India and liberalisation : There was a 1966 before a 1991

There is always this debate in Indian economy academia that when did India start to liberalise its economy. Most obvious answer is 1991. But some people say – it was  with 1985 VP Singh budget, 1980 India Gandhi started tweaking some ideas, 1977 emergency, 1966 Shastri was receptive to reforms but for his untimely death and so on. So for all you know, 1991 was just a fire which caught on but was ignited much earlier.

Ankit Mital makes a case for 1966 in this article. He is apparently writing a book on 1991 story. :

Explaining the decision to not de-license the production of toiletries, the government spokesperson said that they were not “particularly a priority item, and it was thought that there was no purpose in allowing decontrol in a field in which we may not want substantial quantity to be added” (Planning for Industrialization, Jagdish Bhagwati and Padma Desai). Furniture components weren’t de-licensed either, for “they are minor items, and it was not thought important enough for being de-licensed”.

The year was 1966 and independent India had just embarked on its first experiment with broad-based economic liberalization with a characteristic combination of whim, status quo-ism and bad economics. Reforms were a precondition for a much-needed increase in foreign aid. Unfortunately, neither did the increase in aid materialize, nor did the reforms survive.


Shastri—a pragmatic man with no particular affinity for socialism or planning who, in fact, had a dislike for controls—was receptive to reforms (Indira Gandhi, the ‘Emergency’ and Indian Democracy, P.N. Dhar). He had already shown his commitment to liberalization by replacing his unyielding finance minister. Devaluation under his aegis, in the winter of 1965-66, could have been better managed (Glimpses of Indian Economic Policy, Patel), better timed—before drought caused a price rise—and less politically divisive given his invulnerable position after the war. What changed with Indira Gandhi was not so much the ideology—she was considered pragmatic (Indira Gandhi, the ‘Emergency’ and Indian Democracy, Dhar)—but a new willingness to jeopardize the economy for political expediency.

“A wise man goes when he can. A fool goes when he must.” While comedian Bill Connolly was referring to nature’s call, it is equally applicable to reforms. Even though it is “easier” to push reforms under the cloak of a crisis, their success is also less evident precisely because the economy is going through a crisis.

This lag in results is perhaps why all attempts at liberalization of the Indian economy have been so short-lived—even the celebrated duo of P.V. Narasimha Rao and Manmohan Singh lost their “reformist zeal” in less than two years.



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