The 1991 reforms: opening the economy
Facing bankruptcy, India dismantles the "licence raj", opens to world trade and investment, and begins three decades of fast growth.
- India: The Emerging Giant — Arvind Panagariya, Oxford University Press (2008)
- India After Gandhi: The History of the World's Largest Democracy — Ramachandra Guha, Macmillan / Picador (2007)
After independence India built a planned, state-led economy, inspired by Nehru’s socialism and a determination never again to depend on foreign capital. It built dams, steel mills and the Indian Institutes of Technology, but by the 1980s the “licence raj” of permits, quotas and controls was choking growth, which was mocked as the “Hindu rate of growth”.
- India: The Emerging Giant — Arvind Panagariya, Oxford University Press (2008)
- India After Gandhi: The History of the World's Largest Democracy — Ramachandra Guha, Macmillan / Picador (2007)
In 1991, after the Gulf War pushed up oil prices and stopped remittances, India’s foreign reserves fell to a few weeks’ worth of imports, and the government had to pledge its gold abroad to borrow. The new prime minister, P. V. Narasimha Rao, and his finance minister, the economist Manmohan Singh, responded with sweeping reforms: devaluing the rupee, abolishing most industrial licensing, cutting tariffs and welcoming foreign investment. In his budget speech Singh quoted Victor Hugo: no power on earth can stop an idea whose time has come.
- India: The Emerging Giant — Arvind Panagariya, Oxford University Press (2008)
- India After Gandhi: The History of the World's Largest Democracy — Ramachandra Guha, Macmillan / Picador (2007)
Growth accelerated to between 6% and 8% a year for long stretches. Bengaluru and Hyderabad became global software hubs, and hundreds of millions of people left extreme poverty. But farm incomes lagged, most workers stayed in the informal sector, and inequality widened.
- India: The Emerging Giant — Arvind Panagariya, Oxford University Press (2008)
- India After Gandhi: The History of the World's Largest Democracy — Ramachandra Guha, Macmillan / Picador (2007)
Why it matters today
1991 divides modern India into before and after. Indians who grew up waiting years for a phone line or a scooter now live in a country of smartphones, start-ups and shopping malls. The reforms created a huge middle class and the IT industry, though critics point to rising inequality and too few good jobs.