Table shows the growth of various components of GDP. During 1980-81 to 1990-91, annual average GDP growth was 5.6%. In the post-reform period, this increased to 7.6% in 2001–12, from 5.7% during 1991–2001.
The growth in agriculture declined from 3.7% in the pre-reform era to 2.9% during 1991–2012, reflecting stagnation in the agriculture sector during reforms. This is attributed to reduced gross capital formation in agriculture, especially public investment, which fell from 6.42% in 1993-94 to 7.79%. This adversely impacted foodgrain production and showed that Green Revolution benefits were uneven.
Sectoral highlights:
GDP at factor cost consistently improved during the post-reform decades, showing overall economic growth even though agriculture lagged behind.
One key reform goal was to attract industrial investment. Measures like abolition of industrial licensing were introduced to liberalize industrial growth. However, the Index of Industrial Production (IIP) grew at 7.8% in 1980–1991 but declined to 5.8% during 1993–2003, indicating a slowdown post-reforms.
One of the major goals of economic reforms was to boost exports and improve the Balance of Trade. From 1991-92 to 1995-96, exports grew from $18,266 million to $32,311 million (11.8% growth), and imports from $21,064 million to $43,670 million (9.3% growth).
The annual average trade deficit was $6,542 million, but net invisibles (mainly services) offset 53.7% of it, keeping the balance of payments deficit at $3,028 million.
During 2005–06 to 2009–10, exports increased from $1,05,152 million to $2,50,468 million. However, imports also rose significantly from $1,57,056 million to $3,81,061 million, resulting in a trade deficit of $1,30,593 million in 2010–11.
Yet, net invisibles—dominated by software exports—reached $84,648 million, wiping out 77% of the trade deficit. The annual average BoP deficit stood at $45,945 million.
Export promotion was largely nullified by import growth. Unlike China, India has failed to maintain a positive trade balance. However, net invisibles—mainly from software and services—continue to significantly mitigate the impact of trade deficits, making them a crucial pillar in India's balance of payments strategy.
A major objective of economic reforms was to increase foreign investment, which helps to increase capital formation in the economy without creating foreign debt. Foreign investment flows take two main forms — Foreign Direct Investment (FDI) and Portfolio Investment (PI).
Foreign direct investment has been increasing gradually from just $97 million in 1990-91 to $8,901 million in 2005-06 and further to $12,585 million in 2010-11. In contrast, foreign portfolio investment, generally considered hot money, is prone to fluctuations depending on the economic environment. It was only $6 million in 1990-91, rose to $12,494 million in 2005-06, then went down to a net –$13,854 million, before rising again to $32,376 million. Such sharp fluctuations make portfolio investment an unreliable source of foreign funds, as it is related to the international climate.
| Year | Direct Investment | Portfolio Investment | Total |
|---|---|---|---|
| 1990-91 | 97 | 6 | |
| 2000-01 | 103 | 4031 | 2760 |
| 2005-06 | 5862 | 8901 | |
| 2006-07 | 12494 | 22739 | 7004 |
| 2007-08 | 14753 | 34728 | 27270 |
| 2008-09 | 43326 | 37672 | -13854 |
| 2009-10 | 5785 | 33124 | 32376 |
| 2010-11 | 51167 | 12585 | 23904 |
| Total (2005-06 to 2010-11) | 29137 | 149749 (93.77%) | 89194 (6.33%) |
| 159,696 (100.00%) | |||
An important objective of economic reforms was to reduce regional disparities. The government has been supporting backward states with higher allocations to reduce these disparities. However, generally, bigger and relatively more developed states attract more investments.
Data in Table shows that the Net State Domestic Product (NSDP) growth rate in forward states was 6% per annum during 1990-91 to 2000-01, while backward states grew only at 1.4% per annum, indicating increased regional disparities.
From 2000-01 to 2008-09, backward states showed a U-turn in growth. During 2004-05 to 2008-09, backward states achieved an average growth rate of 8%, with Orissa reporting the highest at 17.53%, surpassing any forward state. Forward states’ growth declined to 4.54% during 2000-01 to 2003-04 but then doubled to 8.42% per annum during 2004-05 to 2008-09.
| States | 1990-91 to 2000-01 | 2000-01 to 2003-04 | 2004-05 to 2008-09 |
|---|---|---|---|
| Forward States | 6 | 4.54 | 8.42 |
| Punjab | 4.7 | 0.86 | 10.01 |
| Haryana | 4.6 | 6.45 | 7.52 |
| Maharashtra | 6.2 | 1.35 | 9.24 |
| Gujarat | 5.7 | 3.95 | 12.65 |
| Tamil Nadu | 6.0 | 1.97 | 7.25 |
| Andhra Pradesh | 5.3 | 5.62 | 6.61 |
| Kerala | 5.7 | 2.32 | 6.18 |
| Karnataka | 7.6 | 8.84 | 8.32 |
| West Bengal | 6.7 | 6.01 | 3.39 |
| Chhattisgarh | 8.10 | 13.03 | |
| Backward States | 1.4 | 1.04 | 8 |
| Rajasthan | 4.1 | –0.93 | 7.79 |
| Madhya Pradesh | –1.0 | –4.40 | 6.73 |
| Assam | 2.3 | 7.37 | 3.61 |
| Uttar Pradesh | 2.4 | 2.67 | 6.54 |
| Bihar | –3.1 | –4.77 | 5.8 |
| Orissa | 3.3 | 6.34 | 17.53 |
| All India | 5.5 | 5.63 | 8.54 |
The data reveals that the economic growth rate accelerated during 2004-05 to 2008-09 all over India, improving the all-India NSDP from 5.5% in 1990-2000 to 8.54% per annum during 2004-2009.
The impact of growth and economic reforms on human development is worth examining as it reflects the actual benefits reaching the grass-root level. Human development can be assessed through key social indicators relating to education and health.
Literacy rate is considered a good indicator of human development in terms of education. For health, the indicators used are life expectancy, infant mortality, birth and death rates, sex ratio, etc.
A review of data from various reports by agencies such as the UN, World Bank, Asian Development Bank, Government of India, and various domestic and international NGOs, along with primary data from research institutions, universities, and corporate bodies, shows an unmistakable and encouraging improvement on these counts over the last two decades.
Though growth may not be uniform throughout the country, it is clearly evident. Moreover, the data indicates it is possible to achieve higher levels of human development even with relatively lower levels of economic development, as demonstrated by Kerala and Tamil Nadu.
Among backward states, Bihar has shown considerable improvement in literacy rates, increasing from 47.5% total literacy in 2001 to 63.82% in 2011. Other backward states have also marginally improved literacy by 5-6% in the past decade.
Incidentally, even among forward states like Haryana, Andhra Pradesh, and Karnataka, the female literacy rate remains relatively poor.
Most backward states have a poor record in health indicators as well. Even among forward states, Haryana shows a poor record in terms of infant mortality and sex ratio (number of females per 1000 males), despite ranking 5th in NSDP.
Kerala represents a case where a relatively lower level of economic development has accompanied a high level of human development. The sex ratio in Kerala (1,084 females per 1000 males) is highly appreciable.
Even Orissa has a commendable sex ratio of 978 females per 1000 males, considering its lower literacy rate, life expectancy, and NSDP.