The goals of economic development have been defined in the First and the Second Five-Year Plan. These goals also serve as parameters for judging the impact of economic reforms. The major objectives are:
The critique of economic reforms must assess actual growth rates, impact on employment and poverty reduction, along with implications for labour, agriculture, balance of trade, balance of payments, industrial growth, FDI and FII, economic and social infrastructure, and regional disparities between states.
Advocates of economic reforms highlight the potential of reforms to accelerate economic growth. After early 1990s turbulence, GDP growth began averaging around 7.5% in recent years. However, this growth was not consistent, influenced by both domestic and external shocks.
For example, growth was steady between 2005-08 before the global recession impacted most countries, including India. Notably, India’s slowdown was moderate and growth quickly rebounded, showcasing the resilience of the Indian economy and the positive long-term effects of reforms.
GDP Growth Rate at 2004–05 Prices
Source: Economic Survey 2011–12
Economic reforms have led to a decline in poverty ratios, though this decline has not been uniform. The data shows a marked drop in both rural and urban poverty rates in 1983–84, but the post-reform decline is not solely due to reforms.
During 1993–2000, poverty fell by nearly 10% in both sectors, showing satisfactory progress. However, in 2004–05, poverty rates rose again, suggesting ineffective poverty reduction strategies in certain phases of the reforms.
Some economists attribute the unimpressive decline in poverty during the post-reform period to stagnation in rural growth. The overall poverty scenario remains a matter of concern.
Percentage of Population Below Poverty Line
Source: Planning Commission website
Should India focus on accelerated growth or pursue inclusive but moderate growth? The interconnection between poverty, unemployment, and economic growth lies in the concept of interactive growth-employment dynamics.
If economic growth does not generate sufficient employment, it may result in under-employment or unemployment—a major driver of persistent poverty.
In essence: Acceleration in Growth + Quality Employment = Reduction in Poverty and Un/under-employment.
Despite a decline in population growth rate from 2.12% to 1.93% between 1994–2000, both labour force and employment declined during the same period—posing critical questions on the effectiveness of economic reforms.
Organised sector employment dropped from 1.20% in the pre-reform era to just 0.53% in the post-reform years, indicating a decline in employment quality.
However, the latest data reflects a more complex picture, as presented in the following table:
Growth of Population, Labour-Force, and Employment
Key Observations on employment trends during the post-reform period reveal structural concerns:
Between 1994–2000, both population and labour force growth rates declined. However, employment growth fell even more sharply, from 2.39% (1999–2005) to 1.71% (2004–2010).
This declining trend, though attributed to the stabilisation programme, is a major challenge in the era of globalisation—employment growth must at least remain stable to absorb rising labour force numbers.
During 1999–2004, employment growth was largely absorbed by the unorganised sector, as organised sector employment grew much more slowly.
In 2004–2010, however, there was a shift as many workers moved from unorganised to organised employment. This marks a turning point in sectoral labour dynamics.
Formal employment within the organised sector increased from 1.73% to 4.02%. The private sector outperformed the public sector in generating jobs, which is a positive development in terms of employment quality.
Unemployment rates rose from 4.5% (1983–1993/94) to 5.05% (1993/94–2004/05). This reflects a troubling shift—increased labour force participation without proportional job creation.
The labour force is impacted not only by population trends but also by factors like women returning to work, youth participation, and temporary workers.
Relationship between Sector and Type of Employment (UPSS)
Despite GDP growth, poverty did not decline significantly post-1991 reforms. This paradox is linked to the growth of informal sector employment, which dominated job creation.
By 2004–05, only 6% of total employment was in the organised sector. The slow formal job growth led to the informalisation of India's workforce, even within the organised sector.
Female workers were especially affected: 96% of female employment was in the informal sector compared to 91% for males. In urban areas, however, 65–70% of employment remained in the organised sector.
In a poor country like India, mere employment does not ensure a decent standard of living. In the effort to raise employment alongside labour force growth, the quality of employment often gets compromised.
Recent years have witnessed increasing scrutiny over the nature and quality of employment. Indicators used to assess employment quality include:
Between 1999–2005, there was a large increase in self-employment and a decline in casual labour. Of the 49.75 million additional workers, 83.7% became self-employed.
Among these:
Percentage distribution of workforce (UPSS) by employment status
Source: Report of MoL & E, NSSO surveys
In 1999–2000, while unemployment was 2.23%, 26.1% of the population was below the poverty line. This implies that 23.87% of the employed were working poor.
This low employment productivity stemmed from low education and skill levels among workers. The situation demands greater professionalisation in education and a strong link between education and employment.
Average daily wage (Rs.) for workers aged 15–59 in 2004–05
Casual workers earn less than regular workers in both rural and urban areas. Among them, female casual labourers face the most discrimination, especially in urban regions, where gender wage disparity is highest.