Has Economical Liberalization failed in India? Economical Liberalization has played a major role in the growth of our economy.

Before liberalization our economy was growing at a dismal rate of 3-4%. But after liberalization this rate started rising rapidly and also crossed 9% few times. Let us have a look at some key indicators of our economy. During last fiscal, that is in 2008-09 we have posted a modest growth of 6.7% in our GDP in spite of the downturn of strong world economies. We were able to control the growth in the unemployment. Our government was successful in controlling the inflation except food inflation. There was considerable fall in the export figures due to economic turmoil. But the figures of the last November are showing the signs of recovery. The share market indices, Sensex and Nifty, are regaining their strength even after the unprecedented downturn experienced in the last fiscal. There is continuous pumping up of the funds in share market by FIIs. There is steady rise in FDI. Our foreign exchange reserves are touching new heights year after year. Recently our government has purchased huge amount of gold from international market. The government is successfully raising the funds through disinvestments schemes. The infrastructure sector is growing consistently. The figures of consumer durables sold per year are showing sharp rise year after year. After initial teething troubles, Special Economic Zones (SEZs) are about to establish all over the country. Every alternate year at least one new Indian organization is getting added in the prestigious Fortune-500 list. Our corporate sector was never before so aggressive and powerful in Mergers and Acquisitions. Anyone would think that our economy is strong, healthy and growing when he considers all the facts mentioned above. But I am sorry to say that the rosy picture described above is deceptive. There should be only one de facto standard to test the health of our economy. That is, are these wealth-creating indicators raising the standard of living of the poor class of our nation? Does all this so called prosperity is percolating up to the lowest economical class of India? If you go to grass root level to find out the answers of these questions you will be shocked by the findings. No doubt that the situation of the lower class is improving. The percentage of the population living below the poverty line is consistently decreasing. But the gap between upper and lower class is widening. The rate at which the upper class is rising is far more than that of the lower class. Today the number of millionaires and billionaires is rising at a faster rate. What we should remember is, the proper distribution of wealth is as important as the creation of ethical wealth. But right now the economical liberalization is not taking us in that direction. We have to find out the solution for this so that we can have an inclusive growth. Since 1991, the Indian economy has been running under the mantra of Liberalization. The decision was forced on us to take this route. It was not by our choice. There was a marked increase in the oil prices following the Gulf War in August 1990. The foreign exchange reserves were almost dried. The government was forced to mortgage its gold reserves to raise loans. It had to approach the IMF for rescue. And international lenders rarely lend without conditions. I will now put forward the consequences of the conditions agreed by us on our economy. And also how these are badly affecting the pace of growth of our economy. And most important, how our leaders have missed the chance to transform our nation into a gold mine. The most unfavorable condition accepted by our government was lowering of import duties. It was even lowered below the excise duty what domestic manufacturers have to pay. This resulted in the huge inflow of imported machinery. This was acceptable, as it has helped to set up new manufacturing units and successively creation of employment in India. But then so-called importers started importing finished goods and selling them in India.

China started dumping cheap goods in Indian market. Our entrepreneurs were not able to compete with those products. Because they had to bear high costs of raw materials, electricity, excise duties and sales taxes. Again our labor laws also were not in favor to industrialists. In China, hire and fire policy was, and still is, prevailing in industries. So the attitude of their workers is either to perform or to perish. Of course, today our workers are at par with Chinese workers. They can give better output even in stringent conditions. But at the time of liberalization there was no level playing field. After giving the peak performance in spite of so many adversities, the manufacturer was not able to compete on price level. This move had literally thrown number of small scale manufacturing units out of business. Even for our corporate sector, the drumbeat of libarialisation was growing ever closer, ever louder. To handle the challenges thrown by liberalization, there was an urgent need in private sector to become more productive and efficient. And the private sector leaders chose the option of VRS as a tool to make the organizations trim and slim. This has driven most of our workforce out of service. So ultimately there was shrinking of employment in the country. This was beginning of an industrial recession in India. And our skilled- as well as unskilled-labor force suffered a lot. In last two decades our government has become market friendly. But still it has a long way to go to become business friendly. Instilling and spreading the entrepreneurship culture all over the country will also create the number of opportunities of employment as well as help to create the wealth. The aim of the liberalization was to ensure sustainable growth in agriculture and manufacturing. Clearly, it is the service sector that is taking the Indian growth rate to a higher plane. As a result, its share in India's GDP is continuously increasing. Of course, had the services sector not grown the way it did in the 1990s, we would end up with the bizarre situation of liberalization pulling down the growth rate. For the long time government is patting its own back for controlling the inflation rate. But today the food inflation is touching the new heights. And the worst part is that the farmer is not at all benefited because of this price rise. It is obvious that the middlemen are eating the major portion of this inflated price. Also there is such inadequate infrastructure that the monsoon-dependence of the agricultural sector has almost remained the same. As of now, Rs500 billion worth of agricultural produce in India is wasted because of inadequate infrastructure. It is a criminal waste in a country where about 30% of the population lives in poverty. Every monsoon failure leads to a spate of suicides by Indian farmers who are unable to withstand their worsening debt burden. Loan wavier for the farmers declared by the government also clicked well in their favor during recent parliamentary elections. But that is not the permanent solution to stop the suicides of the farmers. Here also opportunistic politics plays its role. Creation of artificial shortage of agricultural products leaves with only option for its import. And the commission received by importing those products is directly deposited in the Swiss Bank Account of the concerned leader. It is most important that farmers should be empowered and should get their respectful share. The much-hyped NREGA (National Rural Employment Guarantee) Scheme gives the assurance of employment only for hundred days in one year. Again there is corruption at every level in the scheme. So only small part of the funds allocated in the scheme reach the concerned person. But our government takes such populist measures to attract the voters. The ideal condition could be to encourage the entrepreneurship in the nation to such a level that the economy will grow at much faster rate.

Even though there was drastic rise in import, there was no proportionate increase in exports. Our exporters were still facing all manner of tariff and non-tariff barriers. So our trade balance has consistently deteriorated. In China the economical liberalization started in 1978. At that time Chinese economy was at par with our economy. But today China is far ahead of us. The basic difference between achievement of the liberalization in China and India has been the unbelievable pace of growth in China's infrastructure. In India we have inadequate physical infrastructure. Our network of roads and railways is far less as compared with China. We are way behind them in number of ports and airports. Steel and cement industries in China far exceed to our respective industries. We are not even the halfway when we compare the dams for hydroelectric power generation. We are habituated with frequent power cuts in India. In China, the annual electricity generation is so high that power cut is unheard thing for them. The Chinese DG set manufacturers proudly say that they manufacture only to export. One of the major policies adopted due to liberalization was to promote FDI. (Prior to that, India discouraged foreign investment very strongly. But international lenders often insist the developing nations to stop supporting their public sector enterprises and allow private and external participation in key sectors of the economy. This means that budgetary support for investment in sectors such as mining, oil exploration, power generation and telecommunication has to be drastically curtailed and open them for foreign investors.) So the foreign equity was granted up to 51%. Technology transfer agreements were not required. (It means our counterparts will never understand the basic functionalities and will have to depend always on the foreign investors. This condition is very harmful as far as empowerment of our counterparts is considered.) The only advantage felt at that time was that our corporate leaders would avoid reinventing the wheel. But unfortunate part was revealed later when those companies sent the outdated plants scrapped by them while putting the new plant in their country. Again the international companies also insisted on all manner of tax breaks like extended tax holidays, subsidized land, and "counter-guarantees" before they invest. (Even though such concessions go against the spirit of "free market economics", these concessions are treated as inevitable.) Costs escalate in spite of all these hidden concessions. And ultimately the common man suffers from it. Prior to liberalization there were many restrictions on domestic competition by means of licensing schemes and barriers to entry of new companies. But after liberalization, Permit and License Raj was ended and private sector was allowed to operate in all areas except defense and atomic energy. This was the welcome measure that has helped to accelerate the growth of our economy. This is the only silver lining to cloud of economical liberalization. But the whole credit for this achievement goes to our visionary corporate leaders and not to the politicians. In fact the politics has become valueless and opportunistic now a days. We have moved far away from the spiritualization of the politics, which was the main intention of Mahatma Gandhi. He also presented the concept of Sarvodaya, which means maximum happiness to all. Clearly it is beyond the concept of Utilitarianism means maximum happiness to maximum number. Both these philosophies by Mahatma Gandhi are extremely useful for truly inclusive growth of our economy. So I would like to conclude by saying that, the harsh lesson we are learning in todays world is that competition is now global and is now unforgiving. Make even a small mistake and your global competitor will eat your lunch at home. For now on, only the fittest will survive. As of now I can only say that we have missed the bandwagon of economical reforms. But I also have a hope that we can still catch this bandwagon again. For this purpose we need the coolest visionary leaders with the strong political will to take the nation ahead.