ABSTRACT
India has had the second fastest-growing emerging economy in the world since the 1990s. This sterling growth performance for a large democratic developing country is welcome news not only for its people but also for the South Asia region. According to the conventional view, the sources of India’s recent acceleration of economic growth may be traced to policy reforms at the beginning of the 1990s under the government of Prime Minister P.V. Narasimha Rao. His government liberalized the economy by eliminating import controls and reducing custom duties, devaluing the currency, eliminating controls on private investment, and breaking the public-sector business monopoly of the key industries. However, a careful review of growth performance in earlier decades, based on the analytical narratives of economic growth, revealed that it was actually the “transitional policy reforms,” introduced immediately before 1985 by the government of Rajiv Gandhi, that created the first major growth surge in India (De Long 2003). These earlier policy reforms produced a structural break in the growth trend rate in 1985 by adding almost three percentage points to the growth rate per year because of their high benefits to costs ratio, or strategic value. During his administration, economic liberalization and policy reforms became ideologically acceptable for the first time. Another achievement of his government was that a few competent industry executives were appointed as cabinet ministers. Nevertheless, it is reasonable to accept the viewpoint that the second wave of reforms of the early 1990s solidified and sustained the country’s earlier growth acceleration of the 1980s and improved the country’s growth rate by more than one percentage point.
