• Since 1991, when India started reforms, its economy has grown much more strongly than in the previous 40 years, to become one of the world’s fastest growing emerging economies. • Major 1990s reforms included liberalising trade and foreign investment laws, floating the currency and reducing industrial licensing. • Stronger growth produced rapid gains in per capita income and sharp falls in poverty; structural reforms also led to lower inflation. • However, gains are not spread evenly and a dual economy is emerging:- some service sectors are recording very strong growth, but mining, infrastructure, industry and agriculture are lagging- four southern and western states are performing much more strongly than the remaining major states. • However, reforms slowed in the mid and late 1990s and growth also is decelerating. Major reforms still needing attention include consolidating the fiscal deficit, providing sufficient reliable infrastructure, reforming bureaucratic procedures, increasing labour market flexibility and reforming the bankruptcy regime. • Coalition politics and anti-reform sentiment by sectional interests reduce the short term prospects for strong reform outcomes, but continued incremental reform and gradual improvements to the business environment remain most likely. • Central and state governments recognise they face a choice: embrace comprehensive reforms to perpetuate the high 7 to 8 per cent growth rates of the mid 1990s; continue incremental reforms and maintain current growth of 5 to 6 per cent; or allow stalled reforms to push annual growth below this level
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