The Indian Economy in Global Context

This paper reviews Indian economic policy and performance. It traces first how the economy evolved from independence through the 1980s. The early emphasis on industrialization through import-substitution led to a restrictive trade regime and sluggish growth in exports. Pervasive government regulations and controls over private economic activity during this period also impeded economic efficiency and growth, which led to increasingly acute structural problems in the 1980s. The balance-of-payments crisis of 1991 spurred bold reform measures by the government to address underlying structural issues. These reforms, although implemented slowly, have had many positive effects on the economy, in particular, faster growth, increased openness, and fewer controls over economic activity. But there are still formidable challenges to be overcome by future reforms. This paper discusses how improved infrastructure, betterfunctioning labor markets and widened private ownership could sustain and accelerate economic development.