India: then and now

India’s tryst with economic freedoms began in the early 1990s, but it is a promise that has been fulfilled only in part. While the average Indian may be better off, only a few benefited tremendously

Vivek Kaul
Published21 Jan 2021, 11:56 PM IST
The burst of reforms of 1991 made it easier to do business in India—foreign companies were allowed into different sectors and private Indian companies also flourished Art: The Tourists by Nayanaa Kanodia, mixed media on paper
The burst of reforms of 1991 made it easier to do business in India—foreign companies were allowed into different sectors and private Indian companies also flourished Art: The Tourists by Nayanaa Kanodia, mixed media on paper (Courtesy: Nayanaa Kanodia/Gallery Veda)

It was late in the evening and I was sitting and watching the 1977 Hindi film Gharonda (meaning “small house”), a timeless saga about the trouble with aspiring to own a home in one of the most crowded cities on earth—Mumbai.

The song Ek akela is shehar main (single and alone in the city) from the movie was playing on the screen. Some 2 minutes and 50 seconds into the song, there is a shot of Mumbai’s famous Marine Drive full of Premier Padmini and Ambassador cars.

Before any nostalgia could set in, my 17-year-old niece, who had been busy Snapchatting on her phone, was looking at the TV screen all excited. “Oh, all those cars are so similar to that old car in the garage.”

She was referring to the parrot green Ambassador car which my father for emotional and nostalgic reasons had never been able to sell.

“Yes, it’s called the Ambassador,” I said.

“What a silly name for a car,” she retorted.

“Back then, one had a choice of just two cars,” I said, pausing the song.

“Just two cars?”

“Yes. You could buy the Ambassador or the Premier Padmini, until Maruti Suzuki came along in the mid-1980s.”

“In a way, it was good na? Remember, last time Ma wanted to buy a car, she had this huge FOMO and dragged us along to check out every possible model,” she said. “But tell me something, why were there only two car models available?”

“Because of the licence raj.”

“Licence raj? That sounds like the name of an old Mithun Chakraborty movie,” she replied, having recently discovered the cult of the Disco Dancer.

“The term refers to the control that the government had over businesses in India. Government bureaucrats decided what businesses could produce and how much they could produce. So, two companies had the licence to manufacture cars.”

“Oh.”

“And because there was a quota on the number of units that could be manufactured in a given year, there was a perpetual shortage. Hence, second-hand cars and two-wheelers were more expensive than newer ones because there was no waiting period.”

“That’s crazy.”

“In fact, the government itself manufactured a lot of products.”

“Really?”

I looked around the room for an apt example. “Let’s start with the TV.”

“TV?” she asked.

“There were TVs with brand names like Uptron, Keltron and Beltron, manufactured by companies owned by the state governments of Uttar Pradesh, Kerala and Bihar.”

“Really? And?”

“The government sold Modern bread and Double 7 colas. It also sold Allwyn refrigerators and HMT watches.”

“But what changed all this?” she asked.

“Thirty years ago, the summer of 1991 happened,” I replied. “P.V. Narasimha Rao and his cabinet were sworn in to govern the country on 21 June. He soon realized that India was bankrupt. In fact, earlier that year, we had taken a $2.2 billion emergency loan from the IMF. This loan was made against a part of our gold reserves which had to been flown to London. Also, foreign exchange reserves were down to just two weeks of imports.”

“Oh, we pawned our gold? Really desperate,” she said.

“Indeed. The only way to get out of this was to get rid of the licence raj and bring in economic reforms. This is what happened when the then finance minister, Manmohan Singh, presented the annual budget on 24 July 1991. He ended his speech by saying, ‘No power on earth can stop an idea whose time has come’.”

“And has he been proven right?” she asked.

“Yes. It became easier to do business in India. Foreign companies were allowed into different sectors. Private Indian companies also flourished. In the 1990s, new banking licences were given to the private sector after many years. All this helped to create jobs and economic growth. The average rate of growth between 1951-52 and 1990-91 had stood at 4.2% per year. Since then, growth has averaged a significantly higher 6.3% per year.”

“So things have improved,” she said.

“Let me give you an example. In 1980, India had around 2.5 million landline phones, all concentrated in cities. By October 2020, mobile phone connections had touched 1.15 billion. Access to the internet is available at rock-bottom rates. This is purely an achievement of India’s private sector.”

“Almost everyone has a mobile phone now,” she said.

“Did you know that when mobile phones were first launched in the mid-90s, even an incoming call used to cost 16 per minute?”

“And now, they are practically free!” she exclaimed.

“They are. The number of passenger cars sold in 1991-92 was around 150,000 units. In FY2020, 1.7 million units were sold. That’s a 10-fold expansion. That many more Indians can afford a car each year these days.”

“What about two-wheelers?” she asked.

“In FY2000, 3.7 million two-wheelers were sold. In FY2020, the number stood at 17.4 million. Further, most Indians in 1991 had access to only one TV channel, the government-owned Doordarshan. People in the bigger cities could also see DD Metro.”

“Now, we have 257 channels, OTT streaming platforms and the internet, and nothing interesting is on,” she said sarcastically.

“All of this reflects better purchasing power as incomes have gone up. For the well-to-do section, the fact that income tax rates came down from 50% in the 1990s to around 30% now has helped. The per capita annual income was 29,686 in 1991. This has since improved to around 1.09 lakh in 2019-20.”

“What you are saying is the average income of an Indian has gone up. But does that mean that the income of an average Indian has also gone up at the same pace?” she asked.

“Good point. If Mr Ambani were to walk into this room right now, the average income of the room would go up without your income or my income changing. That’s the trouble with averages,” I explained.

“What do you mean?”

“In 1991, 62.6% of India’s workers were in agriculture and farm output formed 31.3% of the overall economy. Now, around 41.5% of the total employment is in agriculture and it forms around 15% of the overall economy.”

“So?”

“There are more people still dependent on agriculture than what is economically feasible. So the benefits of reforms haven’t reached a large section. The average Indian is better off but hasn’t benefited as much as a few have. And some benefited tremendously.”

“Clearly, there is a problem.”

“Also, what hasn’t helped is the fact that India hasn’t improved enough on many social indicators. Even a country like Bangladesh has done better than India on some counts.”

“So tell me, where do we go from here?” she asked.

“For more jobs and economic growth, India needs another burst of economic reforms—like what we saw in July 1991. Also, we need to make sure that our real estate and construction sectors operate well, because it can create lots of low- and semi-skilled jobs.”

By the time I finished answering the question, she was ready to leave.

“Okay, gotta bounce,” she said. “My new Zoom buddy is calling.”

“Oh. Is he the one who was trying to slide into your Twitter DMs last week?” I asked.

“Okay, Boomer!” she said and walked away.

Vivek Kaul is the author of Bad Money.


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First Published:21 Jan 2021, 11:56 PM IST
Business NewsNewsIndiaIndia: then and now

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