11.4 Appraisal of India's Economic Reforms Programme Asis clear from the above discussion, India initiated the process of economic reforms to bring ‘ut its economy from serious economic crisis. But, the performance of the country in different sectors was not same. Some has shown improvement in their performances whereas others have presented dismal scenatio. Following discussion presents appraisal of the economic reforms process in India. () GDP and Per Capita GDP During the reforms period, india substantially improved the pace of her Gross Domestic Product (GDP) and per capita GDP. As is clear from the Table 1, during the period 1980-1990, India registered growth rate of 5.8 per cent and 3.4 per cent in her total GDP and per capita GDP respectively which are lowest as compared to their growth during all sub-periods since 11990, Growth of GDP and GDP per capita was recorded at 7.3 per cent and 7.1 per cent {uring 2006-10 which is the highest as compared to growth in all other sub periods. During all the sub-periods, the AAGR of India's GDP and per capita GDP remained higher than that of world's one. Therefore, it can be concluded that India registered high growth of GDP and Per capita GDP as compared to the world. Moreover growth in GDP and per capita GDP remained higher during post reforms period 1. after 1990 as compared to that of during 1980-90 and thus economic reforms have had positive impact on growth of GDP and per capita GDP. Table 1: Average Annual Growth Rate of Total and Per Capita Real GDP ‘Countries India ‘world otal GDP 58 BL 1980.90, Per Capita GDP 34 13 ‘Total GDP 6.0 28 1990.00 Per Capita GDP 39 13 Total GDP. 67 28 2000.05, Per Capita GDP 5.0 15 Tolal GDP. 73 21 206.2010 Pet Capita GDP Zh 25 ‘Source: Handbook of Stalistics, UNCTAD. (i) Sectroral Composition ‘In India, distortions prior to reforms were mote pronounced in industry and foreign ttade and the reforms were aimed at removing those distortions. During reform period, the {growth of manufacturing output slowed significantly and that of services rose sharply. During pre reforms period (1980-90), growth of industrial sector was higher as compared to that of agriculture and service sectors. but duting post reform period, service sector (trom 6.96 per Ccent in 1886-90 to 8.00 in 2006-10registered higher growth as compared to industty and agriculture (Table 2). Moreover both agriculture (from 4.03 per cent in 1886-90 to 2.99 in 2006- 410) and industrial (ftom 7.67 per cent in 1886-90 to 6.10 in 2006-10) sectors have experienced deceleration in their growth rates during post reforms period. Thus, data show that economic reforms have proved highly beneficial for service sector in the country as it experienced highest growth, but agriculture and industial sector were not able to realise high growth during reforms period. Table 2: Average Annual Growth Rate of Agriculture, industry and service ‘Sectors: India Years Agriculture Industry Service 1986-50, 4.03 7.67 6.96 1991.95 2.at 6.05 671 1996-00) 3.28 5.09 7.97 2001-05, 301 7.30 3.48 2006-10) 2.99 6.10 3.00 ‘Source: ASian Development Bank: Key indicators (Various Issues)‘Table 2: Average Annual Growth Rate of Agriculture, industry and Service Sectors: india Years ‘Agriculture industry ‘Service 1086-90) 4.03 7.67 6.96 1991-95, 241 5.05 671 1996-00, 323 5.09 797 2001.05 3.01 7.30 3.48 2006-10 2.99 6.10 8.00 Source: Aslan Development Bank: Key indicators (various Tssues), ‘Table 3 shows the share of all the three sectors viz. agriculture, Indust and service ‘sector in the India’s GDP. The table reveals that the share of agrlculure in indla's GDP ‘declined substantially. This deciined share of agiicutural sector was malnly absorbed by the service sector. However, during the period 2006-2010, the service sector accounted for nearly 5 half of India's GOP (Le. $8.72 per cent), Thus, economic reforms have proved highly beneficial {or service sector in India ‘Table 3: Average Annual Percentage Share of Agriculture, Industry and Service ‘Sector in GOP: india Years ‘Agricultu industry ‘Service 1086-90 ‘3077 278 “aLAS 109135 2352 26.48 4501 1096-00 2557 26.27 48.16 2001-05 2042 2659 52.98 2005-10 76.06 28.22 3372 ‘Source: Aslan Development Bank: Key indicators (various Issues), {) impact of Savings and investment ‘Table 4 reveals that the gross domestic savings as percentage of GDP grew rapidly in India, Data show that there was a consistent increase in gross domestic savings In india ‘during the post reforms petiod. Gross capital formation has also experienced increase trom 23,86 per cent during 1991-05 to 28.29 per cent in 2001-05 and further to 36.22 in 2006-120. Hence, It comes out that economic reforms has improved gross domestic savings and captal formation in indian economy ‘Table 4: Saving and investment In indian Economy (as percentage of GDP) ‘Years Gross Domestic Saving | _ Gross Domestic Capital Formation 1986-90, 2111 24.06 1001-95, 22.70 23.06 1996-00 23.45 2455 2001-05 28.62 28.29 2006-10 34.16 36.22 Source: Asian Development Bank: Key Indicators (Vanious ISSUES) (v) Exports and imports of Goods and Services Table 5: Average Annual Percentage Share of Goods and Services in India's Total Exports and Imports Years Exports Tmporis Goods ‘Services Goods Services oaL-85 75.07 24.93 79.80 20.11 1986-90, 78.30 21.70 79:34 20.66 1001-95, 20.61 19.39 78.23 277 1996-00 76.08 23.92 76.84 23.16 2001-05 69.61 30.39 7277 21.23 "2006-10" 62.30 37.70 78.35 21.65 ‘Source: Balance of Payment Statistics Yearbook, IMF (ValioUS Issues). Note: “figures are calculated using data obtained trom Asian Development Bank, Key Indicators During the reforms period, there has been a considerable expansion of goods wade and services trade in indian economy. Data show Increasing importance of botn service exports, ‘and imports in India during post reforms period. However during pre reforms period share of ‘900ds exports rose to 78.30 per cent in 1986-90 from 1981.85. But since 1986-90, there was a ‘consistent decline in the share of goods exports and imports. On the other hand, share of ‘service exports and imports has been increasing since 1991-2000. Thus, it can be concluded that reforms have more favourable impact on service exports and imports In india(v) Merchandise Trade and Balance of Payments During the reforms period, India have dramatically reformed their foreign trade regime, which greatly promoted the development of their foreign trade and contributed to their rapid economic development. Both exports and imports have registered rapid growth during post Teform period except 1996-2000. During 1996-2000, financial crisis in East Asian and Latin American Economies have adversely affect growth performance of exports and imports. Due to much lesser value of exports than that of imports In all the sub-periods, india experienced a negative trade balance. India had a large negative current account balance also in all the sub- periods, except the last one, i.e. 2001-05. During this period, India’s service exports rose sharply which turned the negative current account balance into positive. During 1986-90, India’s average annual overall balance of payments was also negative (i.e. US $ -399 million). This had happened mainly due to the balance of payments crisis of 1990. However, afterwards the policies of globalisation and liberalisation were initiated which enhanced India’s capital receipts and, therefore, the balance of payments tumed out to be positive. Table 6: India’s Trade Balance, Current Account Balance and Overall Balance (US $ Million) Years Merchandise | Merchandise Trade Current Overall Exports Imports. Balance account balance | Balance 14014 19826 1986-90 (14.14) (9.29) -5811 -6146 -399 23378 27151 1991-95 (11.58) (10.97) -3773 -3578 2941 37301 52371 1996-00 (6.10) (0.25) -15070 ~4664 4936 71024 95329 2001-05 (18.77) (23.30) -24305 2434 20275 184530 288189 2006-10 (24.72) (14.99) -103659 -27890 16440 Note: Figures in parentheses show average annual percentage growth rates. Source: Asian Development Bank: Key Indicators (Various Issues). Table 7: Average Annual Percentage Share of Trade Balance, Current Account Balance and Overall Balance in GDP: India co ee | ee ee Current Account overall Exports | imports | Balance Balance Balance 1986- 497 7.33 237 235 0.16 90 pia 7.58 9.62 -2.03 0.94 1.03 oo 8.67 12.41 “3.44 “1.01 1.30 aor | 1128 14.90 -3.62 0.57 3.35 a 14.12 22.06 -7.92 2.08 2.34 Source: Asian Development Bank: Key Indicators (Various Issues). Due to India’s negative trade balance and current account balance, during all the sub- periods, their average annual percentage share in GDP also remained negative (except 2001- 05, where the share of current account balance in GDP was positive, i.e. 0.57 per cent per annum). However, India’s balance of payments, except first sub-period, remained positive and hence its share in India's GDP also remained positive and increased continuously (Table 7). Thus economic reforms have had positive impact so far as performance of external sector is concemed, however trade balance has continuously increasing, but it can be justified keeping iin view developmental needs of indian economy . (vl) Trade Openness Table 8 shows the level of import tariff applicable to agricultural and non-agricultural products in india. Data clearly highlight that the biggest tariff reduction occurred in the Immediate aftermath of 1991 balance of payments crisis and the trend towards reduction in average tariffs was reversed In 1998. This Is largely the result of conversion of quantitative restrictions or non-tariff barriers to tariff barriers, required because of GATT’s Article XI. The simple average tariff rates on agricultural and non-agricultural products in india were declined from 82.87 per cent and 82.17 per cent in 1990 to 37.57 per cent and 15.00 per cent in 2005 Tespectively. Hence, It Is concluded that there was substantial decline in tariff barrier due to implementation of economic reforms in indian economy. Table 8: Level of Import Tariffs in India since 1990 Maximu Ye Agricultural Products Non-Agricultural Products | Maximu ars | Simple | Weighted | Std. Weighted | Std, Mean Tariff Mean Tariff | Dev. Mean Tariff | Dev. 2] e2e7 50.27 | 46.26 ass |s53| 355 a | 40.64 49.07 | 26.76 2481 8.64) 210 20 | szs7 oso | 3010] 27.81 2095 | eae | 182 20) ars; | sas |aeae| isco | saer | ras| sea Source: Kowalski, P. (2008). China and india: A Tale of Two Trade integration ‘Approaches. indian Council for Research on International Economic Relations (ICRIER). Working Paper No, 221, August. (vil) Foreign Direct investment inflows Table 9: Level and Average Annual Growth of Foreign Direct Investment Inflows: India Years ws ea cm Average Annual Growth 1981-85 59 118.98 1986.90 182 40.89 1991-95 797 96.54 1996-00 2906 16.23 2001-10 17843 30.99 Note: 1. Figures are In average. ‘Source: World investment Report, UNCTAD (Various Issues). During the reforms period, india put their doors wide open for the Foreign Direct Investment (FDI) inflows. In fact, India did not seek higher share of relatively more stable FDI and instead opted for more volatile Foreign Portfolio Investment (FP!). The reason was that in India, since the independence days, an influential class of private capitalists was present which received protection from stringent import control regime for forty years till 1990-91 and this class of capitalists did not want FDI in competing areas but advocated it mostly through the joint venture route and in areas like physical infrastructure where it would be ‘complementary. However, since the mid-eighties, the average annual growth rate of India’s FDI inflows remained quite high. During post reforms period, India registered rapid increase in FDI inflows except in 1996-2000 when growth of FDI was only 16.23 per cent. Thus, dat show that though India's FDI inflows are still low but increasing very rapidly.(vill) External Debt and Debt Services During the balance of payments crisis, India took a huge amount of external debt. As is clear from Table 10, during the period 1991-95, India’s extemal debt as percentage of Gross National income (GNI) reached at its peak. i.e. 32.82 per cent per annum, however, after that it declined sharply to 18.77 per cent during 2001-05 and further to 17.66 per cent in 2006-10. Most of the external debt had been long term in india. india's average annual percentage of Jong term debt to total debt was 84.44 per cent in 1986-90 which increased to 95.16 per cent in 2001-05. However it has declined to 80.7 per cent in 2006-10. Short term debt as percentage of total debt has declined to only 4.87 in 2001-05. The debt services as percentage of exports of goods and services for India declined considerably during the reform period. Thus, economic reforms have at a larger extent reduced the burden of debt service. Yea | External Debt as | Total Long Term Debt | Short Term Debt as | Debt Service as Percentage NS" | Percentage of | as Percentage of Total | Percentage of Total | of Exports of Goods & GN Debt Debt Services 138 6 22.76 84.48 10.23 30.48 90. 195 1 32.82 89.96 8.73 28.45 95. 199 6 23.06 94.62 489 1937 oo. 200 1 18.7 95.16 487 19.62 05, 200 6 17.68 207 18.08 934 10 ‘Source: Asian Development Bank: Key Indicators (Various Issues). (0) International Reserves Table 11: Average Annual Growth of International Reserves and Foreign Exchange in India (US S Million) Total Foreign Foreign Exchange as Percentage of Total Years Reserves Exchange Reserves 1982- 5588 4610 85 (8.05) (10.71) £228 1986- 5513 3901 90 (2.99) (22.26) = 1991- 14725 11140 95 (35.74) (83.40) Laci 1996- | 31282 28056 00 (13.27) (16.44) os 2001- 97453 93209 05 (28.64) (29.62) oS7 2006- | 255261 241888 10 (11.07) 9.49 ote Note: Figures in parentheses show average annual percentage growth rates. ‘Source: Asian Development Bank: Key Indicators (Various Issues). Table 11 shows the picture of international reserves of India. The table depicts that during the period 1986-90, india suffered a serious fall in total reserves and foreign exchange reserves and their average annual growth rate remained -2.99 per cent and -22.26 per cent respectively. But after that they turned out to be positive. There was also rapid increase in foreign exchange reserves as percentage of total reserves during reforms period(x) Consumer Price Index India experienced high inflation rates in terms of rise in consumer price index which was at peak (10.48 per cent) during the period 1991-95. However, since the mid-nineties, india succeeded in reducing the rate of inflation. It was found to be lowest during the period 2001- 05. Based on the data, we can say that except during 1991-95, growth of CPI was lower in post reform period as compared to pre reforms period Table 12: Average Annual Percentage Change in Consumer Price Index: India Years CPI 1986-90 8.61 1991-95 10.48 1996-00 7.61 2001-05, 3.98 2006-10 6.38 Source: Asian Development Bank: Key Indicators (various Issues). (xi) Total Population and Density of Population Table 13 reveals that during all the sub-periods, India has achieved high rate of population growth. However growth was relative lower during post reforms period (less than 2 per cent) as compared to pre-reform period (more than 2 per cent). A higher rate of population growth, or the failure to sufficiently reduce the population growth rate, not only depressed per capita GDP growth rate, but also its savings rate and necessitating pre-emption of a larger proportion of the country’s resources for providing basic health and child care facilities. Table 13: Average Annual Growth of Population and Density of Population: india Million) Years Population Population Density a ay gi a 200, 0 1996°00 asa) (roa) 200105 (50) ass) = aay 185) Note: Figures in parentheses show average annual percentage growih rates. Source: Asian Development Bank: Key Indicators (Various Issues). There was consistent increase in population density in the country since 1986. But again rate of growth of population density found to be lower during post reforms period as compared to post reforms period in indian economy. Hence, India registered decline in growth of population during post reform period, however there was increase in population density in the country. (xii) Human Development index Table 14 highlights value and rank of Human Development index of India since 1981. India’s rank was 94 among all nations in terms of HDI and its value was 0.45 in1981. But since then, there was rapid decline in the HDI rank of india showing weaker performance of the country as compared to other economies. Increasing value of HDI from 0.45 in 1980 to 0.61 in 2015 in the country however indicates improvement in human development during post reform period. 10(xii) Human Development index Table 14 highlights value and rank of Human Development index of India since 1981, India's rank was 94 among all nations in terms of HDI and its value was 0.45 in1961. But since then, there was rapid decline in the HDI rank of India showing weaker performance of the country as compared to ather economies, Increasing value of HDI from 0.45 in 1980 to 0.61 in 2015 in the country however indicates improvement in human development during past reform petiod, 10 ‘Table 14: Value and Rank of Human Development Index (HDI): India ‘Years Value Rank 1980 0.45 04 1985 0.49) 96 1990, 0.52. 104 1995) 0.55 104 72000 0.58 102 2005 0.62 128 2010 052 119 2015 0.61 130 Source: UNDP: Haman Development Report (arious suo), ‘Table 15 presents trends in employment in India since 2000. It cleaily shows Increase in labour supply from 345.9 milion in 2000 to 438.9 millon in 2009, There was rise In employment during the same period from 336.6 milion to 427.9 and subsequently decline was recorded in unemployed labour force. Moreover there was decline in the unemployment rate during the same period. Therefore data present positive impact of economic reforms on the employment situation in indian economy. But the nature of employment is becoming more and more Informal and employment is available In unorganised sector. It has serious Implications for even in case of employed working population. Majority of the working population has no social security, medical allowance, deamess allowance and provident funds etc. in this type of environment, getting quality and optimum empioyment is mporant rather that getting employment. Because informal employment in unorganised sector manifests exploitation of labour force of the country. ‘Table 15: Employment Situation Since 2000. Year__| Labor Force Emplo Unemployed _| Unemployment Number Number in in shage millions | %age | millions | sage 2000 100 336.6 | 97.31/93 2.69 27, 2005 [3808 [100 [3689 | e6a8lii9 | 313 31 2009 [438.9 [100 | 427.9 | 97.49 [111 | 253 25 20117 |428.9 [100 | 420.5 | $7.81 | 9.4 2.19 22 Source: Key indicators, Asian Devetopment Bank Note: "Figures are besea on esta on Employment and Unemployment Survey conducted by Labour Buren, ‘Table 15: Growth of Labour force, Employed and Unemployed Labour force Since 2000 Period | Labor Force| _ Employed Unemployed 2000-05 194 185 5.05 2005-09 3.61 3.78 “1.72 2009-11 -1.03 -0.35 =3.27 2000-11 2.00 2.04 0.10 Source: cleuated using Gas Obtanea Wom Key inant Aslan Developnent Sani Data of growth of labour force, employed and unemployed labour force makes a case in favour ‘of impact of economic reforms on employment. During 2000-2011, rate of growth of employment found to be 2.04 per annum and of unemployment only 0.10 per cent. Decline in employment and unemployment during 2009-11 was particularly due to decline in labour force. IT It would not happen, there will be an Increase in unemployment. During this period, globalTable 15 presents trends In employment in india since 2000. 1 clearly shows increase in labour ‘supply rom 345.9 milion in 2000 to 438.9 million in 2009. There was rise in employment during the same period from 236.6 million to 427.9 and subsequently decline was recorded in ‘unemployed labour force. Moreover there was dectine in the unemployment rate during the sane petiod. Therefore data present positive impact of economic reforms on the employment Situation in indian economy. But the nature of employment is becoming more and more informal and employment is avallable in unorganised sector. t has serious implications for even in case of employed working population. Majority of the working population has no social ssecutlty, medical allowance, deamness allowance and provident funds etc. In this type of environment, getting quality and optimum empbyment is important rather that getting ‘employment. Because informal employment in unoiganised sector manifests exploitation of labour force of the country. Table 35: Employment situation Sine 2000 Year| Labor Force | Emplove Unemployed | UnE™Pleyment Number Number Number Milions | sage | milions | sage | millions _ssage wooo [3459 [n00 [3356 [97.01/93 | 269.) a7 3005 [580.8 [100 [389 [seme [ans | 313) aa 2008|430.9 [100 [aa7.9 | 9749 fini) 253) 25 aoa" [428 [100 [420.5 | s7e1}aa —) 219) 22 Source Key ideals, Asian Development Bark ‘ote Fagres are base on eat on Employment and Unemployment Survey conducted by Labour Eure, le 15: Growth of Labour force, Employed and Unemployed Labour force Since 2000 Period | Labor Force |__Employed Unemployed 2000-05 194 185 5.05 2005-09 3.61 3.78 “1.72 2009-11 “1.03 -0.35 “3.27 2000-11 2.00 2.08 0.10 ce cased aig dale oblaned Wom Key RCo Reta Developer BARE Data of growth of labour force, employed and unemployed labour force makes a case in favour fof impact of economic reforms on employment. During 2000-2011, rate of growth of femplayment found to be 2.04 per annum and of unemployment only 0.10 per cent. Decline in employment and unemployment during 2009-11 was pauticulaly due to dectine in labour force. IF would not happen, there wil be an increase in unemployment. During this petiod, global u crisis has also effected employment in indian economy adversely, but the decline in labour force has lessened former's impact. ‘Table 16: Percentage of population below the poverty line in India ‘Year Rural ‘Urban Total 197574 56.4 49 54.9 1977-78, 55.1 45.2 51 1985 45.7 40.8 445 1987-88) 201 a2 2a9 1993.94) ETE a4 36 1999-2000 27 236 26.1 There is substantial decline in the population below poverty ine during the reforms period. ‘There were 37.3 per cent and 32.6 per cent people below poverty line in 1993-04 in rural and urhan areas respectively which were declined to 27.1 per cent to 23.6 percent in 1999-2000, ‘On overall basts, population under poverty line has declined from 36 percent in 1993-94 to 26.1 percent in 1930-2000. ‘Based on above discussion, it is concluded that economic reforms have both postive ‘and negative impact on Indian economy. indian economy has able to realise rapid increase in GDP and Per Capita GDP during reforms period. Structure of economy has become quite limbalanced as service sector has grown rapidly, agriculture and industial sector are not able to realise high growth and characterised by declining contribution in GDP. Neglect of agriculture during the reforms process is evident looking at growth of this sector. There has a significant positive impact of economic reforms on the perfomance of external sector ‘Moreover, during reform period, Indian economy has recorded substantial deciine in level poverty and unemployment.