The economic transition

Published : Jan 23, 2015 12:30 IST

New Delhi, July 24, 1991: Finance Minister Manmohan Singh on his way to Parliament to present his first reforms-oriented Budget.

New Delhi, July 24, 1991: Finance Minister Manmohan Singh on his way to Parliament to present his first reforms-oriented Budget.

The thirty years since Frontline came into existence have been ones in which the structure of the economy and its growth dynamics have been fundamentally transformed under a new economic policy regime. Agriculture languished through much of the period, manufacturing has been swept aside by services, foreign presence in India’s economy and markets is ubiquitous, and the share of profits in manufacturing value added and GDP (gross domestic product) has risen, whereas the share of wages has fallen.

The beginnings of that transformation can be traced to when the decision was made during 1980-84, under Indira Gandhi’s government, to turn to the International Monetary Fund (IMF) for a structural adjustment loan in the wake of the two oil shocks. India did not really need that line of credit, and needed it even less as the Bombay High offshore oil and gas fields enhanced production and availability. But the decision was made, signalling the first major victory of forces within and outside the Indian government and forces abroad that favoured an economic policy transition. It was a move away from the interventionist regime that since Independence had sought to ensure, however unsuccessfully, that the trajectory of growth was not one that delivered benefits largely or even solely to big business, landlords and a well-heeled minority.

As expected, and given the IMF practices of that time, India’s letter of intent declaring adherence to damaging conditionalities was kept a secret and away from the eyes of Parliament. Fortunately for the country, N. Ram, the intrepid Washington correspondent (and later Editor-in-Chief) of The Hindu, obtained access to the document and broke a story that set off a wave of opposition. Unfortunately, however, that only helped slow and delay the policy transition, not stop it. It was revived by the Congress government under Rajiv Gandhi, and subsequently sustained by governments headed by very different political coalitions. In the event, during the 1980s India’s economic borders were opened to enhanced flows of goods, services and capital from the rest of the world. The widening trade and current account deficits and the dependence on foreign capital in the form of commercial debt this led to, increased India’s vulnerability and precipitated a balance of payments crisis in 1991.

The crisis was used as an opportunity by the ruling elites to turn once again to the IMF, arguing that it was unavoidable, as were the conditionalities associated with that second line of credit. This unleashed the accelerated programme of neoconservative reform that transformed India’s development process. The descriptive details of the reform were well known: delicensing, deregulation and decontrol of production, prices, trade and foreign investment in various forms. This was not a process in which the state withdrew and markets were allowed to operate freely. Rather, it was one in which the state’s role was transformed into one in which it functioned to serve the interests of domestic and foreign capital and a section of the rich, engineering in the process a radical redistribution of assets and wealth in favour of the elite. Even if the trajectory prior to neoliberal reform was not egalitarian, it was one in which there was some distance between the state and the dominant classes. This was because to win the leadership of the freedom movement and freedom itself, the state had to build a broad coalition and resort to mass mobilisation to challenge British rule. This required giving the appearance of not immediately favouring one section of the coalition at the expense of the other. Moreover, a section of the Congress represented by Jawaharlal Nehru did recognise that political freedom would have no substance if India did not win freedom from metropolitan capital. That influenced the thrust of the post-Independence strategy, in which imports from abroad and the operations of foreign capital were kept in check.

Frontline tracked in detail this process of transition that varied in pace across time. But we did not stop there. We also analysed the ways in which this changed the development trajectory and the structure of economic power and the impact that had on growth and the distribution of the benefits of that growth. In time it became clear that not only had the power of corporate capital, domestic and foreign, increased immediately with associated profit inflation, but that Indian economic policy and its economy had been made hostage to foreign finance capital.

There were brief episodes of increased growth in the period since the early 1990s, but they inevitably proved ephemeral. Moreover, they not only had little impact on employment but were characterised by significantly increased inequality and the dilution of efforts to provide support to the poor through state expenditure and subsidised credit from the banking system. Despite claims that “liberalisation” would increase transparency, the era came to be characterised by heightened corruption as a result of the growing nexus between corporate capital and the state, with the latter facilitating superprofits through access to cheap or even free land and resources and transfers of other kinds.

All this was sought to be concealed by focussing attention on episodes of growth and episodes of buoyancy in the stock market. But that growth was fragile, based on a substantial build-up in private debt, and the markets were volatile. India did well so long as foreign finance saw an opportunity to make profits. It experienced difficulties every time foreign finance saw the need to exit. But India’s elites, which benefit immensely from the liberalisation, have held out, while the poor have faced an onslaught not just in terms of relative but also absolute deprivation. To prevent this cauldron from boiling over, divisive ideologies have been promoted that hold an internal “other” as the cause of the chronic crisis, often by engineering conflict and violence. That provides the ground for the worst forms of populist conservatism leading up to an environment that breeds the grounds for India’s own version of fascism. This, too, Frontline has sought to record, highlight and oppose.

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