India reconnected with the global economy three decades ago. The Indian economy had begun to gather pace around 1980, after at least a decade of stagnation in living standards as economic growth barely kept pace with the rise in population.
The growth spurt was accompanied by tentative changes in fiscal, monetary, trade, tax, exchange rate and industrial policies in the 1980s. However, the policy reforms of that decade were within the boundaries of the earlier system of economic management. July 1991 saw India shift to a new paradigm under a minority government led by P.V. Narasimha Rao, whose centenary year begins this week.
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In his landmark budget speech on 24 July 1991, Manmohan Singh as finance minister said that the severe balance of payments crisis that had taken India close to international default earlier that year was not a temporary funding crunch, but the symptom of a deeper malaise. The underlying problems he identified included macroeconomic imbalances, low productivity of public sector investments, loopholes in the tax system, indiscriminate protection that had weakened the incentive to export, lack of domestic competition, a weak financial system that was not allocating capital efficiently, lack of access to the latest technology, and much more.
A web of interconnected reforms were launched to tackle these problems. Many debates on the impact of it have focused on the growth trajectory before and after the reforms. There is no denying that the average annual growth rate in the 1990s is no different from the momentum of the 1980s. India moved to a higher growth trajectory only after the year 2000, and continued on that path after 2010, despite an economic slowdown before the pandemic struck.
Critics use this record to argue that the impact of the 1991 reforms was overrated. A better way to examine the impact is not by looking at just the rate of economic growth, but also its sustainability. The initial growth spurt of the 1980s was not sustainable, and India ended the decade with a terrible balance of payments mess plus raging inflation. Economic growth since 1991 has been far more stable.
One simple indication of this is the external account. Independent India had a severe balance of payments crisis almost once every decade: 1957, 1966, 1981, 1990. There has been no comparable crisis over the past 30 years, despite a scare in 2013.
Economists with a structural bent of mind used to argue that Indian economic growth has been held back by four major structural constraints: domestic savings, foreign exchange, food and aggregate demand. What has happened to each of them over the past three decades?
The short answer: all four macroeconomic constraints have eased after 1991. The domestic savings rate to fund domestic investments has undoubtedly come down since the peak it hit in 2008, but is still almost eight percentage points higher than the average of the 1980s. The availability of foreign exchange is no longer a major worry, and the occasional balance of payments surpluses in recent years show that India receives more international savings that it can absorb.
The food constraint had already begun to ease after the Green Revolution. India now has excess food stocks as a buffer against sudden shocks to farm production, though this macroeconomic reality does not mean that every Indian household has food security. The aggregate demand constraint—or what was once called the home market problem— meant that there was not enough domestic demand for industrial goods because of high poverty levels. Rising incomes as well as exports have eased this as well.
This potted history of how the structural constraints have eased is not to suggest that they are no longer a worry. A more realistic view would be that they are no longer as dominant as before, and the 1991 reforms played a big part in loosening these structural constraints that had dominated Indian economic thinking for many decades.
In fact, there are newer structural constraints on the horizon. The health and education crises during the pandemic have underlined inadequate investments in human capital. India still does not have adequate state capacity and regulatory capacity for a $3 trillion economy. And ecological stress as well as climate change will create new forms of constraints on sustainable economic growth. A new set of policy responses will be needed.
The implicit goal of the 1991 economic reforms was to create a new economy that had learned the right lessons from the success stories of East Asia. “Our longer-term objective is to evolve a pattern of production which is labour-intensive and generates larger employment opportunities in productive, high-income jobs, and reduces the disparities in income and wealth between rural and urban areas,” Manmohan Singh had said in his 1992 budget speech.
That transformation remains incomplete. In fact, the inability to generate enough jobs in formal enterprises has led to the proliferation of informal employment on the one hand and political pressure to use fiscal resources for subsidies or income support rather than on the creation of public goods. It is now worth repeating a question that this has been asked before: Is India moving in the direction of Latin America rather than East Asia?
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- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)