Agonising Reappraisal of Liberalisation and Globalisation

The year 1991 marked a watershed, almost a U-turn, in the Indian economic policy pursued over forty years from 1951 to 1991, often described as a Nehruvian model of economic policy. The major features of that model included what came to be known as the ’socialist pattern’ of society, a planned economy, emphasis on public sector enterprises and heavy industries which were expected to gain the commanding heights of the economy, autarky, import substitution and self-reliance. The new economic policy introduced in 1991 by the Narsimha Rao minority government was a shift from planning to marketisation, from public sector and co-operative sectors to private enterprise, from command and control economy to de-regulation, from autarky to inter-dependence of an open economy, and from progressive taxation to moderate taxation on the high-income groups and corporates.

Genesis of Liberalisation and Globalisation

THE genesis of this policy has to be traced to the economic and political crisis which the country was confronted with and which was a big challenge faced by the Narasimha Rao Govern-ment. He appointed as the Finance Minister in his Cabinet Dr Manmohan Singh, an erstwhile civil servant, who had held high positions in economic administration. On his appointment, he immediately entered into discussions with the World Bank and International Monetary Fund which agreed to provide a standby loan and further assistance, subject to the condi-tionality of India’s acceptance of the Structural Adjustment Programme. The policy of liberalisation and globalisation, initiated by Dr Manmohan Singh, reflected all the elements in the structural adjustment programme which included fiscal discipline requiring a heavy cut in public expenditure, incurred in the name of the welfare of the common people. It also reflected the theory of ’the minimal state’, that is, a state which has no direct role in economic activities and gives free scope to the private enterprise.

The new policy was always described as a policy of economic reforms. But the government did not show courage to state that it has consciously and deliberately rejected the Nehruvian model. Its approach was somewhat timid and cautious so as not to invite criticism. Those who did not quite agree with the so-called economic reforms raised larger issues relating to the pattern of growth the economic reforms gave birth to, namely, the unequal distribution of the fruits of liberalisation, growing disparities between the rich and the poor, rise of consumerism, and mounting influence of the multinationals in the economy, and the erosion of national sovereignty.

As the five-year term of the Narasimha Rao Government was coming to an end, it decided to slow down the new policy lest it should alienate the common people. Despite this, the Congress lost power in the 1996 general elections. But the non-Congress governments from 1996 to 2004, of which six years were of the BJP Government, led by Atal Behari Vajpayee, continued the policy of liberalisation. The rate of economic development accelerated and the BJP made ’Shining India’ as its election slogan. But the BJP was in for a shock.

In the 2004 general elections the Congress emerged as the largest party and formed the government with outside support of the Leftist parties on the basis of a ’common minimum programme’. This put constraints on the reformist agenda of Prime Minister Manmohan Singh (the chosen candidate of Sonia Gandhi) and P. Chidambaram, as the Finance Minister, who could not undertake large scale disinvestment of the public enterprises and the opening up of retail, banking and insurance to the multi-nationals. Nor could the UPA Government, in its second term take the decisions for the so called, ‘second generation of economic reforms’, that is, liberali-sation and globalisation of the three sectors mentioned above. This attracted adverse comments from the big business and industry tycoons who made a stinging criticism of the government for its ’paralysis in policy-making’.

FDI in Retail Trade

TOUCHED to the quick, the government suddenly announced the opening of retail business to foreign direct investment raising its share to 51 per cent. This decision was opposed by the Opposition parties including the Leftist parties as well as the BJP. What was worse for the government, the two supporting parties—the SP and BSP, the regional parties in Uttar Pradesh, set for Assembly elections—as well the two allies, the Trinamul Congress and DMK, also opposed the decision. In the face of imminent Assembly elections, even two Congress MPs expressed their opposition. Newspaper reports stated that the Cabinet decision on the issue was not unanimous and some Ministers, including two Congress members, had expressed their reservations.

In the beginning, the government took a tough stand. The Prime Minister categorically stated that the government cannot roll back the decision and would stand by it. It ignored the nationwide one-day strike of the retail traders. But they had to reckon with the adamant stand on the issue of Mamata Banerjee, the TMC head. The government tried to convince her and others about the rationale of this ’reform’. Anand Sharma, the Minister for Commerce, Trade and Industry, held a press conference to explain the rationale. According to him, the opening of the retail trade to multinationals, like Walmart (American) and Tesco (British), would provide the much-needed modernisation of the retail sector. It would benefit both the farmers (better prices for farm produce) and the consumers (lower commodity prices by elimination of the exploitative middlemen thereby reducing the wide gap between producers’ prices and consumer prices). Foreign investors would substantially build up the back-end infra-structure like cold storages, refrigerated trans-port and roads, reduce wastes and improve the marketing system as a whole and create ten million more employment opportunities.

None of these arguments carried conviction. On the other hand, what was feared was that crores of small retailers in urban and rural areas, all self-employed, and their families would be thrown out on the streets creating economic and social crisis. The multinationals work for profit and as soon as they get hold of the retail market, they would use their monopolistic or oligopolistic strength to hold the farmers and the consumers alike to ransom. Mamata Banerjee, the chief of the TMC, was not convinced by Anand Sharma’s arguments. Pranab Mukherjee, the Finance Minister, spoke twice to her on phone (she refused to see him) but she insisted that the decision must be put on hold. When Mukherjee said that he would speak on the issue only in Parliament (earlier he had insisted that it was a an executive decision and the govern-ment does not have to take parliamentary approval forgetting that the executive decision was announced when Parliament was in session and sound parliamentary convention required such an approval.

But Mamata did not stop for Mukherjee to announce in Parliament. She publicly announced that the government will put the decision on hold indefinitely Mukherjee meekly announced that this decision will be indefinitely suspended till there would be unanimity amongst the ’stake holders’. Mukherjee added by way of expla-nation that if the government had pushed through the decision, the nation would have had to face mid-term elections! The bluff of a party with minority of seats in Parliament was called. This was a blow to the introduction of the so called second generation of reforms.

Another aspect needs to be mentioned. An official of the US embassy publicly declared support to the decision giving rise to the accusation that the decision was taken under the pressure of the US Government. The Union Governemnt denied this, but the suspicion persisted.

Liberalisation and the Welfare of the Common Man

REFORMS can’t afford to ignore the common man. No attempt has been made to explain the policy of liberalisation to the people nor has the new policy improved the lot of the common people. Rather, it led to the neglect of public investment in social sectors and agricultural and rural development.

The Central Government should get over the euphoria of liberalisation and pay attention to the implications of the new economic policy in terms of the welfare of the people and introduce necessary corrections.

The policy of liberalisation has led to a rural-urban divide. The economic reforms have over-looked the need for spatial planning, industrial dispersal and provision of public service in rural areas. Rural and agricultural economy suffered comparative neglect.

Its extreme manifestation was the tragic phenomenon of nearly two lakh farmers committing suicide in the era of liberalisation. The farmers were forced to commit suicide when they fell into a debt trap. While the cost of agricultural inputs increased, the prices of the agricultural produce fluctuated widely. The agricultural extension services got weakened and failed to provide the necessary guidelines to the farmers. Institutional credit, both by cooperatives and commercial banks, failed to meet the credit requirements of the farmers who were compelled to go to the moneylender despite the usurious rates of interest.

What was required was a comprehensive policy, including large public investment in irrigation and rural infrastructure, rejuvenation of co-operative credit, marketing and processing system, strengthening the agricultural extension services and sympathetic administration closely working with the farming community. Unfortu-nately, no such policy was formulated either by the Congress-led government or the BJP-led government. The larger aspect of the policy should have been strengthening the nature‘s life-supporting system by widely dispersed projects of soil and water conservation which would have provided ample employment opportunities if they had been taken up under the ’Right to Employment Programme’.

The policy of liberalisation has also led to continuous inflationary pressure with the result that the prices of essential commodities have gone up from time to time putting them beyond the reach of the common people. The public distribution system went into disrepair. The chief economist of the Finance Ministry, Kaushik Basu, has recently admitted that the government has been left without any instrument to control inflation.

The policy of liberalisation and globalisation has also led to exclusive emphasis on profits by the private enterprise at the cost of public interest. The tendencies of grabbing and acquisitive mentality have filtered down throughout the society. Instead of liberalisation leading to reduced corruption because of the end of the ‘licence permit raj’, it has instead led to new opportunities of corruption in misuse of public resources by the private entrepreneurs like builders and unscrupulous businessmen who joined hands with unscrupulous politicians in power. The fall in ethical standards has gone hand in hand with liberalisation in other countries as well like China, Russia, Italy and even Japan. No wonder the era of liberalisation in India has witnessed financial scams and scandals of huge proportions. The high traditions of public life, laid down by the leaders of India’s freedom movement, have all been forgotten. The corporate sector, which talked of high standards of ’corporate governance’, has also been thoroughly exposed by the Satyam episode. The cancer of corruption has spread throughout the economic and social system and needs drastic measures to curb it.

India’s economic growth is often compared with that of China. China has progressed much faster but it has an authoritarian government. On the other hand, India has a democratic system and, therefore, the Indian economic growth, it is said, would be enduring and demo-cracy would provide a mechanism for preventing corruption and financial crisis. Unfortunately this has not happened. Indian democracy is flawed and the mechanism of automatic correction of abuse of power leading to misuse of resources does not function.

Swadeshi, which was the watchword of great leaders like Lokmanya Tilak and Mahatma Gandhi, has often been decried by the advocates of neoliberalism. Swadeshi needs to be dynamically interpreted in the present context. Interdependence, which is implied in globali-sation, should not degenerate into dependence on dominant countries, nor should the state go down under the pressure of the mighty multi-national companies. It should not give up its role to give a sense of direction to the economy in public interest.

Liberalisation means that we have accepted the free-market economy. But free-market economy should not mean complete abandon-ment of planning. The market is not always rational, and needs to be corrected; it works under the pressure of those who command more resources at the cost of the common man. We should rather follow the example of countries like Japan, which plan on the basis of macro- economic forecasting, and France, which has a system of indicative planning. The Planning Commission should concentrate on the formulation of the long-term policies. Planning has to be multi-level and decentralised.

Globalisation

THE imperial powers had created a global system under which the economies of the colonised countries were tied to the appron strings of the economies of the imperial powers over a period of five hundred years of imperialism from 1498 onwards. The ample raw materials in those colonised countries were fully exploited by the colonial powers. The colonised countries emerged to freedom after World War II. The erstwhile colonial powers took a lead in creating a new international order through establishment of global institutions like the UNO and its subsidiary bodies, the World Bank, the IMF and, more recently in 1995, the World Trade Organisation.

After the collapse of socialism and disinte-gration of the Soviet Union, the USA remained the unchallenged superpower which has been trying to shape the world system according to its own design and for promoting its own interest. The present system of globalisation is a product of the efforts of the superpower. The US Secretary of State, Madelaine Albright, had once boasted of the US being the only indispensable country in the world; it, therefore, does not hesitate to make a disproportionate claim on the available natural resources and disproportionate use of energy without any regard for pollution and global warming. The so-called inter-dependent economy, based on free flow of goods and services, capital and finance, entrepreneur-ship and management and technology, in fact works in the interest of the US and other dominant economies. The World Bank, Inter-national Monitory Fund and WTO work under the dominance of the USA and follow policies which have come to be known as the Washington Consensus. This distorted system of globalisation has often led to instability and also resulted in growing inequalities. The structural adjustment policies imposed by the World Bank on countries in Latin America and Africa have led to disastrous consequences as in Argentina and Brazil. The one-sided approach of the World Bank and IMF was also seen in course of what came to be known as the East Asia Crisis of 1997-98. No wonder a people’s movement against global capitalism has emerged for mobilisation against globalisation to create a more humane and equitable economic and social order.

Economic Theory of Neoliberalism

THE Chicago School under Milton Friedemen asserted that the capitalist market economy is self-correcting. But the collapse of giant American financial institutions in 2009 gave a serious setback to the claims of unbridled capitalism. The collapse of American institutions had a cascading impact on Britain and other European countries as well as Japan. President Bush had to introduce a huge plan to bail out the American financial institutions. He was criticised for preaching capitalism to the ordinary people while promoting socialism to protect the huge financial institutions. America has not yet come out of recession. It will not do so unless the systemic defects, which have crept into the capitalist economy, are overcome. On assuming the post of the President of the USA, Barak Obama attributed the financial crisis to insatiable greed of the CEOs of American companies but he has not yet been able to overcome the systemic defects of American capitalism.

The US recession and economic crisis in the European Market countries persists. The Euro-pean leaders are at their wit’s end as to how to deal with the crisis. The nightmares of the Great Depression of 1929-30 have come back.

India, which had boasted in 2008 that the banking crisis of 2008 did not affect it because Indian banks were ‘regulated’, has also started feeling the consequences of the crisis on the US and Europe. The rate of economic growth has slowed down. Fiscal deficits have not diminished. Inflation persists. Prices of essential commodities are continuously rising. Export figures, inflated by wrong computer entries, are found to be falling. The Finance Minister has admitted that the economic situation is deteriorating; the government and its vaunted set of economists have no clue for dealing with the problems. Their predictions regarding the fall in inflation have been found to be no better than the predictions of astrologers! All that is done is that the RBI repeatedly increases the cash revenue ratio and interest rates. These measures have not been effective in controlling inflation. Clearly the problems are structural and not monetary in nature.

The theoretical foundations of neoliberalism are not sound. After World War II Keynesian economics drew attention to the factors behind unemployment in the capitalist countries and emphasised the importance of public investment and redistribution of income to overcome the same. Also a new body of economics, known as “development economics†, was formed and this emphasised the importance of the ’big push’ to be given by the state to enable the people of the developing countries to get out of poverty. However, the ascendancy of the Chicago School banished both these new schools of thought and restored the primacy of neo-classical economics and its backing of a totally free-market economy with no role for the state. This thinking is at the core of what has come to be known as the Washington Consensus which is at the back of today’s liberalisation and globalisation.

But a critical examination of the propositions of neo-classical economics shows that its foundations are not sound. The market is never perfect and human beings are not rational economic entities. There are different motivations behind economic transactions. A number of economists, including those who have been Nobel Prize winners, have shown the need for re-examination of the basic propositions of the free-market economy and liberalisation and globalisation based on it. The reality of capitalism is far different from the myths of capitalism propagated by the Chicago School.

If socialism has failed, capitalism has also not succeeded in solving the problems of humanity. There is a need for the search of alternatives. One alternative is ’participative economics’ as propounded by Michael Albert. The other is the Gandhian philosophy which has emphasised that the blind pursuit of material achievements is not the be-all and end-all of life. It is at the root of conflict and violence which we witness in the world in our competitive pursuit of economic interests. The essential propositions of Gandhian ideology are of great relevance today in the era of liberalisation and globalisation.

Formerly Secretary to the Government of India and Vice-Chancellor, Goa University, Dr P.R. Dubhashi, IAS (Retd.), is currently the Chairman, Bharatiya Vidya Bhavan, Pune Kendra. He can be contacted at e-mail: dubhashi@giaspn01.vsnl.net.in