18 Questions
What impact did high levels of government borrowing have on private investment in India?
crowded out private investment
What was the industrial policy like in India before the reforms?
characterized by multiple controls over private investment
How was the industrial structure in India before reforms described?
highly inefficient and needing support from protective trade policy
What consensus emerged by 1991 regarding the industrial and trade policy in India?
need for greater liberalization and openness
What have many countries achieved by switching to an integrated value-added tax covering goods and services?
increased revenues substantially
What was the potential consequence if the problem of high government borrowing crowding out private investment was not addressed?
difficult to maintain the average growth rate of 6 percent
What industries were exempt from majority ownership restrictions in India since 1991?
Banks, insurance companies, telecommunications, and airlines
How were procedures for obtaining permission simplified for potential foreign investors in India?
By listing industries eligible for automatic approval up to specified levels of foreign equity
What role does the Foreign Investment Promotion Board play in considering investment applications in India?
It considers applications for investments in industries not automatically permitted and for higher equity shares.
How did the 1993 reforms in India impact foreign institutional investors?
They were allowed to purchase shares of listed Indian companies in the stock market.
What changes have Indian companies undergone due to the economic reforms since 1991?
Upgraded technology, expanded to more efficient scales, and restructured through mergers and acquisitions.
How have dynamic firms in India fared compared to older, less dynamic ones post the 1991 reforms?
New dynamic firms displaced older and less dynamic ones, with about half of the top 100 companies in 1991 no longer in the group.
What year did India embark on economic reforms?
1991
What crisis prompted India to initiate economic reforms?
Balance of payments crisis
What policies did many East Asian countries adopt that influenced India's reform direction?
Export orientation and private sector encouragement
What were the key components of India's shift towards a more open economy in 1991?
Market forces, private sector, foreign investment, restructuring of government role
What was India's average growth rate from 1992–1993 to 2001–2002?
6.0 percent
How does the average growth rate in the post-reform period compare to the 1980s?
Slightly better
Study Notes
- India began economic reforms in 1991 following a severe balance of payments crisis, inspired by successful growth models in East Asia emphasizing export orientation and private sector encouragement.
- Post-reform period saw India achieve an average growth rate of around 6.0%, positioning it among the fastest growing developing countries in the 1990s, slightly better than the 5.7% growth rate in the 1980s.
- Reforms included simplifying procedures for foreign investments, allowing foreign institutional investors to purchase shares in Indian companies, leading to technology upgrades, efficient production scales, mergers, and acquisitions.
- Industrial and trade policy reforms were a key focus initially, moving away from highly controlled private investment areas and protective trade policies towards greater liberalization and openness.
- High government borrowing levels have crowded out private investment, potentially hindering the sustainability of the growth rate achieved post-reforms and the acceleration to higher growth rates.
Test your knowledge on the economic reforms in India since 1991 and analyze whether gradualism has worked. Delve into the policies adopted, their impact on growth, poverty reduction, and the context of the late start compared to other countries in Asia.
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