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17 Jul 2025
GS Paper 3
Economy
Day 28: "Liberalization is often described as the loosening of economic shackles." Critically examine how liberalization since 1991 has transformed the structure of the Indian economy. (150 words)
Approach :
- Start with a definition of liberalization.
- Discuss some of the positive structural transformations post-1991.
- Highlight some of the limitations and challenges.
- Conclude with a suitable way forward.
Introduction:
Liberalization, initiated in 1991, marked a paradigm shift in India’s economic policy, moving away from a heavily regulated, inward-looking economy towards market orientation and global integration. The "loosening of economic shackles" reflects the dismantling of the License-Permit-Quota Raj, allowing greater private sector and foreign participation. While the reforms unshackled economic potential, their structural impact has been both transformative and uneven.
Body:
Structural Transformations Post-1991
- Sectoral Shift in GDP Composition:
- The services sector surged from 41% of GDP in 1990-91 to over 54% in 2022-23, driven by IT, telecom, and financial services.
- Industry’s share remained around 25-28%, while agriculture declined to ~17%, highlighting a shift from a primary to a tertiary economy.
- Trade and Investment Liberalization:
- Export-to-GDP ratio rose from 7% in 1991 to over 20% by 2012 (World Bank).
- FDI inflows grew from $74 million in 1991 to $85 billion in 2021–22, fueling sectors like automobiles, pharma, and infrastructure.
- Rise of the Private Sector:
- PSU dominance reduced; private players entered telecom (e.g., Jio), aviation (IndiGo), and banking (HDFC, ICICI).
- Emergence of global firms like Infosys, Wipro, and Tata Consultancy Services.
- Financial Market Reforms:
- Establishment of SEBI and NSE, deepening capital markets.
- Banking reforms led to deregulated interest rates and improved financial inclusion (e.g., PM Jan Dhan Yojana with 50+ crore accounts).
Structural Limitations and Challenges
- Jobless Growth
- Services growth has not generated proportional employment. Manufacturing, stagnant at ~16-17% of GDP, failed to absorb surplus labor from agriculture.
- Regional and Income Inequality
- Economic Survey (2021-22) noted a widening rural-urban divide and inter-state disparities.
- Oxfam Report (2023): Top 10% own over 77% of national wealth, reflecting uneven gains from liberalization.
- Agricultural Exclusion
- Agriculture was left largely unreformed, contributing to farmer distress and rural stagnation.
- Environmental Degradation
- Rapid industrialization and urbanization without adequate regulation has led to rising pollution and resource depletion.
Conclusion:
As Joseph Stiglitz rightly observed, “Markets, by themselves, often lead to inequality and inefficiency—what matters is how they are governed.” Going forward, the challenge lies in balancing market efficiency with social justice, ensuring that economic freedom is equitably shared across regions, sectors, and communities.
