Great for India, not for Bharat

Rajesh Ramachandran
The Hindustan Times
Mar 07, 1999

When finance Minister Yashwant Sinha announced the end of the first phase of economic reforms during his Budget speech last week, images that define the Nineties suggested themselves — the white-collared executive clutching his cellular in one hand and steering his sleek car, spilling over with branded electronic gadgets, with the other, or the hiply dressed yuppie logging in on his state-of-the-art computer to cruise along the information highway.

But economists looking beyond these seductive pictures are agreed that the benefits of liberalisation have not percolated to levels below the urban working and middleclass. Indeed, the Nineties convey other images too: of unemployed youth adding to social unrest, and the unskilled rural labourer remaining where he has been through much of history.

Says Subir Gokarn, chief economist at the National Council of Applied Economic Research (NCAER): "The white collar middleclass has done the best, as also the urban working class. There is also a regional divide: Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra and Gujarat have done considerably better than others. The rural rich now have a wider option. Urban poverty has been reduced."

The one class that's been left out is the rural poor (and how immensely huge it is). "It could have benefited had reforms been complimented with a strong focus on the social sector, especially education," believes Gokarn. The big irony of the reforms decade is that the government slashed its expenditure on infrastructure and the social sector (health, education, etc) —the very opposite of what a government in a market economy is supposed to do.

But its salary bill has ballooned to nearly 40 per cent over its 1991 level. Higher salaries and a reduction in taxes in both the public and private sectors meant that a certain class of people suddenly had more money to spend.

This, says Planning Commission member SP Gupta, went into buying branded white goods. "Seven to eight per cent overall economic growth, 12-13 per cent industrial growth and over 20 per cent export growth during 1994-1997, should have had a substantial trickle down effect. But the boom was destined to be an urban phenomenon because the rural sector had not been touched at all," he observes.

The urban working class benefited. TV sets, refrigerators and air coolers in slums indicate the increasing purchasing power of those residing there; monthly rents as steep as Rs 5,000 in some Bombay slums may reflect a deeper crisis of housing, but is nevertheless proof of the increasing prosperity among those who slummed it in the depressing Eighties.

"But," asserts BB Bhattacharya, head of the Development Planning Centre, Institute of Economic Growth, "you don't see such signs of purchasing power in the slums of small towns. The reforms, in a way, have adversely affected the more backward states like Bihar, since private investment shifted to investment-friendly states. Earlier, the government would have pushed industries to backward areas."

This skewed distribution of the benefits of reforms can be traced to the way they were introduced. Explains Gokarn: "I wouldn't call this the decade ofreforms, but of reformist thinking. The first ripple of reforms was in 1982 after the international oil crisis, when some delicensing was done under pressure from the International Monetary Fund. The second ripple was in 1985 under Rajiv Gandhi, but these voluntary reforms ran out of steam. The Manmohan Singh reforms, beginning July 1991, were because of the huge balance of payments problem. To tackle the 17 per cent inflation rate, the government did short term monetary curbs and unrolled long term trade reforms and industrialdelicensing."

But P.V. Narasimha Rao's government could not sustain it. The over-heated economy sent the inflation rate spiralling — and this, along with several other social and political factors, resulted in the Congress getting a battering in successive Assembly elections. The government got stuck with an anti-poor image — and numerous scams conveyed the impression that the reforms were nothing more than a money-spinner for the political class. The Congress thus went slow, delaying crucial structural changes after the initial spurt.

Argues Indira Rajaraman of the National Institute of Public Finance and Policy, "Only the market for products has been opened up. The market for factors of production like land and labour have been left largely untouched, because this would have questioned the sources of political funding. For instance, rent control has resulted in slums from which slum lords— essential for political parties — derive all their power."

The United Front government, representing a myriad regional and class/caste interests, rode the crest of the mid-Nineties boom without opening the insurance and banking sectors. This was because their economic philosophies encompassed the entire range from far left to extreme right.

Meanwhile, the Bharatiya Janata Party (BJP) set aside its Hindu agenda to focus on swadeshi. Its rhetoric possibly had an impact on the very groups that were benefiting. They felt their new economic prosperity could be shortlived because multinationals would run indigenous units out of business, and capital-intensive industries would squeeze jobs. No wonder, all the three southern states where the BJP did well for the first time had benefited from the reforms.

But, once in power in Delhi, the compulsions of governance have persuaded the Vajpayee government to eject mucho f the swadeshi package. But it still looms large and could be BJP's biggest stumbling block as it embarks on Sinha's promised second phase of reforms. This has become clearn with last week's watering down of foreign participation and other provisions in the insurance reforms Bill. It was, after all, the middleclass-oriented RSS which made Bharatiya Mazdoor Sangh leader Dattopant Thengdi describe the government's economic policies anti-national.