In 1991, when the foreign exchange reserves had reduced to such an extent that India could barely finance three weeks’ worth of imports. Economic reforms were introduced in Indian economy. Before 1991, India was closed for foreign companies. It was a period very much known as License Raj. During this period, up to 80 agencies had to be satisfied before a firm could be granted a license to produce and the state would decide what was produced, how much, at what price and what sources of capital were used. The government also prevented firms from knocking off workers or closing factories. Indian economic policy was influenced by the colonial experience. There was monopoly in many sectors by state owned enterprises. This was the period which encouraged the corruption and red tape system in India. The annual growth rate for India during 1950 – 1980 was around 3.5 % compared to 9 % in 2009.
During the national economic crisis of 1991, when India was on the verge of Bankrupt, Government of India decided to bring up several economic reforms. Then PM, Mr. Narshimha Rao, appointed Manmohan Singh as a special economic adviser to implement the reforms. These reforms were mainly focused on liberalizing foreign investment and privatization of loss incurring government corporations. Some latest results have revealed that the scope and pattern of these reforms in India’s foreign investment and external trade sectors followed the Chinese experience with external economic reforms.
The impact of these reforms were seen in just few years as the total foreign investment in India grew from a infinitesimal US $132 million in 1991-92 to $5.3 billion in 1995-96. In initial years of reform, 1991–1992, poverty increased in India slightly. But, later on number of people below poverty line decreased. And, a steep declined in number of person below poverty line in between 1993 to 1998 was seen. Currently, number of middle class in India is expected to be 300 million, which is expected to double by 2025 to 600 million. It is sure that as the economy of India will boom, new millionaire and billionaire will join the list. There will be new addition in the upper class list, mostly coming out of present middle class. Also, the 300 million new middle class people must come from non-other than lower class or poor people list. These trends are taken from the last 5-10 years data. So, the poor are quickly transforming in middle class with increase in their earnings. This shows that the impact of economic reform is helping poor to convert them into middle class. So, impact of economic reforms has not been that poor people have become poorer. But, yeah rich people have become richer.
With revolution in many sectors in India, GDP of India has showed a tremendous growth. Telecom sector is very much saturated in metropolitan and many urban cities. Now, new companies are aiming at rural area with immense network of towers coming around rural sectors. Obviously, this is going to strengthen rural economy. Till now, urban economy has played a major role in economic progress of India after the reforms. However, with improving the network of roads in rural areas and good communication, our villages are going to see sure success. This all is going to help the poor.