THE FAILURE OF THE NEO-LIBERAL REGIME IN INDIA

Neoliberal Economic policies: Gods that failed

Sarbeswar Sahoo Delhi  

with the neo-liberal economic reforms of 1991 and the structural adjustment of the economy, the Indian state made a transition from the state-led welfare-oriented economic paradigm to a more market-driven and capitalistic one.  These reforms constituted a radical rejection of the Nehru-Mahalanobis strategy of developing India on the basis of a closed economy with a significant role for the public sector. It was expected that reforms will open up the market and bring efficiency and competitiveness to it, increase the productivity of the manufacturing sector, generate growth and additional employment, and reduce poverty and inequality in India.  The neo-liberal capitalist growth model was cast as the panacea for all problems that India faced. The industrial policies based on self-reliance slowly gave way to export-oriented policies. India opened up its market to foreign capital, invited multi-national companies, reduced import tariffs and actively sought foreign investment in various sectors.  These reforms, several scholars have argued, helped India overcome the so-called ‘Hindu Rate of Growth’ (3.5 per cent annual growth rate) and dismantled the rigid rules of allocating industrial and commercial permits or the Licence Permit Quota Raj.

After initially growing at 5-6 per cent per annum following the reforms, India’s GDP grew at a rate of 8-9 per cent during the first decade of the 21st century.  Given this high growth, some scholars predicted India as the next economic super-power. Such sweeping predictions, however, ignored the ground realities. The ruling elite was more concerned about growth rather than its implications for people. In this context, The Alternative Economic Survey, India: 2012-13 makes an excellent contribution to evaluating the impact of neo-liberal policies in India in the last two decades. The central questions that the authors address are: Who has been the main beneficiaries of economic growth in India? And how have the neo-liberal policies affected the lives of the poor and marginalized groups of Indian society? Following a people-centric view and grounded in principles of equity, distributive justice and rights, the AES brings together 24 well-researched articles which critically examine the official policy regime and  show how the neo-liberal policies has failed to fulfil the promises. It also clearly shows how the neo-liberal regime have, despite promises of making growth humane and inclusive, blatantly served the interests of big capital and deprived the aam admi of fulfilling their basic welfare and citizenship rights.

 

Inequality and Regional Disparity

The authors argue that the neo-liberal policies have forced the Indian state to act in the interest of big capital and withdraw itself from social welfare activities. This has put the poor in a disadvantageous position and partly as a result of this, the Gini index for India has increased from 33 in 2005 to 38 in 2011 (p.25). Consumption inequalities have also increased over the years. A growing disparity in wealth and income between the privileged and the poor has been responsible for high inflation, which has made it difficult for the aam admi to afford necessary goods and services. Uneven economic growth has also widened regional disparity in India. While per capita income has increased for all states since the reform, there has been rising inequality between states. For example, states like Tamil Nadu and Andhra Pradesh have had higher growth rates than others. With their developed infrastructural facilities, these states have attracted foreign investments, whereas most of the other states have remained deprived of the benefits of economic reform.

 

Agriculture, Manufacturing
and the Job Market

Although India’s agriculture sector employs more than 50 per cent of the population, it contributes only 14 per cent to the overall GDP. Data show that 85 per cent of cultivators in India are small and marginal who cannot sustain their livelihood mainly on agricultural income (p.43). Even if agriculture grows annually by 4 per cent, agriculturists are not able to catch up with non-agriculturists, which has made it an unrewarding sector. As a result, people are forced to migrate; land is increasingly allocated for non-agricultural purposes; and large numbers of poor farmers are driven to suicide. The migration of male members and their declining participation in agricultural activities has also resulted in the feminization
of agriculture.

The performance of India’s manufacturing sector during the reform period has also been dismal. Compared to China’s 30.9 per cent, India’s manufacturing sector has contributed only 16.1 per cent to the GDP. Factors like “power shortage, inadequacy and high cost of credit, fluctuations in prices of raw material, and rising import intensity in machinery and transport equipment industries” have constrained the productivity of the manufacturing sector (p.81). Instead of generating employment, it has contributed to joblessness. The authors show that though “some segments of Indian manufacturing have performed well; the unorganised sector has significantly lost jobs during the second half of the 2000s.  Between 2004-05 and 2009-10, total manufacturing employment declined by 3.7 million, even as the organized-sector manufacturing employment in the country registered an increase
of 3.1 million” (p.89). 

 

Trade and Investment

The advocates of neo-liberal policies believed that an export-led growth model would generate employment and drive inclusive growth. However, the trade performance of India has been quite varied. Though the trade deficit declined rapidly in the initial years of reform, imports grew faster than exports in the latter half of the 1990s. In the decade of the 2000s, even when the GDP was growing, “imports also grew much faster than exports” (p. 132). Although the government has been trying hard to promote exports, it seems that the trade liberalization policies have been misplaced. The inflows of FDI, and other capital inflows, have fallen short of meeting the deficit and total borrowing (p.12). The exchange value of the Indian rupee has sharply declined against all major world currencies. The promise of an economic revival lies shattered in the face of the growing menace of predatory cronyism (p.7). The deregulation policies and lowering of tax rates have strengthened the black economy in India. The government has not been able to control the inflation, the imports, the trade deficit, current account deficit, exchange rate and various other measures of
fiscal deficit.

 

Human(e) and Sustainable Development

The authors argue that it is not the high economic growth, but providing the marginalized sections with access to basic education, healthcare facilities, nutritive food, safe drinking water and basic livelihood opportunities that makes development humane and sustainable. It is true that the incidence of poverty has declined for all the states; the rural-urban gap for literacy has declined for all the states; gross enrolment ratio has increased for India; infant mortality rate has declined in both rural and urban areas across states; and life expectancy has increased for both males and females over the years (pp.27-42).  While these are some positive developments, India has a long way to go. Poverty still remains a major challenge and prevalence of high inequality has had serious negative implications on human development indicators such as education and health care. India’s “medicine market is totally distorted”, making it unaffordable for the poor (p.162). Almost half of India’s under-five children suffer from malnutrition. In addition, women have been unfairly treated in the labour market and gender discrimination continues to be widely prevalent in all spheres
of society.

These continuing challenges, the authors conclude, clearly show that the neo-liberal policies have, except for a short-lived spurt in growth rate, achieved very little for the economy in general. On the contrary, such policies have openly promoted the interests of big capital and increasingly excluded large sections of people from participating in the so-called free marketplace. The volume suggests that it is time to take a big corrective measure and shift the policy emphasis from mere growth to inclusivity, social embedding, and distributive justice. The authors of this volume have revealed a nuanced picture of the various aspects of our economy after two decades of neo-liberal reforms. Based on thorough analysis, they discuss several critical issues that our economy faces in present times. This volume could very well be a timely, guiding document for future reforms and economic policy making
in India.  

 

 

 

This story is from the print issue of Hardnews: FEBRUARY 2014