| Demand of the question Introduction. Contextual Introduction. Body. Reason of less economic growth. Conclusion. Way forward. |
India’s economic reforms began in 1991 after facing severe balance of payments crisis. The reforms initiated in 1991 were different precisely because they recognised the need for a system change, involving liberalisation of government controls, a larger role for the private sector and greater integration with the world economy.
Why India have not achieved sustained high growth:
- Slow infrastructure development: Almost all indicators scored poorly in India’s infrastructure as compared to countries such as China. Due to slow infrastructure development India has not been able to achieve a sustained higher growth.
- Energy supply: Power shortage is one of the biggest constraints for growth. Due to lack of cheap sustained energy to industrial and agricultural sector, India has not been able to achieve high growth.
- Failure to raise labour-intensive manufacturing: In the post reform period, the share of manufacturing in total employment remained stagnant at 11-12%. In 2010, India accounted for 1.4% of the world manufacturing exports against China’s share of a 15%. Reforms since 1991 have not been comprehensive enough to remove the bias towards capital and skill-intensive industries.
- Sluggish progress in education and skill levels of workers: Not taking advantage of demographic dividend is one of the failures. Even in 2009-10, around 52% of total workers were either illiterate or had been educated only up to primary level. Overall, 10% of the workforce in the age group of 15-59 years received some form of vocational training. Vast majority of workers have non-formal vocational training. There are huge challenges in raising education and skills of workers.
- Slow social sector development: Although there have been achievements in social sector during the reform period, the progress has been very slow. The rate of decline in poverty for India stood at around 0.97% per annum; inequality increased; poverty reduction was slower. India has failed to show progress in social indicators or the Millennium Development Goals including environment. This led to limited Human Resources available for industry.
- Governance failure: Reforms were expected to improve governance at various levels. However, there are new problems in governance and persistence of old problems including corruption. Without overhaul of the country’s administrative structure corruption cannot be reduced.
- Inadequate public investment: Inadequate public investment in the post-reform period had an adverse impact on the economy in one respect. Due to target to contain fiscal deficit, government expenditure was less. It led to serious under-investment in critical infrastructure sectors such as electric power generation, roads, railways and ports.
- Less tax revenues: Tax revenues actually declined as a percentage of GDP in the first 3 years of the reforms. This decline in the tax revenue was due to serious weaknesses in the tax system despite extensive reform of both direct and indirect taxes undertaken as part of the reform programme. Customs revenues declined steadily as a percentage of GDP in the initial years and then stabilised at a lower level.
- Non expansion of private sector: These shortfalls would not have mattered if capacity in the private sector had expanded, but this did not happen. The end result was that total investment in infrastructure development was less than it should have been, leading to large infrastructure gaps.
These inadequacies come in the way of achieving sustained higher economic growth in the post reform years as investment in infrastructure was not expanded. These limited the growth of India and led to lesser economic growth than what India could achieve over years.
