Few countries have a complex economic and social reality like that of India; despite being among the most industrialized countries in the world, in the first places in the world ranking as GDP (1,209,686 ml US $ in 2008) and as a growth rate (9.2% in 2006 and 8.4% in 2007) the 31, 3% of the population lives below the poverty line and the Human Development Index places it at 132nd place in the world ranking. Internal inequalities, while showing a tendency to attenuate, are very strong, so much so that one tenth of the population holds about one third of the national income. Between the end of the 1980s and the beginning of the following decade, India suffered the consequences of a serious economic crisis, whose paradigmatic elements are identifiable in the enormous proportions of the budget deficit and of the external debt.
The difficulty of keeping the state deficit within a sustainable level became evident in 1989-90 due to the combined effect of several structural factors. To the ineffectiveness of the fiscal policy, not extended, however, to farmers, has been added the growing pressure of public spending, determined, predominantly, by the subsidies given, both to state-owned enterprises, traditionally characterized by low productivity, and also if to a lesser extent, to agriculture. According to smber, the external debt between 1980 and 1991 had been contracted, in large part, to finance the negative balance of the trade balance, but with the Gulf crisis, following the Iraqi occupation of Kuwait, pressure elements on the entire current account balance and, in general, on the Indian economy have multiplied. The vertical collapse of remittances from Indian emigrants working in the Gulf region was added to the rise in the price of oil, which played a significant part in relaunching inflation. The drastic reduction in imports and the mobilization of a considerable part of the gold reserves failed to avoid the use of the IMF, which granted a loan of 2.3 billion dollars, agreed as part of a more general economic stabilization program wanted by the government which took office in June 1991. The guidelines of the new economic policy were aimed at transforming the traditional strategy of development that had guided India since the early days of independence and aimed, in particular, at the liberalization of the economy from very tight state control. With this in mind, the elimination of expensive export subsidies, the devaluation of the rupee by 22% against the dollar and the reduction of part of the import restrictions were decided. Tax reform, another key factor in the economic restructuring program, moved in the direction of widening of the contribution base and the restriction of tax collection. Decisive interventions were made in the public enterprise sector, reducing state subsidies and promoting greater competitiveness.
The government endowed itself with those legislative instruments capable of allowing it to restructure or close down companies suffering from chronic budget liabilities, without forgetting the needs of workers, who were granted subsidies. Within the general process of liberalization, the restrictions imposed on private industries were also reduced, concerning, for example, the necessary government consent for the choice of location, new investments and expansions, imports. The balance sheet of the economic liberalization policy, can be considered positively in the light of the data regarding the increase in GDP, which went from 3.5% in the years prior to the reform to 6% in 1995-96, to values exceeding 7% since 2003: thanks to the liberalization and reforms of the nineties the Indian economy entered the new millennium with great vivacity, high growth rates (mainly due to the development of high-tech industrial sectors) and increasing foreign investments. The strong presence of the public sector (which retains the exclusive prerogative of military industries, communications, large hydraulic works, energy production, new steel plants and mines) still represents one of the main characteristics of the country’s development. The budget deficit, however, continues to represent a serious obstacle on the way to development. Although there was a significant reduction between 1990 and 1993, it did not remain stable. The situation of the external accounts also showed a fluctuating trend. As regards the inflow of foreign capital, the results of the opening policy inaugurated in 1991 were particularly favorable and foreign direct investment, which increased sharply, amounted to approximately US $ 6,600 million in 2005, encouraged by the government’s decision. to extend the maximum level of shares that can be owned by foreign investors up to 74% for some non-strategic sectors. The combination of these factors resulted in the possibility of raising the level of foreign reserves, in such a way as to achieve a stability that he had seriously risked compromising in 1991, when reserves amounted to just one billion dollars. The monetization of a part of these reserves, as well as the partial one of the public deficit, had an effect on the inflation rate, causing it to rise, but the Indian authorities have nevertheless decided not to penalize investments and economic growth. India also has an active population of approximately 435 million people; the unemployment rate, which has fallen in recent years, was estimated at the beginning of the millennium (2000) at 4.3%, while in 2005 the share of the female population still outside the labor market was 26.9%.
