The Impact of Liberalisation and Privatisation in India
Economy Seminar II: Boston, April 17, 1999
The Impact of Liberalisation and Privatisation in India
Raj Mishra
The scope of the title of this paper is quite ambitious.
This paper will highlight two key elements of the
impact of liberalisation and privatisation that I
consider to be crucial for political intervention by the
people at this time.
As you all know, the economic reforms were initiated
in 1991 in India in a demonstrative way after the
assassination of Rajiv Gandhi. A period of eight
years have elapsed since then and today the same
social forces that had opted for the liberalisation and
privatisation policies in 1991 are speaking of a
“second wave of reforms”.
India has seen five different Prime Ministers in
succession in the last eight years and just this
morning the sixth one has been voted out of office. If
anything, this indicates that there are serious conflicts
in the ranks of the big business houses of India about
the direction they want to take at this time. Only two
years ago, the then Prime Minister Deve Gowda was
replaced in the midst of the Lok Sabha debate on the
budget. Interestingly, although the Prime Minister
was replaced, his Finance Minister, P.Chidambaram
remained in the “new” cabinet under I.K.Gujral to
oversee the continuation of the economic reforms that
he and his predecessors were architects of.
In fact, the defeat of the Narasimha Rao government
in the 1996 elections was widely seen as the rejection
of the economic policies it had put in place since
1991. The further loss of support they suffered in the
1998 elections was also a reflection of this. But
while the Congress(I) and Narasimha Rao were voted
out of office, their policies have continued and are
being deepened. The leaders of all the political
parties represented in the Lok Sabha have embraced
those polices. Whoever forms the next government
will undoubtedly continue the same policies.
It can be said with confidence that the present
political crisis and disequilibrium will thus continue,
until the time that people are able to force a change in
the direction of Indian economy. What the present
direction is and what the new direction must be are
subjects for us to deliberate upon today.
India is facing a major economic crisis at this time –
this much is admitted by the Finance Minister
himself and everyone else in any authority. The
current budget being debated in the Lok Sabha
reflects this crisis and the direction the ruling circles
want to take to emerge from it on their terms. The
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reason they have voted the Vajpayee government out
is to be found in the difficulty the ruling circles face
in selling this budget to the people without making
the entire exercise illegitimate. This kind of political
crisis is really the kind of grand diversion that they
want to use to push through the budget without facing
opposition from the people.
In the backdrop of the East Asian, Russian, and
Brazilian crisis, and the impending crisis in the world
economy, India is anxiously waiting for what may
come its way next. With the NATO bombings in
Yugoslavia in recent weeks, India’s anxiety has
increased, as reflected in the coverage of the Balkan
war and the various commentaries in the Indian press.
After all, Yugoslavia was the darling of the west
during the cold war. India and Yugoslavia were
themselves closely linked under the Non-Aligned
Movement.
India also has a number of potential Kosovas and
there are many opportunities for foreign intervention
in India on similar “humanitarian” grounds. It is
clear from the war coverage that India’s ruling
establishment is nervous about these developments
and it wants no discussion or debate on its own
agenda inside the country, let alone any opposition to
its agenda to emerge as a big power and empire-
builder in South Asia and Asia. The fact that the
Vajpayee government has apparently collapsed in a
controversy over naval weaponry indicates that there
are rifts among the ruling circles over the
militarisation agenda as well.
This lesson emerging from Kosova and Yugoslavia
cannot be lost on the Indian people. This is the time
for all Indians to take a stand and ensure that they do
not remain on the sidelines as important decisions on
war and peace, economic reforms, or constitutional
changes are decided on their behalf by a handful who
have no right to do so. For example, Narasimha Rao
and Manmohan Singh imposed the economic reforms
on India through parliamentary procedure when they
had not been elected to the parliament themselves
from any constituency of India, when their party was
not the majority party in the parliament and following
an election when they made no mention of their
impending economic plans.
The coalition governments cobbled together
afterwards also show how the political process in
India places the people in the sidelines and makes
them a spectator as the most unprincipled and organisation of the middle ages when a few kings,
illegitimate alliances are forged at the top by a small nawabs and emperors mattered and the rest of the
number of political party leaders. Our seminar series humanity existed for their pleasure.
is organised to involve people in discussing the
At the end of the 20th century, this humanity is facing
substantive issues facing us, facing the polity of India
a serious danger - the danger of the clock being
and the people of Indian origin living abroad who are
turned back and civilisation being undone by a few
so directly affected by the developments in India. In
powerful countries and monopoly combines. The
my estimation, these discussions are crucial for the
choices are stark - either this humanity affirms its
people to have initiative in the hands, and to set and
existence, and comes into control of its destiny, or
implement that agenda.
they will be saddled with an anti-democratic and
The privatisation and liberalisation, economic outdated social organisation imposed upon them by
restructuring, structural reforms, etc, have its origins force.
in the Reaganite-Thacherite economics of the
In India, I do not have to convince anyone that
eighties. What were the fundamentals of
liberalisation and privatisation have not brought
Reaganomics? In the main, they were to cut back
prosperity for the majority of her peoples, wealth for
spending on the social sectors of the economy,
the country or a technical scientific revolution for the
escalate military spending, prevent the working
productive forces. If anything, the financiers and
people from demanding higher wages even through
speculators of India and the world have been firmly
trade union activity, scale back safety and health
embedded to suck the wealth out of India for years to
standards for workers, relax rules for environmental
come.
protection, and to plunder as many countries and
peoples as possible with the military stick under the In his last year in office, Narasimha Rao started
anti-communist banner. speaking about “liberalisation with a human face” to
give some legitimacy to his failed policies. Judging
The more the things have changed since then, the
from how he was dropped by his own supporters and
more they have remained the same. Reagan and
financiers from the leadership of his party and also by
Thatcher and even their immediate successors, Bush
the electorate who expressed its verdict within the
and Major, are gone, but the policies have come to
limited scope of electoral process, he fooled no one
stay. Today, Clinton and Blair are presiding over the
with this change of heart. But what happened? The
same polices in the US and Britain respectively and
policies of liberalisation and privatisation continued
they have gone further than Reagan or Thatcher in
without Rao and Manmohan Singh after the 1996
terms of cutting social expenditures, handing out
elections, first under the stewardship of United Front
money to the wealthy, militarising the economies,
involving the CPI and CPI(M) besides others and
threatening other peoples with war, increasing job
later under the National Front led by the BJP.
insecurity, etc., in their own countries.
Various adjustments to the policy were made to
Those policies have since been exported to the rest of
preserve the core content of liberalisation and
the world and have been espoused by the political
privatis ation and create illusion among the people
and economic elites of many countries. In places like
through the introduction of “poverty alleviation
Russia, the kind of corruption and looting of the state
programs”. The left-centre coalition government lost
treasury that is taking place makes the US savings
its credibility very quickly as partners like Andhra’s
and loan scandal pale in comparison. The scandals
TDP, Tamil Nadu’s DMK, West Bengal’s. CPI(M)
involving Harshad Mehta in India, the pyramid
etc. openly wooed international business in their
schemes in Albania, the BCCI collapse, the collapse
states. These partners of the United Front initiated cut
of security houses in Japan, Britain and so on are
backs on the very “poverty alleviation” schemes that
products of the liberalisation and privatisation
the UF government was championing at the centre
policies and many more are coming to light world-
and diverted the money from their state treasuries to
wide every single day.
grant new concessions to investors. In contrast,
Anyone willing to look can see clearly how the India’s farmers have risen in arms against the WTO
reforms of the last two decades have created a agriculture policy, and the workers have risen against
situation where the overwhelming majority of the mass layoffs accompanying privatisations, mergers
people and the bulk of the resources of this planet and take-overs.
have come to be at the mercy of a small sections of
Subsequently, the BJP-led coalition of Vajpayee and
financial, military and political operatives, enabling
Advani did go further in terms of enacting legislation
them to control the destinies of billion. In a
for the reform of EXIM policy, bank and insurance
qualitative sense, we are staring at the social

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sector reforms, and “internal security”, declaring all
struggles of the people for socio-economic rights and
national rights as criminal acts, invoking various
draconian laws like the ESMA, AFSPA, and so on to
attack strikes by transport workers, hospital workers,
and teachers.
Against all odds, in December 1998, the first all-
India strike organised by over 50 trade unions,
political parties and organisations held countrywide
agitation to oppose the policy of liberalisation and
privatisation. The workers, along with the farmers
and peasants are now in the forefront of the struggle
against liberalisation and privatisation. One also can
see the Confederation of Indian Industry, Federations
of Indian Chamber of Commerce and Industry,
ASSOCHAM and other trade organisations of the
Indian business houses, most of the political parties
represented in the parliament and state assemblies
and the international financiers working feverishly to
take the liberalisation and privatis ation policies
further.
For today’s discussion, I want to point out that the
policies enunciated in 1991 by Manmohan Singh
appear to have exhausted themselves and the Indian
big business houses are divided over what direction
to take. Judging from the reception the annual
meeting of the CII, held earlier this year in Rajasthan,
received from Indian government officials, or the
reception the Indian government delegation received
at Davos in Switzerland a few months back, it seems
that the policies enunciated 8 years ago do not elicit
much enthusiasm from their own quarters. For
example, the leaders of different political parties had
gone to the CII meetings in the past to swear their
support for the liberalisation and privatisation.
Similarly, international monopolies had flocked to
Davos to cheer these policies. But these are all
lacking this year.
The response of the Indian government to this
cooling off” has been to put forward its
recommendations for “a second wave of
liberalisation”. This second wave, unlike the first
wave, envisages liberalisation of the financial sector
and further divestment of the public sector
undertakings. The Indian finance minister presented
his budget proposals to the Lok Sabha in March and
after warning that a serious balance of payment crisis
in the capital account exists today, addressed himself
to raising new capital both from inside and outside
India.
The budget contains all sorts of proposals to raise
capital from NRI’s, such as tax concessions on
capital gains and even the proposal to sell an identity
card to all NRI’s for $1,000 each - there are 15
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million people who are eligible for such identity
cards! There are incentives such as reduced capital
gains tax for mutual fund investment, new taxes on
the 12 million or so tax-payers of India, and the sale
of public sector comp anies.
All these details can be found in the budget which is
pending for approval in the Lok Sabha today. The
question I want to ask is why has this capital account
shortage appeared? What are the ramifications of this
shortage and if there is an opening here for the people
to put forth their proposals to reorient the economy
and its direction.
Why is there a shortage of capital? Firstly because
the economy in India is not producing the surplus at a
rate that will leave enough for extended reproduction
of the economy. The investments in the last decade
and before have not been geared towards ensuring
such accumulation to assure extended reproduction.
For example, between 1984 and 1987, India’s foreign
armaments purchases were worth $17.5 billion,
making India the second largest customer after Iraq
for that period. We have heard about the Bofors
scandals of the late 1980’s and also the balance of
payment crisis of 1990-91, the former linked to
making money by some middlemen and the later
linked to devaluation, job cuts, price rises and
ultimately the economic restructuring affecting
millions and millions of people.
The point here to note is that it is possible to see a
direct link between the defence spending, current
account crisis and lack of capital, not just in the case
of India but in other economies as well. The economy
of the former Soviet Union and other countries of the
Warsaw Pact simply collapsed under the weight of
their military expenditures, besides the plunder of the
remaining surplus by elite of those countries. A
similar phenomenon occurred in the 1980s under
Reagan’s military expenditures that led to a dramatic
increase in the US fiscal deficit and public debt.
During the Gulf war, the US was able to make Japan,
Germany, Kuwait and Saudi Arabia pay part of the
costs. It was able to buy the support of Egypt by
cancelling some of its debt. But in the present war
against Yugoslavia, it could garner no support from
anyone other than its closest alliance members.
Today, there is open discussion in the media about
the bonanza this war is creating for Raytheons and
Lockheeds, who make the cruise missiles and
bombers, and also the lucrative rebuilding
opportunities in bomb -destroyed Yugoslavia. In
short, war has become a very profitable affair for the
US at this time. It is the logical outcome of the
serious imbalance in the economy created by
Reaganomics, rendering the economy unable to
produce the necessary surplus for harmonious and
uninterrupted growth.
The experience of Hitler’s Germany in the 1930s and
of Khruschev and Brezhnev’s Soviet Union in the
1950’s-1970’s show that when a country needs to
militarise, it necessarily diverts resources to heavy
industry to build the weapons and the military
infrastructure. These expenditures do not produce a
surplus for extended reproduction, but gives rise to a
serious shortage of capital. Aggression and the
annexation of other peoples and their territories for
markets and sources of raw materials are outcomes of
such economic policy.
India today is on the track of militarisation. India
says it needs over one hundred billion dollars to build
roads, ports, and so on to facilitate the growth of its
industry and to meet its national security needs. The
dismantling of the state enterprises (public sector
undertakings) under the cover of “swadeshi”, “Indian
content” and so on are means to lay the foundation
for the big business houses of India to take direct
control of the heavy industry sector and to guide their
development towards the future military-industrial
complex of India.
According to the announcement by the Government
of India on September 18, 1998:
It has also been decided to establish six joint task
forces to evolve long-term partnership between the
industry and the Ministry of Defence…
..the Defence Ministry has decided to throw open
seven defence laboratories to the private sector in the
three areas - Dual technology for defence and civil
application; Biotechnology products; and Software
engineering.
The National Security Council and other bodies that
oversee the purchase and sale of weapons are being
integrated with the Indian big business houses and
their trade association representatives. The
consequences of such militarisation can be inferred
from history as well as the current developments in
the Balkans and the Middle East. The people of India
must bring about a change in the direction of this
militarisation, besides other changes, to protect the
future of the country and the region.
International capital is both colluding and colliding
with India on this course of the Indian ruling circles.
Indian government officials and business houses are
desperately trying to find their suitors, today courting
the Japanese, tomorrow the French, British, Germans,
Americans and Russians. They think that their old
cold war-era policy of “equi-distance from Moscow
and Washington” will succeed in this post cold war
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period too. But situations like Yugoslavia do not give
them much comfort and they have harboured talk of a
Russia-China-India axis and re-igniting the old
military relationship with the Russians.
It does not require much imagination to see that a
military alliance against the one led by the Americans
is in the making within the changed world situation
brought about by the “liberalisation and
privatis ation” program.
The NATO attack on Yugoslavia have given a role to
Russia in the European theatre, and if these powers
succeed in keeping the lid on the Balkans, Asia will
turn into the new theatre for military conflicts. In
sum, economic changes around the world and in
countries like India, China and Russia seem to be
headed towards the formation of new military
alliances and military conflicts. The military sectors
of economy in all these countries are being
strengthened after their initial stagnation or decline
for a few years following the end of the cold war.
The heavy price that the working people have been
paying for the last decade of liberalisation and
privatisation will now include the price of
militarisation and war preparation. These
developments indicate that there is no time to be lost
to reorient the economy.
In August 1998, the AIPSG launched its discussion
on democratic renewal at a conference in New York,
which includes the renewal of Indian economy
besides other things. There, it argued out why the war
on poverty must be placed at the centre of all
economic policy today. It elaborated on the demand
for a moratorium on debt payments and the release of
those funds for winning the war on poverty. Similar
proposals have been made by others, both in India
and abroad and a broad discussion has begun in many
countries about such demands. The Indian ruling
circles argued in 1991 that if they defaulted on loan
repayments at that time, international financial
agencies would penalise them in the future. Today,
the health of the Indian economy is even more
precarious than it was in 1991, when India
encountered a severe balance of payment crisis after
years of military spending and debt build-ups.
The living standards of the peasantry, workers,
middle strata and other sections affected by the
mergers, closures and rationalisations have been
further depressed because many cannot pay for the
essential services that have been privatised since
then. The defence build up and the interest payments
continue to drain an increasing share of the surplus
produced by the people of India while at the same
time raising the spectre of war. Only the people of
India can force a change in the way the economy is
run and they must do so by demanding that a war on
poverty becomes the first order of business before
any loan repayments or weapons purchases are done.
As the discussion develops, the relationship between
the renewal of economy and politics is becoming
apparent. The economy must be organised to provide
for the people and the political process must be
organised so that people can exercise their
sovereignty or supreme power, including on
economic matters. I think these are the times for all
of us to hoist the banner of vesting sovereignty in the
peoples.
It is not difficult to demonstrate that the people of
India actually do not decide anything that has a
bearing on their welfare. Such things as illiteracy
continue at very high rates in India, especially among
women and the poor, and the state refuses to allocate
resources to end this curse of ignorance. But it has no
shortage of funds to beam its propaganda into the
remotest parts of the country through television to
perpetuate backwardness, mysticism and
submissiveness in the name of modernisation of the
illiterate people. Poverty, ignorance and deprivation
keeps the people ready to work at low wages.
The international financial agencies and corporations
are also very active in many countries, including
India, in the disguise of helping various organisations
fighting for “empowerment”. But their insidious
activity is to ensure that none of these organisations
link their struggles with the struggle for livelihood
and against globalisation. It is my appeal to all the
individuals and organisations who are fighting for
any right, be it for literacy, for clean water, for a
secular polity and so on - that they also address
themselves to the issue of livelihood for all the
people who constitute India. In doing so, they will
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not only succeed in putting their own struggles on the
agenda, but will objectively contribute to the unity of
all the peoples and their movements. It is within such
a broad movement of the people that all the struggles
can succeed.
It is the living experience of the people that the ruling
circles do everything to keep their struggles disunited
and isolated and exert maximum pressure for them to
conciliate with their victimisers. By creating
conditions for the broad discussion of the effects of
globalisation on the people it will be possible to make
them fight against the forces of globalisation and its
chief proponents. We must impose our definition of
what are the substantive problems of our times, the
solution of which will enable the solution of all other
problems.
In conclusion, I want to reiterate that the time is now
to put the war on poverty on the agenda. It is time to
stop treating this as a policy objective, but to make
this the program in itself. This means that it is
necessary to elaborate on the strategy and tactics of
this war, and to organise people behind this.
Opposition to militarisation, and to the economic
reforms are the two important elements I referred to
in the beginning. People will have to stop the ruling
circles from allocating funds for interest payments or
the purchase of weapons until their needs for
education, housing, healthcare, public distribution of
essential food items, sanitation and drinking water
have been met.
People can not only seize the initiative in their hands
and end their marginalisation from the economic
activities of the country by taking up such a program
, but in the process end the marginalisation of all their
struggles for rights.