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Bill Gates has famously said that humans overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.

He was talking about technological change. It is perhaps the opposite when it comes to our reactions to economic change. We overestimate the economic problems over the next two years but underestimate economic progress over a decade.

This is a lesson worth remembering as India completes 25 years since the radical economic reforms of 1991. P.V. Narasimha Rao became prime minister this week a quarter of a century ago. He inherited not just an economy on the verge of collapse but also a broken policy framework. Rao was the industries minister who dismantled the perverse licence raj. Manmohan Singh as his inspired finance minister pushed through a complete reforms package where each part complemented the other. C. Rangarajan at the Reserve Bank of India played an outstanding role as well.

The intellectual rigour that went into the 1991 reforms package has served India well. The country has seen several angry debates through the years. And some ignorant ones as well. However, every political formation voted to power has followed the road that the 1991 reform team laid out.

There are several important nuances in what can be called the New Delhi consensus. India opened its tradables market faster than its market for non-tradables. It reduced controls in the goods markets before the liberalization of factor markets. The current account was made convertible early on, but the move towards capital account convertibility has been very careful. Equity inflows of global capital have been given preference over debt inflows. Monetary policy has been eclectic. Fiscal policy has been sensitive to political realities. Montek Singh Ahluwalia has explained the gradualism with perceptive wit: India has a strong consensus on weak reforms.

The intellectual rigour that created an internally consistent reforms programme is not adequately appreciated. It was never about a set of unrelated policy changes to play to the galleries. Every move was coordinated with the others. And anyone who has seriously read the intense Indian policy debates since the late 1970s can see through the canard that the reforms were just forced down our throats by the International Monetary Fund. This is not to say that more could not have been done over the years. The relative lack of reforms during the United Progressive Alliance regime is a case in point, curiously with many members of the original reforms team at the helm.

Just take a look at how some other recent development models have fared. The shock therapy that was tried out in the former communist bloc almost led to economic collapse. The Washington Consensus is now under attack on its home ground. Latin American socialism is in crisis as is evident to anybody following the news from Bolivia. Soviet planning has been buried long ago. The New Delhi consensus has stood the test of time. Policymakers in China are perhaps the only comparable lot.

The resultant economic performance is well known. The size of the Indian economy has shot up from $274 billion in 1991 to an estimated $2.3 trillion in 2016. Average incomes have gone up from $318 to $1,747. A simple straight line extrapolation—admittedly a bad way to look into the future—suggests that the average Indian income will be $9,600 over the next 25 years. That is broadly the level at which absolute poverty will be history.

None of this is to deny the failures of the 1991 reforms. Inequality has increased. Many social indicators are still scandalous. Perhaps the most serious failing has been the inability to create adequate jobs in the modern sector to absorb the surplus labour in agriculture. However, economic nationalists should see that India is now no longer dependent on foreign aid for its survival, our growing geopolitical heft is derived from sustained economic expansion and there is enough foreign exchange in the official kitty as insurance against global shocks.

The steady growth of the Indian economy in a volatile world is no accident. It can be traced back to the carefully crafted reforms programme of 1991—covering industrial delicensing, financial sector reforms, fiscal policy changes, trade reforms, market determined interest rates, a flexible exchange rate and much more. A lot of the credit for the longevity of the New Delhi consensus should be given to the original reforms team. The next 25 years will also require similar careful thinking based on economic insight combined with political realism.

A lot of attention is naturally lavished on our immediate economic problems. However, many forget how far India ahead has moved since 1991. The team of economists who designed the reforms programme did a stellar job. But even they will agree that nothing would have been possible without the political cover provided to them by the prime minister of the day—Narasimha Rao.

Niranjan Rajadhyaksha is executive editor of Mint. Comments are welcome at

To read Niranjan Rajadhyaksha’s previous columns, go to www.livemint.com/cafeeconomics

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