Opinion Freedoms we now know
Its 20 years since liberalisation changed India. Tracking the task ahead
Those born into certain freedoms will have no idea of what it is like to live without them. This is plain human psychology. So those born after India had done away with its official licence-permit raj in 1991-92 can barely imagine what it is like to stand in long queues to procure a cooking gas cylinder or a telephone connection. With more economic freedom and competition,India transformed itself from an economy of perennial shortages to one of choices,where producers started chasing consumers.
Some years ago,at an interaction with corporate chiefs in Mumbai,Prime Minister Manmohan Singh dwelt on the question of new material comforts that would be taken for granted by subsequent generations. World-class roads and other urban infrastructure would be seen as par for the course by the next generation,he said. Last year,a taxi driver in Bihar told me how new roads to Bodh Gaya had cut travel time by half and made his Japanese clients very happy!
Of course,there is a flip side to being on the treadmill of rapid economic growth and globalisation.
Existing structures of the political economy get threatened and a heavy backlash is experienced from time to time,especially because there are winners and losers in the short run. This is the 20th year of economic reforms and there has been a lot of learning along the way.
Indeed,this is a good time to take stock of how economic liberalisation and Indias deeper engagement with global trade and investment have shaped a new materialist consciousness in our society. This needs to be recognised,first and foremost. As any marketing guru will tell you,children are increasingly shaping the buying decisions of their parents,at least in urban India.
However,this new materialist consciousness has also created other myriad tensions in the political economy,which are still unresolved. India has 16 per cent of the world population and less than 3 per cent of natural resources like cultivable land,rainfall,forest cover,etc.
Therefore,while India has indeed gained recognition as the second fastest growing economy in the world,after China,this has also spawned a new debate as to what effect such continued growth will have on environment. Dr Singh,seen widely as the main proponent of economic reforms in 1991,himself seems to have developed some self-doubt in regard to the carbon emission path that India will create if it follows the consumption path of the West. There is an ongoing debate,far from resolved,as to how new policies and regulatory institutions can strike the right balance between rapid economic growth and yet address grave concerns over the use of limited natural resources. The worry is that such concerns are being raised in India even before it has graduated to a middle-income country on a GDP per capita basis. In contrast,China is talking about moderating economic growth somewhat to address environmental concerns after touching a GDP of nearly $6 trillion,about $5,000 annual per capita income.
Indias per capita income was $310 in 1991-92 and this is likely to touch $1,650 by the end of 2011-12,a substantial progress by any standards. The growth in per capita GDP was quite gradual until 2004-05 when it reached about $650,more than doubling from the 1991 level. However,the rapid growth came during the six years after 2004,a period seen as a sweet spot for many emerging economies,helped by an extraordinary surge of global liquidity.
Though India is poised to enter the $2 trillion GDP club by 2012,it will still remain some distance from being categorised as a middle-income nation. So the development-versus-environment debate may have come a bit early in India,at least by Western standards.
The economic reforms of the 1990s brought world attention to India in ways not seen before. Freeing of industrial licensing and foreign trade indeed sent the Indian entrepreneurial spirit soaring in the first decade of reforms. The world also saw India as the single biggest market to explore,after China.
The Indian IT sector caught the imagination of the Western world. Bangalore got branded as Indias Silicon Valley. Reforms also enabled Indian business houses such as Tatas,Birlas,Infosys,Wipro,Bharti Airtel,RIL,Mahindras,etc to build global footprints in a manner not anticipated by anyone. Indian business houses are successfully installing lower cost,more efficient business models in the global marketplace. All this could happen because the 1991 reforms gave these businesses a policy framework that helped the incubation and growth of these unique low-cost business models. These business models have in some ways exposed the high-cost,inefficient ones in the Western world.
The flip side of Indias economic reforms story is that successive governments have postponed the politically difficult part of economic reforms and virtually ignored the agriculture sector where growth has stagnated in the past 15 years or so. There has been failure in two specific areas which have already developed into a political time-bomb.
The first,distress in agriculture,is a continuing story as policy has failed to provide a smooth transition to nearly 55 per cent of the population trapped in very low incomes in the agriculture sector. The bigger policy failure in agriculture has been a consistent bias in the terms of trade in favour of manufacturing,which remained the main focus after the launch of reforms in 1991. A simple example will illustrate how the terms of trade are so biased against agriculture. In recent years,because of consistent supply shortages in agriculture products,India has kept its import duty on most agri-products at zero. With imports landing at zero duty,Indian farmers have to compete with their Western counterparts who get massive agriculture subsidies of over $300 billion. This is a battle already lost. Besides,successive governments have ignored investing in agriculture infrastructure and have instead taken the easy option of delivering other forms of subsidies,like on diesel,and giving loan waivers,etc,to farmers which do not enhance productivity.
The other big policy failure has been in regard to converting agricultural land for industrial use. Twenty years after the launch of economic reforms,India is still saddled with the Land Acquisition Act of 1894. There is no rational policy and legislative framework to increase the supply of land for industrial use. Some of these failures have cost India a lot,both in economic and political terms.
The writer is managing editor,The Financial Express
mk.venu@expressindia.com
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