Introduction

Worth keeping in mind while reading a chapter that is, on the surface, mostly about growth numbers and reform statistics.

After independence India chose a mixed economy, trying to blend the strengths of capitalism with those of socialism. Over the following decades this produced a dense web of rules and controls, and opinions on its results are divided. Critics say these regulations ended up obstructing growth rather than guiding it. Defenders point out that a country which began close to economic stagnation went on to raise its savings, build a diversified industrial base that turns out many kinds of goods, and steadily expand farm output enough to secure the nation's food.

Matters came to a head in 1991, when India ran into a severe crisis over its external debt. The government could no longer keep up repayments on the money it had borrowed abroad. Its foreign exchange reserves — normally held to pay for imports such as petroleum and other essentials — fell so low that they could not have covered even a fortnight's needs. On top of this, the prices of everyday necessities were climbing sharply.

This emergency pushed the government to adopt a fresh set of policy measures that redirected the whole strategy of development. The chapter goes on to examine four things: the background that led to the 1991 crisis, the mechanism through which the reform measures were actually introduced, the process of globalisation and what it has meant for India, and how all of this affected the different sectors of the economy.