Two Decades of Neoliberal Reforms: For whom, against whom?
An undemocratic beginning
Between 1950 and 1980, an extremely backward Indian economy, inherited from colonial rulers in 1947 after nearly two centuries of massive plunder and loot of India’s labour and natural resources by British capital, was sought to be modernised through public investments and substituting imports by encouraging domestic production. This effort took place under a government that was the product of an alliance between the business classes and the landed gentry, and was increasingly inclined to compromise with foreign capital from the advanced capitalist countries. Despite its class limitations, the development efforts assisted in particular by socialist countries in the public sector enabled the country to shake off the stagnation of colonial rule and register significant growth of industry with some degree of self-reliance, and helped the country achieve a modicum of food security in terms of the rate of increase in food grain production being higher than the rate of growth of population. However, the path of development, based on the profit motive of Indian capitalists, especially the bigger ones, and on the compromise between the capitalists and the landlords that ruled out genuine land reform, ran into severe crisis by the mid 1960s, grew worse, and culminated in the Emergency regime of 1975 to 1977 that severely curtailed civil liberties while moving closer to U.S. imperialism. Though the 1980s saw the Indian economy grow at about 5 to 6 per cent per year in terms of the gross domestic product (GDP), this growth was based on massive and unsustainable government borrowing both inside the country and abroad and catering to elite consumption, but without taxing the rich. By the end of the 1980s, this process had led to both a severe fiscal crisis and a severe balance of payments crisis, aggravated by developments in West Asia relating to Iraq and Iran, in which U.S. played a key and aggressive role. The rise to hegemony of finance capital in the capitalist world and the collapse of the USSR and the restoration of capitalism in Eastern Europe and former USSR led to major policy changes in India. The ruling classes in India who had begun deregulating and privatizing the economy in the 1980s, abandoned the effort at independent and self-reliant development under the leadership of the State. Under pressure from the IMF and the World Bank as well as the U.S. and other Western powers, the government in 1991 embarked on the path of liberalization, privatization and globalization (LPG) It is now two decades since these LPG reforms have been in place, pursued vigorously by successive Govts. It is time to take stock of the impact of LPG policies on the people of India.
The Essence of LPG Policies
LPG policies involve deregulation of the economy, opening up the economy as widely as possible to private capital and opening up the nation as widely as possible to foreign capital. Specifically, deregulation (also called liberalization) means the removal of regulations governing the operations of private companies, especially the large ones. In other words, it removes these companies from all social responsibility and social obligations. They are to be left free to make profits in any manner they wish and to any extent possible. This naturally implies that the State will no longer defend even the minimal rights of working people. It also implies that large companies are free to gobble up smaller companies and become powerful monopolies, ironically in the name of promoting competition! Privatization relates not only to government selling some of its shares in State-owned companies to private capital, but also opening up all economic and social activity, including those related to education, health, infrastructure and so on, to private players and allowing them to convert all these activities into profit-making opportunities rather than activities governed by the need to promote social well-being. This has obvious implications in terms of denying the poor access to education and health beyond minimal levels, and to raising the costs of infrastructure services, including those relating to energy and power, water and transport, for people. The third element of LPG, globalization means allowing indiscriminate imports at low tariffs and removal of all quantitative limits on imports. Even more importantly, it means removing all restrictions on the free movement of capital as finance into and out of India, as a strategy to attract foreign capital flows into the country. This is the single most important aspect of LPG reforms, and the one with the most disastrous consequences. The moment restrictions on bringing money into India and taking it out of India in foreign currency is removed, the government can no longer be independent in making policy. It will have to worry about whether foreign finance capital brought into India may be taken out if any government measure is not to the liking of foreign finance capitalists. Finance capital always demands minimal government regulation and minimal government expenditure. It does not like to be taxed, and it wants complete freedom to speculate, in the name of ‘financial innovation’. This has serious consequences for the government’s welfare and investment policies. Since 1991, successive governments in India have cut back welfare programmes and public investments to keep foreign finance capital happy, in gross violation of democratic verdicts against these policies in every election to the Parliament.
How have India and Indians fared during the two decades of neoliberal reforms?
First, the annual rate of growth of the gross domestic product (GDP) of the economy was already close to 6 per cent per year from the mid 1980s. Between 1991 when the reforms were accelerated, widened and deepened, and 2003, the average annual growth rate of GDP was no higher than in the period from 1985 to 1990. However, from 2003-04 to 2007-08, the GDP grew more rapidly at between 7 and 8 per cent. With the global economic crisis of 2008, the growth rate between 2008-09 and 2011-12 is not likely to exceed 7 per cent by much.
One can argue that even an average of 6 to 7 per cent growth rate of GDP is impressive when many countries, including the developed capitalist countries, are growing at much lower rates and only China is growing at between 9 and 10 per cent per year for over three decades now. The issue, however, is not just the rate of growth, but the nature and composition of growth and its implications for different socio-economic classes. There are major concerns in this regard.
First, it is the service sector that is growing most rapidly. The share of the service sector in India’s GDP is now close to 60 per cent. The secondary sector - which includes manufacturing, gas, electricity and water supply - has grown at much lower rates than the service sector and has also shown instability. Its share in GDP is only around 25 per cent, much lower than in China. The share of the primary sector –agriculture and allied activities, forestry and fishing, and mining and quarrying – has declined to somewhere around 17 per cent.
Second, while the decline in the share of the primary sector in GDP is to be expected as an economy modernizes and industrializes, the point to be noted with concern is that the share of the labour force in the primary sector, at over 45 %, is much higher than its share in GDP. By contrast, services sector contributes 58 per cent of GDP, but its share of employment is less than 30 per cent.
Third, the last two decades have seen a huge and continuing agrarian crisis, with over 250,000 farmers committing suicide in just the decade from the late 1990s to the late 2000s. Growth in agriculture and in food grains has been the lowest since independence during this reform period, with the annual growth rate being just 0.6 per cent between 1994-95 and 2004-05. Agriculture and the rural economy have been devastated by neoliberal policies that have:
· Slashed subsidies to agricultural inputs including fertilizers, pesticides, credit, energy and transport, leading to sharp increases in input costs
· Removed restrictions on imports of agricultural produce, causing both a collapse of prices for farm produce at certain times and greatly increased price fluctuations throughout
· Reduced the supply and increased the costs of bank and cooperative credit to agriculture and allied activities
· Cut back on development expenditure to meet the demands of foreign finance capital for low budget deficits, in the process weakening rural infrastructure, farm extension, farm research and halting the expansion of irrigation critical to agricultural growth
· Weakened food security by imposing a targeted public distribution system, excluding millions of the poor from access to food at affordable costs.
Fourth, the growth in employment during the reform period has been smaller than in the decade preceding the reforms. Moreover, practically all the increase in employment over the last two decades has been in informal jobs that are not only often at very low wages, but carry no welfare benefits, are completely insecure with no protection for workers, involve long working hours and deny workers the right to form unions and fight for better wages and working conditions. Between the mid 1980s and mid 2000s, the share of profit in value added in manufacturing, for instance, has gone up from around 40 % to around 80 %. The industrial and service sector growth that has occurred has only swelled the profits of big capital, Indian and foreign, without any improvement in the conditions of life of working people.
Fifth, the reforms have led to a much greater integration of the Indian economy with the world capitalist economy. For instance, the combined share of exports and imports in the Indian economy in India’s GDP was only 14 % in 1991. It is now practically 50 per cent of GDP. In addition, because the reforms allowed free entry and exit of foreign finance capital, there is a much greater degree of instability in the economy, with foreign institutional investors bringing money into the country to make quick and huge profits in Indian stock markets and taking them out quickly. While foreign capital makes huge profits in this manner by foreign capital, there is no benefit to the Indian economy as no wealth is created by trading mostly in already existing shares. But the unregulated entry and exit of foreign finance capital only causes great instability in the financial and currency markets and the integration of India’s economy through trade and capital flows makes us far more vulnerable to external shocks emanating from any part of the world capitalist economy.
All evidence, from the national sample surveys, the national family health surveys and various other surveys done across the country, shows that the reforms have not made a significant impact on the depth and severity as well as the wide spread of poverty, even though the government often claims the contrary. Recent research shows that the rate of poverty has in fact increased in regions located more than 5 kilometers from urban settlements. There has been no significant reduction in malnutrition, and the indicators even show a worsening in some parts of the country and among socially and economically vulnerable sections.
On top of the rural and agrarian crisis and the crisis of massive and increasing unemployment, we have had very high rates of inflation, especially in food articles and in some other essential commodities as a result of deregulation (popularly called ‘liberalization’, privatization and globalization.
With the current global economic crisis showing no sign of ending soon, the Indian economy is in for rough weather. Neoliberal policies of the last two decades have made the economy more vulnerable to the global crisis.
The Indian working class movement and the peasant movement as well as movements taking up the demands of women, dalits, tribals, students and youth, have all consistently fought these LPG policies. During some periods, though it was possible to secure some gains in the form of the NREGA and the Tribals Forest Rights Act, things have grown much worse under the present regime, which is pursuing neoliberal policies vigorously at a time when they are being discarded in many other parts of the world.
Sustained efforts from all sections of the society can only bring the desirable change in the policies in education, health and such other areas apart from protecting the public sector insurance and finance.