This week, India completes 25 years of economic liberalisation. The process was started by then Finance Minister Manmohan Singh and has continued under all his successors. After the initial burst in the first two to three years, the reforms process slowed. The emphasis, thereafter, has been on gradual and incremental transition, rather than rapid restructuring. The slow process has transformed India in many ways over a long period of time but the transition has been relatively smooth.
Manmohan Singh took over in June 1991 as finance minister when India faced a severe balance of payments crisis. He started by devaluing the currency and quickly went on to cut export subsidies, import duties, industrial licensing, import licensing, and restrictions on acquisition of technology and foreign direct investment. Slowly, he ended the monopoly of public sector enterprises and brought in more market-oriented policies.
His policies enjoyed the support of then Prime Minister Narasimha Rao but were criticised by many elements within the ruling party and the opposition. After the Babri Masjid demolition in December 1992, Rao slowly started losing his hold. Singh bravely carried on but also buckled after the stock market scam in 1994, even offering to resign. Rao persuaded him to stay and carry on, which he did till the ruling party lost the election in 1996. However, he'd set the direction and those who succeeded him, including those who'd attacked his policies, continued on the same path long after he left the ministry.
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The reforms process, however, had left many sensitive areas untouched, such as labour laws, farm subsidies and fuel subsidies. Significant moves were made recently on reforming the subsidy regime and the delivery mechanisms. Nothing has yet happened on labour law reforms, administrative reforms and judicial reforms. The proposed Direct Taxes Code that promised to simplify the income tax law has been jettisoned. A national goods and services tax regime is yet to be put in place.
Of late, worries about significant erosion in the competitiveness of Indian industry have increased. Some would attribute it to an overvalued currency but there is no dearth of experts who'd point to structural deficiencies like poor infrastructure, complex tax laws, a self-serving bureaucracy and difficulties in land acquisition as major factors. Many manufacturers are struggling to cope with the slowing in the global economy. Exports are going down for the past 18 months and, despite imports also going down, the number of protectionist measures like anti-dumping duties, safeguard duties, etc, have gone up.
During this period, significant advances in information and communications technology, advent of the internet, integration of global financial markets and globalisation of supply chains have driven global growth. And, India has benefited. That global trend seems to be petering out. Of late, more concerns are being voiced against inequality, outsourcing and environmental degradation, especially in the developed countries. And, the policies that allowed easier cross-border movement of capital, technology, goods and people might come for a review.
An overview of the journey of liberalisation reveals the leisurely pace at which change has come about and a reluctance to take on entrenched vested interests. Looking ahead, it would be unrealistic to expect dramatic changes.
E-mail: tncrajagopalan@gmail.comss
