Evaluating the Legacy of Manmohan Singh’s Leadership and 1991 Economic Reforms

Source: This post on Evaluating the Legacy of Manmohan Singh’s Leadership and 1991 Economic Reforms has been created based on  Remembering the impactful legacy of wise leadership published in The Hindu on 3rd January 2025.  

UPSC Syllabus topic: GS -3- Economic Development

Context: The article is a reflective analysis on the economic and social transformations India underwent during the tenure of Dr. Manmohan Singh, first as Finance Minister during the 1991 economic reforms and later as Prime Minister from 2004 to 2014. Evaluating the Legacy of Manmohan Singh’s Leadership and 1991 Economic Reforms

What was the significance of the 1991 economic reforms led by Manmohan Singh?

1. The 1991 economic reforms under Manmohan Singh as Finance Minister laid the foundation for India’s economic transformation.
2. High-caliber professionals like Montek Singh Ahluwalia, C. Rangarajan, P. Chidambaram, and others supported these reforms.
3. The reforms unleashed “animal spirits,” initiating structural changes that set the stage for high growth and development.

How did macroeconomic policies from 2004-2014 impact India’s growth?

1. Savings and Investment Surge:
   • Savings/GDP ratio rose to 23% by 2003-04 and investment reached 24% of GDP.
   • Investment to GDP climbed to 38% by 2010, achieving the highest levels in India’s history.
2. GDP Growth:
   • Growth averaged 8.5% annually (2004-2009) and 7.5% (2009-2014), totaling 7.8% p.a. for 2004-14.
   • Export growth (15%-18% annually) was maintained by stable exchange rates.
3. Resilience to Crisis:
   • A fiscal/monetary policy stimulus enabled recovery after the 2008-09 global crisis.

 How did structural changes accelerate during this period?

1. Sectoral Growth:
   • All sectors, organized and unorganized, contributed to demand and job creation.
   • Non-farm jobs grew at 7.5 million per year, a record.
2. Sector-Specific Gains:
   • Construction jobs doubled from 26 million (2004) to 51 million (2012).
   • Manufacturing jobs rose from 52 million to 60 million, especially in labor-intensive industries.
   • Modern services like telecom, banking, and healthcare expanded significantly.

What were the key milestones in employment and poverty reduction?

1. Rural Labor and Migration:
   • Non-farm job growth reduced agricultural workers for the first time post-independence.
   • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) supported rural employment.
2. Wage and Consumption Growth:
   • Real wages rose consistently until 2015, driving consumption of simple consumer goods.
3. Poverty Reduction:
   • The absolute number of poor fell for the first time; 138 million people rose above the poverty line between 2004-05 and 2011-12.

What factors led to economic challenges post-2015?

1. Policy Shocks:
   • Demonetization disrupted the unorganized sector and agriculture.
   • Poorly designed Goods and Services Tax (GST) harmed Micro, Small, and Medium Enterprises (MSMEs).
   • A strict national lockdown during COVID-19 caused a 5.8% contraction in FY21.
2. Economic Growth Slump:
   • GDP growth averaged 5.8% p.a. over 2014-2024, significantly lower than the previous decade.

How did employment and structural changes regress after 2015?

1. Unemployment Crisis:
   • Unemployment rose to a 45-year high of 6.1% in 2017-18, with youth unemployment doubling from 6% (2011-12) to 11% (2022-23).
   • Job creation dropped by 61%, with youth returning to farming, reversing earlier gains.
2. Manufacturing Decline:
   • Manufacturing’s share in GVA fell from 17% to 13% (2022), and ‘Make in India’ failed to generate significant jobs.
   • Labor-intensive industries like textiles and leather lost jobs and exports.

What are the broader implications of these economic challenges?

1. Exports and Wage Growth:
   • Merchandise exports slowed, growing only 1.5x from 2014-2022, compared to 4x between 2004-2014.
   • Regular salaried workers fell from 23.8% (2019) to 20.9% (2023), while unpaid family workers increased.
2. Distress Indicators:
   • Gold-based loans and defaults are rising, signaling financial strain.
   • Aggregate demand is constrained, threatening India’s demographic dividend and its potential as a developed nation by 2040.

What lessons can be drawn from the contrasting decades of 2004-2014 and 2014-2024?

1. The 2004-2014 period demonstrated the transformative potential of strategic macroeconomic policies and inclusive growth.
2. The period after 2015 highlights the risks of poorly executed policies, stagnation in job creation, and reversal of structural progress.