Political Structure and India's Economic Reforms of the 1990s

HE ECONOMIC POLICY REFORMS launched in 1991 constitute a watershed in India's economic history. Until then, despite the liberalization pushed forward during the 1980s under Prime Ministers Indira Gandhi and Rajiv Gandhi, India remained a comprehensively and stringently controlled economy, both internally and externally. Indeed,Joshi and Little maintain that "in June 1991 India was the most autarkic non-communist country in the world," while the IMF notes that India was "one of the most heavily regulated economies in the world. "I India thus represented a strong case of economic nationalism, combining high levels of external protection and internal regulation, as illustrated by Box Al in figure 1, which conceptualizes different possible balances between economic globalization and economic nationalism.2 It is into this scene that reforms were dramatically introduced in 1991. There was, no doubt, continuity with the reforms of the 1980s, but there was also a marked acceleration, indeed a clear break with the pattern of what had been done until then. With little evident embarrassment, the top leadership now made a paradigm shift what critics called a U-turn from the state to the market, openly and enthusiastically embracing globalization and integration of the Indian economy into the world economy and initiating the dismantlement of physical controls along a broad front of the Indian economy. Although not all that was intended was achieved, a substantial movement took place in the direction of globalization and liberalization. As Raja Chelliah noted, "These reforms taken together constitute a comprehensive and thoroughgoing overhaul of the economic policy regime." Similarly, the World Bank declared that "India has fundamentally altered its development paradigm" and that the reforms "have ended four decades of planning and have initiated a quiet economic revolution."3