Growth and Stability in the Indian Economy in Post Reform Era: A Macro Econometric Evaluation

Abstract

The reforms initiated in the Indian economy during the nineties have given rise to a lot of debate on the feasibility as well as the stability of high growth rates for the economy. We analyse this issue within the framework of a macro-econometric model, which takes into account the long run structures of the economy as well as the changes that have taken place following the reforms process. The simulation results from this model indicate that acceleration in the long run growth rate, from its current level of 5.5-6 per cent, is possible only if significant improvements take place in investment rate and the productivity of capital. The results also demonstrate that the economy has now become much more resilient after the reforms and can maintain an average growth of 5 percent even under adverse circumstances.