India's Medium-term Growth Outlook 2022-23 | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
02
2014-2022 is an important period in the economic history of India. The economy underwent 
a gamut of wide-ranging structural and governance reforms that strengthened the 
economy’ s fundamentals by enhancing its overall efficiency. With an underlying emphasis 
on improving the ease of living and doing business, the reforms were based on the broad 
principles of creating public goods, adopting trust-based governance, co-partnering with 
the private sector for development, and improving agricultural productivity. Under normal 
circumstances, reforms of such scale and relevance would have accelerated economic 
growth. However, largely due to the balance sheet stress caused by the credit boom in 
the previous years and secondarily due to the one-off global shocks that followed, key 
macroeconomic variables such as credit growth, capital formation, and hence economic 
growth were adversely impacted during this period. Further, some reforms deliver results 
with lagged effects as their diffusion in the economy takes time.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken 
by the government had lagged growth returns due to temporary shocks in the economy. Once 
these shocks faded, the structural reforms paid growth dividends from 2003. Similarly, in 
the present decade, the presence of strong medium-term growth magnets gives us optimism 
and hope that once these global shocks of the pandemic and the spike in commodity prices 
in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade. 
With improved and healthier balance sheets of the banking, non-banking and corporate 
sectors, a fresh credit cycle has already begun, evident from the double-digit growth in 
bank credit over the past months. Additionally, the economy has started benefiting from 
the efficiency gains resulting from greater formalisation, higher financial inclusion, and 
economic opportunities created by digital technology-based economic reforms. Thus, India’ s 
growth outlook seems better than in the pre-pandemic years, and the Indian economy is 
prepared to grow at its potential in the medium term. 
Introduction
2.1 Indian economy has undergone a transformative process of New Age reforms in the 
last eight years. These diverse policies converge towards improving the economy’s overall 
efficiency and lifting its potential growth. To achieve the broader policy goal of unleashing the 
productive potential of the economy and its people, the reforms aimed at enhancing the ease of 
living and doing business at the fundamental level. The use of technology, in particular digital 
technology, undergirds the reforms. The economic energy and positive mindset that the reforms 
unleashed would have led to a sharp acceleration in growth but for the balance sheet repair of 
INDIA'S MEDIUM-TERM 
GROWTH OUTLOOK: WITH 
OPTIMISM AND HOPE
Page 2


CHAPTER
02
2014-2022 is an important period in the economic history of India. The economy underwent 
a gamut of wide-ranging structural and governance reforms that strengthened the 
economy’ s fundamentals by enhancing its overall efficiency. With an underlying emphasis 
on improving the ease of living and doing business, the reforms were based on the broad 
principles of creating public goods, adopting trust-based governance, co-partnering with 
the private sector for development, and improving agricultural productivity. Under normal 
circumstances, reforms of such scale and relevance would have accelerated economic 
growth. However, largely due to the balance sheet stress caused by the credit boom in 
the previous years and secondarily due to the one-off global shocks that followed, key 
macroeconomic variables such as credit growth, capital formation, and hence economic 
growth were adversely impacted during this period. Further, some reforms deliver results 
with lagged effects as their diffusion in the economy takes time.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken 
by the government had lagged growth returns due to temporary shocks in the economy. Once 
these shocks faded, the structural reforms paid growth dividends from 2003. Similarly, in 
the present decade, the presence of strong medium-term growth magnets gives us optimism 
and hope that once these global shocks of the pandemic and the spike in commodity prices 
in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade. 
With improved and healthier balance sheets of the banking, non-banking and corporate 
sectors, a fresh credit cycle has already begun, evident from the double-digit growth in 
bank credit over the past months. Additionally, the economy has started benefiting from 
the efficiency gains resulting from greater formalisation, higher financial inclusion, and 
economic opportunities created by digital technology-based economic reforms. Thus, India’ s 
growth outlook seems better than in the pre-pandemic years, and the Indian economy is 
prepared to grow at its potential in the medium term. 
Introduction
2.1 Indian economy has undergone a transformative process of New Age reforms in the 
last eight years. These diverse policies converge towards improving the economy’s overall 
efficiency and lifting its potential growth. To achieve the broader policy goal of unleashing the 
productive potential of the economy and its people, the reforms aimed at enhancing the ease of 
living and doing business at the fundamental level. The use of technology, in particular digital 
technology, undergirds the reforms. The economic energy and positive mindset that the reforms 
unleashed would have led to a sharp acceleration in growth but for the balance sheet repair of 
INDIA'S MEDIUM-TERM 
GROWTH OUTLOOK: WITH 
OPTIMISM AND HOPE
25 India's Medium-Term Growth Outlook: With Optimism and Hope
the over-leveraged domestic financial sector (banking & non-banking) and the corporate sector 
and secondarily to the one-off global shocks that followed.  
2.2 With the impetus of the persistent structural and governance reforms introduced in the 
country and strong macroeconomic stability, it is essential to get a handle on the medium-term 
growth outlook for India. Will the economy achieve and sustain a steady growth rate once the 
one-off shocks recede? This chapter attempts to answer this question and concludes that the 
chances of India growing at its potential and for the potential growth itself to be lifted are higher 
than it has been in the last two decades. The chapter starts with a brief discussion of the history 
of India’s product and capital market reforms over the previous three decades. It further delves 
into the overarching philosophy behind the landmark reforms undertaken from 2014 to 2022 
and elaborates on the shocks faced by the Indian economy during this period. It concludes with 
a discussion on the medium-term growth magnets for India. 
Product and Capital Market Reforms
Initiation of the reforms- 1991
2.3 The macroeconomic imbalances of the late 1980s and early 1990s pushed the government 
towards introducing the structural reforms of 1991. The high combined deficit of the central 
and state governments, elevated inflationary pressures, and large and unsustainable current 
account deficit (CAD) led to a balance of payments crisis in the Indian economy.
1
 In response 
to the situation, trade and investments were liberalised in 1991. Import licensing on almost all 
intermediate inputs and capital goods was done away with, and the entry restrictions for firms 
were simplified. The new policy encouraged the entry of private sector firms by ending the 
public sector monopoly in many sectors and initiating the automatic approval policy for FDI 
up to 51 per cent. The exchange rate was made flexible and allowed to depreciate as necessary 
to maintain competitiveness. The rupee was made fully convertible on the current account and 
partially on the capital account. These reforms had a positive effect on the economy. The real 
growth went up from an average of 5.5 per cent during the 1980s to 6.3 per cent from FY93 to 
FY2000. Trade liberalisation had a visible effect on external trade as the total goods and services 
trade to GDP rose from 17.2 per cent in 1990 to 30.6 per cent in 2000.
2
Continuity in Reforms with a Renewed Impetus
2.4 The product and capital market reforms continued slowly over the decade of the 1990s. 
They got a renewed impetus from the government closer to the decade’s end. Investments were 
liberalised further to encourage Foreign Direct Investment as a main source of non-debt-creating 
capital inflows (Figure II.1). The telecom sector was entirely reformed by the New Telecom 
Policy 1999. It was opened for private sector participation with a strengthened regulatory regime 
(TRAI). The reforms separated the licensing and policy functions of the government from that of 
an operator (BSNL). These reforms were a cornerstone for the IT sector boom in India and had 
widespread spillover benefits to other sectors of the economy. The policy on disinvestment and 
privatisation also gathered steam during this period. The government set up a dedicated Ministry 
to take this agenda forward. It sold equity stakes in some CPSEs and privatised companies such 
as Maruti Udyog, Hindustan Zinc, Bharat Aluminum, and Videsh Sanchar Nigam Limited. 
1 History of Reserve bank of India-V olume IV (https://www.rbi.org.in/scripts/RHvol-4.aspx)
2 Arvind Panagariya, 2004. “India in the 1980’s and 1990’s: A Triumph of Reforms,”IMF Working Papers2004/043, International Monetary 
Fund. (https://www.imf.org/external/pubs/ft/wp/2004/wp0443.pdf )
Page 3


CHAPTER
02
2014-2022 is an important period in the economic history of India. The economy underwent 
a gamut of wide-ranging structural and governance reforms that strengthened the 
economy’ s fundamentals by enhancing its overall efficiency. With an underlying emphasis 
on improving the ease of living and doing business, the reforms were based on the broad 
principles of creating public goods, adopting trust-based governance, co-partnering with 
the private sector for development, and improving agricultural productivity. Under normal 
circumstances, reforms of such scale and relevance would have accelerated economic 
growth. However, largely due to the balance sheet stress caused by the credit boom in 
the previous years and secondarily due to the one-off global shocks that followed, key 
macroeconomic variables such as credit growth, capital formation, and hence economic 
growth were adversely impacted during this period. Further, some reforms deliver results 
with lagged effects as their diffusion in the economy takes time.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken 
by the government had lagged growth returns due to temporary shocks in the economy. Once 
these shocks faded, the structural reforms paid growth dividends from 2003. Similarly, in 
the present decade, the presence of strong medium-term growth magnets gives us optimism 
and hope that once these global shocks of the pandemic and the spike in commodity prices 
in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade. 
With improved and healthier balance sheets of the banking, non-banking and corporate 
sectors, a fresh credit cycle has already begun, evident from the double-digit growth in 
bank credit over the past months. Additionally, the economy has started benefiting from 
the efficiency gains resulting from greater formalisation, higher financial inclusion, and 
economic opportunities created by digital technology-based economic reforms. Thus, India’ s 
growth outlook seems better than in the pre-pandemic years, and the Indian economy is 
prepared to grow at its potential in the medium term. 
Introduction
2.1 Indian economy has undergone a transformative process of New Age reforms in the 
last eight years. These diverse policies converge towards improving the economy’s overall 
efficiency and lifting its potential growth. To achieve the broader policy goal of unleashing the 
productive potential of the economy and its people, the reforms aimed at enhancing the ease of 
living and doing business at the fundamental level. The use of technology, in particular digital 
technology, undergirds the reforms. The economic energy and positive mindset that the reforms 
unleashed would have led to a sharp acceleration in growth but for the balance sheet repair of 
INDIA'S MEDIUM-TERM 
GROWTH OUTLOOK: WITH 
OPTIMISM AND HOPE
25 India's Medium-Term Growth Outlook: With Optimism and Hope
the over-leveraged domestic financial sector (banking & non-banking) and the corporate sector 
and secondarily to the one-off global shocks that followed.  
2.2 With the impetus of the persistent structural and governance reforms introduced in the 
country and strong macroeconomic stability, it is essential to get a handle on the medium-term 
growth outlook for India. Will the economy achieve and sustain a steady growth rate once the 
one-off shocks recede? This chapter attempts to answer this question and concludes that the 
chances of India growing at its potential and for the potential growth itself to be lifted are higher 
than it has been in the last two decades. The chapter starts with a brief discussion of the history 
of India’s product and capital market reforms over the previous three decades. It further delves 
into the overarching philosophy behind the landmark reforms undertaken from 2014 to 2022 
and elaborates on the shocks faced by the Indian economy during this period. It concludes with 
a discussion on the medium-term growth magnets for India. 
Product and Capital Market Reforms
Initiation of the reforms- 1991
2.3 The macroeconomic imbalances of the late 1980s and early 1990s pushed the government 
towards introducing the structural reforms of 1991. The high combined deficit of the central 
and state governments, elevated inflationary pressures, and large and unsustainable current 
account deficit (CAD) led to a balance of payments crisis in the Indian economy.
1
 In response 
to the situation, trade and investments were liberalised in 1991. Import licensing on almost all 
intermediate inputs and capital goods was done away with, and the entry restrictions for firms 
were simplified. The new policy encouraged the entry of private sector firms by ending the 
public sector monopoly in many sectors and initiating the automatic approval policy for FDI 
up to 51 per cent. The exchange rate was made flexible and allowed to depreciate as necessary 
to maintain competitiveness. The rupee was made fully convertible on the current account and 
partially on the capital account. These reforms had a positive effect on the economy. The real 
growth went up from an average of 5.5 per cent during the 1980s to 6.3 per cent from FY93 to 
FY2000. Trade liberalisation had a visible effect on external trade as the total goods and services 
trade to GDP rose from 17.2 per cent in 1990 to 30.6 per cent in 2000.
2
Continuity in Reforms with a Renewed Impetus
2.4 The product and capital market reforms continued slowly over the decade of the 1990s. 
They got a renewed impetus from the government closer to the decade’s end. Investments were 
liberalised further to encourage Foreign Direct Investment as a main source of non-debt-creating 
capital inflows (Figure II.1). The telecom sector was entirely reformed by the New Telecom 
Policy 1999. It was opened for private sector participation with a strengthened regulatory regime 
(TRAI). The reforms separated the licensing and policy functions of the government from that of 
an operator (BSNL). These reforms were a cornerstone for the IT sector boom in India and had 
widespread spillover benefits to other sectors of the economy. The policy on disinvestment and 
privatisation also gathered steam during this period. The government set up a dedicated Ministry 
to take this agenda forward. It sold equity stakes in some CPSEs and privatised companies such 
as Maruti Udyog, Hindustan Zinc, Bharat Aluminum, and Videsh Sanchar Nigam Limited. 
1 History of Reserve bank of India-V olume IV (https://www.rbi.org.in/scripts/RHvol-4.aspx)
2 Arvind Panagariya, 2004. “India in the 1980’s and 1990’s: A Triumph of Reforms,”IMF Working Papers2004/043, International Monetary 
Fund. (https://www.imf.org/external/pubs/ft/wp/2004/wp0443.pdf )
26 Economic Survey 2022-23
Figure II.1:  Foreign Direct Investment to India- Increased after the 
impetus to investment liberalisation in 2000-2003
0
5
10
15
20
25
30
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
US $ billion
Source: RBI
2.5 This period also marked the launch of the then largest infrastructure project of independent 
India, the ‘Golden Quadrilateral’. The project brought significant economic benefits to the country 
through enhanced connectivity, improved industrial activity, trade, and economic growth.
3
 
Alongside this, structural policies were formulated to address the macroeconomic imbalances. 
The Fiscal Responsibility and Budget Management (FRBM) Act was passed to address the 
historic highs of the combined Gross fiscal deficit of the Government (Figure II.2). The banking 
system, which had accumulated bad debts during the period of economic resurgence after the 
1991 reforms, was supported through the deregulation of interest rates and the enactment of the 
SARFAESI Act 2002. Interest rates were deregulated to promote competition amongst banks, 
provide more banking options to depositors, and strengthen monetary policy transmission.
4
 The 
SARFAESI Act allowed banks and financial institutions to recover their dues by proceeding 
against the secured assets of the borrower/guarantor without the intervention of the court/
tribunals.
5
 Both these reforms improved the credit situation in the economy (Figure II.3).
Figure II.2: Gross Fiscal Deficit (centre and 
states combined) (% of GDP)
Figure II.3: Growth in Non-Food Credit by 
Scheduled Commercial Banks
Post 
FRBM
0
2
4
6
8
10
12
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
Per cent of GDP
0
5
10
15
20
25
30
35
FY97
FY00
FY03
FY06
FY09
FY12
FY15
FY18
FY21
Per cent
Source: RBI Source: RBI
3  Ghani, Ejaz & Grover, Arti & Kerr, William. (2012). Highway to Success: The Impact of the Golden Quadrilateral Project for the Location 
and Performance of Indian Manufacturing. The Economic Journal. (https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12207)
4  Reserve Bank of India RBI, 2011. “Deregulation of Savings Bank Deposit Interest Rate: A Discussion Paper,”Working Papersid:3959, 
eSocialSciences. (https://rbidocs.rbi.org.in/rdocs/Content/PDFs/DPS270411F.pdf )
5  Vinod Kumar, & Rajiv Khosla. (2017). IMPLEMENTATION AND IMPACT OF SARFAESI ACT 2002.International Education and Research 
Journal (IERJ),3(5). (http://ierj.in/journal/index.php/ierj/article/view/863/869); https://pib.gov.in/PressReleasePage.aspx?PRID=1578808 
Page 4


CHAPTER
02
2014-2022 is an important period in the economic history of India. The economy underwent 
a gamut of wide-ranging structural and governance reforms that strengthened the 
economy’ s fundamentals by enhancing its overall efficiency. With an underlying emphasis 
on improving the ease of living and doing business, the reforms were based on the broad 
principles of creating public goods, adopting trust-based governance, co-partnering with 
the private sector for development, and improving agricultural productivity. Under normal 
circumstances, reforms of such scale and relevance would have accelerated economic 
growth. However, largely due to the balance sheet stress caused by the credit boom in 
the previous years and secondarily due to the one-off global shocks that followed, key 
macroeconomic variables such as credit growth, capital formation, and hence economic 
growth were adversely impacted during this period. Further, some reforms deliver results 
with lagged effects as their diffusion in the economy takes time.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken 
by the government had lagged growth returns due to temporary shocks in the economy. Once 
these shocks faded, the structural reforms paid growth dividends from 2003. Similarly, in 
the present decade, the presence of strong medium-term growth magnets gives us optimism 
and hope that once these global shocks of the pandemic and the spike in commodity prices 
in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade. 
With improved and healthier balance sheets of the banking, non-banking and corporate 
sectors, a fresh credit cycle has already begun, evident from the double-digit growth in 
bank credit over the past months. Additionally, the economy has started benefiting from 
the efficiency gains resulting from greater formalisation, higher financial inclusion, and 
economic opportunities created by digital technology-based economic reforms. Thus, India’ s 
growth outlook seems better than in the pre-pandemic years, and the Indian economy is 
prepared to grow at its potential in the medium term. 
Introduction
2.1 Indian economy has undergone a transformative process of New Age reforms in the 
last eight years. These diverse policies converge towards improving the economy’s overall 
efficiency and lifting its potential growth. To achieve the broader policy goal of unleashing the 
productive potential of the economy and its people, the reforms aimed at enhancing the ease of 
living and doing business at the fundamental level. The use of technology, in particular digital 
technology, undergirds the reforms. The economic energy and positive mindset that the reforms 
unleashed would have led to a sharp acceleration in growth but for the balance sheet repair of 
INDIA'S MEDIUM-TERM 
GROWTH OUTLOOK: WITH 
OPTIMISM AND HOPE
25 India's Medium-Term Growth Outlook: With Optimism and Hope
the over-leveraged domestic financial sector (banking & non-banking) and the corporate sector 
and secondarily to the one-off global shocks that followed.  
2.2 With the impetus of the persistent structural and governance reforms introduced in the 
country and strong macroeconomic stability, it is essential to get a handle on the medium-term 
growth outlook for India. Will the economy achieve and sustain a steady growth rate once the 
one-off shocks recede? This chapter attempts to answer this question and concludes that the 
chances of India growing at its potential and for the potential growth itself to be lifted are higher 
than it has been in the last two decades. The chapter starts with a brief discussion of the history 
of India’s product and capital market reforms over the previous three decades. It further delves 
into the overarching philosophy behind the landmark reforms undertaken from 2014 to 2022 
and elaborates on the shocks faced by the Indian economy during this period. It concludes with 
a discussion on the medium-term growth magnets for India. 
Product and Capital Market Reforms
Initiation of the reforms- 1991
2.3 The macroeconomic imbalances of the late 1980s and early 1990s pushed the government 
towards introducing the structural reforms of 1991. The high combined deficit of the central 
and state governments, elevated inflationary pressures, and large and unsustainable current 
account deficit (CAD) led to a balance of payments crisis in the Indian economy.
1
 In response 
to the situation, trade and investments were liberalised in 1991. Import licensing on almost all 
intermediate inputs and capital goods was done away with, and the entry restrictions for firms 
were simplified. The new policy encouraged the entry of private sector firms by ending the 
public sector monopoly in many sectors and initiating the automatic approval policy for FDI 
up to 51 per cent. The exchange rate was made flexible and allowed to depreciate as necessary 
to maintain competitiveness. The rupee was made fully convertible on the current account and 
partially on the capital account. These reforms had a positive effect on the economy. The real 
growth went up from an average of 5.5 per cent during the 1980s to 6.3 per cent from FY93 to 
FY2000. Trade liberalisation had a visible effect on external trade as the total goods and services 
trade to GDP rose from 17.2 per cent in 1990 to 30.6 per cent in 2000.
2
Continuity in Reforms with a Renewed Impetus
2.4 The product and capital market reforms continued slowly over the decade of the 1990s. 
They got a renewed impetus from the government closer to the decade’s end. Investments were 
liberalised further to encourage Foreign Direct Investment as a main source of non-debt-creating 
capital inflows (Figure II.1). The telecom sector was entirely reformed by the New Telecom 
Policy 1999. It was opened for private sector participation with a strengthened regulatory regime 
(TRAI). The reforms separated the licensing and policy functions of the government from that of 
an operator (BSNL). These reforms were a cornerstone for the IT sector boom in India and had 
widespread spillover benefits to other sectors of the economy. The policy on disinvestment and 
privatisation also gathered steam during this period. The government set up a dedicated Ministry 
to take this agenda forward. It sold equity stakes in some CPSEs and privatised companies such 
as Maruti Udyog, Hindustan Zinc, Bharat Aluminum, and Videsh Sanchar Nigam Limited. 
1 History of Reserve bank of India-V olume IV (https://www.rbi.org.in/scripts/RHvol-4.aspx)
2 Arvind Panagariya, 2004. “India in the 1980’s and 1990’s: A Triumph of Reforms,”IMF Working Papers2004/043, International Monetary 
Fund. (https://www.imf.org/external/pubs/ft/wp/2004/wp0443.pdf )
26 Economic Survey 2022-23
Figure II.1:  Foreign Direct Investment to India- Increased after the 
impetus to investment liberalisation in 2000-2003
0
5
10
15
20
25
30
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
US $ billion
Source: RBI
2.5 This period also marked the launch of the then largest infrastructure project of independent 
India, the ‘Golden Quadrilateral’. The project brought significant economic benefits to the country 
through enhanced connectivity, improved industrial activity, trade, and economic growth.
3
 
Alongside this, structural policies were formulated to address the macroeconomic imbalances. 
The Fiscal Responsibility and Budget Management (FRBM) Act was passed to address the 
historic highs of the combined Gross fiscal deficit of the Government (Figure II.2). The banking 
system, which had accumulated bad debts during the period of economic resurgence after the 
1991 reforms, was supported through the deregulation of interest rates and the enactment of the 
SARFAESI Act 2002. Interest rates were deregulated to promote competition amongst banks, 
provide more banking options to depositors, and strengthen monetary policy transmission.
4
 The 
SARFAESI Act allowed banks and financial institutions to recover their dues by proceeding 
against the secured assets of the borrower/guarantor without the intervention of the court/
tribunals.
5
 Both these reforms improved the credit situation in the economy (Figure II.3).
Figure II.2: Gross Fiscal Deficit (centre and 
states combined) (% of GDP)
Figure II.3: Growth in Non-Food Credit by 
Scheduled Commercial Banks
Post 
FRBM
0
2
4
6
8
10
12
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
Per cent of GDP
0
5
10
15
20
25
30
35
FY97
FY00
FY03
FY06
FY09
FY12
FY15
FY18
FY21
Per cent
Source: RBI Source: RBI
3  Ghani, Ejaz & Grover, Arti & Kerr, William. (2012). Highway to Success: The Impact of the Golden Quadrilateral Project for the Location 
and Performance of Indian Manufacturing. The Economic Journal. (https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12207)
4  Reserve Bank of India RBI, 2011. “Deregulation of Savings Bank Deposit Interest Rate: A Discussion Paper,”Working Papersid:3959, 
eSocialSciences. (https://rbidocs.rbi.org.in/rdocs/Content/PDFs/DPS270411F.pdf )
5  Vinod Kumar, & Rajiv Khosla. (2017). IMPLEMENTATION AND IMPACT OF SARFAESI ACT 2002.International Education and Research 
Journal (IERJ),3(5). (http://ierj.in/journal/index.php/ierj/article/view/863/869); https://pib.gov.in/PressReleasePage.aspx?PRID=1578808 
27 India's Medium-Term Growth Outlook: With Optimism and Hope
One-Off Shocks Overshadowed The Reforms of 1998-2002
2.6 The period of these reforms also witnessed a series of domestic and global shocks, which 
subdued investor confidence. The sanctions imposed by the US on India after India’s nuclear 
test led to a sharp decline in capital flows to India during the months following the nuclear tests 
(Figure II.4)
6
. The period between 2000 and 2002 also witnessed two successive droughts (Table 
II.1). These domestic shocks were accompanied by heightened global uncertainties resulting 
from the end of a tech boom and the 9/11 attacks (Figure II.5). Moreover, the balance sheets of 
the Indian financial system and corporate sector were under-repair during the period. Though 
all these factors overshadowed the immediate impact of reforms undertaken by the government 
then, they laid the groundwork and prepared the Indian economy structurally to participate in 
the Global boom which followed soon after. 
Figure II.4: Monthly Foreign Direct 
Investment came down (1998)
Figure II.5: Trends in the NASDAQ 
Composite index (Dot-Com Bubble crisis)
0
100
200
300
400
500
Apr-97
Jun-97
Aug-97
Oct-97
Dec-97
Feb-98
Apr-98
Jun-98
Aug-98
US$ million
 
0
100 0
200 0
300 0
400 0
500 0
600 0
Jan -9 8
J ul - 98
Jan -9 9
J ul - 99
Jan -0 0
J ul - 00
Jan -0 1
J ul - 01
Jan -0 2
J ul - 02
Source: RBI Source: FRED
Table II.1: Occurrence, number of people affected and damages 
of droughts in  India between 2000 and 2002
Date Location Numbers
Apr 2000
Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, 
Orissa, Maharashtra
Affected- 9 crore; Damage-
US$588,000,000
Nov 2000
Mahasamund, Raipur, Kawardha, Rajnandgaon, Durg 
districts (Chhattisgarh region)
May 2001 New Delhi, Rajasthan, Gujarat, Orissa 20 deaths
Jul 2002
Uttar Pradesh, Madhya Pradesh, Rajasthan, Punjab, Haryana, 
Delhi, Karnataka, Kerala, Nagaland, Orissa, Chhattisgarh, 
Himachal Pradesh, Gujarat, Maharashtra, Andhra Pradesh, 
Tamil Nadu
Affected-30 crore; 
Damage- US$910,721,000
Source: Samra, J. S., 2004. “Review and analysis of drought monitoring, declaration and management in 
India,”IWMI Working PapersH035617, International Water Management Institute. (https://www.preventionweb.
net/files/1868_VL102135.pdf )
6    Daniel Morrow & Michael Carriere (1999) The economic impacts of the 1998 sanctions on India and Pakistan, The Nonproliferation Review, 
6:4,1-16. (https://www.nonproliferation.org/wp-content/uploads/npr/morrow64.pdf)
Page 5


CHAPTER
02
2014-2022 is an important period in the economic history of India. The economy underwent 
a gamut of wide-ranging structural and governance reforms that strengthened the 
economy’ s fundamentals by enhancing its overall efficiency. With an underlying emphasis 
on improving the ease of living and doing business, the reforms were based on the broad 
principles of creating public goods, adopting trust-based governance, co-partnering with 
the private sector for development, and improving agricultural productivity. Under normal 
circumstances, reforms of such scale and relevance would have accelerated economic 
growth. However, largely due to the balance sheet stress caused by the credit boom in 
the previous years and secondarily due to the one-off global shocks that followed, key 
macroeconomic variables such as credit growth, capital formation, and hence economic 
growth were adversely impacted during this period. Further, some reforms deliver results 
with lagged effects as their diffusion in the economy takes time.
This situation is analogous to the period 1998-2002 when transformative reforms undertaken 
by the government had lagged growth returns due to temporary shocks in the economy. Once 
these shocks faded, the structural reforms paid growth dividends from 2003. Similarly, in 
the present decade, the presence of strong medium-term growth magnets gives us optimism 
and hope that once these global shocks of the pandemic and the spike in commodity prices 
in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade. 
With improved and healthier balance sheets of the banking, non-banking and corporate 
sectors, a fresh credit cycle has already begun, evident from the double-digit growth in 
bank credit over the past months. Additionally, the economy has started benefiting from 
the efficiency gains resulting from greater formalisation, higher financial inclusion, and 
economic opportunities created by digital technology-based economic reforms. Thus, India’ s 
growth outlook seems better than in the pre-pandemic years, and the Indian economy is 
prepared to grow at its potential in the medium term. 
Introduction
2.1 Indian economy has undergone a transformative process of New Age reforms in the 
last eight years. These diverse policies converge towards improving the economy’s overall 
efficiency and lifting its potential growth. To achieve the broader policy goal of unleashing the 
productive potential of the economy and its people, the reforms aimed at enhancing the ease of 
living and doing business at the fundamental level. The use of technology, in particular digital 
technology, undergirds the reforms. The economic energy and positive mindset that the reforms 
unleashed would have led to a sharp acceleration in growth but for the balance sheet repair of 
INDIA'S MEDIUM-TERM 
GROWTH OUTLOOK: WITH 
OPTIMISM AND HOPE
25 India's Medium-Term Growth Outlook: With Optimism and Hope
the over-leveraged domestic financial sector (banking & non-banking) and the corporate sector 
and secondarily to the one-off global shocks that followed.  
2.2 With the impetus of the persistent structural and governance reforms introduced in the 
country and strong macroeconomic stability, it is essential to get a handle on the medium-term 
growth outlook for India. Will the economy achieve and sustain a steady growth rate once the 
one-off shocks recede? This chapter attempts to answer this question and concludes that the 
chances of India growing at its potential and for the potential growth itself to be lifted are higher 
than it has been in the last two decades. The chapter starts with a brief discussion of the history 
of India’s product and capital market reforms over the previous three decades. It further delves 
into the overarching philosophy behind the landmark reforms undertaken from 2014 to 2022 
and elaborates on the shocks faced by the Indian economy during this period. It concludes with 
a discussion on the medium-term growth magnets for India. 
Product and Capital Market Reforms
Initiation of the reforms- 1991
2.3 The macroeconomic imbalances of the late 1980s and early 1990s pushed the government 
towards introducing the structural reforms of 1991. The high combined deficit of the central 
and state governments, elevated inflationary pressures, and large and unsustainable current 
account deficit (CAD) led to a balance of payments crisis in the Indian economy.
1
 In response 
to the situation, trade and investments were liberalised in 1991. Import licensing on almost all 
intermediate inputs and capital goods was done away with, and the entry restrictions for firms 
were simplified. The new policy encouraged the entry of private sector firms by ending the 
public sector monopoly in many sectors and initiating the automatic approval policy for FDI 
up to 51 per cent. The exchange rate was made flexible and allowed to depreciate as necessary 
to maintain competitiveness. The rupee was made fully convertible on the current account and 
partially on the capital account. These reforms had a positive effect on the economy. The real 
growth went up from an average of 5.5 per cent during the 1980s to 6.3 per cent from FY93 to 
FY2000. Trade liberalisation had a visible effect on external trade as the total goods and services 
trade to GDP rose from 17.2 per cent in 1990 to 30.6 per cent in 2000.
2
Continuity in Reforms with a Renewed Impetus
2.4 The product and capital market reforms continued slowly over the decade of the 1990s. 
They got a renewed impetus from the government closer to the decade’s end. Investments were 
liberalised further to encourage Foreign Direct Investment as a main source of non-debt-creating 
capital inflows (Figure II.1). The telecom sector was entirely reformed by the New Telecom 
Policy 1999. It was opened for private sector participation with a strengthened regulatory regime 
(TRAI). The reforms separated the licensing and policy functions of the government from that of 
an operator (BSNL). These reforms were a cornerstone for the IT sector boom in India and had 
widespread spillover benefits to other sectors of the economy. The policy on disinvestment and 
privatisation also gathered steam during this period. The government set up a dedicated Ministry 
to take this agenda forward. It sold equity stakes in some CPSEs and privatised companies such 
as Maruti Udyog, Hindustan Zinc, Bharat Aluminum, and Videsh Sanchar Nigam Limited. 
1 History of Reserve bank of India-V olume IV (https://www.rbi.org.in/scripts/RHvol-4.aspx)
2 Arvind Panagariya, 2004. “India in the 1980’s and 1990’s: A Triumph of Reforms,”IMF Working Papers2004/043, International Monetary 
Fund. (https://www.imf.org/external/pubs/ft/wp/2004/wp0443.pdf )
26 Economic Survey 2022-23
Figure II.1:  Foreign Direct Investment to India- Increased after the 
impetus to investment liberalisation in 2000-2003
0
5
10
15
20
25
30
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
US $ billion
Source: RBI
2.5 This period also marked the launch of the then largest infrastructure project of independent 
India, the ‘Golden Quadrilateral’. The project brought significant economic benefits to the country 
through enhanced connectivity, improved industrial activity, trade, and economic growth.
3
 
Alongside this, structural policies were formulated to address the macroeconomic imbalances. 
The Fiscal Responsibility and Budget Management (FRBM) Act was passed to address the 
historic highs of the combined Gross fiscal deficit of the Government (Figure II.2). The banking 
system, which had accumulated bad debts during the period of economic resurgence after the 
1991 reforms, was supported through the deregulation of interest rates and the enactment of the 
SARFAESI Act 2002. Interest rates were deregulated to promote competition amongst banks, 
provide more banking options to depositors, and strengthen monetary policy transmission.
4
 The 
SARFAESI Act allowed banks and financial institutions to recover their dues by proceeding 
against the secured assets of the borrower/guarantor without the intervention of the court/
tribunals.
5
 Both these reforms improved the credit situation in the economy (Figure II.3).
Figure II.2: Gross Fiscal Deficit (centre and 
states combined) (% of GDP)
Figure II.3: Growth in Non-Food Credit by 
Scheduled Commercial Banks
Post 
FRBM
0
2
4
6
8
10
12
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
Per cent of GDP
0
5
10
15
20
25
30
35
FY97
FY00
FY03
FY06
FY09
FY12
FY15
FY18
FY21
Per cent
Source: RBI Source: RBI
3  Ghani, Ejaz & Grover, Arti & Kerr, William. (2012). Highway to Success: The Impact of the Golden Quadrilateral Project for the Location 
and Performance of Indian Manufacturing. The Economic Journal. (https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12207)
4  Reserve Bank of India RBI, 2011. “Deregulation of Savings Bank Deposit Interest Rate: A Discussion Paper,”Working Papersid:3959, 
eSocialSciences. (https://rbidocs.rbi.org.in/rdocs/Content/PDFs/DPS270411F.pdf )
5  Vinod Kumar, & Rajiv Khosla. (2017). IMPLEMENTATION AND IMPACT OF SARFAESI ACT 2002.International Education and Research 
Journal (IERJ),3(5). (http://ierj.in/journal/index.php/ierj/article/view/863/869); https://pib.gov.in/PressReleasePage.aspx?PRID=1578808 
27 India's Medium-Term Growth Outlook: With Optimism and Hope
One-Off Shocks Overshadowed The Reforms of 1998-2002
2.6 The period of these reforms also witnessed a series of domestic and global shocks, which 
subdued investor confidence. The sanctions imposed by the US on India after India’s nuclear 
test led to a sharp decline in capital flows to India during the months following the nuclear tests 
(Figure II.4)
6
. The period between 2000 and 2002 also witnessed two successive droughts (Table 
II.1). These domestic shocks were accompanied by heightened global uncertainties resulting 
from the end of a tech boom and the 9/11 attacks (Figure II.5). Moreover, the balance sheets of 
the Indian financial system and corporate sector were under-repair during the period. Though 
all these factors overshadowed the immediate impact of reforms undertaken by the government 
then, they laid the groundwork and prepared the Indian economy structurally to participate in 
the Global boom which followed soon after. 
Figure II.4: Monthly Foreign Direct 
Investment came down (1998)
Figure II.5: Trends in the NASDAQ 
Composite index (Dot-Com Bubble crisis)
0
100
200
300
400
500
Apr-97
Jun-97
Aug-97
Oct-97
Dec-97
Feb-98
Apr-98
Jun-98
Aug-98
US$ million
 
0
100 0
200 0
300 0
400 0
500 0
600 0
Jan -9 8
J ul - 98
Jan -9 9
J ul - 99
Jan -0 0
J ul - 00
Jan -0 1
J ul - 01
Jan -0 2
J ul - 02
Source: RBI Source: FRED
Table II.1: Occurrence, number of people affected and damages 
of droughts in  India between 2000 and 2002
Date Location Numbers
Apr 2000
Gujarat, Rajasthan, Madhya Pradesh, Andhra Pradesh, 
Orissa, Maharashtra
Affected- 9 crore; Damage-
US$588,000,000
Nov 2000
Mahasamund, Raipur, Kawardha, Rajnandgaon, Durg 
districts (Chhattisgarh region)
May 2001 New Delhi, Rajasthan, Gujarat, Orissa 20 deaths
Jul 2002
Uttar Pradesh, Madhya Pradesh, Rajasthan, Punjab, Haryana, 
Delhi, Karnataka, Kerala, Nagaland, Orissa, Chhattisgarh, 
Himachal Pradesh, Gujarat, Maharashtra, Andhra Pradesh, 
Tamil Nadu
Affected-30 crore; 
Damage- US$910,721,000
Source: Samra, J. S., 2004. “Review and analysis of drought monitoring, declaration and management in 
India,”IWMI Working PapersH035617, International Water Management Institute. (https://www.preventionweb.
net/files/1868_VL102135.pdf )
6    Daniel Morrow & Michael Carriere (1999) The economic impacts of the 1998 sanctions on India and Pakistan, The Nonproliferation Review, 
6:4,1-16. (https://www.nonproliferation.org/wp-content/uploads/npr/morrow64.pdf)
28 Economic Survey 2022-23
India’s Participation in The Global Boom of 2003-08 
2.7 The growth dividends from the reforms of 1998-2002 were realised once these one-
off shocks dissipated. The years of structural reforms had prepared the Indian economy to 
contribute to global growth and also benefit from it. While the global growth averaged 4.8 
per cent during 2003-2008, the Indian economy grew at more than 8 per cent on average. The 
economic growth during the period was supported by strong capital inflows (Figure II.1), which 
indicated favourable domestic and external factors. Some of these included sustained momentum 
in domestic economic activity, better corporate performance, a conducive investment climate, 
positive sentiments for India as a preferred investment destination, and encouraging global 
liquidity conditions/ interest rates.
7
  This combination of structural economic reforms with their 
lagged effect on economic growth has parallels to what is unfolding in the Indian economy 
presently. 
Reforms for New India-Sabka Saath Sabka Vikaas
2.8 The reforms undertaken before 2014 primarily catered to product and capital market space. 
They were necessary and continued post-2014 as well. The government, however, imparted a 
new dimension to these reforms in the last eight years. With an underlying emphasis on enhancing 
the ease of living and doing business and improving economic efficiency, the reforms are well 
placed to lift the economy’s potential growth. The broad principles behind the reforms were 
creating public goods, adopting trust-based governance, co-partnering with the private sector 
for development, and improving agricultural productivity (Figure II.6). This approach reflects 
a paradigm shift in the growth and development strategy of the government, with the emphasis 
shifted towards building partnerships amongst various stakeholders in the development process, 
where each contributes to and reaps the development benefits (Sabka Saath, Sabka Vikaas).
Figure II.6: Underlying framework for Reforms for a new India
Enhancing productive potential of economy and its people
Efficient resource allocation
Creating public goods
Trust-based 
governance
Agricultural 
productivity
Private sector 
participation
Ease of doing 
business + Ease of 
Living
2.9 While the reforms undertaken in the post-2014 period have multiple socioeconomic 
benefits for the economy, this chapter focuses on the growth-centric aspects of these reforms. 
7  Mohan, Rakesh, (2008), Capital flows to India, p. 235-263 in Settlements, Bank for International eds., Financial globalisation and emerging 
market capital flows, vol. 44, Bank for International Settlements, (https://www.bis.org/publ/bppdf/bispap44m.pdf)