By: Dr.Dipak Basu
October 11, 2004

The result of the recent election in India was surprisingly for the power that is in India : 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 countries.

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 oblivion.

Perspectives:

When swami 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 struggle). 

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 India since 1973, cannot avoid his responsibility.  The reason was the sudden collapse of the Soviet Union, 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.  .

The Reformers:

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 East Asia, 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 Asia, Japan has 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.

Economic Growth during the Reformed Regime:

Economic reforms 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 figures:

The 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. 

The 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)

                      1980-81           1990-91     1992-93       1997-98
                         To              To                To                 To
                      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
GDP            
Investments      6.48           6.93           9.63              6.68
Fixed Capital
Formation         6.72           6.88           8.49              6.48
Public
Investment       6.9              3.2            2.28              7.75
Private
Investment       7.60            9.01         11.68           10.98 
Public
Consumption   6.92           6.38          4.66             12.58
Industry            6.8             5.9             7.61               4.86
Agriculture       4.6             2.8             4.64               1.23
Services             6.6             7.6             7.55               8.82
ICOR                 3.65           4.35           3.72                4.47

Note: ICOR= Incremental capital to output ratio, an index of

Inefficiency of capital; Source: Economic Survey, 2001-2 

The 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 Singapore, Taiwan, 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 India.  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, India 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 from it.

Liberalization 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.

Economic ‘reforms’ 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:

The economic 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 business community. 

Employments during the ‘Economic Reform’. 

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.

Table 2: Employments in the Organized Sector (in Million persons)

                                                    1981              1990              2000

Public Sector   
Total                             15.484      18.772      19.314
Manufacturing           1.502          1.870         1.531
Construction                 1.089         1.134        1.092

Private Sector               

Total                              7.395         7.582       8.646
Manufacturing               4.545         4.457       5.085
Construction                  .072             .068        .057

Source: Economic Survey, 2001-2 

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.

In manufacturing, 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.

Employment- Destructions 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. 

Coal Mines: 20,000 workers have already lost their jobs; another 95,000 are waiting to be unemployed.  Coal is being imported from Australia and China.

Mica Mines: 8000 people have lost their jobs

Fertilizer: 12,000 people lost their jobs, now fertilizer is being imported

Mining Machinery: 4000 people have lost their jobs.  Machineries are imported from Britain

Steel: 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: 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.

Railway Wagon Industry: 12000 people are about to be unemployed while wagons are imported from a number of countries

Aluminium foils: 6000 people already lost their jobs; these are imported from the US.

Medicines:  India 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.

Electricity:  The World Bank had made it a rule that India has to import electrical machineries from China 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.

Railway Engines: 6000 people will lose their jobs if this sector will be privatized.

Aluninium: 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 India 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 Reform’ process.

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 in industry. 

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. 

Conclusion:

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 self-destructions.

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.

Dr.Dipak Basu