India was faced with a serious balance of payments (BOP) crisis in 1990-91, following a decade of expansionary | policies, accompanied by both indiscriminate commercial borrowing abroad and trade liberalization, and in the immediate context of adverse international developments especially with respect to the price of oil. Thanks to the same expansionary policies financed by large scale internal borrowing and large budgetary deficits arising from an unwillingness to tax the rich to finance increased government spending, India also ran into a fiscal crisis, with government's revenues falling far short of expenditures. The twin crisis of BOP and fiscal crunch was used by the minority government of Narasimha Rao to push through a programme of structural adjustment dictated by the world bank and the IMF. The essence of this programme, pursued especially vigorously by the NDA government during the last three years, has consisted of the following steps:

• A sharp reduction in government spending, especially on capital formation development and social welfare.
•  A programme of privatization of public sector enterprises, ostensibly on efficiency grounds, but in reality for ideological reasons and to meet fiscal deficit targets set by the Bank and the Fund by raising revenue through sale of public sector assets at unconscionably low prices.
•  Accelerated liberalization of imports of both goods and capital
•  Numerous tax and other concessions for both foreign and domestic capital, to attract inflows of capital and stimulate investment.
• A severe cutback in government subsidies for food, fertilizers and power, accompanied by a rise in the costs of borrowing for government resulting from financial deregulation leading to higher interest rates.
• Active promotion of stock markets and speculation, accompanied by discouragement of household saving in other forms of small savings
•  Deregulation of industry and gradual removal of protective legislation for labour.

It has been repeatedly claimed by the proponents of reform policies that the crisis of the Indian economy in 1991 and its earlier slow growth were the result of too much state involvement in the economy, both as direct producer and as regulator. As a corollary, it was claimed that the policies of deregulation and opening up of the economy to foreign capital and commodity imports, accompanied by a process of privatization and withdrawal of the state to make way for the "efficient" private sector, would unleash the inherent dynamism of the economy and that rapid growth, greater employment and reduction of poverty will follow. What has been the track record?

III. TEN YEARS OF REFORM 1991-2001: THE RECORD

• The GDP growth rate during the 1990s has been more or less the same as in 1980s i.e. THERE HAS BEEN NO BREAKTHROUGH AS A RESULT OF LPG (Table 1)
• Second half of 1990's has seen a deceleration in the rate of GDP growth (Table 1)
• Agriculture has seen a sharp decline in growth and is in crisis. (Table 2)
• Food grains growth has been slower than the growth rate of population during 1990s, for the first time since independence (1.6% vs. 1.8%)
• Industrial production has also decelerated sharply in the second half of 1990s (Table 2)
• Main growth sector in the 1990s has been "services" including especially real estate and financial services. A part of the "growth" in services is merely on account of pay revisions for government and quasi government employees (Table 2)

Equity

• Bonanza to the rich, manifested especially in a decline in the tax to GDP ratio (Table 4). If the tax-GDP ratio had remained constant at the level it was just prior to the start of the reforms, the additional revenue in 2000-01 would have been of the order of Rs. 26000 crores!
•  Sharp decline in pro-people subsidies, leading to increase in prices of food grain, electricity and mass transport fares.
   
  • Sharp decline (as well as fluctuations) in non-food grain prices on account of import competition in conjunction with rising costs of production and stagnant productivity (arising from collapse of public investment in agriculture), amounting to a double squeeze on fanners. These developments have led to great misery among farmers, brought out most dramatically and tragically by the suicides of thousands of farmers in Andhra Pradesh, and a smaller number in Karnataka, two states with blindly pro-reform governments.
  • Food security abandoned, with PDS prices sharply increased and misplaced attempts at targeting. Result: An anomalous situation of 65 million tonnes of food grains stocks with government (FCI), but increase in starvation deaths and mass hunger.
  • Sharp deceleration in employment growth (Table -5) Only a small part of it is attributable to improved school enrolment. The decline, especially steep in rural areas, is attributable, in particular, to the collapse of public investment, increase in imports, and the cutbacks in rural employment programes together with the reduction in input subsidies for agriculture.
  • Virtually no decline in percentage of population below poverty line despite growth in GDP. (Table-6). Though the government claims that the proportion of households below the poverty level came down to 26% IN 1999-2000 based on NSS data, it is now accepted that the methodology followed for assessing was faulty. Independent evidence has led most scholars studying poverty in India to conclude that the proportion below poverty line in 1999-2000 is not below what was observed in the previous "full sample" NSS round in 1993-94, and may be marginally higher. The most important point here is that while poverty rates showed a tendency to decline since the mid 1970s, this decline has been halted after the re forms process began in 1991. '

  IV. A Rational Alternative

  It should be clear from the foregoing that:

  • The present system is the very definition of irrationality, dictated by the logic of globalization of finance capital.
  • Obsession with the fiscal deficit is preventing use of food grain stocks and foreign exchange reserves for stimulating the economy.

  The path of neo-liberal reforms is also entirely inconsistent with the economic philosophy and policy advocated by Dr. Ambedkar. Its consequences, in terms of employment and distribution, confirm Ambedkar's apprehensions regarding the implications of the private enterprise economic system. An alternative to the policies currently being pursued is presented in the following line, keeping in mind Ambedkar's observations on land reforms and the role of the State in economic development. It is presented in two parts, the first pertaining to what is immediately possible, and the second referring to the long term.

  Immediate Alternative Policy

  • Use food stocks for a massive and productive food for work programme, thus creating rural public assets and improving infrastructure.
  • Raise tax-GDP ratio by enhancing direct taxes on the rich closing loopholes and punishing tax evasion severely.
  • Use thus enhanced revenue to build badly needed infrastructure in transport, communications, energy, health and education, and to revitalize public sector enterprises instead of pursuing mindless privatization at throw-away price.

  The Long Term Alternative

  • Basic and thorough going land reforms.
  • Consistent decentralization and democratisation, involving devolution of both finance and functions to local bodies.
  • Reversal of indiscriminate import liberalization
  • A significantly enlarged role for the state, with greater investment being made in physical and social infrastructure from out of high tax revenues.
  • A sharp step-up in the ratio of investment to GDP, which has been stagnating at around 24% in the 1990s, by discouraging luxury consumption and promoting savings and investment by households. I Emphasis on food security and sustainable development, reversing environmental degradation through community involvement.

  TABLE 1 Annual GDP Growth Rates Over Quinquennia (1993-94 Base) 1971-75 3.40 1976-80 2.87 1981-85 5.05 1986-90 7.01 1991-95 6.43 1996-00 5.87 Source:- Macroscan , Business Line, Various Issues TABLE 2 Annual Sectoral GDP Growth Rates, per cent PERIOD Primary Secondary Tertiary 1986-90 5.72 8.66 8.83 1991-95 3.77 8.04 6.40 1996-00 1.95 4.99 7.20 Source:- Macroscan , Business Line, Various Issues   TABLE 3 Share of Gross Domestic Capital Formation (GDCF) as per cent of Gross Domestic Product (GDP) Quinquennial Average   Year GDCF as per cent GDP 1970-75 16.14 1975-80 19.12 1980-85 19.76 1985-90 22.70 1990-95 24.03 1995-00 24.05 Source:- 'Economic Survey, 2000-2001 TABLE 4 The Ratio of Central Tax Revenue to GDP (%)   Gross Tax Revenue Net Tax Revenue 1989-90 10.6 7.9 1990-91 10.1 7.6 1991-92 10.3 7.7 1998-99 8.2 6.0 1999-00 8.8 6.6 2000-01 9.1 (R.E) 6.6 (R.E) TABLE 5 Annual Rate of Growth of Total Employment(%)   Rural Urban 1983 to 1987-88 1.36 2.77 1987-88 to 1993-94 2.03  3.39 1993-94 to 1999-00 0.58 2.55 TABLE 6 Head Count Poverty Ratio (%) NSS Round Period Rural Ratio Urban  Ratio 32 Jul77-June78 50.60 40.50 38 Jan 83-Dec 83 45.31 35.65 43 Jul87-Jun88 39.60 35.65 46 Jul 90 - June 91 36.43 32.76 50 Jul93-Jun94 38.74 30.03 51 Jul94-Jun95 38.0 33.5 52 Jul 95-june96 38.3 28.0 53 Jan 97-Dec 97 38.5 30.0 54 Jan 98-Jan 98 45.3 N.A Source:- Up to 46th Round the figures are taken from a World Bank document. The 50"' round figures are from Abhijit Sen who uses the same method. From the 51st to 54th round the rural figures are from S.P. Gupta of the Planning Commission and the urban figures are from G. Datt of the World Bank