Dismantled import controls lowered customs duties and

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dismantled import controls, lowered customs duties, and devalued thecurrency… virtually abolished licensing controls on private investment,dropped tax rates, and broke public sector monopolies…. We felt as thoughour second independence had arrived: we were going to be free from arapacious and domineering state…"Among those who have ventured to attribute the acceleration in growth in the1980s to liberalization are Desai (1999), Pursell (1992), and Virmani (1997). Desaifocuses on liberalization in the industry and industrial growth and Pursell on tradeliberalization in the 1980s. I draw on their work later, particularly the latter. Thediscussion in Virmani is brief but he attributes the shift in the growth rate in the 1980svirtually entirely to liberalization. Moreover, he views the liberalization measuresduring the 1980s and 1990s as “subphases” of an overall phase. In contrast, the viewmany reform-minded economists, especially from India including the author, have advocatedcaution in this area.5Specifically, Joshi and Little (1994, p. 190) note, “It appears that "Keynesian" expansion,reflected in large fiscal deficits, was a major cause of fast growth.” In personal
correspondence, Vijay Joshi has recently changed his mind, however. Commenting on anearlier draft of this paper, he writes, “Joshi and Little did point to the importance of themildly liberalizing reforms in the 1980s but in retrospect we should have put greater stress onthem exactly as you have done.”- 7 -taken here is that the liberalization in the 1980s served as the necessary groundworkfor the more systemic and systematic reforms of the 1990s. The 1990s reforms werequalitatively different from those in the 1980s in that they represented a broadacceptance of the idea that entrepreneurs and markets were to be given priority overgovernment in the conduct of economic activity and that government interventionsrequired proper justification rather accepted by default.The main conclusions of this paper can be summarized as follows:Growth during the 1980s was higher than in the preceding decades but fragile. It notonly culminated in a crisis in June 1991 but also exhibited significantly highervariance than growth in the 1990s. Central to the high growth rate in the 1980s wasthe super high growth of 7.6 percent during 1988–91. Absent this growth, the averagegrowth in the 1980s would be significantly lower than in the 1990s.The fragile but faster growth during the 1980s took place in the context of significantreforms throughout the decade but especially starting in 1985. While thisliberalization was ad hoc and implemented quietly (“reforms by stealth” is the termoften used to describe them), it made inroads into virtually all areas of industry andlaid the foundation of the more extensive reforms in July 1991 and beyond. Theliberalization pushed industrial growth to a hefty 9.2 percent during the crucial highgrowthperiod of 1988–91.

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Term
Fall
Professor
NoProfessor
Tags
Economics, International Monetary Fund, Rajiv,

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