After attaining political independence from British colonialism in 1947, India embarked on a path of planned economic development through import substitution industrialization (ISI). This model of economic development, which produced relatively rapid industrial and economic growth in the immediate post-independence decades, ran into serious troubles in the mid-1960s, manifested by a prolonged recession in the industrial sector. When the economy finally emerged from more than a decade of industrial stagnation in the late 1970s, Indira Gandhi’s Indian National Congress party initiated a gradual reorientation of economic policies in a more business-friendly direction, which continued under the Rajiv Gandhi–led Congress in the mid-1980s. This business-friendly orientation was converted into a market-friendly orientation with the initiation of neoliberal economic reforms under P. V. Narasimha Rao’s Congress party in 1991. Even as the political party, or coalition of parties, leading the central government has changed many times since then, the essential thrust of economic policy in India has not.

As part of the economic reforms of the early 1990s, significant changes were introduced, often gradually, in policies governing domestic and foreign investment, international trade, taxation, and the financial sector. In the ISI period, restrictions on investment, aimed at both having control over the shape of capital accumulation and limiting the growth of monopolies, were implemented through licensing. Such industrial licensing was gradually dismantled after 1991. Restrictions on foreign direct investment, foreign technology agreements, and foreign portfolio investment to purchase shares of companies listed on the Indian stock market were gradually relaxed. Restrictions on the import of capital goods, intermediate goods, and raw materials were completely done away with, and in 2002, restrictions on the import of consumer goods were also eased. Import tariffs on a whole range of commodities were rapidly reduced; non-tariff barriers were steadily dismantled.¹ Financial sector reforms included the liberalization of controls over interest rates, the development of a market for trading government securities, the removal of government control over the issuance of securities by private companies in the stock market, scaling down directed lending, and a gradual reduction in the use of a statutory liquidity ratio and cash reserve ratio to mobilize resources by the government.² The reforms were meant to facilitate an increasingly larger role for market principles, as opposed to government control and regulation, in the operation of the domestic economy and to integrate it more closely with the global capitalist system.

The dominant narrative in the business press and within an influential segment of academia presents Indian economic growth as a two-part story: slow growth in the “socialist” period and high growth since the initiation of liberal economic reforms in the early 1990s.³ Often, the implicit understanding of this story contains the following assumptions: the liberal economic reforms caused the growth acceleration; growth is gradually trickling down the income ladder; economic growth has led to a massive reduction in poverty; development indicators are looking up; and more economic reforms are needed to continue this virtuous circle of growth and economic development.

This article will critically engage with the dominant narrative about India’s economic growth. I begin by looking at the key facts of Indian economic growth. The main question I address is whether the neoliberal economic reforms of the early 1990s accelerated growth significantly. While there is no doubt that economic growth has accelerated over the decades in India, the pivotal episodes of acceleration do not seem to be related to the neoliberal economic reforms of the early 1990s. In fact, economic growth in India has been generated and sustained by a steady rise in the rate of capital accumulation — the issue I investigate next by studying two questions. What is the role of capital accumulation in sustaining growth? What are the key determinants of capital accumulation? The third issue I discuss relates to the distributional aspects of economic growth. Here, I ask: How has growth translated into improvements in the material conditions of the vast majority of the working people of India? Investigating these three issues allows me to offer, in the concluding section of the paper, a clear picture of the limitations of India’s economic growth.