Appraisal of LPG policies

The essentials

The reforms since 1991 have both supporters and critics. Supporters point to faster growth, higher foreign investment and larger foreign exchange reserves; critics argue that growth has been uneven and has not created enough good-quality jobs. A balanced appraisal looks at each sector.

Key points

• Growth and composition: GDP growth rose after the reforms, driven mainly by the services sector. Agriculture grew slowly, and industry's growth fluctuated.
• Foreign investment and reserves: foreign direct investment and portfolio investment rose, and foreign exchange reserves increased greatly from their 1991 low.
• Exports: India became a notable exporter of IT and software services, and of goods such as auto parts and engineering goods.
• Agriculture: critics say public investment in agricultural infrastructure such as irrigation, power, roads and research fell; cuts in fertiliser subsidy raised costs; and the move from food crops to export-oriented cash crops raised food prices and risks for small farmers. Lower import duties also exposed farmers to international competition.
• Industry: cheaper imports and competition from foreign firms hurt some domestic units, especially small ones; poor infrastructure such as power remained a constraint.
• Disinvestment: critics argue that public sector assets were sometimes sold below their value, and that the money was used to meet revenue shortfalls rather than for development.
• Fiscal policy: tax cuts were meant to increase compliance, but tax revenue did not always rise as expected, limiting public spending on welfare.
• Employment: growth has been called "jobless growth" by some economists, because employment did not rise in step with output.

Exam tips

Learn two arguments in favour and two against for each sector; assertion–reason questions often pair a reform with its claimed effect.

Common mistakes

• Claiming that agriculture led post-reform growth; services did.