The Lost Decades

Three decades back, in the early 1990s, the International Monetary Fund highlighted the sharp deterioration of economic conditions in India. Growth had slipped from 9.7% in 1988, to 5% in 1989, and just 1% in 1990. And the country was saddled with a large current account imbalance. This forced the roll-out of structural reforms. However, India’s current predicament seems to be even worse. Growth has slumped from 6.5% to 4% and further to -8% in the last three years. But unlike in the 1990s, India now has huge foreign exchange reserves to meet any contingency. These reserves have very little to do with reforms. It is built from remittances and services export earnings, propped up by major technological changes in the period.

Proponents of liberalisation point to the doubling of India’s share in both global gross domestic product (GDP) and exports of goods and services as a major reform gain. But then neighbouring Bangladesh, termed as a basket case by some, has also doubled its share of global GDP or even more than tripled its share in global exports. And China’s gains are even more remarkable. So, the claims that reforms were a game changer for India are vacuous to say the least. In fact, India’s gains had more to do with the global restructuring and shift of production to Asia.