By Jayshree Sengupta
The liberalization of the Indian economy began in the 1980s when some policymakers realised that India was falling behind the Asian Tigers. It was Rajiv Gandhi, who wanted a real breakaway from past policies and initiated the process.
But the 1991 economic crisis necessitated the introduction of a package of structural economic reforms which comprised drastic changes from past policies as a condition for receiving IMF loans for bailing out India. These were aimed at trade, industry, infrastructure, disinvestment and policies towards the financial sector, and FDI.
The economic liberalisation that followed has unshackled India in many ways. There are gleaming airports, shopping malls, high-rise buildings and highways that one can be proud of. The middle class has grown to a size of 350 million and India is one of the biggest markets in the world. Indeed famous brand names are vying with each other to open shops in India because a great many Indians have the spending power and craving for branded goods.
In the 1990s, the licence raj was dismantled and imports and foreign investments were freed from past restrictions. Private enterprise was encouraged and today private enterprise constitutes about 20 per cent of the economy.
The telecom revolution was also ushered in after 1991 leading to the phenomenal growth of mobile phones. More Indians have mobile phones today (about 860 million) than they have access to sanitation and toilets. Similarly, there has been a big increase in the number of cars and the automobile industry has grown rapidly. Other industries that have flourished are pharmaceuticals, software and biotechnology.
India’s GDP growth rose from an average of 3.1 per cent in the past to an average of 7 to 8 per cent in the last one decade. Exports have grown at a rapid pace and per capita income has also risen much faster than before. Imports have led to an improvement in the quality of domestic goods and greater competitiveness in international markets. But imported inputs have also led to higher product prices and cuts in subsidies have led to higher fuel prices as they are now linked to the international oil price. Higher international food prices have impacted on domestic prices.
In the last two decades, there has been a rapid rise in urbanisation. Urban infrastructure has become inadequate as a result and though India has world class airports and shopping malls, and a sizeable number of dollar billionaires and millionaires, the power situation and the quality of water in big cities remain typically third world.
Full-fledged liberalisation, which began in 1991, was carried forward by the BJP Government and Prime Minister Atal Behari Vajpayee endorsed it. He continued with privatisation, reduction of taxes, sound fiscal policy and liberalisation of imports. Today India is a picture of a nation in transition in many ways. More people are traveling abroad than before, spending more on entertainment and eating out. The middle class is buying up a variety of consumer goods and durables but are also saving more. The saving rate has gone up in recent years to 38 per cent of the GDP. But the quality of public service has not improved, especially in health, education, infrastructure and judiciary.
Culturally also there are disturbing trends. While in clothing and fashion, Indian men and women are getting westernised rapidly, the greed for property, dowry and wealth has also increased. Inexplicably it has led to increase in female foeticide in some of the rich states resulting in an imbalance in the sex ratio. India is expected to see a 20 per cent surge in the number of young men in the future. More males than females would translate into social tension because India has the second highest rate of marriage (75 per cent) in the world.
The aspirations of the youth who now comprise more than half the population have been raised. Though they lack the proper qualifications, they nevertheless aspire for the same rewards as others with college degrees and training. This has led to frustration and an increase in crime.
Unemployment remains high, especially in villages and those without jobs are joining the Maoists. Roads in rural areas remain underdeveloped even though they have mobile phones, consumer goods, motorcycles and STD booths. Agriculture is beset with problems and public investment in storage, irrigation and roads has not been sufficient to lift more people out of poverty. There has also been tardy growth in agricultural productivity.
Thus, unless some important and critical areas are addressed, India’s growth story could be interrupted. There is already an unprecedented increase in corruption, lawlessness and lack of proper governance. Corruption is one issue which is at the heart of much public discontent and would remain so unless the Lokpal Bill and the Swiss money questions are settled. More opportunities to defraud the government have arisen with liberalisation and globalization and people in high offices who are without scruples are doing so regularly.
Neo-liberals also point out that India needs a change in labour laws. Out of a workforce of more than 400 million, 92 per cent are in the informal sector. They are without capital, assets, insurance or any safety net to fall back on. Their incomes are far lower than in people employed in the corporate sector. They need health care and education for their families. Unless there is a social safety net, the labour laws cannot be changed to facilitate easy ‘hire and fire’ policies in factories.
If India has millions (more than 300 million) still living in abject poverty then it is clear that liberalisation has not yielded the desired ‘trickle down’. Liberalisation has benefited those with capital, education, assets, property, skills and contacts. Working for multinationals has increased the salaries of some people manifold and they have access to lifestyles parallel to their counterparts in the West. On the other hand people living in slums are contracting diseases due to congested spaces, shared toilets, water borne diseases and lack of access to primary health care. Public hospitals are overcrowded with people queuing for hours to see specialists.
(The writer is Senior Fellow at
Obsever Research Foundation)