India achieved independence in 1947, prior to which, i.e., in the first five decades of the 20th century from 1900 to 1947 the per capita GDP in India was stagnant, as the trend of growth in GDP during this period was 0.9 per cent with population growing by 0.8 per cent. We can experience some triumphalism on the 70th anniversary of our independence with India being established as the world’s fastest-growing major economy as benefits of seven decades of institutional stability of parliamentary democracy with an independent judiciary. This has enabled the country to change the course of its economy. As compared to near stagnant growth in the first 50 years of the 20th century, the annual growth averaging around 3.5 per cent during the period 1950 to 1980 was better, while per capita growth broke out of the long period of inertia and averaged 1.1 per cent until around 1980. Significant changes in policy were initiated in the early 1980s, taking account of oil shocks in the 1970s and early 1980s. These policy measures took India into a higher growth trajectory in the 1980s but in its wake created macroeconomic imbalances leading to a crisis in 1991. The country faced a severe economic crisis in the middle of 1991, triggered largely by an acute balance of payments problem, as a result of the growing macroeconomic imbalances over the decade in the form of high levels of fiscal deficit at 10.4% and current account deficit at 3.1% of GDP in 1991; with increasing levels of short term external debt India’s foreign currency assets had depleted rapidly to US $ 975 million on 12 July 1991. (India’s foreign exchange reserves now have reached $366.7 billion for the week ended March 17, 2017). That is, India’s foreign exchange resources had fallen to a level equivalent to only three weeks of imports. The possibility of ‘default’ loomed large. It had become obvious that ‘business as usual’ would no longer work and India moved fast to make fundamental changes in her economic policy under the leadership of the then Prime Minister, P. V. Narasimha Rao, the then Finance Minister, Dr Man Mohan Singh spearheaded the Economic Reforms. In 1991, India pivoted to a market economy abandoning a stated commitment to socialism, a transition that continues today, more than a quarter-century later. An expanding vibrant private sector is the result of greater freedom for business.
Reforms covered all key sectors and continued during the regimes of Prime Ministers H. D. Deve Gowda and Atal Bihari Vajpayee and the interesting perspective of the continuance of economic reforms was that it transformed India making it the third-largest economy in the world, after China and the United States. From being economically irrelevant it has become the fastest-growing major economy in the world with 7.6% GDP growth and that too in a slowing global economy. The economy is more resilient now. India has averted major economic disruptions, both during the Asian crisis in the late 1990s and during the ‘Great Recession’ during the end of the past decade.
Prime Minister Narendra Modi led second BJP government that came to power in 2014 appears to be bringing about a change of course almost as consequential as the 1991reforms in carrying out big-bang reforms. Modinomics, Modi in economic policy, has successfully followed persistent, creative and encompassing incrementalism with the mantra of total transformation with transparency aiming to make India a developed nation by 2022 to celebrate 75 years of independence with some of the following reforms:
- Financial inclusion in effective implementation of Jan Dhan Yojana with opening of 29.48 crore bank accounts with Rs. 65697.59 crore balance in beneficiaries account as on 9 August 2017.
- Swachh Bharat with building more than 3 crore toilets making over 2 lakh villages free from the practice of open defecation by May 2017, in addition to building toilets in schools.
- Electricity has reached more 14 thousand out of 18 thousand villages without electricity.
- More than 1.12 billion Indians have now been enrolled for Aadhaar covering 88.2 per cent of the population and connecting more than 70 crore people to government schemes to Aadhaar Card focusing on stoppages of leakages through Direct Benefit Transfer.
- Sansad Adarsh Gram Yojana
- Skill Development
- Make in India
- Stand-Up India and Start-Up India
- Mobile telephony
- Digital India towards development and prosperity of India.
- Goods and Services Tax (GST)
- Bankruptcy Code
- Move to eliminate both the cooking gas and kerosene subsidies.
Modi government has moved ferociously against corruption, essentially the tax evasion. Greater tax compliance is a significant structural reform and history shows that countries whose citizens dodge taxes less tend to do better in the long run. It involves investigative agencies such as the CBI and ED, regulators such as SEBI, structural reforms such as GST and, more controversially, demonetisation. Less unaccounted-for money would mean stronger balance sheets and, hence, more capacity to invest. The crackdown on tax evasion is being accompanied by vigorous implementation of other parts of the Prime Minister’s agenda such as ease of doing business, and reducing uncertainty by not indulging in frequent rule changes, bans and retrospective amendments. Public investment in infrastructure has picked up. Road building has risen stridently. The largest numbers of vehicles are being manufactured in the country and India is becoming the largest exporter of software
Bank books are being cleaned with check on crony loans, and assets of willful defaulters are being seized. Going forward, fixing the so-called twin balance sheet problem by way of the bankruptcy code is key to reversing a slump in investment and fixed capital formation. The new bankruptcy framework is forcing some of the great and good of Indian business to confront a fundamental rule of capitalism: you will lose control of your company if you can’t service your debt. Hopefully, the cleaning up of company and bank balance sheets will lead to higher investment and growth and, concomitantly, more revenues for the social sector, which can tackle the still widespread poverty that continues to blight India’s tryst with destiny.
There is relentless drive for maximising jobs to encash the demographic dividend of 65% of population or about 80 crore people below 35 years of age. Thousands of rules and procedures are being streamlined unobtrusively but steadily. Modi has succeeded in making chief ministers compete to become business friendly.
No prime minister has pushed as hard as Modi for foreign direct investment (FDI) or the improved ease of doing business. Modi has wooed the Indian Diasporas including MNC chiefs like Google’s Sundar Pichai, Microsoft’s Satya Nadella, and Pepsi’s Indra Nooyi.
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