25 years of economic liberalisation!

KOCHI: The presentation of the Union Budget by Finance Minister Arun Jaitely on Monday will also coincide with the 25th anniversary of the onset of economic liberalisation in India. Dr. Manmohan Singh triggered the process in an innocuous manner in his now famous budget of 1991.

The economic policy-making in India has undergone a tectonic shift as Dr. Singh dismantled what has been derisively described as the ‘control and permit raj economy’ in a speech containing 31 pages.

A major point that underpinned the idea of economic liberalisation was that the government should step back from investment to facilitate the entry of private capital – both domestic and foreign capital – as the key driver of economic growth. Dr Singh justified the shift in the following words.

“After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment. Our entrepreneurs are second to none. Our industry has come of age. Direct foreign investment would provide access to capital, technology and markets. It would expose our industrial sector to competition from abroad in a phased manner.”

A review of the performance of the Indian economy in the past 25 years will show that the optimism in the words of Dr. Singh was not totally misplaced. Even the worst critic of the policy of liberalisation will concede that the process has brought a hitherto unknown dynamism to the Indian economy.

Although the well-being of an economy cannot be measured by the gross domestic product (GDP) data alone, the growth rate reflected in the GDP figures clearly shows an upward mobility. But, whether all sections of society have benefited from the growth is the million dollar question haunting persons concerned with the economy of the country.

The equitable distribution of the benefits of growth assumes importance in a country like India facing social and economic disparities dating back to centuries.

A major criticism of the liberalisation policy is that instead of bringing some relief to the age-old disparities the new economic policy has only helped in accentuating such disparities. According to the critics, the policy followed in the past 25 years has only helped in the rich getting richer.

Apart from the inherent bias towards the rich and powerful, the policy of liberalisation is also facing some fundamental questions especially in the background of the new-found enthusiasm for boosting public investment.

The policy makers and the industry chambers in the country have been clamouring about the need for public investment to pull out the economy from the prolonged slowdown. The words of Mr Sumit Mazumdar, the president of Confederation of Indian Industry (CII)-- “if required, we must go away from the stated path of fiscal deficit reduction in the interest of growth”-- is a reflection of the difficulties facing the economy.

In other words,  even after 25 years of liberalisation,  the major challenge facing the finance minister is a balancing act to cut the government expenditure and extending government largesse for shoring up investment. No an easy task for Mr. Jaitley.