Is India On the Right Track

It all started in the year 1991 when Manmohan Singh, the then Finance Minister of the Narsimha Rao government, "decided" to enter the world of economic liberalization and Globalization. Well that is what Congress says. That they "decided" on this path. The truth being the government was left with no other choice. In 1980's the Private savings financed most of India's investments. But it was difficult to sustain this investment and as a result India started borrowing from foreign resources. This led to a payment crisis. Facing this economic crisis, India approached the IMF which granted "structural adjustment" loan: a loan with certain conditions. India was thus tunneled into a structured economy which was based on reforms like Liberalization, Privatization and Globalization.

Liberalization: Aimed at removing government control on trade and business
Privatization: Aimed at reducing public sector units and converting them into private sector units
Globalization: Aimed at increasing the interdependence, integration and interaction between people and trade of disparate countries.


In general people have two opinions about free trade globalization of business. The first opinion being that it is an engine which will drive us towards better standards of living and robust economy. While second defines it as “corporate imperialism" which tramples human rights of people.

Being a S/W engineer working in an MNC I’m inclined to accept the former opinion as I am one of the millions who are directly benefited from it. The ever increasing Foreign Direct Investment in India and share markets scaling new heights every day have been underlined quite regularly in the recent past by our media. Even the BJP government under Atal Bihari Vajpayee tried to showcase their achievements based on the India Shinning campaign. They tried their best to focus the campaign on the rising GDP of Indian Economy. I along with most of the people in BJP camp was quite sure of 5 more years of BJP rule. But the verdict given by the Indian voters was quite different.

To some extent I do believe open trade and competition have benefited the Indian manufacturing industry and brand India has now become far more acceptable that it was in the 1990's.The bigger players in market have profited from open markets, but at the same time the small scale industries' graph is on a downslide. I think this can be avoided with an introduction of some more reforms in the manufacturing sector.

The real problem lies in rural India. Increased number of suicides committed by farmers has done no good to the claims offered by advocators of globalization who say that it will help in eradication of poverty. Some statistics do show that poverty in India has come down but I strongly believe that the whole process of calculating the number of people living below poverty line is flawed and needs to recalculated

Agriculture employs 60% of the Indian population but contributes to approx 20% of the GDP. Agricultural production fell by 12.6% in 2003; one of the sharpest drops in terms of crop production in the history of independent India. Agricultural growth slowed from 4.69% in 1991 to 2.6% in 1997-1998 and to 1.1% in 2002-2003. (Agricultural Statistics at a Glance, 2006).The greatest problem that farmers are facing today is "debt”. The poor farmers of India are in the inclement hands of moneylenders. The introduction of microfinance has not contributed much in alleviating the problems of Indian farmers. The earlier seed market was regulated in terms of price and quality, but with liberalization the farmers were in the hands of global agribusiness. The farmers were provided genetically modified seeds at a price hike of 3555%. On top of this, the government had to reduce subsidies (as per IMF conditions) on pesticides and fertilizers. All these contributed to an increase in the prices of Indian crops. With the withdrawal of tariffs and duties on imports, cheaper products of foreign market flooded India. As a result, the Indian farmer was not able to sell his crop even in Indian market. He was strangled in a debt trap.

One more aspect that strikes my mind is privatization. Privatization was aimed at increasing productivity and competition which, in turn, removed monopoly. But privatization in India was always aimed at generating revenue for the government. It is true that not all public sector units introduced by Congress in the late 1970's are profit-making ones and so, privatization should aim to target non profit making sectors.

We often compare India with China and how these two countries might become super powers in the near future. But the fact is both countries have their own internal problems. On one hand China is way ahead that India in terms of Technology and Infrastructure but China has undermined local entrepreneurship in favor of foreign direct investment. On the other hand India has built an infrastructure that allows entrepreneurship but is still fighting to spread the benefits of liberalization to a larger segment of its population.

The recent protests have helped .They have been successful in scrutinizing the processes adopted by WTO. There are questions raised about the matter of agricultural subsidies given in rich countries. Moreover, the developing countries have realized that something has to be done. Trade liberalization is ok but only if it’s done after bringing all partners at par. It’s not globalization or liberalization but economic mismanagement that is often the root cause of many problems.

The current danger to India is not Economic Liberalization but economic mismanagement of the past which can only be faced by sound polices of economic adjustment and an even spread of benefits among the masses.