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The Impact of Liberalisation and Privatisation in India

Economy Seminar II: Boston, April 17, 1999

The Impact of Liberalisation and Privatisation in India

Raj Mishra

The scope of the title of this paper is quite ambitious. reason they have voted the Vajpayee government out
This paper will highlight two key elements of the is to be found in the difficulty the ruling circles face
impact of liberalisation and privatisation that I in selling this budget to the people without making
consider to be crucial for political intervention by the the entire exercise illegitimate. This kind of political
people at this time. crisis is really the kind of grand diversion that they
want to use to push through the budget without facing
As you all know, the economic reforms were initiated
opposition from the people.
in 1991 in India in a demonstrative way after the
assassination of Rajiv Gandhi. A period of eight In the backdrop of the East Asian, Russian, and
years have elapsed since then and today the same Brazilian crisis, and the impending crisis in the world
social forces that had opted for the liberalisation and economy, India is anxiously waiting for what may
privatisation policies in 1991 are speaking of a come its way next. With the NATO bombings in
“second wave of reforms”. Yugoslavia in recent weeks, India’s anxiety has
increased, as reflected in the coverage of the Balkan
India has seen five different Prime Ministers in
war and the various commentaries in the Indian press.
succession in the last eight years and just this
After all, Yugoslavia was the darling of the west
morning the sixth one has been voted out of office. If
during the cold war. India and Yugoslavia were
anything, this indicates that there are serious conflicts
themselves closely linked under the Non-Aligned
in the ranks of the big business houses of India about
the direction they want to take at this time. Only two
years ago, the then Prime Minister Deve Gowda was India also has a number of potential Kosovas and
replaced in the midst of the Lok Sabha debate on the there are many opportunities for foreign intervention
budget. Interestingly, although the Prime Minister in India on similar “humanitarian” grounds. It is
was replaced, his Finance Minister, P.Chidambaram clear from the war coverage that India’s ruling
remained in the “new” cabinet under I.K.Gujral to establishment is nervous about these developments
oversee the continuation of the economic reforms that and it wants no discussion or debate on its own
he and his predecessors were architects of. agenda inside the country, let alone any opposition to
its agenda to emerge as a big power and empire-
In fact, the defeat of the Narasimha Rao government
builder in South Asia and Asia. The fact that the
in the 1996 elections was widely seen as the rejection
Vajpayee government has apparently collapsed in a
of the economic policies it had put in place since
controversy over naval weaponry indicates that there
1991. The further loss of support they suffered in the
are rifts among the ruling circles over the
1998 elections was also a reflection of this. But
militarisation agenda as well.
while the Congress(I) and Narasimha Rao were voted
out of office, their policies have continued and are This lesson emerging from Kosova and Yugoslavia
being deepened. The leaders of all the political cannot be lost on the Indian people. This is the time
parties represented in the Lok Sabha have embraced for all Indians to take a stand and ensure that they do
those polices. Whoever forms the next government not remain on the sidelines as important decisions on
will undoubtedly continue the same policies. war and peace, economic reforms, or constitutional
changes are decided on their behalf by a handful who
It can be said with confidence that the present
have no right to do so. For example, Narasimha Rao
political crisis and disequilibrium will thus continue,
and Manmohan Singh imposed the economic reforms
until the time that people are able to force a change in
on India through parliamentary procedure when they
the direction of Indian economy. What the present
had not been elected to the parliament themselves
direction is and what the new direction must be are
from any constituency of India, when their party was
subjects for us to deliberate upon today.
not the majority party in the parliament and following
India is facing a major economic crisis at this time – an election when they made no mention of their
this much is admitted by the Finance Minister impending economic plans.
himself and everyone else in any authority. The
The coalition governments cobbled together
current budget being debated in the Lok Sabha
afterwards also show how the political process in
reflects this crisis and the direction the ruling circles
India places the people in the sidelines and makes
want to take to emerge from it on their terms. The

them a spectator as the most unprincipled and organisation of the middle ages when a few kings,
illegitimate alliances are forged at the top by a small nawabs and emperors mattered and the rest of the
number of political party leaders. Our seminar series humanity existed for their pleasure.
is organised to involve people in discussing the
At the end of the 20th century, this humanity is facing
substantive issues facing us, facing the polity of India
a serious danger - the danger of the clock being
and the people of Indian origin living abroad who are
turned back and civilisation being undone by a few
so directly affected by the developments in India. In
powerful countries and monopoly combines. The
my estimation, these discussions are crucial for the
choices are stark - either this humanity affirms its
people to have initiative in the hands, and to set and
existence, and comes into control of its destiny, or
implement that agenda.
they will be saddled with an anti-democratic and
The privatisation and liberalisation, economic outdated social organisation imposed upon them by
restructuring, structural reforms, etc, have its origins force.
in the Reaganite-Thacherite economics of the
In India, I do not have to convince anyone that
eighties. What were the fundamentals of
liberalisation and privatisation have not brought
Reaganomics? In the main, they were to cut back
prosperity for the majority of her peoples, wealth for
spending on the social sectors of the economy,
the country or a technical scientific revolution for the
escalate military spending, prevent the working
productive forces. If anything, the financiers and
people from demanding higher wages even through
speculators of India and the world have been firmly
trade union activity, scale back safety and health
embedded to suck the wealth out of India for years to
standards for workers, relax rules for environmental
protection, and to plunder as many countries and
peoples as possible with the military stick under the In his last year in office, Narasimha Rao started
anti-communist banner. speaking about “liberalisation with a human face” to
give some legitimacy to his failed policies. Judging
The more the things have changed since then, the
from how he was dropped by his own supporters and
more they have remained the same. Reagan and
financiers from the leadership of his party and also by
Thatcher and even their immediate successors, Bush
the electorate who expressed its verdict within the
and Major, are gone, but the policies have come to
limited scope of electoral process, he fooled no one
stay. Today, Clinton and Blair are presiding over the
with this change of heart. But what happened? The
same polices in the US and Britain respectively and
policies of liberalisation and privatisation continued
they have gone further than Reagan or Thatcher in
without Rao and Manmohan Singh after the 1996
terms of cutting social expenditures, handing out
elections, first under the stewardship of United Front
money to the wealthy, militarising the economies,
involving the CPI and CPI(M) besides others and
threatening other peoples with war, increasing job
later under the National Front led by the BJP.
insecurity, etc., in their own countries.
Various adjustments to the policy were made to
Those policies have since been exported to the rest of
preserve the core content of liberalisation and
the world and have been espoused by the political
privatis ation and create illusion among the people
and economic elites of many countries. In places like
through the introduction of “poverty alleviation
Russia, the kind of corruption and looting of the state
programs”. The left-centre coalition government lost
treasury that is taking place makes the US savings
its credibility very quickly as partners like Andhra’s
and loan scandal pale in comparison. The scandals
TDP, Tamil Nadu’s DMK, West Bengal’s. CPI(M)
involving Harshad Mehta in India, the pyramid
etc. openly wooed international business in their
schemes in Albania, the BCCI collapse, the collapse
states. These partners of the United Front initiated cut
of security houses in Japan, Britain and so on are
backs on the very “poverty alleviation” schemes that
products of the liberalisation and privatisation
the UF government was championing at the centre
policies and many more are coming to light world-
and diverted the money from their state treasuries to
wide every single day.
grant new concessions to investors. In contrast,
Anyone willing to look can see clearly how the India’s farmers have risen in arms against the WTO
reforms of the last two decades have created a agriculture policy, and the workers have risen against
situation where the overwhelming majority of the mass layoffs accompanying privatisations, mergers
people and the bulk of the resources of this planet and take-overs.
have come to be at the mercy of a small sections of
Subsequently, the BJP-led coalition of Vajpayee and
financial, military and political operatives, enabling
Advani did go further in terms of enacting legislation
them to control the destinies of billion. In a
for the reform of EXIM policy, bank and insurance
qualitative sense, we are staring at the social

sector reforms, and “internal security”, declaring all million people who are eligible for such identity
struggles of the people for socio-economic rights and cards! There are incentives such as reduced capital
national rights as criminal acts, invoking various gains tax for mutual fund investment, new taxes on
draconian laws like the ESMA, AFSPA, and so on to the 12 million or so tax-payers of India, and the sale
attack strikes by transport workers, hospital workers, of public sector comp anies.
and teachers.
All these details can be found in the budget which is
Against all odds, in December 1998, the first all- pending for approval in the Lok Sabha today. The
India strike organised by over 50 trade unions, question I want to ask is why has this capital account
political parties and organisations held countrywide shortage appeared? What are the ramifications of this
agitation to oppose the policy of liberalisation and shortage and if there is an opening here for the people
privatisation. The workers, along with the farmers to put forth their proposals to reorient the economy
and peasants are now in the forefront of the struggle and its direction.
against liberalisation and privatisation. One also can
Why is there a shortage of capital? Firstly because
see the Confederation of Indian Industry, Federations
the economy in India is not producing the surplus at a
of Indian Chamber of Commerce and Industry,
rate that will leave enough for extended reproduction
ASSOCHAM and other trade organisations of the
of the economy. The investments in the last decade
Indian business houses, most of the political parties
and before have not been geared towards ensuring
represented in the parliament and state assemblies
such accumulation to assure extended reproduction.
and the international financiers working feverishly to
For example, between 1984 and 1987, India’s foreign
take the liberalisation and privatis ation policies
armaments purchases were worth $17.5 billion,
making India the second largest customer after Iraq
For today’s discussion, I want to point out that the for that period. We have heard about the Bofors
policies enunciated in 1991 by Manmohan Singh scandals of the late 1980’s and also the balance of
appear to have exhausted themselves and the Indian payment crisis of 1990-91, the former linked to
big business houses are divided over what direction making money by some middlemen and the later
to take. Judging from the reception the annual linked to devaluation, job cuts, price rises and
meeting of the CII, held earlier this year in Rajasthan, ultimately the economic restructuring affecting
received from Indian government officials, or the millions and millions of people.
reception the Indian government delegation received
The point here to note is that it is possible to see a
at Davos in Switzerland a few months back, it seems
direct link between the defence spending, current
that the policies enunciated 8 years ago do not elicit
account crisis and lack of capital, not just in the case
much enthusiasm from their own quarters. For
of India but in other economies as well. The economy
example, the leaders of different political parties had
of the former Soviet Union and other countries of the
gone to the CII meetings in the past to swear their
Warsaw Pact simply collapsed under the weight of
support for the liberalisation and privatisation.
their military expenditures, besides the plunder of the
Similarly, international monopolies had flocked to
remaining surplus by elite of those countries. A
Davos to cheer these policies. But these are all
similar phenomenon occurred in the 1980s under
lacking this year.
Reagan’s military expenditures that led to a dramatic
The response of the Indian government to this increase in the US fiscal deficit and public debt.
cooling off” has been to put forward its
During the Gulf war, the US was able to make Japan,
recommendations for “a second wave of
Germany, Kuwait and Saudi Arabia pay part of the
liberalisation”. This second wave, unlike the first
costs. It was able to buy the support of Egypt by
wave, envisages liberalisation of the financial sector
cancelling some of its debt. But in the present war
and further divestment of the public sector
against Yugoslavia, it could garner no support from
undertakings. The Indian finance minister presented
anyone other than its closest alliance members.
his budget proposals to the Lok Sabha in March and
Today, there is open discussion in the media about
after warning that a serious balance of payment crisis
the bonanza this war is creating for Raytheons and
in the capital account exists today, addressed himself
Lockheeds, who make the cruise missiles and
to raising new capital both from inside and outside
bombers, and also the lucrative rebuilding
opportunities in bomb -destroyed Yugoslavia. In
The budget contains all sorts of proposals to raise short, war has become a very profitable affair for the
capital from NRI’s, such as tax concessions on US at this time. It is the logical outcome of the
capital gains and even the proposal to sell an identity serious imbalance in the economy created by
card to all NRI’s for $1,000 each - there are 15 Reaganomics, rendering the economy unable to

produce the necessary surplus for harmonious and period too. But situations like Yugoslavia do not give
uninterrupted growth. them much comfort and they have harboured talk of a
Russia-China-India axis and re-igniting the old
The experience of Hitler’s Germany in the 1930s and
military relationship with the Russians.
of Khruschev and Brezhnev’s Soviet Union in the
1950’s-1970’s show that when a country needs to It does not require much imagination to see that a
militarise, it necessarily diverts resources to heavy military alliance against the one led by the Americans
industry to build the weapons and the military is in the making within the changed world situation
infrastructure. These expenditures do not produce a brought about by the “liberalisation and
surplus for extended reproduction, but gives rise to a privatis ation” program.
serious shortage of capital. Aggression and the
The NATO attack on Yugoslavia have given a role to
annexation of other peoples and their territories for
Russia in the European theatre, and if these powers
markets and sources of raw materials are outcomes of
succeed in keeping the lid on the Balkans, Asia will
such economic policy.
turn into the new theatre for military conflicts. In
India today is on the track of militarisation. India sum, economic changes around the world and in
says it needs over one hundred billion dollars to build countries like India, China and Russia seem to be
roads, ports, and so on to facilitate the growth of its headed towards the formation of new military
industry and to meet its national security needs. The alliances and military conflicts. The military sectors
dismantling of the state enterprises (public sector of economy in all these countries are being
undertakings) under the cover of “swadeshi”, “Indian strengthened after their initial stagnation or decline
content” and so on are means to lay the foundation for a few years following the end of the cold war.
for the big business houses of India to take direct The heavy price that the working people have been
control of the heavy industry sector and to guide their paying for the last decade of liberalisation and
development towards the future military-industrial privatisation will now include the price of
complex of India. militarisation and war preparation. These
developments indicate that there is no time to be lost
According to the announcement by the Government
to reorient the economy.
of India on September 18, 1998:
In August 1998, the AIPSG launched its discussion
It has also been decided to establish six joint task
on democratic renewal at a conference in New York,
forces to evolve long-term partnership between the
which includes the renewal of Indian economy
industry and the Ministry of Defence…
besides other things. There, it argued out why the war
..the Defence Ministry has decided to throw open on poverty must be placed at the centre of all
seven defence laboratories to the private sector in the economic policy today. It elaborated on the demand
three areas - Dual technology for defence and civil for a moratorium on debt payments and the release of
application; Biotechnology products; and Software those funds for winning the war on poverty. Similar
engineering. proposals have been made by others, both in India
and abroad and a broad discussion has begun in many
The National Security Council and other bodies that
countries about such demands. The Indian ruling
oversee the purchase and sale of weapons are being circles argued in 1991 that if they defaulted on loan
integrated with the Indian big business houses and
repayments at that time, international financial
their trade association representatives. The
agencies would penalise them in the future. Today,
consequences of such militarisation can be inferred the health of the Indian economy is even more
from history as well as the current developments in
precarious than it was in 1991, when India
the Balkans and the Middle East. The people of India
encountered a severe balance of payment crisis after
must bring about a change in the direction of this years of military spending and debt build-ups.
militarisation, besides other changes, to protect the
future of the country and the region. The living standards of the peasantry, workers,
middle strata and other sections affected by the
International capital is both colluding and colliding mergers, closures and rationalisations have been
with India on this course of the Indian ruling circles.
further depressed because many cannot pay for the
Indian government officials and business houses are
essential services that have been privatised since
desperately trying to find their suitors, today courting then. The defence build up and the interest payments
the Japanese, tomorrow the French, British, Germans,
continue to drain an increasing share of the surplus
Americans and Russians. They think that their old
produced by the people of India while at the same
cold war-era policy of “equi-distance from Moscow time raising the spectre of war. Only the people of
and Washington” will succeed in this post cold war
India can force a change in the way the economy is

run and they must do so by demanding that a war on not only succeed in putting their own struggles on the
poverty becomes the first order of business before agenda, but will objectively contribute to the unity of
any loan repayments or weapons purchases are done. all the peoples and their movements. It is within such
a broad movement of the people that all the struggles
As the discussion develops, the relationship between
can succeed.
the renewal of economy and politics is becoming
apparent. The economy must be organised to provide It is the living experience of the people that the ruling
for the people and the political process must be circles do everything to keep their struggles disunited
organised so that people can exercise their and isolated and exert maximum pressure for them to
sovereignty or supreme power, including on conciliate with their victimisers. By creating
economic matters. I think these are the times for all conditions for the broad discussion of the effects of
of us to hoist the banner of vesting sovereignty in the globalisation on the people it will be possible to make
peoples. them fight against the forces of globalisation and its
chief proponents. We must impose our definition of
It is not difficult to demonstrate that the people of
what are the substantive problems of our times, the
India actually do not decide anything that has a
solution of which will enable the solution of all other
bearing on their welfare. Such things as illiteracy
continue at very high rates in India, especially among
women and the poor, and the state refuses to allocate In conclusion, I want to reiterate that the time is now
resources to end this curse of ignorance. But it has no to put the war on poverty on the agenda. It is time to
shortage of funds to beam its propaganda into the stop treating this as a policy objective, but to make
remotest parts of the country through television to this the program in itself. This means that it is
perpetuate backwardness, mysticism and necessary to elaborate on the strategy and tactics of
submissiveness in the name of modernisation of the this war, and to organise people behind this.
illiterate people. Poverty, ignorance and deprivation Opposition to militarisation, and to the economic
keeps the people ready to work at low wages. reforms are the two important elements I referred to
in the beginning. People will have to stop the ruling
The international financial agencies and corporations
circles from allocating funds for interest payments or
are also very active in many countries, including
the purchase of weapons until their needs for
India, in the disguise of helping various organisations
education, housing, healthcare, public distribution of
fighting for “empowerment”. But their insidious
essential food items, sanitation and drinking water
activity is to ensure that none of these organisations
have been met.
link their struggles with the struggle for livelihood
and against globalisation. It is my appeal to all the People can not only seize the initiative in their hands
individuals and organisations who are fighting for and end their marginalisation from the economic
any right, be it for literacy, for clean water, for a activities of the country by taking up such a program
secular polity and so on - that they also address , but in the process end the marginalisation of all their
themselves to the issue of livelihood for all the struggles for rights.
people who constitute India. In doing so, they will