The economic reforms that India has embarked on since 1991 are known as LPG or Liberalisation-Privatisation-Globalisation, abolition of License-Permit Raj and the critic favored Crony Capitalism reforms. Whatever the christening, the reforms were essential at the time and that is where I would like to begin.
At the time, it was well known that our country had run dangerously low on foreign exchange reforms and it is also widely critiqued that India was arm-twisted by the Global economic powers into the reforms. But this overly simplifies the crisis that was India was staring as it brushes aside the deeper issues in the economy. Apart from the foreign exchange issue, India had a very high fiscal deficit and inflation fuelled by government profligacies- both revenue and capital expenditure were out of control. Lack of efficiency due to restrictions on private sector and an obese public sector meant poor export competitiveness while the nature of the economy meant we could not completely avoid imports.
The population was expanding but had no visible avenues for gainful employment apart from the microscopic private sector and inefficient small public sector. The concept of brain drain was part of school textbooks (I remember reading about it in 1999 for Civics) as the best option for an educated Indian was to follow what Gandhiji had said "Quit India". India was at the bottom of various social indicators like Infant and maternal mortality, life expectancy and literacy. As the state occupied commanding heights of the economy, it forgot to look at the grass roots level issues faced by its people.
Did the reforms resolve all the issues? The answer definitely is a NO. Then did the reforms fail? The answer there also is a NO. Although the purpose of the reforms was crisis management, the opportunity was used to rectify structural issues in the economy. How did the reforms achieve that?
Firstly, the abolition of License-Permit Raj ensured that private sector was allowed to grow. This indeed has happened and they are mostly free, especially in areas that do not require hard capital and resources. The growth of domestic steel, automotive, media, telecom and software sector is a direct result of this freedom. Secondly, the growth of private sector and greater employment for individuals reduced the need for social support while increasing government revenue which in turn contained the fiscal deficit and negated the need for fiscal profligacy which was euphemistically called deficit financing. Third, the entry of private sector without bondages enabled Indian products to be competitive in International markets and brought in much needed foreign exchange. The expectations of future growth also brought in foreign capital which has fuelled further growth in new age companies (Start-ups), infrastructure and even education (Eurokids, a pre-KG education chain has attracted foreign PE funds into India).
Next, the fact that they generated employment is stating the obvious, but they also allowed Indians to stay in India and support intellectual and economic growth in the country. Finally, as the state was being freed from running the entire economy and being the biggest player in the economy, it could now focus on being the umpire- act as a purely neutral regulator to ensure that the private sector played by the rules and also ensure progress at the grassroots level- meet basic human needs and support their upward social and economic mobility.
The reforms did not obviously generate the full results. One of the major reasons significant discretionary and opaque control over resources still lies with the state. The 2G and Coalgate scams owe their origins to this state control. Continued environment issues and unabated deforestation also owe their origin to Government interference in resource allocation under influence of the powers that be. The government also did not fully embrace social support as early as it should have. Our progress in various human development indices and social sector is behind that of Bangladesh and Srilanka which had lower economic success when compared to India.
Another issue was that when the change happened in 1991, there was a small class of Indians that were able to benefit from the resources. They were educated (Engineers, MBAs, Doctors etc) or in Government jobs (I benefitted from here as both my parents had Government jobs and so under that safety and periodic salary revisions, I had the freedom to study or pursue my own goals) or had already established business houses (Tata, Birla, Ambani, Godrej etc). For them, the reforms provided the opportunity to fully utilise their potential.
As a small section of the population benefitted from the reforms, the majority were in no position to take advantage of the changes sweeping through the nation. The state in fact, withdrew too much in certain areas- especially health, education, infrastructure and agriculture- and was late to assume the role of a regulator as it took time to find its way through the maze. Meanwhile, a majority of the population was caught in a torrent and thrown out of control as private sector started taking over or polluting land, water, forests and the air while having no access to education to lift them out of their situation, lacked health to fight for their rights and had opportunities restricted by the lack of infrastructure.
I would like to elaborate with the example of agriculture in India. State support for farmers is now on the decline, especially with the new farm laws where the government intends to promote contract farming, remove stockholding limits and abolish APMC act. The benefits and demerits of these legislations are beyond the scope of this article since we are limiting ourselves to the 1991 reforms, however this is a clear sign of withdrawal of state support. However, are farmers capable of living without this support? Are they all capable of entering into contracts with corporates? Is there a regulatory body or grievance redressal body to ensure fair transactions?
The state has also invested very little in improving farm infrastructure and supply chain- whether it be warehouses and cold storages to paved roads for farmers to take their produce to the market. Further support in modernising their farming practices- like mechanisation, water and soil conservation, getting certification for organic farming methods, awareness building on climate change and its impact- these are areas where the private sector will not see any benefits due to its inherent short term nature.
The government needs to support co-operatisation, creation of Farmer Producer Organisations, training and education for farmers etc. But the state has continued its pre-liberalisation era policies of Minimum Support Price and politically attractive but economically and environmentally disastrous policies like free power, subsidised chemical fertilisers and high MSP for water guzzling crops.
In conclusion, in addition to freeing up the private sector, the withdrawal of the state from the commanding heights of the economy should have freed up the government to divert its attention and resources generated from privatisation and new revenue streams to improving the daily lives of its masses and build a level playing field. Unfortunately, the excess withdrawal of state in certain sectors lead to the fruits of reforms of 1991 being restricted to a small minority that had the potential at the time while the majority of the population still needs state support to build their potential to utilise the opportunity presented by the reforms. The lack of effective and timely regulatory measures also played a part in cornering of resources by a savvy few which also needs to be effectively rectified.
