Bastion of Free Speech
Mohan Guruswamy
Even Rip van Sinha has now woken up to agree that the (Indian) Economy is in bad shape. But we did not need his authoritative voice to confirm what has been known for much of the post-reforms period that in media shorthand has come to be known as the “liberalization” decade.
The central problems of the Indian economy still continue to be: widespread and extreme poverty, low productivity and ever increasing disparities. If the performance of the post-1991 era is to be judged by these yardsticks then there is very little that can be said for the process that was ushered in by the Narasimha Rao government. What can be said is that the only real benefit of liberalization was that it freed certain sections from the oppressive control of the state, which under the pretext of central planning aimed at creating a socialist pattern of society actually created a corrupt system that resulted in a vastly unequal and under-productive society. The sections that were liberated from the oppressive and often mindless control of the state not surprisingly were the very ones who benefited most when we were trying to create a “socialist society”. Liberalization as we know it so far has still failed to address India’s core economic problems. Poverty has grown. Productivity has fallen. And income inequality has widened.
At this stage some personal clarification is required, as the debate that continues to swirl around liberalization has given rise to McCarthyism of its own. If you express dissatisfaction with the liberalization process, you are branded a socialist or worse a swadeshiwallah in khaki shorts. I have had the good fortune of being attacked by both since I am with neither. Neither am I an idiot who is unable to read facts. These facts tell a different story which is why we must question the quality of the economic policies that came to be adopted since the advent of liberalization.
In the recent days there has been some introspection about the benefits, if any, of the “liberalization” ushered in 1991-92. The facts now available do indicate that we have not done well after liberalization. So much so that even its progenitor, former Prime Minister P.V.Narasimha Rao, has called for a rethink on the impact of the policy shift he so boldly began. That there are still many economic and political dinosaurs around who still hanker for a command economy itself suggests that liberalization has not gone off too well. It seems that unlike dinosaurs, which became extinct 65 million years ago when a giant meteor crashed into the earth resulting in a series of cataclysmic events, Narasimha Rao’s liberalization meteor was a bit of a damp squib.
Liberalization was intended to primarily do two things. First and foremost it was supposed to accelerate industrial growth. Next it was supposed to attract huge inflows of foreign investment to finance infrastructure development. Neither happened. Industrial growth in the decade 1981-91 was 7.7%. Since 1991-92 it has been 5.8%. Foreign Direct Investment or FDI from 1991 to 1999 amounted to US$ 12879 million. Of this US$ 2440 million are NRI investments suggesting that a good part of it is actually money clandestinely stashed abroad and returning to bolster equity positions of owner-managers, a somewhat quaint term to describe people with small individual holdings who are still permitted to manage companies as personal properties and private fiefdoms. Former Finance Minister P.Chidambaram, one of the more hyper-enthusiastic high priests of liberalization, was of the view that India needed about US$ 10 billion or Rs. 43,000 crores of FDI a year if it had to pull itself up to world standards by the middle of the current century. Instead of the US$ 90 or so billion we wanted, we have so far attracted only US$ 13 billion. So how good was our liberalization?
There are other indicators too that strongly suggest that our liberalization rather than speed up our growth and development actually slowed it down. Agricultural growth, which averaged 4.04% p.a. for the decade 1981-91, fell to 2.3% p.a. for the period 1991-99. The impact of this can be most seen on food prices. The average annual price rise during the 1980’s for food articles was: Rice - 5.6%, Wheat - 5.7%, and Pulses - 11.2%. During the following decade these changed to Rice - 10.2%, Wheat - 9.5%, and Pulses - 11.4% (See Table 1). Since 1981 the area under food-grains and oilseeds crops has remained almost static at about 150 million hectares while the number of people working on the land has increased from 186.2 million in 1991 to 228.2 million in 1999.
| Foodstuff | 1980's | 1990's |
|---|---|---|
| Rice | 5.6% | 10.2 % |
| Wheat | 5.7% | 9.5 % |
| Pulses | 11.2% | 11.4 % |
This suggests a major slowdown in the growth of real incomes and wages in the rural sector because food grains production only grew from 176.4 million tons in the year 1990-91 to 192.4 million tons in the year 1997-98. The World Bank estimates the annual average growth of wage rates of unskilled agricultural male workers in the 80’s to be 4.6% as opposed to 2.5% in the 90’s. It would seem that but for lower wages because of greater availability of farm workers, the rise in food prices would have been higher. While all through the 1980’s the Wholesale Price Index grew at the average annual rate of 6.9% it grew at 8.8% in the liberalized roaring 90’s.
Copyright(c) Mohan Guruswamy, 2001. All rights reserved.