The neoliberal reforms of 1991 didn’t work as claimed

Livemint     23rd July 2021     Save    

Context: The view that economic progress and modernization in India really occurred only after ‘liberalizing’ economic reforms were introduced three decades ago is nothing but a travesty of the truth.

Achievements since LPG reforms of 1991: 

  • Per capita income went up more rapidly than before, and poverty went down.
  • Life expectancy went up, infant and maternal mortality decreased.

Critical analysis of the role of LPG reforms:

  • Poor performance in comparative perspective: Rest of world did better than India.
    • Countries like China with heterodox strategy retained significant state control and did much better.
    • Human Development Index (HDI) trend: India’s overall HDI improved from 0.433 in 1991 to 0.645 in 2019, but India’s HDI rank slipped from No. 114 to No. 131.
  • Poor status in other social indicators: 
    • Multidimensional Poverty Index (MPI) shows 28% of India’s population in multidimensional poverty, with another 20% vulnerable to it.
    • Nutrition indicators are poor, with declining per capita calorie consumption and worse outcomes for women and young children, even before covid hit.
  • Environmental cost: Higher growth rate since 1991 came at the expense of massive environmental destruction and without enabling structural change.
  • Precarious employment scenario: Employment stagnated and then fell from 2011.
    • Most workers remain stuck in low-paying informal work, and women’s employment participation declined significantly.
    • Farming is under threat, and small and micro enterprises that employ the bulk of workers face an extreme crisis.
  • Stagnation in industrialization: Industrialization did not take off beyond what was already achieved before 1991.

Why did higher GDP growth not translate into better conditions for most Indians?

  • Inequity in pattern of growth: Growth was highly unequal and provided benefits mainly to a small minority of people.
  • Issues in industrial policy approach: Process of incentivizing large capital became an endless one, as big business demanded ever more incentives and next generation reforms.
    • ‘Incentivizing business’ led to resource grabs and sometimes scams. Later phase of extreme crony capitalism is an evident consequence of this policy.
  • Restricted capital market integration: International financial integration created domestic asset bubbles and vulnerabilities to global capital movements.
    • This restricted fiscal expansion for fear of capital flight and losses due to interest rate differences between India and advanced economies.
  • Inadequate state capacity: Failed to ensure basic rights of most workers and declining ability to tax the rich, be it large corporations or extremely rich people.
Conclusion: The pandemic had already worsened the fissures in the system. Though the state had made several efforts towards ‘inclusive growth, it is clear that the broader trends can’t be reversed without abandoning the basic neoliberal premises that still guide economic policy.