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Sunday, January 14, 2007

Economic Liberalisation of India

India has been an agrarian economy since time immemorial. During the British Rule, some industries were started but the culture of industrialisation did not percolate down to the villages as the prevalent structure was that of cottage industries which had a symbiotic relationship with the agrarian economy. These industries were located in the villages themselves thus preventing the rise of parasitic monoliths called cities. Each village was a self sustaining unit whose only dependence on the establishment was that of protection from another establishment and paying taxes to the establishment for the services viz., police, court etc. provided by the establishment.

Before European Invasion of India, many other invaders came and got assimilated in the Indian diaspora and the basic economic model remained untouched. When Europeans came they understood that this economic model was not beneficial to their interests as it would not allow them to dominate a nation economically and hence they started creating a class which was not producer of goods but a consumer only. This class was needed by them to ensure the economic survival of their countries. Till then the producer, farmer, was holding a good position in society by virtue of his creating the food. Europeans tore this social structure apart and placed the new consumer class which they have created on the top of social pyramid by vesting in them the authority to rule the society.

During freedom movement this socio-economic shift was understood by Mohandas Gandhi and hence his movements of khadi and salt.These movements were geared towards shifting of social power structure from the drone consumer class to the producers as he understood that by doing this, the economic structure of British would be hurt and then they could be forced to leave India. This did provide results as is evident by the fear in which British held him. This, coupled with the INA and the other revolutionaries activities forced the British to leave India. But the damage was already done. When British left, the same consumer class took over the political power in India. They had thought that they can just continue from where the British has left, but it was not to be so. The population of the country had become politically aware by that time and hence the ruling classes were forced to accept a mixed economic model. This was also influenced by the impact of USSR on Indian Political scenario.

In this model also, the emphasis of government was on Industrialisation which led to lions share of resources allocated for Industrialisation and a very miniscule amount going to the food producers and other pillars of rural economy. We must remember that all these decisions were being taken by less than 2% of population residing in the cities and the rest of the country was not involved in them. This resulted in the infamous food crisis of sixties during which we had to beg for food from the same Europeans whom we have kicked out of our country. Government woke from slumber as it understood that people need food first and then anything else. A concerted attempt was made and green revolution was started in the country which after 30 more years made the nation self sufficient in food grains.

Side by side, something else was also happenning. With the green revolution, the social shift has started taking place and the producers had started taking part in the political process also. This was not acceptable to the drones who were/are controlling the decision making process. So, a scam called Liberalisation of economy was started in the mid eighties.


Liberalisation was started with ostentious reason of doing away with the government control from the economy, thus permitting economic growth of all the stakeholders. government planned to be umpire only. In this case the famous words of today's PM and FM of that time, Manmohan Singh, are worth quoting. He said - "Government got no business to be in business". He further declared that market forces will decide how the prices move and what is to be the quality of product. He also assured the nation that prices will go down and quality will go up due to competition in market. There will be more jobs for the jobless as more industries will be put up. The fiscal deficit of the government will come under control as the government will get rid of sick industries and the same money will be used for social development. Beautiful words. Followed by ugly deeds. An onslaught of unprecedented nature was brought upon the farmers and other rural industries. It looked and is still looking like a plot to make the rural India slave of industry. A loot of unparallel proportions was started. Decisions which even a street corner shopkeeper will not take with respect to their shop were taken with respect to Indian Economy and all were done while maintaining a smoke screen of, If we do not do this then something bad will happen. This bad was and is theoretical in nature only and no practical or logical evidence was ever provided to the nation. A massive propaganda was launched which showed everybody who opposed it as being traitor to the country. But who are the actual traitors? We will examine that below.

1. Removal of controls from economy - government gave the industry freedom to do as they like. The process of setting up Industry became easier. Various charges were slashed or removed. Various controls again were slashed or removed. Industry became free to price its items. So far so good. But was this done for all the stakeholders. NO. The small industries and farmers were not freed. The controls on them were kept and made even more stringent. A case in example - A private hospital can fix its charges but a taxi driver cannot. For the taxi driver the government will fix the charge. A Land developer can price his land but a farmers land government will fix the price. What government started doing is, it started acquiring land from farmers at a lower price and then gifting them to the Industry. One example from thousands : West Bengal government took the land from farmers in Singur at a price fixed by it and gave it to Tata Motors in Singur. Tata motors are free to price their car but the farmer is not free to price his land which will be used by Tata motors. This is called discrimination and interference in the market process, but government is always doing it for Industry. So much for liberalisation.

2. More jobs will be generated - Pre-liberalisation there was a law which forced the Industry employing more than 10 people to seek the permission of government before closing down. This limit was raised. This resulted in various industries employing 80-90 people closing down. People were forced to take VRS and many were thrown out of job. Even now government has not come up with how many more people it's policy has provided jobs to. The unemployment has been rising meteorically as the people whose lands are being taken away also join the same queue.

3. Fiscal Deficit - This one is the best. government started removing the subsidy from the fertilizers, pesticides, electricity etc. for farmers saying that these subsidies are increasing the fiscal deficit. And for Industry- it started reducing the taxes from industry. Case in example - Excise duty has been repeatedly reduced for Cola drinks while subsidy was being removed. The loss in Excise due to duty reduction was never made public. Moreover, various state governments created special industrial areas where they gave huge subsidies to the industry on power, sales tax, etc. This way government forced farmers to subsidise the industry. Today's status of fiscal deficit- more than in eighties.

4. Sale of PSU - At first it was said that sick industries will be sold to private players, as they are better in managing and they can revive them back. What happenned in reality was that sick industries were closed down and profit making industries were sold at a pittance to the private players. It must be remembered that these profit making PSUs were contributing towards reduction of Fiscal deficit. The case in example is VSNL sold to Tatas for a pittance. This laid bare the government's motives. Part II.