Remembering the impactful legacy of wise leadership

The passing of former Prime Minister Manmohan Singh provides an opportunity to assess the lasting impact of the 1991 economic reforms and the policies during his tenure as Finance Minister and Prime Minister, which led to remarkable growth and transformation in India's economy. The period from 2004-14 under Singh’s leadership saw significant macroeconomic achievements, but the decade after 2014 witnessed considerable setbacks due to policy-induced shocks.

Economic Growth and Investment:

• Macroeconomic Policy Success: The period from 2004-14 saw an unprecedented rise in India’s investment-to-GDP ratio, reaching 38%, with the GDP growing at an average rate of 7.8% annually. This was primarily due to appropriate fiscal and monetary policies.
• Sectoral Growth: Growth spanned across all sectors, with significant employment generation in the non-farm sector. Non-farm jobs grew at 7.5 million annually, creating new opportunities in construction, manufacturing, and services.
• Poverty Reduction: Between 2004-11, 138 million people were lifted out of poverty, marking a significant decline in the absolute number of poor, a milestone never achieved since India’s independence.

Policy-Induced Shocks Post-2014:

• Impact of Demonetisation and GST: The demonetisation policy and poorly designed GST implementation created shocks in the unorganised sector, leading to closures of MSMEs and a slowdown in job creation.
• Unemployment Crisis: Unemployment rates increased sharply from 2.2% in 2011-12 to a 45-year high of 6.1% by 2017-18. Youth unemployment and graduate joblessness also reached alarming levels, with nearly 33% of graduates unable to secure employment.
• Reversal of Structural Change: The economic shift from agriculture to non-farm sectors reversed post-2015, with migration back to agriculture in 2020-24, signaling a retrogressive shift in the labor market, worsened by the decline in manufacturing jobs.

Distress, Inequality, and Economic Decline:

• Declining Manufacturing Sector: Despite efforts like ‘Make in India’, the share of manufacturing in GDP fell, and employment in manufacturing stagnated. The number of manufacturing workers barely increased from 2019 to 2022.
• Stagnant Wage Growth: Real wage growth stagnated post-2014, with the share of regular salaried workers declining, and the number of unpaid family workers sharply increasing due to economic distress.
• Rising Inequality and Constrained Demand: Economic inequality widened, and a constrained aggregate demand caused by poor job creation has delayed the realization of India’s demographic dividend, risking the nation’s long-term development prospects.

Practice Question:

Q. Critically evaluate the economic reforms initiated by Manmohan Singh in 1991 and their lasting impact on India’s growth trajectory. How have subsequent policy-induced shocks, particularly after 2014, reversed the gains achieved during his tenure?