There is cause for Indians to celebrate on the occasion of the 69th anniversary of their independence, especially
in the present optimistic mood as its economic buoyancy sharply contrasts with the stagnation and
crisis prevailing in other parts of the global economy
On Monday last India celebrated the 69th anniversary of its independence. In the wake of a recent visit to Mumbai we were reminded that 2016 also marked the 25th anniversary of the Great Economic Reforms initiated by Dr Manmohan Singh in 1991 as Minister of Finance under the prime ministership of Narasimha Rao. In the interest of fairness and respect for history it must be said that the contribution of the latter during this critical phase of India’s modern history has probably been one of the most understated.
The reforms introduced in 1991 were such game-changers that one analyst (Mukul Kesava, writing in the Hindustan Times recently) has convincingly supported the view that it would be wrong for economic historians to suggest that the sort of transformations which were heralded through these reforms were part of a process. For him they were more akin to an “event”, thereby arguing that these reforms were so momentous that they created a new irreversible dynamics for the Indian economy. In view of the recent economic performance of the Indian subcontinent and on the basis of the factual evidence, we would be keen to support such a view.
In the summer of 1991, in the midst of a most severe balance of payments crisis, India had to ship out 67 tons of gold to Europe in order to secure a loan of USD 800m to pay for its short term imports. This must have been resented as the height of humiliation and a signal that the country had reached a dangerous tipping point.
The order of the day was globalization: understand the spread of the deregulation and liberalization mantra as the new norm of best financial and economic practice throughout the world economy. Given the past economic history of India, there was absolutely no certainty that it would then necessarily decide to embrace this growing trend and throw its future into the rough seas of this US- and UK-led movement.
Two factors, one external and the other internal, were to shape the future option in favour of radical reforms. In that prevailing global environment, ironically enough the economic reforms and opening up of the archrival Chinese economy, under the leadership of Deng Xiaoping, may have been a critical factor in the ensuing decision of India. Not only because of the longstanding rivalry between the two nations, but also because it must have been felt that China and India (and later the BRICs countries) which had a number of similar concerns about the consequences of globalization could, by working together, eventually present a serious counterweight to the model of unfettered liberalization which was hitherto its dominant feature.
Having said that, though, the really defining factor which carried the day for India in those dire circumstances remains the perseverance and determination of Narasimha Rao and Dr Manmohan Singh to implement the most radical economic reforms that India had witnessed in its post-independence history. India embarked on a programme of transformational changes which had the effect of opening up selected sectors of its economy, till then reserved for local capital, to foreign direct investments.
Undoubtedly Dr Manmohan Singh, the principal architect of the reforms, was a liberal economist who would have liked to perhaps go even further in his reforming zeal. He had the intelligence though to understand that history and context matter, and that his reforms would only be realisable to the extent that India engaged with globalization on its own terms and at its own pace, taking into account both the dire need for changes as well as the weight of history. All of this was taking place even as the reformers were confronted with formidable internal opposition coming from powerful conservative or even reactionary forces, driven by a desire to preserve a self-serving status quo.
There is no doubt that in the context of such a large stagnating economy as that of India, which had been afflicted by the infamous “Hindu rate of growth” for so many decades, those liberalization measures can be construed as objectively progressive to the extent that they helped to liberate millions from the shackles of extreme poverty. As also some, albeit relatively limited, social mobility as millions more joined a burgeoning urban middle class. Internal deregulation, although relatively limited in scope, did contribute to unleash a hitherto repressed entrepreneurship drive as was singularly demonstrated in the explosion of the Information and Technology revolution in the country.
From a country which had to pawn its sovereign wealth in order to pay for its imports to being the fastest growing global economy in 2016, India lags behind only China for having pulled out the largest number of people from absolute poverty in such a short span of time. The International Monetary Fund estimates that it has tripled its per capita income from USD 550 in 1991 to USD 1800 in 2015. There is therefore cause for Indians to celebrate on the occasion of the 69th anniversary of their independence, especially in the present optimistic mood as its economic buoyancy sharply contrasts with the stagnation and crisis prevailing in other parts of the global economy.
However going forward one cannot avoid the question that arises: if as stated earlier the set of reforms introduced in 1991 constituted an “event” which laid the foundation of a major social and economic transformation in the country, can the momentum be sustained in the absence of similar ground-breaking “events” during a quarter of a century? Even if the Narendra Modi led BJP government seems to have both the democratic legitimacy and the political inclination to take up the reforming zeal where it has been left, the challenge is still a formidable one.
Recent experience among the BRICS countries shows that dismantling a manifestly non-performing and stagnant regime on the back of a quasi-terminal economic crisis is a complex and difficult task but remains relatively less formidable than actually having to transcend the first phase of positive economic transformation and accede to the new aspirations and expectations of a more aware and demanding population.
In India the past 25 years have clearly raised, especially among the youth, awareness about and the aspiration for greater social justice and access to social mobility and equal opportunity. Economic growth and increase in per capita per se would be far from sufficient when what is required is another momentous “event”.