Thoughts on the Indian Economy (2000-2010)

At the dawn of the 21st century, India stood at a pivotal moment in its economic trajectory. After decades of cautious economic policies, the 1991 reforms had already introduced the country to globalisation. However, the first decade of the 2000s was when India truly began to cement its place as one of the world’s fastest-growing economies. From witnessing groundbreaking reforms to weathering global crises, the years between 2000 and 2010 marked a transformative phase in the Indian economy. These years were characterised by rapid growth, major policy shifts, and significant challenges.

The beginning of the decade saw India focusing on internal reforms, setting up robust frameworks to manage its emerging economic potential. Life expectancy at the beginning of the decade stands at 62 years, up by 9 years as compared to 1980. Literacy rate was 61%, up by nearly 13% compared to 1990s. By 2000, India was already making waves globally as its IT sector boomed. At the turn of the decade, Prime Minister Atal Bihari Vajpayee ji laid the foundation stone for the project “Golden Quadrilateral”. It was planned to be completed by 2006, but there were delays due to land acquisition constraints and disputes with contractors, it was finally completed in 2012. The Golden Quadrilateral would be a symbol of India’s infrastructure strength for the coming years.?

The decade saw the transformation of Bangalore, which was no longer just a city; it had become the face of a new, technologically driven India. Texas Instruments became the first multinational corporation to set up base in Bangalore in 1985 - and from there on, there was no looking back. Companies like Infosys, Wipro, and TCS were showcasing India’s talent to the world, fueling the growth of an entirely new economic segment: outsourcing.

The opening of the National Stock Exchange (NSE) derivatives market in 2000 was another step towards integrating the Indian economy with global financial systems. In a short span of 20 years, India (thanks to NSE!) would become the world’s largest derivatives market. In the same year, the government introduced the Fiscal Responsibility and Budget Management (FRBM) Act, aiming to reduce fiscal deficits and bring macroeconomic stability. The year 2001 marked India’s deeper engagement with the World Trade Organization (WTO), particularly in discussions on the Trade-Related Aspects of Intellectual Property Rights (TRIPS). India was negotiating its stance on pharmaceutical patents, attempting to balance the needs of its domestic healthcare sector with global trade regulations.?

Yet, even as India strengthened its global ties, internal challenges continued to surface. The Gujarat earthquake in 2001, draught and riots in 2002 wreaked havoc on life, infrastructure, & the social fabric of the country. It would take many years for our people to overcome these disasters.? The drought and the subsequent impact on agriculture served as a reminder that, despite the rapid modernisation of certain sectors, a large part of India’s economy was still agrarian.

This decade also saw the continued liberalisation of a key industry and laid the foundation for what would become one of the most significant stories of the decade - India’s telecom revolution. By deregulating the sector, the government opened the floodgates for private investment, creating competition that would make mobile phones and internet connectivity affordable for millions of Indians.?

From 2003 to 2007, India’s economy seemed unstoppable. GDP growth rates surged, reaching a record highs (nearly 8% yearly from 2003 till the global financial crises of 2008), making India the second-fastest-growing major economy globally, after China. The government also began its disinvestment drive, starting with Maruti Udyog Limited, signalling its commitment to reducing state ownership in commercial enterprises. This period saw the Indian government implement a series of critical reforms that set the stage for sustained growth. The introduction of VAT (Value Added Tax) in 2005 was a significant milestone in India’s taxation system, simplifying tax structures and boosting revenue collections.?

By 2004, India’s economic optimism had been validated with foreign exchange reserves crossing the $100 billion mark, a massive leap from the crisis-ridden early 1990s when India’s reserves were dangerously low. The stock markets were on an upswing as well, reaching record highs post the general elections of 2004, which brought the Congress-led United Progressive Alliance (UPA) to power. BSE witnessed significant improvements too. It was in this decade that its first ETF ‘Spice’ or ICICI Prudential BSE Sensex ETF, with the investment objective of providing returns that closely correspond to the total returns of BSE. The the world's first centralised exchange-based internet trading system, BSE Webx was also launched in this decade. BSE StAR MF – a Mutual Fund trading platform and BSE Volatility Index would see their birth in this decade as well

The new government, under Dr Manmohan Singh ji, continued to focus on growth, but with a distinct shift in priorities. The focus moved from urban-centric reforms to addressing rural India’s needs. The launch of the National Rural Employment Guarantee Act (NREGA) in 2005 was a direct response to the agrarian crisis that had been simmering for years. By guaranteeing 100 days of employment to rural households, the government attempted to mitigate the effects of droughts, failed crops, and unemployment. The period also saw India actively pursuing international trade agreements, with the signing of the Comprehensive Economic Partnership Agreement (CEPA) with South Korea. This was part of India’s larger strategy to integrate with global markets while safeguarding its domestic interests.

While the Indian economy enjoyed a robust growth trajectory during the mid-2000s, the global financial crisis of 2008 presented an unprecedented challenge. The collapse of Lehman Brothers and the ripple effects of the subprime mortgage crisis hit global markets hard. India, while relatively insulated due to its conservative banking system, was not immune to the global slowdown.

India’s GDP growth slumped to 3% in 2008, significantly lower than the earlier highs of 8%. The Indian government responded swiftly, announcing a $4 billion stimulus package, including reducing VAT by nearly 4%, to revive growth. Infrastructure spending was ramped up, and liquidity was injected into the economy to cushion the shock.

One of the highlights of this period was the launch of the Tata Nano, touted as the world’s cheapest car. Launched in 2008, the Nano was more than just a car—it was a symbol of Indian innovation and ambition, aimed at making car ownership affordable for the masses. Just a year ago, the Tatas would ink a historic deal; the acquisition of Jaguar Land Rover!

However, even as India celebrated its achievements in innovation, the corporate world was shaken by the Satyam Computers corporate scandal, which revealed major gaps in corporate governance and accounting practices. Amidst the economic turbulence, India’s telecom sector continued its remarkable journey. By 2009, India had overtaken China as the world’s fastest-growing telecom market, with millions of new mobile subscribers every month. This was a testament to the liberalisation policies introduced earlier in the decade, which had fostered competition and driven prices down.

As the decade drew to a close, India took a bold step towards modernising its welfare systems with the launch of the Aadhaar project in 2010. Spearheaded by Nandan Nilekani, Aadhaar aimed to provide every Indian citizen with a unique identification number, which could be used to access government services, subsidies, and benefits. The project was envisioned as a game-changer in reducing leakages in the public distribution system and ensuring that benefits reached the intended recipients.

India also rolled out 3G mobile services by the end of the decade, further enhancing its telecommunications infrastructure. The auctioning of 3G licences generated significant revenue for the government, while simultaneously opening up new avenues for mobile internet services, video calling, and online banking.

The stage was set for the next decade, one that would see India tackle new challenges in an increasingly interconnected world while building on the foundations laid during these transformative years.