Three decades of reform: the scorecard

Detail

1. Why we need a scorecard

• In 1991, India faced a balance of payments (BoP) crisis. BoP is the record of all money flowing into and out of a country. In 1991, India's forex reserves had fallen to about US$6 bn, which paid for only a few weeks of imports.
• The response was the LPG reforms:
• Liberalisation: fewer government controls on business.
• Privatisation: a smaller role for public sector firms.

• Globalisation: closer links with world trade and investment.

• India moved further towards a market economy, where prices set by buyers and sellers decide what to produce, how and for whom. The state now played a smaller role in these decisions (Class 9).

• Trade and investment barriers came down. Foreign firms could invest more easily, and imports became more open (Class 10).
• A scorecard asks: did these reforms deliver? It checks growth, sectors, external strength, prices and poverty.

2. Key measurement concepts

• GDP (Gross Domestic Product): the market value of all final goods and services produced inside a country in one year.
• GVA (Gross Value Added): the value producers add, measured sector by sector. NCERT's 2021-22 sector figures are GVA.
• Formula: GVA = GDP − indirect taxes + subsidies on production

• Worked example: GDP = ₹100 lakh crore, indirect taxes = ₹12 lakh crore, subsidies on production = ₹2 lakh crore.

  • GVA = 100 − 12 + 2 = ₹90 lakh crore

• Real GDP: GDP at constant prices (prices of a fixed base year). It shows the true change in output because price changes are removed.

• Nominal GDP: GDP at current prices. It includes inflation.
• Growth rate formula: Growth (%) = (This year − Last year) ÷ Last year × 100

• Worked example with official data: real GDP was ₹176.51 lakh crore in 2023-24 and ₹187.97 lakh crore in 2024-25 [6].

  • (187.97 − 176.51) ÷ 176.51 × 100 = 11.46 ÷ 176.51 × 100 ≈ 6.5% [6].

• Nominal growth vs real growth: nominal GDP was ₹330.68 lakh crore in 2024-25, a growth of 9.8% [6].

• The gap between nominal and real growth roughly equals price rise (the GDP deflator, a price index for everything the economy produces).
• 1.098 ÷ 1.065 ≈ 1.031, so prices rose by about 3.1% in 2024-25.

3. Growth of GDP and major sectors (%) — NCERT Class 11, Table 3.1

Sector	1980-91	1992-2001	2002-07	2007-12	2012-13	2013-14	2021-22*
Agriculture	3.6	3.3	2.3	3.2	1.5	4.2	4.8
Industry	7.1	6.5	9.4	7.4	3.6	5.0	12.7
Services	6.7	8.2	7.8	10.0	8.1	7.8	9.2
Total	5.6	6.4	7.8	8.2	5.6	6.6	9.4

*Sector figures for 2021-22 are GVA.

4. What the growth table shows

• Growth rose after 1991 and stayed high for two decades.

• 1980-91: 5.6%. 1992-2001: 6.4%. 2002-07: 7.8%. 2007-12: 8.2%.

• Growth is services-led.

• Services grew faster than total GDP in most periods from 2007 to 2022 (e.g. 10.0% vs 8.2% in 2007-12).
• Services include IT, trade, banking, transport and telecom.

• The IT, BPO and outsourcing story is covered in the globalisation-mnc note.

• Agriculture slowed.

• It fell from 3.6% (1980-91) to 2.3% (2002-07) and 1.5% (2012-13).

• This matters because agriculture still employs the largest share of workers. Slow farm growth means slow income growth for most people.

• Industry fluctuated.

• It peaked at 9.4% (2002-07), fell sharply to 3.6% (2012-13), then recovered to 5.0% (2013-14) and 12.7% (2021-22).

• India skipped a stage. Most rich countries grew by moving workers from farms to factories first. India moved straight from farms towards services. Critics call this growth that did not create enough manufacturing jobs.

5. Setbacks and the Covid base effect

• 2012-13: growth fell to 5.6%.
• 2019-20: growth fell to 3.9%.
• 2020-21: there was a contraction of about −5.8% during Covid.

• NCERT error: the exercise table prints 2020-21 as 5.8. It should be −5.8.

• 2021-22: 9.4%. This high figure is partly a rebound from a low base.

• Base effect: a big growth rate that appears only because the previous year's level was unusually low.

• Worked example: take the 2019-20 GDP level as 100.

  • 2020-21: 100 × (1 − 0.058) = 94.2
  • 2021-22: 94.2 × (1 + 0.094) ≈ 103.05
  • So even after "9.4% growth", GDP was only about 3% above its pre-Covid level.

• Recent growth: real GDP grew by 6.5% in 2024-25 (Provisional Estimates, NSO/MoSPI) [6].

6. External and price indicators (NCERT Class 11)

Indicator	1990-91	Latest in NCERT
Foreign investment (FDI + FII)	about US$100 mn	about US$23 bn (2022-23)
Forex reserves	about US$6 bn	about US$646 bn (2023-24) (verify current)

• FDI (Foreign Direct Investment): a foreigner invests to own and control a business in India, e.g. builds a factory or buys a large stake. It is long-term and stable.
• FII / FPI (Foreign Institutional / Portfolio Investment): foreigners buy Indian shares and bonds but do not control the firm. It can leave quickly, so it is sometimes called "hot money".
• Forex reserves: foreign currency assets, gold, SDRs (Special Drawing Rights, a reserve asset created by the IMF) and the IMF reserve tranche, all held by the RBI. They pay for imports and let the RBI steady the rupee.

7. Definitions matter: gross vs net

• Gross FDI inflows: all foreign direct investment coming in.
• Net FDI = Gross FDI inflows − repatriation or disinvestment by foreigners − outward FDI by Indian firms.

• Worked example (illustrative numbers): gross inflows US$70 bn; foreigners take back US$40 bn; Indian firms invest US$25 bn abroad.

  • Net FDI = 70 − 40 − 25 = US$5 bn

• The NCERT figure of US$23 bn (2022-23) is net FDI + net FPI.

• Net FPI was negative in 2022-23, meaning foreign portfolio investors took out more money than they brought in.

• Gross FDI inflows were about US$70 bn in 2022-23.

• Latest data: net FDI rose to US$6.9 bn in 2025-26, up from US$1.0 bn in 2024-25. In Q4 2025-26, net FDI was US$4.2 bn, compared with US$0.4 bn in Q4 2024-25 [2]. (NCERT: net FDI + FPI about US$23 bn, 2022-23.)

• Exam lesson: a low net FDI figure does not mean foreigners stopped investing. Gross inflows can stay high while repatriation and outward FDI rise.

8. Forex reserves: from crisis to cushion

• 1990-91: about US$6 bn. 2023-24: about US$646 bn (NCERT; verify the current level).
• India is one of the largest forex reserve holders in the world.
• Latest data: in 2025-26, reserves fell by US$23.6 bn on a BoP basis. In Q4 2025-26 they rose by US$7.2 bn, compared with US$8.8 bn in Q4 2024-25 [2].
• "BoP basis" counts only actual transactions. It leaves out valuation changes, such as a rise in the dollar value of gold or of euro holdings.
• When reserves fall like this:
  • the rupee is under pressure
  • → the RBI sells dollars in the market
  • → this steadies the exchange rate, but reserves fall.
• This is exactly why large reserves matter. In 1991, India had no such cushion.

9. Exports and prices

• India became a successful exporter of auto parts, pharmaceuticals, engineering goods, IT software and textiles.
• Inflation ("rising prices") was kept under control.

• Inflation is a general, sustained rise in prices. It reduces what a rupee can buy.

• Mixed record (Class 10):

• Gains went mainly to well-off consumers, skilled workers and large firms.
• Many small producers and workers faced tougher competition and more job insecurity.

10. Poverty (beyond NCERT)

• Tendulkar poverty ratio: the share of people below a poverty line based on consumption spending. It fell from 45.3% (1993-94) to 21.9% (2011-12).
• Multidimensional Poverty Index (MPI): this measures poverty through lack of health, education and a decent standard of living, not only low income.
• NITI Aayog: the MPI headcount fell from 29.17% (2013-14) to 11.28% (2022-23), a fall of 17.89 percentage points [4][5].
• About 24.82 crore people escaped multidimensional poverty in these nine years [4][5].
• Largest falls (number of people):
  • Uttar Pradesh: 5.94 crore
  • Bihar: 3.77 crore
  • Madhya Pradesh: 2.30 crore
  • Rajasthan: 1.87 crore [4]

• Poverty fell faster in 2015-16 to 2019-21 (10.66% a year) than in 2005-06 to 2015-16 (7.69% a year) [4].

• See the poverty-inequality note.

11. Size and a symbolic bookend

• Size: India is among the top five economies by nominal GDP (verify the current rank).
• Gold, 1991 vs 2024:
• In 1991, India pledged its gold with the Bank of England to raise emergency foreign exchange.
• In 2024, the RBI brought back about 100 tonnes of gold from the Bank of England to India.
• The RBI has said that central banks around the world normally keep part of their gold with other central banks, such as the Bank of England, for safe custody [3].
• So in 1991 the gold abroad was pledged to borrow money. The gold kept abroad later was stored there by choice. Bringing some of it home is a sign of confidence, not a sign of crisis.

Prelims Hooks

• GVA = GDP − indirect taxes + subsidies on production. NCERT's 2021-22 sector growth figures are GVA, not GDP.
• Post-1991 growth was services-led. Services grew 10.0% in 2007-12, the fastest of the three sectors.
• Trap: NCERT prints 2020-21 growth as 5.8%. It was a contraction of about −5.8% (Covid).
• Real GDP growth was 6.5% (2024-25) and nominal GDP growth was 9.8% (NSO Provisional Estimates) [6].
• Trap: the NCERT figure of US$23 bn (2022-23) is net FDI + net FPI. Gross FDI inflows were about US$70 bn.
• Net FDI was US$6.9 bn in 2025-26, up from US$1.0 bn in 2024-25 [2].
• Forex reserves: about US$6 bn (1990-91) vs about US$646 bn (2023-24). They fell by US$23.6 bn on a BoP basis in 2025-26 [2].
• NITI Aayog MPI: 29.17% (2013-14) → 11.28% (2022-23). About 24.82 crore people escaped multidimensional poverty [4].
• Tendulkar poverty ratio: 45.3% (1993-94) → 21.9% (2011-12).
• Keeping gold with the Bank of England is a normal safe-custody practice for central banks (RBI) [3].

Mains Points

• Growth without enough jobs:
• Services-led growth (e.g. services 10.0% vs agriculture 3.2% in 2007-12) brought high GDP growth.
• But agriculture still holds the most workers, and manufacturing did not absorb them.

• This supports the "jobless growth" critique and the case for labour-intensive manufacturing, such as PLI schemes and MSME support.

• External strength vs volatility:

• Reserves rose from about US$6 bn to about US$646 bn, so a 1991-type BoP crisis is now very unlikely.
• But reserves fell by US$23.6 bn in 2025-26 [2], and net FDI was only US$1.0 bn in 2024-25 [2].

• Quality of capital matters. Stable FDI is better than hot portfolio money, and gross and net figures tell different stories.

• Poverty fell, but unevenly:

• Consumption poverty fell (45.3% → 21.9%) and MPI poverty fell (29.17% → 11.28%) [4].
• Both support the view that growth reduces poverty.

• But agricultural distress and the uneven gains noted in NCERT (Class 10) point to a continuing inequality debate.

• Reading the numbers carefully:

• Base effects (Covid −5.8% → 9.4%) and nominal vs real growth (9.8% vs 6.5% in 2024-25) [6] show why an appraisal must use real, multi-year averages.