Since the mid-1980s successive reforms have progressively moved the Indian economy towards a market-based system. State intervention and control over economic activity has been reduced significantly and the role of private-sector entrepreneurship increased. To varying degrees, liberalisation has touched on most aspects of economic policy including industrial policy, fiscal policy, financial market regulation, and trade and foreign investment.
Overall, reform has had a major beneficial impact on the economy
Annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades after Independence to 7½ per cent currently, a rate of growth that will double average income in a decade. Potential output growth is currently estimated to be 8½ per cent annually and India is now the third largest economy in the world. Increased economic growth has helped reduce poverty, which has begun to fall in absolute terms.
Liberalised areas have grown rapidly
In service sectors where government regulation has been eased significantly or is less burdensome – such as communications, insurance, asset management and information technology – output has grown rapidly, with exports of information technology enabled services particularly strong. In those infrastructure sectors which have been opened to competition, such as telecoms and civil aviation, the private sector has proven to be extremely effective and growth has been phenomenal. At the state level, economic performance is much better in states with a relatively liberal regulatory environment than in the relatively more restrictive states.
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