India after 25 yrs of liberalisation

It’s a mixed story with growth process being asymmetric between different sectors of the economy

Published: 09th August 2016 04:00 AM  |   Last Updated: 08th August 2016 09:59 PM   |  A+A-

India after

At the stroke of midnight of 14th August 1947, Pandit Jawaharlal Nehru in his iconic speech, Tryst with Destiny, invoked the dreams of Gandhiji, “to wipe away tears from every eye”. Nehru said “that may be beyond us, but as long as there are tears and suffering, our work will not be over”. Since then till 1989, the politics of socialism and populism trapped India in the Hindu rate of growth (3.5%) and patronized the inefficient public sector undertakings (PSUs) as “temples of modern India”.

The fiscal crisis of 1990 was triggered by Rajiv Gandhi’s fiscal profligacy in the 1980s and  the oil price hike of 1990 led to unmanageable balance of payments deficit. 24th July 1991 was a watershed moment in India’s fiscal architecture as Dr Manmohan Singh rose as Finance Minister. He dismantled the legacy of TT Krishnamachari’s budget of 1957 which carried the ideological baggage of Prof Nicholas Kaldor who advocated capital gains tax, wealth tax, expenditure tax over and above income tax and made the tax regime extremely oppressive.

As we commemorate 25 years of liberalisation of the Indian economy, it is time to take stock of how the sweeping reforms have impacted the country. The legacy of that moment remains a mixed story. India is indeed a major economic power and with a GDP of two trillion dollars, it has positioned itself amongst the ten largest economies of the world. The structural reforms that Dr. Singh unveiled have been advanced by every successive union budget in varying degrees, and these have made way for private enterprise to occupy the commanding heights of Indian economy, which was earlier the preserve of PSUs. The reform package opened the economy to global competition, dismantled the notorious licence quota permit raj and expanded competitive contours of public services like health, education, telecommunication, public transport and infrastructure.

The automotive and pharmaceutical sectors have become the shining template of our global connect. The most significant change, growth wise, has been the share of exports in our gross domestic product which has increased from 13% (1990) to 25%. The overall savings has also gone up from around 24% of GDP to 31%, there by bolstering private investment.

There are two main premises on which our economic reform mosaic was predicated. The first is that it would unfetter the economy and spur economic growth and development. The second was that growth would create wealth and jobs through a trickle-down effect and erase poverty, hunger and want. On the growth front, the neo-liberal reforms have increased our annual growth from less than 5% in 1990 to an average of 7% during 2000-2015. However, the growth process has been asymmetric between different sectors of the economy.

The real wage in agricultural sector (which accounts for 70% of the population) has fallen from 2% to virtually zero percentage in the post liberalisation period. Further, based on a poverty line of 2$ a day, more than 80% of the rural sector continues to remain impoverished. The SECC Report (2011) has brought out how nearly 75% of India’s 895 million rural population earns less than `5000. The human development story is even more disquieting, as 42.7% of our children remain undernourished and as per the Human Development Report (2015), the infant mortality rate is at 4.4% as against 0.1% for the developed economies.

However, what is most disturbing is the indifference of the elite and the middle class towards the misery all around them. In a seminal book, Looking Away, Harsh Mander brings out the politics of indifference towards the poor and the minorities, particularly Muslims. Mander calls for a “floor of human dignity”, below which no human being should be allowed to fall. The Supreme Court in several seminal judgments like Olga Tellis Vs BMC (1985), mandated the state to be more sensitive in the matter of providing shelter to slum dwellers. The Unni Krishnan Vs State of Karnataka (1993) has made primary education a fundamental right. This has added a new dimension to the Right to Life under Article 21.

However, as Esther Duflo, an MIT Professor, wryly observes, “You cannot helicopter people out of poverty”. We need an empathetic government which will promote opportunity in terms of greater access to physical, financial and human assets to the poor and facilitate their empowerment and enhance social security. In India, evidence shows that the economic condition of agricultural labourers, SCs/STs and Muslims has remained in the backyards of public policy, post liberalisation. The Sachar Commission bemoans the economic plight of Muslims and finds their predicament similar to that of SCs/STs.

It was Adam Smith who wrote in 1776 that “The market forces, as if by the invisible hand, will promote welfare of all”. The liberalisation initiatives in India were predicated on such a free market spirit. India took baby steps in reforming its trade, financial and banking sectors. However, while the overall growth and export records have been encouraging, the agricultural landscape and the social sector have been caught in a quagmire of low productivity and public policy apathy.

The social sector allocation is around 5% of the GDP while developed countries spend more than 10%. Apart from inadequacy of allocation, the all pervading attitude of indifference of both the elite and the middle class has made the people in the margins soft targets of venal public officials, without accountability.

Elie Wiesel, the holocaust survivor and Nobel Prize winning Israeli physicist, spoke on the fore court of the White House on 12th April, 1999 about how “indifference is the friend of the enemy”. He was recounting how Franklin D Roosevelt did not intervene when a shipload of Jews were being taken to the gas chambers. History can be a cruel judge.

Prof S N Misra is a former Joint Secretary, Govt of India Email:


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