It is the Reforms, Stupid!
Guest column for a special issue of Outlook, December 17, 2001. Is the Indian economy as immune to the current slowdown in the global economy as some press reports and commentaries suggest? And should we be thanking our policy makers for holding back reforms, rapidly approaching inaction, to bring about the presumed stability?
Abstract:
Is the Indian economy as immune to the current slowdown in the global economy as some press reports and commentaries suggest? And should we be thanking our policy-makers for holding back reforms, rapidly approaching inaction, for the presumed stability? To be sure, for a long time, the Indian economy was totally insulated to booms and busts in the external markets. These were the dark days of autarkic trade policies when virtually all imports were subject to strict licencing and virtually no link between external and internal prices existed. These were also the days when growth rates in real per capita income failed to cross the 2 per cent mark over any continuous five-year period save 1974-79.
Thanks to the partial opening of the economy, we are no longer completely isolated from the good (and bad) things that happen in the world markets. Make no mistake: we are still the most protected emerging-market economy. Nevertheless, the protective wall is now made of tariffs rather than licencing, which allows some bonding of internal and external markets.