India's Economic Liberalization and Structural Transformation, 1991 to 2024

Abstract

This paper examines India's economic liberalization programme initiated in 1991 and its consequences for structural transformation, growth, and development across the subsequent three decades to 2024. Beginning from a severe balance-of-payments crisis that compelled the Narasimha Rao government and Finance Minister Manmohan Singh to dismantle the License Raj and open the economy to foreign direct investment, trade, and market forces, India's growth trajectory accelerated markedly over the following decade. We trace the trajectory of GDP per capita from US$303 in 1991 to US$2,731 in 2024, situating this expansion within a structural narrative centred on the rise of services, the emergence of a globally competitive information technology and business process outsourcing industry, fitful progress in manufacturing, and persistent challenges in agriculture and rural development. The paper draws on National Sample Survey data, Annual Survey of Industries data, Reserve Bank of India statistics, Centre for Monitoring Indian Economy microdata, and World Bank indicators to construct a comprehensive account of India's uneven transformation. Beyond the aggregate growth story, we analyse the distributional, institutional, and governance dimensions of India's liberalization experience. The services sector's share of GDP rose from roughly 41 percent in 1991 to 59 percent by 2024, driven primarily by the IT revolution centred on Bangalore, Hyderabad, and Chennai, yet manufacturing remained stubbornly anchored at approximately 15 percent of GDP, failing to replicate the labour-absorbing industrialization that powered East Asian economic miracles. Rural distress, declining female labour force participation, and sharp interstate divergences between prosperous southern states and lagging northern ones complicate the growth narrative. We evaluate landmark institutional reforms including the Goods and Services Tax of 2017, which unified India's fragmented indirect tax system; the controversial demonetization of 2016; the Jan Dhan Yojana financial inclusion initiative; and the transformative digital public infrastructure built around Aadhaar biometric identity (with 1.3 billion enrollments) and the Unified Payments Interface, which processed over two trillion US dollars in transactions in 2023. Our analysis identifies the unfinished reform agenda and the structural challenges, including the demographic dividend, infrastructure gaps, and climate vulnerability, that will shape India's economic prospects through the middle of the 21st century.