LPG : A quarter century later
Internal political instability, skyrocketing oil prices as an offshoot of the Gulf War, collapse of the Soviet Union — a primary destination for Indian exports, led to the rapid depletion of the Indian forex reserves in the late 80’s. In 1991, the newly sworn in Government of PV Narasimha Rao had to airlift sixty seven tonnes of gold to the IMF in exchange for liquidity and save the country from defaulting on its foreign payments. It was against this backdrop, that the ambitious economic reforms, commonly dubbed as the LPG (Liberalization, Privatization and Globalization) reforms were introduced.
Its short term goals were improving the fiscal situation of the country and being able to meet the foreign obligations, which was achieved by devaluation of the rupee in two tranches. In the long term, these reforms envisaged expunging the stagnancy in growth in key sectors of the economy through industrial de-licensing bringing an end to the infamous License Raj; trade liberalization by abolishing the policy of import substitution and reducing import duties; allowing Foreign Direct Investment (FDI) and changes in the financial sector like privatization of banks. The public policy went from being pro State to pro market.
India today is seen as a bright spot in the global economy. It has a trillion dollar economy; stable macro-economic factors; an impressive forex reserve upwards of 360 billion USD; improving social indicators like growing literacy rates, declining poverty levels, reducing Maternal Mortality Rate, Neo Natal Mortality Rate and Infant Mortality Rate etc, increase in the average life span, increasing per capita income; a booming services industry; increased international trade; a proactive government; robust policies for facilitating inclusive growth and a prime destination for foreign investments.
On the face of it, the reforms of 1991 seem to have achieved what they set out to do. But a closer look at the economy reveals a stark picture. Industries are suffering from a lack of capital investment due to unavailability of credit and banks are reluctant to lend money due to rising incidence of non performing assets, putting the economy at the mercy of the twin balance sheet problem. The share of manufacturing industries in the GDP has not been increasing. The gap between the rich and the poor has widened. India has the fourth largest number of billionaires in the world on one hand and the largest number of poor in the world on the other. Agriculture, where over 50% of the labor force is employed, has stagnant growth rates of around 3% and is not generating new employment. In fact there is an exodus of labor from the agriculture and its allied sectors to urban areas, leading to problems of overcrowding of cities and increasing urban unemployment. A social repercussion of this is a rise in the incidences of brutal crimes in cities. There is a jobless growth, as the investment patterns are more capital intensive than labor intensive. Skill levels among the labor is low, forcing them to seek employment in the unorganized sectors. Majority of the work force is a part of unorganized sector, which is characterized by low wages and high exploitation of labor. The quality of education being imparted is also questionable, as evidenced in the recent ASER report, where large percentages of children belonging to secondary schools were unable to read or perform math of the primary school levels. With respect to other emerging market economies, India lagged behind in the implementation of the Millennium Development Goals. Even Bangladesh fares better than India here. Due to environmental pollution, the cost of healthcare is also rising exponentially. The marginalized sections of the society are unable to break the vicious cycle of poverty begetting poverty.
The market reforms of 1991 mainly benefitted those who had access to the market, leaving those without access unable to take advantage of its policies. In order to correct this, focus should be more on rural growth and improving the social sector. Revamping the educational system by implementing the recommendations of the TSR Subramaniam Committee report will help in improving the quality of education imparted at the primary levels. The MOOC initiatives like GIAN and SWAYAM will help in providing access to quality higher education. The Skill India Mission and schemes like Nai Manzil and Roshni will help in imparting vocational skills and training to the labor force and make them employable. Make in India is a major initiative that will boost the manufacturing sector. Economic reforms like the GST, coupled with the Mission Indradhanush that looks at cleaning up the balance sheets of the ailing PSB’s, should improve the investment scenario in the country. The resolution of NPA’s is the top priority of the Government and RBI. The National Health Mission Policy of RMNCH+A is an approach that focuses on health at several stages of life. Studies show that early intervention has maximum economic benefits and the Janani Suraksha Yojana, Janani Shishu Suraksha Yojana, universal immunization programs are moves in the right direction. The Pradhan Mantri Jan Dhan Yojana is a major step towards achieving inclusive growth.
Investment patterns should be changed to create more jobs, like the Textile Policy of 2016, which introduced flexibility in labor laws and is more women-friendly. Growth in agriculture has to take place in order to facilitate growth in rural demand. Initiatives like the Soil Health Card Scheme, providing farmers with High Yield Variety seeds, usage of efficient irrigation methods like drip irrigation will help in improving the agricultural productivity. Optimal and sustainable allocation of resources must be done. The growth patterns across states is varied, which may be attributed to the lack of political will. State level implementation of macro policies and district level participation in social policies would give rise to optimal results. Competitive populism should be substituted out with competitive federalism and sub federalism, as suggested by the Economic Survey. After all, good economics is good politics.
While the LPG reforms have in a way shaped the rise of India as a force to be reckoned with in the world, it still has a long way to go in ensuring sustainable, equitable, inclusive growth and social welfare. The policies are in place, effective implementation of the policies with a timely feedback and redressal mechanism is the need of the hour.
