haryana. (Twitter)
Nodeep Kaur was arrested on January 12 after she had participated in the peaceful farmer's protests at Kundli in Haryana. (Twitter)

Co-accused in Nodeep Kaur case has multiple injuries: Medical report

By HT Correspondent, Chandigarh
UPDATED ON FEB 26, 2021 07:41 AM IST
The medical examination conducted last week by a panel of five doctors of the Chandigarh-based Government Medical College and Hospital, Sector 32 on directions of the Punjab and Haryana high court listed a total of seven injuries, of which two were termed “grievous” caused by a “blunt object”.
Close
SHARE
Story Saved
OPEN APP