Post-1991 reforms left India short on manufacturing, growth and jobs

Source: The post “Post-1991 reforms left India short on manufacturing, growth and jobs” has been created based on “Post-1991 reforms left India short on manufacturing, growth and jobs” published in “Business Standard” on 11th November 2026.

UPSC Syllabus: GS 3-Indian Economy

Context:  The 1991 economic reforms marked a major shift in India’s economic policy from a public-sector-dominated model towards greater private-sector participation. However, three decades of experience indicate that while delicensing expanded private enterprise and services, it did not significantly accelerate manufacturing growth.

Background of Industrial Reforms

1. The year 1991 marked a major transition in India’s economic policy, with the removal of industrial licensing and greater promotion of the private sector.
2. However, the process of liberalisation had started during the 1980s, when the public sector’s share in manufacturing investment declined from around 40% in 1980-81 to 24% in 1991-92.
3. Earlier, the 1979 report of the Committee on Controls and Subsidies, chaired by Vadilal Dagli, had also recommended reducing industrial controls and replacing physical output quotas with fiscal and financial instruments.
4. Several recommendations were implemented only after 1991.

Impact of Delicensing on the Indian Economy

1. Expansion of the private sector

1. The private sector expanded its presence in manufacturing, infrastructure, banking and other economic activities.
2. Its role increased in electricity generation, road construction, airports and seaports.
3. The public sector’s share in infrastructure investment declined from around 69% in 1991-92 to 44% in 2023-24.

2. Growth of private business groups

1. Major business groups such as Tata, Reliance, Aditya Birla and Adani expanded rapidly.
2. Reliance witnessed an approximately 1,000-fold increase in market capitalisation.
3. However, many large business groups diversified into low- and medium-technology sectors rather than developing specialised technological capabilities.

3. Limited impact on manufacturing

1. Manufacturing’s share in GDP increased from around 12% in 1950-51 to 18-19% by the mid-1990s but remained largely stagnant thereafter.
2. It subsequently declined to around 14% in 2024-25.
3. Manufacturing’s share in total employment declined from 41% in 2011-12 to 32% in 2023-24, while its share in overall employment remains around 10-11%.
4. Only three Indian companies feature among the world’s top 100 non-US companies by market capitalization, indicating weak global competitiveness in manufacturing.

4. Growth of the services sector

1. Software exports increased from approximately $400 million in 1991-92 to $240 billion in 2025-26.
2. Software services now account for 28% of India’s exports and employ around six million people.
3. The growth of software services was supported by the 1983 liberalisation of computer imports, which facilitated computerisation in banking, railways and other sectors.

5. Development of the financial sector

1. Private-sector banks increased their share of total bank advances from 17% in 2004-05 to 39% in 2024-25.
2. Their share in total banking employment also increased from 10% to 43%.
3. The growth of private mutual funds, which manage assets worth approximately ₹87 trillion, and the expansion of stock markets strengthened India’s financial system.
4. Market capitalisation has risen to nearly 120% of nominal GDP.

6. Expansion of the software industry

• India’s software industry emerged as one of the biggest beneficiaries of economic liberalisation.
• However, the sector now faces challenges from artificial intelligence, which may affect future export and employment growth.

Why did de-licensing not deliver the desired manufacturing growth?

1. Inadequate technological development: India has not developed enough globally competitive manufacturing firms specialising in advanced technologies.
2. Lack of active government support: Unlike successful manufacturing economies, India has not provided sufficient targeted support to develop specific industries and technological capabilities.
3. Weak global competitiveness: China’s manufacturing output is nearly ten times that of India, and it has a stronger presence in technologically advanced sectors.
4. Limited employment generation: The manufacturing sector has not generated employment on the scale required to absorb India’s growing workforce.
5. Unbalanced economic growth: While services and financial markets have expanded, agriculture and manufacturing continue to require greater policy attention.

Way Forward

1. Reorient industrial policy: India needs to move beyond delicensing and adopt targeted policies to strengthen manufacturing and technological capabilities.
2. Promote advanced manufacturing: Greater emphasis should be placed on research, innovation, technology adoption and the development of globally competitive enterprises.
3. Strengthen government support: Targeted policy support and infrastructure development should encourage investment in strategic manufacturing sectors.
4. Generate employment: Policies should focus on labour-intensive manufacturing to create employment opportunities for lower-income groups and improve living standards.
5. Strengthen agriculture: Agricultural reforms and productivity improvements should receive equal attention to ensure balanced economic development.
6. Address emerging challenges: India should prepare its software and services sectors for technological disruptions arising from artificial intelligence.

Conclusion: The experience since 1991 shows that delicensing expanded private-sector participation, financial markets and services but did not deliver the expected transformation in manufacturing. Therefore, liberalisation alone cannot guarantee economic growth; it must be complemented by active government support, technological development and employment-oriented policies.

Question: Did the industrial de-licensing reforms of 1991 accelerate India’s economic growth? Examine their impact on the manufacturing and services sectors and discuss the need for a new policy approach.

Source: Business Standard