Indian Economy, 5th edition (22 page)

(ii)
Drastic reduction in the peak import tariff from the prevailing level of 130 per cent to 30 per cent (India completed it by 2000–01 itself and now it is voluntarily cut to the level of 15 per cent).

(iii)
Excise duties (i.e CENVAT now) to be hiked by 20 per cent to neutralise the revenue short falls due to the custom cut (a major tax reform programme was launched to streamline, simplify and modernise the Indian tax structure which is still going on).

(iv)
All government expenditure to be cut down by 10 per cent, annually (i.e cutting the cost of running the government and denotes, interests; pays, pension and the PF; subsidies. A pressure on the Government to consolidate the fiscal deficit and go for fiscal prudence).

Though India was able to pay back its IMF dues in time, the structural reform of the economy was launched to fulfill the above-given conditions of the IMF. The ultimate goal of the IMF was to help India bring about equilibirium in its BoP situation in the short-term and go for macroeconomic and the structural adjustments so that in future the economy faces no such crisis.

There was enough scope for the critics to take India’s economic reforms as prescribed and dictated by the IMF. The process of economic reforms in India had to face severe criticism from almost every quarter of the economy concerned. although the reforms were aimed to boost growth and deliver competitiveness to the economy.
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Reform Measures

The economic reform programme, that India launched, consisted of
two
categories of measures:

(i) Macroeconomic Stabilisation Measures:

It includes all those economic policies which intend to boost the aggregate
demand
in the economy—be it domestic or external. For the enhanced domestic demand, the focus has to be on increasing the purchasing power of the masses which entails an emphasis on the creation of the gainful and quality employment opportunities.

(ii) Structural Reform Measures:

It includes all the policy reforms which have been initiated by the government to boost the aggregate supply
of goods and services in the economy. It naturally entails unshackling the economy so that it may search for its own potential of enhanced productivity and production. For the purchasing capacity of the people to be increased, the economy needs increased income which comes from increased levels of activities. Income so increased is later distributed among the people whose purchasing power has to be increased—this will take place by properly initiating a suitable set of the macroeconomic policies. For the income to get distributed among the target population, it takes time but the efforts a government initiates to increase the supply i.e. increasing production becomes visible soon. As production is done by the producers (i.e the capitalists),
prima facie
the structural reform measures look ‘pro-rich’ and ‘pro-industrialist’ or ‘pro-capitalist’, known with different names. Ignorant people easily get swayed by the logic that everything which is ‘pro-rich’ has to be necessarily ‘anti-poor’. But it was not the case with the process of economic reforms. Unless the economy is able to achieve higher growth (i.e. income) wherefrom the purchasing power of the masses will be enhanced? And increased income takes time to reach everybody. If the economy lacks political stability, this process takes even more time due to short-term goals set by the unstable and frequently changing governments—the exact case is with India.

The LPG

The process of reforms in India has to be completed via three other processes namely, liberalisation, privatisation and globalisation, popular by their short-form—the LPG. These three processes specify the characteristics of the reform process India initiated. Precisely seen, liberalisation shows the
direction
of reform, privatisation shows the
path
of reform and globalisation shows the ultimate
goal
of the reform. However, it would be useful to see the real meanings of these terms and the exact sense in which they are being used worldwide and particularly in India.

LIBERALISATION

The term liberalisation has its origin in the political ideology ‘liberalism’ which took its form by early nineteenth century (it developed basically in the previous three centuries). The term is sometimes protrayed as a
meta-ideology
capable of embracing a broad range of rival values and beliefs. The ideology was the product of the breakdown of feudalism and the growth of a
market
or
capitalist
society
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in its place which became popular in economics via the writings of Adam Smith (its founding father in the USA) and got identified as a principle of
laissez-faire.
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The term liberalisation will have the same connotation in economics as its root word liberalism has. Pro-market or pro-capitalistic inclination in the economic policies of an economy is the process of liberalisation. We see it taking place in the whole Euro-America in 1970s and particularly in the 1980s.
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The most suitable example of this process could be China of the mid-1980s when it announced its
‘open door policy’.
Though China lacks (even today) some trademark traits of liberalism, as for example individualism, liberty, democratic system, etc. still China was called a liberalising economy.

We may take an example from the history of the world economy—putting the USA of the early 20
th
century and the communist China on the two poles of the scale—thus representing the best historical example of the liberal economy and China being the best example of the ‘illiberal’ economy. With the USA on the south pole and China on the north any policy movement towards ‘the south’ is ‘liberalisation’. The movement from the south to the north will be known as ‘illiberalisation’.

It means that the process of decreasing traits of a state economy and increasing traits of a market economy is liberalisation. Similarly, the opposite will be the process of illiberalisation. Technically speaking, both the processes will be known as the processes of economic reforms, since ‘reform’ as a term does not say anything about the ‘direction’. All the economic reforms in the world have been from the ‘north to the south’. Similar is the case with the process of liberalisation.

It means, in the Indian case the term liberalisation is used to show the direction of the economic reforms—with decreasing influence of the state or the planned or the command economy and increasing influence of the free market or the capitalistic economy. It is a move towards capitalism. India is attempting to strike its own balance of the ‘state-market mix’. It means, even if the economic reforms have the direction towards market economy it can never be branded a blind-run to capitalism. Since the economy was more like the state economy in the former years, it has to go for a greater degree of mix of the market. But in the long run, Liberalism curtails the powers of Parliaments.
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PRIVATISATION

The decades of the 1980s and 1990s witnessed a ‘rolling back’ of the state by the governments, especially in the USA and the UK under the inspiration of the New Right priorities and beliefs.
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The policies through which the ‘roll back’ of the state was done included deregulation,
privatisation
and introduction of market reforms in public services. Privatisation at that time was used as a process under which the state assets were transferred to the private sector.
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The root of the term privatisation goes to this period which got more and more currency around the world once the East European nations and later the developing democratic nations went for it. But during the period several connotations and meanings of the term ‘privatisation’ have developed. We may see them as follows:

(i)
Privatisation in its purest sense and lexically means
de-nationalisation
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i.e. transfer of the state ownership of the assets to the private sector to the tune of 100 per cent. Such bold moves took place only once anywhere in the world without any political fallouts—in the early 1980s of the UK under the Thatcher regime. This route of privatisation has been avoided by almost all democratic systems. In the mid-1990s some west European nations—Italy, Spain and France—besides the USA went for such moves.
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India never ventured into any such privatisation move.

(ii)
The sense in which privatisation has been used is the process of
disinvestment
all over the world. This process includes selling of the shares of the state-owned enterprises to the private sector. Disinvestment is de-nationalisation of less than 100 per cent ownership transfer from the state to the private sector. If an asset has been sold out by the Government to the tune of only 49 per cent the ownership remains with the state though it is considered privatisation. If the sale of shares of the state-owned assets has been to the tune of 51 per cent, the ownership is really transferred to the private sector even then it is termed as privatisation.

(iii)
The third and the last sense in which the term privatisation has been used around the world, is very wide. Basically, all the economic policies which directly or indirectly seem to promote the expansion of the private sector or the market (economy) have been termed by the experts and the governments as the process of privatisation. We may cite a few examples from India—de-licencing and dereservatrion of the industries, even cuts in the subsidies, permission to foreign investment, etc.
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Here we may connect liberalisation to privatisation in India. Liberalisation shows the direction of reform in India i.e. inclination towards the dominance of market. But how will it be achieved? Basically, privatisation will be
the path
to reform. It means, everything which includes promotion to the ‘market’ will be the path of the reform process in India.

GLOBALISATION

The process of Globalisation has always been used in economic terms though it has always taken the political and cultural dimensions. Once economic changes occur it has several sociopolitical manifestations.
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Globalisation is generally termed as ‘an increase in economic integration among nations’
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. Even before several nation-states were not even born, the countries around the world had gone for globalisation i.e. ‘a closer integration of their economies’.
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This globalisation lasted from 1800 to almost 1930, interrupted by the Great Depression and the two Wars which led to retrenchment and several trade barriers were erected since early 1930s.
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The concept was popularised by the Organisation of Economic Cooperation and Development (OECD) in the mid-1980s again after the Wars. In its earlier deliberation, the organisation had defined globalisation in a very narrow and business-like sense—
‘any cross-border investment by an OECD company outside its country of origin for its benefit is globalisation’.
After this summit of the OECD, proposals for replacing the GATT by the WTO were pushed by the developed economies of the world, better known as the starting of the Uruguay Round of GATT deliberations which ends in the Marrakesh (1994) with the birth of WTO’. In the meantime, the OECD had defined (1995) globalisation officially, too—“a shift from a world of distinct national economies to a global economy in which production is internationalised and financial capital flows freely and instantly between countries.”
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The official meaning of globalisation for the WTO is movement of the economies of the world towards
“unrestricted cross border movements of goods and services, capital and the labour force”.
It simply means that the economies who are signatories to the process of globalisation (i.e. signatories to the WTO) for them there will be nothing like foreign or indigenous goods and services, capital and labour. The world becoming flat and level-playing field emerging in the due process of time.
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For many political scientists (which is today a very dominant force in the world), globalisation is the emergence of a situation when our lives are increasingly shaped by the events that occur at a great distance from us about which the decisions are not taken by our conscious self. One section of experts believe that globalisation subordinates the state while the other section argues that the local, the national and global events constantly interact under it without any sfubordination of one by the other. Rather, globalisation highlights the deepening as well as broadening of the political process in this sense.
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India became one of the founding members of the WTO and was obliged to promote the process of globalisation, though its economic reforms started with no such obligation. It is a different thing that India started the process of globalisation right after the reforms were started in 1991, itself.
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Now we may connect the three simultaneous processes—the LPG with which India launched its reform programme. The process of liberalisation shows movement of the economy towards the market economy, privatisation is the path/route through which it will travel to realise the ultimate ‘goal’ i.e. globalisation.

It should be noted here that the Indian idea of globalisation is deeply and frequently inclined towards concept of the welfare state which keeps coming in the day to day public policy as an emphatic reference. The world, including the IMF, the WB and the developed nations have now increasingly shown their recognition to the fact that the official goal of globalisation of the world economies would not take place without giving the poor of the world a better standard of living. Even if globalisation is complete without including almost one-fifth of the world population, the poor, will it be called development of the world?

GENERATIONS OF ECONOMIC
REFORMS

Though there were no such announcements or proposals while India launched its reforms in 1991, in the coming times, many ‘generations’ of reforms were announced by the Governments
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. A total of
three
generations of the reforms have been announced till date while experts have gone to suggest the
fourth
generation, too.
w
e may substantiate the components of the various generations of reforms to properly understand the very characteristics and the very nature of the reform process in India, as given below: