October 11, 2004
The result of the
recent election in
was surprisingly for the power that is in
: the media, corporate world, and private institutional finance houses.
This source of power, along with their foreign supporters, has propagated
that everything is fine in India because the balance of payment is in
surplus, growth rate is high, foreign exchange reserve is at its highest
ever, with the rest of the world praising India. The defeat of the NDA
government is thus unexpected and the apparent victory of the Congress
party, which was written off just before the election, is more dramatic.
Achievements of the
NDA government cannot be ignored. In 1998, twenty-seven years after the
victory of India over Pakistan, Indians could feel proud to be Indian
after the nuclear weapons tests conducted by India to assert its position
to the world. In addition, several decades after the monumental efforts
to write an accurate Indian history by the Bharatiya Vidya Bhavan, serious
attempts were made by the education minister Murli Monohar Joshi, to write
an authentic history of India rather than to follow the history written by
the British imperialists. On the macro aspects, Indian economy has
behaved perfectly. However, The BJP and the NDA have failed to understand
the basic philosophy of the ‘Reform Programme’, as designed by the Western
financial institutions. The purpose of the reform policy is to create a
complete capitalistic economy with minimum public sector. ‘Welfare of the
common people’ is not its objective at all, but can be useful as a
propaganda tool to sell the idea to the politicians of the non-Western
BJP came into power
during the 1990s because it was the only party at that time, which paid
attention to the basic historical demands of the Indian masses. These
demands are: (a) for the assertion of self-respect for the Indian culture
and history; (b) for the fulfillments of the fundamental values of the
Indian society towards self- sufficiency, care for the underprivileged and
equality. The first is defined as “ the Hindu view of Life” and the
second can be called the “Swadesi Economic Policy”. Both of these have
their roots in the Indian heritage and civilization for thousands of
years. Any political movement, that have respected these values, have
prospered and those who have ignored these ideals have perished into
Vivekananda, repeating the Upanisads, gave the rising call to the Indian
masses, people of India have responded with the ‘Swadesi Movement’. The
main purpose of that movement was to achieve self-respect and to prove to
the world that Indians, who have inherited the greatest philosophical idea
of Hinduism propagating universal values, respects for all religions and
cares for all living creatures, are not inferior to anyone. Subhas
Chandra Bose in 1938 has founded the Planning Commission for all round
development of future India. One of his most important declarations was,
“India should not import anything which it can produce” (Indian
This idealism came
to an end when in 1991 Man Mohan Singh as the finance minister accepted
the I.M.F's stabilization plan along with the more savage ‘Structural
Adjustment Programme” of the World Bank and signed in the G.A.T.T treaty
which was described by Muchkund Dubey, Indian’s chief negotiator to the
G.A.T.T, as unequal and unfair.
The mistake Man
Mohan Singh made was obvious. The reason for the sudden collapse of the
Indian economy in 1991 was not due to the failure of the economic planning
and the public sector. If so, he himself, who was in the forefront of the
economic policy making in
since 1973, cannot avoid his responsibility. The reason was the sudden
collapse of the
the destination of 20 percent of
India’s exports and
supplier of strategic imported materials like petroleum at a highly
subsidized price. Another reason was the sudden disappearance of the
remittance of the Indian workers in the Middle East due to Iraq’s invasion
of Kuwait. However, the IMF-WB took that crisis as an opportunity to
destroy the self-sufficiency of India and impose a colonial economic
system, where the Indian economy would serve the interests of the
multinational companies of the developed countries. While multinational
companies would decide the location, content and characteristics of
investments, a large part of the manufacturing and core industries like
steel, coal, and machineries may disappear in competition with the imports
from the rest of the world. It would also mean impoverishment of
agricultural sector, as farmer would be unable to compete against highly
subsidized agricultural imports. In order to implement these damaging
policies public sectors must be removed from the commanding heights of the
economy, but can have some subordinate role. The Financial sector of
India, through privatizations and infusions of international finance,
would serve the investment plans of the international financial
institutions and multinational companies and acts as their Indian agent.
Mon Mohan Singh
through his acceptance of the IMF-WB’s ' Structural Adjustment Programme'
has faithfully implemented these anti-people and pure capitalistic market
oriented policies. In India, these are called 'Liberalization' or 'Reform
Programme'. India came too late in this picture. The same type of
policies were implemented in a number of countries in Latin America,
Africa, former Yugoslavia, former Soviet Union and East European
countries, ruining their economies and turning their people into
destitute. However, in 1995, Mon Mohan Singh in a parliamentary debate
falsely claimed that these policies have solved the problem of poverty in
the South East Asian countries. Countries in South East Asia who have
followed these policies, Indonesia, Thailand, Malaysia, the Philippines
are still poor. In
countries that came out of poverty,
Japan, South Korea,
Taiwan, have followed a very strict version of the planned economy, very
different from the liberalized economic reform policies.
In 1995, Man Mohan
Singh has declared in the Parliament that in future in India, the
government will only take care of the law & order and defense. Everything
else will be in the private sector, as it is in the U.S. The most
developed country in
followed the example of Bismarck’s Germany and implemented a planned
economy over a very long period, from 1860 to 1945 and again from 1950 to
1985. Only when the economy is fully mature, it has started relaxing the
controls a little since 1985. However, when it has faced economic
stagnation during the 1990’s, instead of following “economic Reform
Programme’ it has started re-nationalizations of the banks and financial
institutions, distributions of huge subsidies for the industrial sector
and total protection for the agricultural sector with 500% duty on rice
imports. Japan has so far resisted the advice of the Western economists
to destroy its economy.
Neither Mon Mohan
Singh nor Chidambaram has learned any lesson from these experiences.
Their governments were both defeated in elections in 1996 and 1998. Mon
Mohan Singh himself was defeated in the election in 1999. Now the NDA
government is also defeated. Because the poor and uneducated but wise
people of India understood from the very beginning that the market
oriented ‘economic reform’ policy is a ploy to deprive them of whatever
gains they have made since independence from the unsympathetic
governments, who have raised the slogans of ‘a socialistic pattern of
society’, and ‘Garibi Hatao’, or ‘Roti Kapra Mokan’ but failed to deliver
these. It is unjustified to put the blame on the BJP government, as it
has only followed the same economic policy initiated by Man Mohan Singh.
The results of these policies throughout the 1990’s are clearly visible.
during the Reformed Regime:
have started in 1991-92. The argument of the proponents was that the
previous regime of the planned economic development in India has the
result of a very slow growth of the economy, the so-called ‘Hindu’ rate of
growth. The ‘Reform process’ was expected to bring in a new phase of
rapid economic development by removing the distortions caused by
restrictive government policies under the ‘planned’ regime of 1951-90.
Let us examine what are the consequences of the ‘Reform Process’ on
economic growth. The following table gives us the comparative
overall growth rate of the GDP (Gross Domestic Product) in the ‘planned
regime’ has not done that badly during 1980-90 compare with the ‘reformed
‘ regime during the 90’s. In fact, in the later part of the ‘reformed’
regime from 1997 the growth rate of the economy was much worse than during
the ‘planned’ regime. This is true in almost every area, per-head income,
fixed capital formation, government consumptions, and growth rates for
industry, agriculture, and the efficiency of capital. Only in service,
sector and private investments did better during the ‘reformed’ regime.
In agriculture, the most important part of the economy, the performance of
the ‘reformed’ regime is the worse.
most important argument of the supporters of the ‘reformed’ regime that
planned economy was inefficient, is not supported by the facts. The
incremental capital to output ratio (ICOR) signifies the inefficiency of
capital, if it is growing the economy is getting increasingly inefficient
to utilize capital. This is what has happed in the ‘reformed’ regime of
the 90’s, where the ICOR had gone up from 3.65 during the 80’s to 4.35
during the 90’s and to 4.47 during 1997-2000, proving exactly the opposite
of what the ‘Reform Programme’ has claimed.
Table 1: Comparative
Economic Growths under ‘Planned’ and ‘Reformed regimes in
India (Growth Rates)
1989-90 2000-01 1996-97 2000-01
GDP 5.81 5.61 6.68 5.35
Per-head 3.67 3.68 4.75 3.42
Investments 6.48 6.93 9.63 6.68
Formation 6.72 6.88 8.49 6.48
Investment 6.9 3.2 2.28 7.75
Investment 7.60 9.01 11.68 10.98
Consumption 6.92 6.38 4.66 12.58
Industry 6.8 5.9 7.61
Agriculture 4.6 2.8 4.64 1.23
Services 6.6 7.6 7.55
ICOR 3.65 4.35 3.72
Note: ICOR= Incremental capital to output ratio, an index of
Inefficiency of capital; Source: Economic Survey, 2001-2
saving rate during the ‘reformed regime’ is stagnant now. In 1990-91, the
national saving, as a percentage of the national income was 23.1. In
2000-1, it was 23.4. Without the increase in the saving rate, the economy
cannot grow, as savings means supply of capital for growth. The fantastic
growth rates observed in
South Korea and above all in Japan during the post-second world war period
was due to their very high rate of savings, more than 34 percent. In
China as well, savings rate is more than 40 percent, but the Chinese
statistics are unreliable. In India, the saving rate is 23 percent and it
has not gone up much for the last ten years. The great ambition of India
to achieve 8 percent growth cannot be materialized without massive
increase in the saving rate.
However, the recent recommendations of the Kelkar Commission on public
finance would remove all incentives for savers, will abolish compulsory
provident funds and pensions for the employees; these will be replaced by
the Chilean style voluntary private pensions. The possible effects of
these policies are all directed against savings.
If the government expects that foreign investments are going to rescue the
economy, there is no evidence anywhere in the world that an economy can be
developed using foreign investments alone. Foreign investments follows
high rate of economic growth. Japan and South Korea have developed their
economies without any foreign investments. Flows of Western foreign
investments to China started only after China has achieved, if we believe
Chinese statistics, double-digit growth rates for her economy.
The cost of whatever growth the ‘reformed’ regime has achieved so far, is
the high level of debts for
The total external debt outstanding for India has gone up from US$ 83.8
billion in 1991 to US$ 100.3 billion in 2001. At the same time,
is having a huge amount of foreign exchange reserve, signifying the
inability of the Indian economy to absorb foreign capital. That is
preventing Rupee to go down in order to maintain India’s competitiveness
in the world economy. A country must devalue when it receive foreign
investments, if it is unable to do that its balance of payments will
sooner or later will collapse and there will be sudden outflows of money
which can destroy the economy. A situation similar to that already took
place in South-East Asia in 1998, however India has not learned any lesson
measures have benefited a minuscule section of the society. They have
encouraged growth of monopoly houses reflected in the rapid growth of
their assets. For example, assets of Tatas increased from Rs 85,310
Million in 1991 to Rs 474,460 Million in 1998-99, that is, in just eight
years. Over the same period assets of Reliance rose from Rs 360,00
Million to Rs 337,570 Million and that of Essar rose from Rs 7,560 Million
to Rs 171,450 Million. Likewise, other industrial houses also registered
phenomenal growth in their assets.
particularly the liberalization measures have enabled private companies to
earn huge profits even during the latter half of the nineties when
industrial growth was sluggish. In the year 2000, net profits of Reliance
industries, the largest private sector company increased by 41.3 per
cent. Net profits of Tata Steel rose by 49.7 per cent, of Grashim
industries by 43.3 per cent and of Hindustan Lever by 27.8 per cent.
Among the top 10 private sector companies Telco and Larsen and Toubro were
the only companies, which failed to register an increase in their profits
in the year 2000.
The government in a
way has rendered the Public Distribution System (PDS) irrelevant. People
have been divided into two categories - those below the poverty line (BPL)
and those above the poverty line (APL). A large number of people above
the poverty line are really poor but the issue prices of food grains,
which were fixed for them under the PDS, are either equal to the prices
prevailing in the market or even higher.
For the people BPL
the issue price of wheat was raised from Rs 250 per quintal in 1997-98 to
Rs 450 per quintal in 2000-01. Likewise, the issue price of rice has been
raised from Rs 350 per quintal to Rs 565 per quintal. At these increased
issue prices of food grains most of the rural poor now find it difficult
to purchase their monthly quota of ration. The food subsidy has been
drastically reduced and the results are there for everyone to see.
Presently 63 million tones of food grains are lying in the warehouses of
the Food Corporation of India and yet the people are dying of starvation
in the rural areas.
Two major factors
are responsible for the present ruination of agriculture in this country.
First, in its eagerness to reduce fiscal deficit the government has
substantially reduced the development expenditure in agriculture.
Secondly, import liberalization has contributed in a big way reduction in
the prices of agricultural products. Having failed in getting
remunerative prices for their products, many farmers have curtailed their
farm operations, which in turn have increased unemployment among the
agricultural workers. Import liberalization is thus a major cause of the
existing plight of the peasantry. Suicides by many farmers in the recent
past reflect the consequences of the liberalization measures.
Increased Poverty during
the Reformed Period:
reforms have contributed to increased poverty and economic inequality.
According to the NSS (National Sample Survey) in 1983, while 45.6 per cent
of the rural population was below the poverty line, the incidence of
poverty in urban areas was around 40.8 per cent. Hence, the overall
incidence of poverty for the country as a whole was 44.5 per cent. By
1990-91, the incidence of poverty had declined to 35.0 per cent in the
rural areas and to 35.3 per cent in the urban areas. Taking the two
sectors together the incidence of poverty was 35.1 per cent. This implies
that during the eighties the increase in growth rate coupled with the
poverty alleviation programme led to a significant decline in the spread
of poverty. This trend was however reversed during the nineties and the
liberalization decade witnessed a steep rise in the incidence of poverty
particularly in the rural sector.
In 1998, 45.2 per
cent of the population in rural areas was below the poverty line. Even
overall, situation was not distinctly better as at the country level rural
and urban sectors considered together 43 per cent of the population was
below the poverty line.
The rise in the
overall poverty ratio during the post-reform period in spite of the higher
GDP growth is to be attributed to the growing rural-urban divide. The
53rd round of the NSS data for 1997 (January to December) reveal that
India's rural poverty ratio has gone up by 3.42 per cent between 1991 and
1997 even as urban poverty ratio declined marginally by 1.32 per cent.
Measured in terms
of monthly per capita expenditure, the poverty ratio was estimated at
33.97 per cent in the urban areas in 1997 against 35.29 per cent at the
beginning of 1991 (46th round of NSS data). On the other hand, the
proportion of rural population in the poverty bracket had risen over the
same period to 38.6 per cent from 35.04 per cent.
The 54th round of
NSS for 1998 conducted between January and June 1998 shows a widening of
disparity between rural and urban expenditure at both current and constant
prices. In absolute terms, the average per capita expenditure at current
prices rose from Rs. 244 in 1991 to Rs. 382 in 1998 in rural areas and
from Rs. 370 to Rs. 648 in urban areas. At constant prices, the
expenditure has actually declined from Rs. 164 in 1991 to Rs. 153 in 1998
in rural areas and rose from Rs. 257 to Rs. 269 in urban areas.
Supported by the
World Bank, India government has introduced a new method of calculation of
the poverty rate so as to hide the facts and propagate a massive
reductions of the poverty rate which given the increasing rate of
unemployment can not be supported by the facts. The methodology for
collecting data on consumption expenditure was changed by the NSS for the
55th round and the government got the estimates of the poverty, which were
not comparable with the earlier estimates. One of the major flaws is to
assume that the rate of poverty in the villages around an urban center is
the same as the city itself.
The NSS data for
1999-2000 reveals that the rate of growth of total employment fell sharply
from 2.04 per cent per year during 1983-94 to 1993-94, to only 0.80 per
cent per year in the 1993-94 to 1999-2000 period. On the other hand,
labour force has grown at a rate of 2.0 per cent per annum during the same
period. How poverty can go down when unemployment is increasing only the
World Bank and the India Government can answer.
However, these biased estimates of poverty based on the data obtained from
the 55th round of the NSS showed lower incidence of poverty, the
government said that the incidence of poverty declined during the decade
of economic reforms. This is the approach of the government s throughout
the developing world to manipulate the methodology to obtain convenient
results, India is not an exception.
As a result of the
reform measures of the nineties, income inequalities have increased. In
1992, the lowest 40 per cent households had accounted for 20.6 per cent of
the national household expenditure. Their share however declined to 19.7
per cent in 1997. In contrast, share of the top 10 per cent households in
the national household expenditure rose from 28.4 per cent to 33.5 per
cent over the same period. This accentuation of income inequalities may
be attributed to the reform measures of the nineties, which on the one
hand denied employment opportunities to the common people but enriched the
Employments during the
The most important indicator of success of an economic regime is in the
employment generations. In this matter, the ‘reformed’ regime has little
to demonstrate. There is no reliable statistics regarding unemployment in
India. The government produces statistics only on employments in the
organized sector of the economy, which is a very small part of the
economy. We can only guess what is the real situation for the whole of
the economy from these statistics, as given in Table 2.
Employments in the Organized Sector (in Million persons)
15.484 18.772 19.314
Manufacturing 1.502 1.870 1.531
Construction 1.089 1.134 1.092
Total 7.395 7.582 8.646
Manufacturing 4.545 4.457 5.085
Construction .072 .068 .057
Increase in employments in the public sector was much higher during the
‘planned’ regime of the 80’s than during the ‘reformed’ regime of the
90’s. This is true for both the manufacturing and the construction
sector. In the private sector, although the total generations of
employment are higher during the ‘reformed’ regime, in the construction
sector it has failed.
the employment actually went down from 6.85 millions in 1998 to 66.2
millions in 2000; in agriculture employment went down from 1.49 millions
in 1992 to 1.42 millions in 2000; in mining it went down from 1.12
millions in 1994 to 1.01 millions in 2000. The only sector that has
showed improvement is the service sector, where employment went up from
17.53 millions in 1990 to 18.92 millions in 2000.
From the data
obtained from the 55th round of the NSS, it is obvious that the usual
status unemployment rose by 2.3 per cent in the liberalization period.
Unemployment increased far more, that is, 5.7 percent in terms of daily
status over this period. The main factors, which have contributed to
persistently increasing unemployment, are drastic reduction in development
expenditure by the government, indirect lay-off of workers in public
sector undertakings, massive retrenchment of workers in the private
manufacturing sector and closure of a large number of small-scale
factories in different parts of the country.
The Montek Singh
Ahluwala Committee has admitted that the daily status unemployment had
risen from 6.03 per cent in 1993-94 to 7.32 percent in 1999-2000.
Nonetheless, the committee has recommended contractual recruitment of
labour and an easy procedure for the retrenchment of workers. These will
nevertheless lead to still larger unemployment in the years to come.
during the ‘Economic Reform’
There is no official statistics on how many jobs were destroyed during the
period of ‘Economic Reform’. From various fragmented information we can
compile a list, which is certainly not exhaustive.
20,000 workers have already lost their jobs; another 95,000 are waiting to
be unemployed. Coal is being imported from Australia and China.
8000 people have lost their jobs
12,000 people lost their jobs, now fertilizer is being imported
4000 people have lost their jobs. Machineries are imported from
20,000 workers have already lost their jobs another 23,000 in (IISCO) are
waiting to be unemployed. Steel is being imported from Korea.
Rubber farmers are committing suicides in South India; rubber is being
imported from Malaysia. 8000 workers of Dunlop have lost their jobs.
There is increasing volume of imports of tires from abroad.
12000 people are about to be unemployed while wagons are imported from a
number of countries
6000 people already lost their jobs; these are imported from the US.
government had closed down public sector medicine manufacturing plants.
After 2005 when the full-scale patent regime of the World Trade
Organization will come into force, Indian companies will not be allowed to
produce generic drugs, major job losses are expected.
The World Bank had made it a rule that India has to import electrical
if it wants loans from the World Bank in the reformed electricity sector
in India. Indian public sector electrical machinery manufacturing
companies are not in the list of approved contractors of the World Bank.
Major job losses are expected in this sector very soon.
6000 people will lose their jobs if this sector will be privatized.
Already 4000 people have lost their jobs, other are waiting to be
unemployed. Aluninium products are being imported from the US.
Most of the job losses are the result of the trade policy imposed upon
India by the World Trade organization as a vital part of the ‘Economic
Reform’ process. World Bank has anticipated that even in 1992 when it
gave about US$ 10 Billion loan to
to pay compensations to the future unemployed workers in the industrial
sector of India. Now E.U is offering similar kind of loan to India. It
is essential to understand that the purpose is to scale down Indian
industry in particular to open the economy for imports as part of the
liberalized trade policy, the essential ingredient of the ‘Economic
India is not
alone in this matter. In Thailand after the devastating economic crisis
of 1998, the World Bank-IMF have advised Thailand to close down as many
industries as possible. According to one well-known British economist,
Tim Congdon, the comparative advantage of Thailand is in rice exports, not
This is not a
great success story for the ‘reformed’ regime. However, what the
statistics could not tell us is the growing fear of job losses,
replacements of permanent jobs by temporary jobs. Areas where jobs are
being created are not the areas where jobs are being destroyed. Given the
immobility of Indian labour and linguistic racism that exist in India, the
result is increasing unemployment.
Success or failure
of any economic programme is measured by the welfare it generates for the
people. If an economic policy creates increasing hopelessness and
unemployment, it is high time to think again and reverse the course of
action. Reforms should be aimed at reductions of corruptions, increased
efficiency and extensions of the public services, increased employments
and reductions of inequality and poverty. Instead in India economic
reforms is trying to hit hard on those who are the weakest in the society.
It is a false
argument propagated by the international financial institutions controlled
by a few Western nations, that economic planning is inefficient and a free
market economy can increase welfare of the people. In USA, poverty is
widespread and visible. Introductions of the market system in the former
Soviet Union and East European countries only brought poverty and misery
for the once prosperous people. Economic reform programme was initiated
first in Chile, Bolivia, and Ghana during the mid-eighties. None of them
could develop since then but went down under piles of debts. India will
not be any different in future unless it will reverse the process of
Because of these
fears, people of India wanted to have a change to get rid of the
anti-people ‘Reforms’. Unfortunately they got instead the worse group of
people: Man Mohan Singh, Chidambaram, Montek Singh Aluwala, Jayaram Ramesh,
all staunch supporters and architects of the ‘Economic Reform Programme’.
For the majority of poor people of India, it is like going from hot oil to
the burning fire. The net result of this election is thus, a complete
betrayal of the wishes of the Indian masses.
Do you wish to reach IndiaCause readers?
Write @ IndiaCause
Copyright and Disclaimer:
The author is solely responsible for the contents of the
opinion/column/letter. IndiaCause does not represent or endorse the
accuracy, completeness or reliability of any opinion, statement, appeal,
advice or any other information in the article. Our readers are free to
forward this page URL to anyone. This column may NOT be transmitted or
distributed by others in any manner whatsoever (other than forwarding or
weblisting page URL) without the prior permission from
IndiaCause and the author.