REFORMS DONE, JOBS AWAITED

India’s major economic reforms were spurred by a foreign exchange crisis. It was the summer of 1991 when foreign exchange reserves went to nearly zero. An emergency loan from the IMF was taken and a slew of reforms were initiated. Exchange rates, import duties and banking were deregulated, and foreign direct investment was permitted. The biggest bang reform was the end of the license raj in manufacturing and industrial production. Economic growth picked up and foreign investment poured in. The IMF loan was repaid in less than two years. The stock market and capital markets took off. Ten years later a second generation of reforms was unleashed in the telecom and power sectors. This too led to remarkable growth and dynamism. To this day we are reaping the harvest of the telecom revolution which is still unfolding.

- Ajit Ranade

The economy is now more than ten times bigger than in 1991. India is a software powerhouse in the world. But one big promise of the 1991 reforms remains unfulfilled. If the biggest bang was industrial delicensing, then we should have seen the manufacturing sector grow exponentially. It did grow but only at the same pace as the GDP. The share of manufacturing in India’s GDP is roughly the same in 2025 as in 1991, around 16 or 17%. The aspiration is to reach at least 25% of the GDP as per the National Manufacturing Policy, the Competitiveness Project and even Make in India. But manufacturing is stubbornly stuck and as a result industrial employment also has not taken off. The share of formal employment, i.e. those who are covered by a contract and get pension and health benefits is a stagnant share of the total workforce. For India to achieve higher levels of aggregate growth and jobs with higher productivity and wages it is essential that industrial jobs grow in a big way. We cannot achieve 8 or 9% growth without vigorous industrial growth.