Comment on “India's Economic Reforms: Achievements and Next Steps”

• DOI: http://doi.org/10.1111/aepr.12241
• Date: 01 January 2019
• Author: M. Chatib Basri
• Published date: 01 January 2019

Comment on “India’s Economic Reforms:

Achievements and Next Steps”

M. Chatib BASRI†

University of Indonesia

JEL codes: N00, E01, I31

Accepted: 2 August 2018

Ahluwalia (2018) produces an excellent paper on the history of reform in India. His

paper is very helpful because it allows the reader to see the overall picture of the

reform in India and also provides some insights about the political economy story

behind it. This is a typical paper in which only an academic—cum policy maker can

write. Ahluwalia has the advantage of both being a trained economist as well as former

policy maker. Specifically, Aluwalia’s paper elucidates India’s 1991 reforms and their

impact on the Indian economic performance. Ahluwalia begins his paper with a very

nice overview of the history of reform in India. I find this very useful for general

readers who are interested in studying about India. Ahluwalia points out that the

reforms help India to accelerate its economic growth and somehow help to reduce

poverty; however, it is much less successful in generating good quality jobs. I enjoyed

reading this paper and agree very much with the Ahluwalia’s analyses and findings.

Nevertheless, in order to improve the paper and sharpen the analysis, I have several

comments on this paper.

Firstly, Ahluwalia argues that the 1991 reforms were different from those pre-1991

because they signaled a clear break with the past. The first question to ask is why such

a bold reform could be undertaken in 1991, and why it could not have happened

before? Ahluwalia argues that the severe balance of payment crisis forced the govern-

ment to conduct the bold reform. If this is true, this reminds me of a popular phrase

“Bad times make good policy and good times make bad policy”. If this was the case,

why did not the 1966 financial crisis, in which the Indian government also devalued

the rupee quite significantly, create a sustainable reform as did the 1991 reform. It is

useful if Ahkuwalia can provide brief comparisons of these two events.

Secondly, economic theory provides guidance on how the economic reform will

impact on an economy, but is silent on how to implement the reform. Ahluwalia’s

paper touches on this issue in Indian democratic system, gradualism helped ensure

continuity of the reform. However, how does he reconcile the argument that a “big

bang”is the best strategy of reform in the presence of political constraints

†Correspondence: M. Chatib Basri, University of Indonesia. Email: mcbasri@icloud.com

© 2018 Japan Center for Economic Research 65

doi: 10.1111/aepr.12241 Asian Economic Policy Review (2019) 14, 65–66