Page 49 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 4: Economic Reforms in India Since 1991

7. Trend of Growth in Infrastructure Notes
The analysis reveals that in case of saleable steel and cement, the growth rates were higher in
the post-reform period than in the pre-reform period. In case of steel, the growth rate of
production increased by 8.1 per cent during 1993-94 and 2010-11 as against only 4.9 per cent in
the pre-reform period (1980-81 to 1990-91). Similarly, the growth of cement production also
indicated sharp increase by 8.3 per cent during 1993-94 to 2010-2011 as compared to only 4 per
cent in the pre-reform period. However, it should be pointed out that the momentum gained in
the post-reform period for acceleration in the production of cement was the consequence of
introduction of dual pricing in the case of cement introduced in 1982 with progressive reduction
in the percentage of controlled cement to eventually freeing cement prices from state control.
This led to massive increase in the cement capacity and output. Similarly, gradual easing of
steel price control was accepted by the Government in 1983. But all these measures were taken
in the pre-reform period, which helped to provide an environment to these industries to raise
their capacity and output without any bottlenecks.
However, other infrastructure Industries - electricity, coal and petroleum did not fare well in
the post-reform period. In the case of electricity, whereas in the eighties growth rate of generation
was of the order of 9.1 percent, it was just 5.5 percent in the post-reform period. Likewise, coal
production declined from 6.4 per cent in the eighties to just 4.0 per cent during 1993-94 to 2010-
11. In case of petroleum, growth rate dipped from 12.2 per cent in the eighties to just 1.5 per cent
during 1993-94 to 2010-2011. While the state withdrew from these sectors and did not undertake
investment in infrastructure, the private sector - Indian as well as foreign - failed to fill the
vacuum. Obviously, excessive dependence on private sector in the post-reform period did not
yield the much-trumpeted and desired results.
8. India’s Foreign Trade and Balance of Payments
Although policies of liberalisation in foreign trade were initiated in 1985-86 but their impact
though felt during the period 1986-87 to 1990-91 was slow and after 1991 the new economic
reforms went in for a more rapid globalisation of the Indian economy by reducing and/or
abolishing quantitative restrictions and also reducing tariff barriers which hindered trade. The
main implications of reform measures were intended to boost exports as well so as to facilitate
developmental imports or such imports, which were vital for increasing industrial production,
may be of some raw materials. It would, therefore, be appropriate to compare trend of foreign
trade in the pre-reform periods i.e. 1980-81 to 1990-91 (described as the eighties) and the period
1991-92 to 2004-2005 the post-reform period.
The Reserve Bank of India has revised the data of India’s balance of payments in dollar terms
recently. It would, therefore, be appropriate to review the position of foreign trade on the basis
of this updated information.
The decade has been divided into two sub-periods. During the first five years (1981-82 to 1985-
86), India achieved a growth rate of 2.3 per cent in exports, but in imports, the growth rate was
barely 2.0 per cent. India followed a restrictive import policy during this period. Consequently,
as against the average annual exports of $ 9,514 million, average annual imports were of the
order of $ 16,404 million. As a result, average trade deficit was $ 6,890 million. Since net invisibles
were positive, the surplus from this head on the average was $ 3,474 million. Thus, surplus
from invisibles was able to neutralize the trade deficit by 50.4 per cent. Consequently balance of
payment deficit on current account could be restricted to $ 3,416 million. During this period,
exports as a percentage of imports were only 58 per cent and thus, the situation was highly
unsatisfactory.
9. Foreign Investment
Data reveal that during the 16 year period, a total of US $ 136.5 billion was invested in India in
the form of foreign investment, out of which $ 72.09 billion (52.8 per cent of total) was in the
form of direct investment and $ 64.44 billion (47.2 per cent) was in the form of portfolio
investment. Segregated data reveal that direct investment flows remained subdued during 1991-
92 to 1994-95 and in this period portfolio investment accounted for a larger share, but in the

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