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Macroeconomics

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India in the 1980s and 1990s: A Triumph of Reforms

Arvind Panagariya∗ January 3, 2004



The author is a Professor of Economics at University of Maryland, College Park, MD 20742. Email: panagari@econ.umd.edu. I am grateful to Jagdish Bhagwati and Kalpana Kochhar for numerous helpful comments and to T.N. Srinivasan for extended email exchanges that led to many improvements in the paper. I also thank Rajesh Chadha, Satish Chand, Douglas Irwin, Raghav Jha, Vijay Joshi, Vijay Kelkar, Ashoka Mody, Sam Ouliaris, Jairam Ramesh, Jayanta Roy, Ratna Sahay, Kunal Sen, N.K. Singh, and Roberto Zagha for helpful suggestions on an earlier draft of the paper. The paper was completed while I was a Resident Scholar at the International Monetary Fund and has benefited from comments made at the IMF-NCAER

Conference, “A Tale of Two Giants: India’s and China’s Experience with Reform,” November 14-16, 2003, New Delhi.

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Table of Contents 1 2 3 INTRODUCTION..................................................................................................... 1 THE FRAGILITY OF GROWTH IN THE 1980S................................................ 9 CONNECTION TO LIBERALIZATION............................................................ 14 3.1 3.2 4 5 REFORMS DURING THE 1980S ............................................................................ 17 IMPACT OF THE REFORMS .................................................................................. 25

UNSUSTAINABLE BORROWING ..................................................................... 30 A BRIEF LOOK AT THE 1990S .......................................................................... 33 5.1 5.2 5.2.1 5.2.2 5.3 DEREGULATION OF INDUSTRY ........................................................................... 34 EXTERNAL TRADE ............................................................................................. 36 Merchandise Trade Liberalization...

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