During the first three decades after Independence, the Indian economy stagnated around a trend rate of growth of 3.5 per cent, popularly known as the Hindu rate of growth. The scenario changed during the 1980s. The acceleration of growth during the 1980s to 5.6 per cent put the economy on to a higher growth path. However, the growth process of the 1980s turned out increasingly unsustainable as manifested in the growing macroeconomic imbalances over the decade in the form of high fiscal deficit, high levels of current account deficit, and increasing levels of external debt, besides a repressive and weakening financial system. Continuing macroeconomic imbalance and delay in taking corrective action accentuated the impact of global economic shock of 1990. A large and growing fiscal deficit with a sizeable component of monetised deficit, resulted in pressures on money supply and inflation. These imbalances, in turn, spilled over to the external sector in the form of a large and unsustainable current account deficit – giving rise to sizeable public debt, both domestic and external. All these culminated in an unprecedented external payments crisis in 1991. Economic growth fell to such a low level in 1991-92 that real per capita income declined for the first time since 1979-80. The improved growth performance of the 1980s was, thus, shortlived.
In response to the macroeconomic crisis, a programme of stabilisation and structural adjustment was initiated in July 1991, with wide ranging reform measures encompassing the areas of trade, exchange rate management, industry, public finance and financial sector. Fiscal correction, exchange rate adjustment, monetary targets and inflation controls constituted the immediate measures for macroeconomic stability. These measures were supported by structural reforms in the form of industrial deregulation, liberalisation of foreign direct investment, trade liberalisation, overhauling of public enterprises and financial sector reforms. Apart from aiming at restoring the economic stability on both domestic and external fronts, the economic reform programme strived towards achieving a higher growth trajectory through increased levels of investment, and improvements in productivity, efficiency and competitiveness. Thus, the reform process has since encompassed all areas of the economy.
As a result of such wide-ranging reforms, India is no longer an economy of scarcity today. Shortages and rationing of essential goods and materials are now memories of the past. The country is now grappling with mounting surpluses of food stocks and foreign exchange reserves. As in August 2003, the quantum of food stock at 27.8 million tonnes remained higher than the buffer stock norm of 24.3 million tonnes.
All these have been reflected in a relatively high rate of economic growth over the decade of the 1990s. Indeed, during 1994-95 to 1996-97, the growth rate of GDP averaged as much as 7.5 per cent per annum. This was the only period in India’s economic history when the GDP growth exceeded 7.0 per cent consecutively over a period of three years. The sharp acceleration in the rate of growth of overall GDP was largely the result of the phenomenal growth of 10.8 per cent per annum in the industrial sector as an offshoot of the unshackling process. Such resounding achievements have no doubt worked towards setting an ambitious target of eight per cent growth during the 10th Plan period (2002- 07). For the first time in the country’s economic history, there is resurgence in confidence and increasing realisation that the Indian economy can as well grow at its potential.
The resurgence in growth and its increasing resilience was reflected in the social sector too. The poverty ratio declined dramatically to 26.1 per cent in 1999-00 from 36 per cent in 1993-94 and 44.5 in 1983. The literacy rate improved sharply to 65.4 per cent in 2001 from 52.2 per cent in 1991 and 43.6 per cent in 1981. The male-female literacy gap also witnessed a decline to 21.7 per cent in 2001. There was continued improvement in the health scenario. Life expectancy at birth improved. The crude birth rate, crude death rate, maternal mortality rate and infant mortality rate declined.
A more disquieting development in this regard is that the surge in fiscal slippage has been accompanied by a dwindling share of outlay on key social sectors like education, health and social safety nets as a proportion of the total expenditure of governments – centre and states. While the total expenditure of combined central and state governments has increased by 2.8 per cent of GDP in 2002-03 over 1990-91, the same for the provision of social services has gone up by a mere 0.8 per cent of GDP during the same period. As a result, the combined total expenditure on social services turned out to be 6.2 per cent of GDP in 2002-03, which is far lower than the pre-reform level of over 7 per cent, in general. Even though the Kothari Commission had long back underlined the need for enhancing the allocation on education to 6 per cent of GDP, actual expenditure in 2002-03 turned out to be 3.1 per cent of GDP, the same level as in 1990-91. This has been the picture even in progressive States like Andhra Pradesh (2.7 per cent of gross state domestic product (GSDP)) and Maharashtra (3.6 per cent of GSDP) in 2000-01. Similar has been the case on the health front with the share of allocated expenditure lying within a range of 1-1.4 per cent of GDP during 1990-91 through 2002-03. Once again, expenditure on health turned out to be a poor 0.7 per cent of GSDP for Andhra Pradesh and 0.5 per cent for Maharashtra in 2000-01.
Despite the significant gains made during the post reforms period, attaining the status of a developed nation remains a far distant dream. Indeed, soon after the spectacular performance during 1994-97, the economy has settled for a long drawn slowdown with intermittent signs of recovery. The loss of momentum in reforms following the initial flurry could have possibly triggered off the emergent deceleration. However, for a more fundamental reason, we may possibly have to look out elsewhere in view of similar encounter even in the 1980s preceded by a long entrenched phase of Hindu rate of growth. In this context, the socio-economic dynamics of the country could throw up some clue to the understanding of the halting recovery of the growth process. Towards this direction, let us take a fresh look at the social sector attainments once again.
While there has been considerable decline in the poverty ratio during the 1990s, India continues to have the dubious distinction of the largest number of people below the poverty line in the world. At a poverty ratio of 26.1 per cent, it translates into a staggering headcount of about 260.3 millions of people. Besides, wide inter-state disparities are visible in the poverty ratios across rural and urban areas as also in the rates of decline of poverty.
Performance in the field of education, arguably the cornerstone of social attainments, remains one of the most disappointing aspects of India’s development experience. Out of approximately 200 million children in the age group of 6-14 years, only 120 million go to school and net attendance in the primary level remains only 66 per cent of enrolment. Even though the male-female literacy gap witnessed a decline since the 1980s, at 21.7 per cent in 2001 it continues to be pretty large. Besides, the gross enrolment ratio in respect of elementary education deteriorated to 81.6 per cent during 2000-01 from 87.7 per cent in 1991-92.