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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

EconomicReforms25YearsOfChange Updated: Jul 24, 2016 15:58 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
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

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


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

As a reforms child India is like a lively young adult: plenty of potential but miles to go. The last 25 years, since finance minister Manmohan Singh’s historic budget on July 24, 1991, the country has seen major economic, political and social changes. A brief chronicle
  • India pledges gold to secure
  • Former PM Rajiv Gandhi assassinated; PV Narasimha Rao becomes PM
  • FM Manmohan Singh kicks off reforms with a historic budget three weeks after announcing a 22% devaluation of the rupee
  • ₹4,000 crore banking scam rocks India; stock broker Harshad Mehta charged with siphoning off funds through inter-bank transactions
  • The Securities Exchange Board of India (Sebi) set up to regulate stock markets in wake of the securities scam
  • Babri Masjid demolished; series of explosions rock Mumbai including one on Dalal Street
  • ₹29.46 /$ avg monthly closing value of the rupee; 2282.50 the closing value of Sensex on March 31, 1993
  • Manmohan Singh offers to resign as FM after his ministry criticised for not anticipating the Harshad Mehta scam; PM Narasimha Rao rejects resignation; promises to punish those involved
  • RBI allows private participation in banking; ICICI Bank, HDFC Bank and UTI (now Axis Bank) set up new pvt banks forcing public sector banks to become more technology and consumer savvy
  • 19% was the avg bank loan rate in 1993-94
  • Telecom sector opened up; two mobile licences awarded in metro cities via auctions
  • Service tax introduced for the first time in India setting the stage for deeper tax reforms in later years
  • Sooraj Barjatya’s Hum Aapke Hain Koun..! becomes the biggest grosser ever with collections of Rs120 crore
  • Delhi Metro Rail Corporation’s founding paves the way for a paradigm shift in public transport in the National Capital
  • Sachin Tendulkar signs a record ₹30 crore endorsement deal with WorldTel
  • Aditya Chopra’s Dilwale Dulhaniya Le Jayenge marks the arrival of new gen film makers
  • AB Vajpayee-led BJP forms govt for 13 days; replaced by the United Front with HD Deve Gowda as the PM
  • India, Pakistan and Sri Lanka jointly host the cricket world cup; India becomes cricket’s fund house as companies bet on the country’s fast-expanding middle class to drive sales
  • Sukh Ram resigns as telecom minister in the wake of a financial scam involving the purchase of equipment
  • P Chidambaram’s "dream budget" brings down peak income-tax rate to 30%, cuts corporate tax rates and annou- nces other reforms measures
  • Congress withdraws support to the United Front government forcing a mid-term poll
  • Tata Motors unveils Indica, India’s first indigenously produced small car
  • 40% was the peak income tax rate until 1997-98
  • NDA govt conducts twin nuclear tests
  • In a push for big projects Vajpayee unveils East-West, North-South national highways corridor to connect Srinagar to Kanyakumari, and Silchar to Saurashtra
  • Onion prices touch ₹80 a kg; BJP lose local elections to the Congress in Delhi, Rajasthan and Madhya Pradesh
  • BJP loses vote of confidence by one vote; comes back to power after the NDA wins majority in mid-term polls; PM Vajpayee makes historic bus trip to Pakistan
  • Tension in Kashmir leads to war with Pakistan-backed forces in Kargil; government levies a 3% surcharge on taxable income to meet war expenses
  • India’s software industry earns billions from Y2K support work helping the world usher in the millennium without computers crashing
  • US President Bill Clinton visits to improve bi-lateral ties
  • India’s billionth baby Aastha is born; demographic dividend becomes a policy catch-phrase
  • Terrorists attack Parliament in New Delhi, killing several policemen
  • Vajpayee meets Pakistani President Pervez Musharraf in Agra; meeting ends without a breakthrough
  • The govt approves the sale of its
  • 51% stake in Balco to Sterlite for ₹551.5 crore
  • UTI’s US-64 scandal rocks India’s financial markets
  • Riots break out in Gujarat leaving hundreds dead, after 59 Hindus are killed in a train fire in Godhra
  • India’s population crosses 1 billion
  • Jaswant Singh takes over as the new FM swapping places with Yashwant Sinha, who becomes the new external affairs minister
  • Indian film industry comes of age as Ashutosh Gowarikar-directed and Aamir Khan-produced Lagaan nominated for Oscars in the non-English film category
  • The NDA government launches much-criticised ₹150 crore-plus campaign called "India Shining" ahead of the Lok Sabha elections
  • India’s foreign exchange reserves cross $100 billion ­— growing by 10-fold in 12 years
  • Manmohan Singh becomes the PM of the Congress-led United Progressive Alliance govt with outside support from the Left parties
  • Telecom regulator TRAI cuts broadband, internet and international call rates
  • Parliament passes National Rural Employment Guarantee Act, the world’s largest rural job guarantee scheme
  • Right to Information (RTI) Act enacted to bring in transparency in govt functioning
  • FM P Chidambaram announces ‘Bharat Nirman’ to give a "new deal to rural India"
  • US and India announce a civilian nuclear agreement during President George W Bush’s visit
  • GMR and GVK groups take over Delhi and Mumbai airport modernisation
  • Cellular phone subscribers in India cross 100 million
  • GDP grows by 9.6%, second only to China, cementing India’s place as a global growth engine
(World rankings/GDP size)
  • India’s GDP crosses $1 trillion
  • Pratibha Patil becomes first woman to be elected President of India
  • Vodafone buys Hutchison Essar for $11.1 billion; Hindalco acquires Novellis for $6 billion
  • $11.3 billion: The price at which Tata Steel acquired Corus; ten years later it is looking to sell-off its UK assets amid a global commodities price slump
  • Terror attacks kill around 170 people in Mumbai
  • FM P Chidambaram raises IT exemption limit to ₹1.5 lakh; announces ₹60,000 cr farm loan waiver
  • World economy slips into a recession after Lehman Brothers’s collapse triggers a financial crisis
  • Tata Motors acquires British Jaguar Land Rover; showcases world’s cheapest car Nano
  • ₹1,60,000: Income tax exemption limit, raised from ₹1.5 lakh
  • Manmohan Singh assumes office for a second term as PM following a resounding UPA victory in Parliamentary elections
  • Govt launches Aadhaar to provide individuals a unique identification number to serve as a proof of identity in most of India
  • Pranab Mukherjee presents UPA-II’s first full budget amid festering wounds of a global economic recession
  • Govt frees petrol prices from regulation allowing oil companies to fix pump-gate according to global crude price movements
  • Corruption allegations surface barely three months ahead of the XIX Commonwealth Games in Delhi
  • US President Barack Obama arrives with the largest business delegation ever, mirrorring India’s rising significannce in the global economy
  • ₹1.76 lakh cr: CAG’s estimate of the 2G spectrum scam. Telecom minister A Raja resigns
  • Govt approves Vedanta’s $8.74 billion bid to gain controlling stake of British Cairn Energy Plc’s Indian arm Cairn India
  • Census 2011 shows India’s population grew by 181 million in a decade to reach 1.2 billion
  • The Supreme Court cancels 122 telecom licences and spectrum granted to companies in 2008 on grounds that the allocations were "totally arbitrary and unconstitutional"
  • Thousands throng Delhi’s Ram Lila ground to support anti-corruption crusader Anna Hazare and demand a strong Lokpal Bill.
(per capita litres per year)
  • Rahul Gandhi assumes new role as the Congress vice-president
  • Govt allows FDI upto 51% in multi-brand retail; announces a steep hike diesel prices, caps the sale of subsidised cooking gas cylinders
  • ₹1.86 lakh crore: CAG’s estimate of coal mine allocation scam
  • Govt raises income tax exemption limit to ₹2 lakh per annum
  • A retrospective tax on transactions like the Vodafone-Hutch deal hurts sentiments, triggering adverse comments from the investment community
  • Aam Aadmi Party’s (AAP) Arvind Kejriwal takes over as new CM in Delhi as Congress trounced in Assembly polls; quits after 49 days, AAP returns with 67 seats in 2015
  • Govt relaxes investment caps in telecom, defence amid surging criticism of policy paralysis
  • Raghuram Rajan, former IMF chief economist and Chicago University Professor, takes over as new RBI governor from D Subbarao
  • ₹68.85 /$, rupee’s closing value on August 28,2013; a record low
  • Govt raises FDI limit in the insurance to 49%; leads to spike in foreign inflows
  • 30,000 Sensex breaches the 30K-mark for the first time on March 4, 2015
  • Narendra Modi assumes prime ministership in May after BJP wins 282 seats in general elections
  • PM Modi launches Make in India, an initiative to turn India into a manufacturing hub
(average per annum)
  • ₹93,293: India’s per capita income in 2015-16, an increase of almost 15 times over the average income of ₹6,295 in 1991
  • Shooting pulse prices – tur dal rises to over ₹200 /kg keep food inflation high; sets panel to look into minimum support prices
  • Digital India initiative launched. Aims to connect all Indian villages with broadband
  • Govt launches the Start-up India campaign to spur entrepreneurship in the country
  • Lok Sabha passes the long-pending goods & services tax bill, stuck in Rajya Sabha


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)

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.


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


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