In the end of June 1991, India landed in an unprecedented economic crisis. Faith of internationalcommunity in Indian economy was shaken. The balance of payment position was on the brink of disaster as in mid-January 1991 and again in late June 1991 the level of foreign exchange reserves dropped tolevels which were not sufficient to finance imports of even ten days. The BOP crisis that hit India in1990-91, had been building for at least a half a decade preceding that year. The rising fiscal deficit andgradually increasing overvaluation contributed to the rising imbalance. Inadequate exchange rateadjustment in response to the external and domestic shocks during 1990-1 triggered the crisis. The periodfrom mid-1989 to mid-1991 was packed with a series of political developments, one following onanother without let-up. The break-up of Soviet empire, the unification of Germany followed the policy of Glasnost .Iraq invaded Kuwait and set off another oil shock. Domestically there were three changes of government and unprecedented socio-political upheaval.
Underlying macroeconomic imbalances thathad been building up over the eighties came to a head as a result of these shocks and, along with theinadequate policy response, resulted in a BOP crisis in 1990-91.
In order to pull the economy out of economic crisis and to put it on the path to rapid and steadyeconomic growth, introduction of economic reforms or appropriate economic policy was consideredinevitable. On June 21, 1991 the government adopted a number of stabilization measures that weredesigned to restore internal and external confidence. The government adopted, as the centrepiece of economic strategy, a programme to bring about reduction in fiscal imbalance to be supported by reformsin economic policy that were essential to impart a new element of dynamism to the growth process in theeconomy.
This paper examines India’s experience with the cumulative outcome of sixteen years of reforms to assess whether the reforms have created an environment which can support 8 percent GDPgrowth, which is now the government target.
The paper is divided into two sections. the first sectiondeals with emerging strengths of Indian economy in Post reform period especially with regard to growth,savings & Investment; Industrial Sector Reforms and Developments in external sector . The secondSection deals with Creative Imperatives in India i.e. the priorities for Indian economy.
Section I : Emerging Strengths of Economy in Post Reform Period
A.Growth, Savings and Investment
Following the initiation of structural reforms in the early 1990s, the Indian economy has grown at anannual average rate of over 6 per cent per annum. While the 1980s had also witnessed high growth (5.8 per cent per annum), this growth was associated with widening macroeconomic imbalances – growingfiscal deficits, growing current account deficits, falling international reserves and higher inflation – culminating in the balance of payments crisis of 1990-91. In contrast, not only has been there anacceleration in growth from 5.8 per cent during the 1980s to 6.4 per cent between 1992-93 and 2005--06, it has also been achieved in an environment of macroeconomic and financial stability, despite largeexogenous shocks, both internal and external, over this period (Table 1)
TABLE 1: INDIA’S REAL GDP GROWTH
PeriodAverage Annual Growth(%)Coefficient of Variation1970s2.91.421980s5.80.391990s5.80.322000-066.40.321992-93 to 2005-066.40.24
: Inaugural Address of Dr. Rakesh Mohan, Deputy Governor, RBI at the 2nd Annual Indian SecuritiesInfrastructure & Operations Forum 2006 at Mumbai on November 7, 2006.More recently, real GDP growth has averaged more than 8 per cent per annum in the three year period ended