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. This paper will highlight two key elements of the impact of liberalisation and privatisation that I consider to be crucial for political intervention by the people at this time. As you all know, the economic reforms were initiated in 1991 in India in a demonstrative way after the assassination of Rajiv Gandhi. A period of eight years have elapsed since then and today the same social forces that had opted for the liberalisation and privatisation policies in 1991 are speaking of a “second wave of reforms”. India has seen five different Prime Ministers in succession in the last eight years and just this morning the sixth one has been voted out of office. If anything, this indicates that there are serious conflicts 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 replaced in the midst of the Lok Sabha debate on the budget. Interestingly, although the Prime Minister was replaced, his Finance Minister, P.Chidambaram remained in the “new” cabinet under I.K.Gujral to oversee the continuation of the economic reforms that he and his predecessors were architects of. In fact, the defeat of the Narasimha Rao government in the 1996 elections was widely seen as the rejection of the economic policies it had put in place since 1991. The further loss of support they suffered in the 1998 elections was also a reflection of this. But while the Congress(I) and Narasimha Rao were voted out of office, their policies have continued and are being deepened. The leaders of all the political parties represented in the Lok Sabha have embraced those polices. Whoever forms the next government will undoubtedly continue the same policies. It can be said with confidence that the present political crisis and disequilibrium will thus continue, until the time that people are able to force a change in the direction of Indian economy. What the present direction is and what the new direction m be are ust subjects for us to deliberate upon today. India is facing a major economic crisis at this time – this much is admitted by the Finance Minister himself and everyone else in any authority. The current budget being debated in the Lok Sabha reflects this crisis and the direction the ruling circles want to take to emerge from it on their terms. The

reason they have voted the Vajpayee government out is to be found in the difficulty the ruling circles face in selling this budget to the people without making the entire exercise illegitimate. This kind of political crisis is really the kind of grand diversion that they want to use to push through the budget without facing opposition from the people. In the backdrop of the East Asian, Russian, and Brazilian crisis, and the impending crisis in the world economy, India is anxiously waiting for what may come its way next. With the NATO bombings in Yugoslavia in recent weeks, India’s anxiety has increased, as reflected in the coverage of the Balkan war and the various commentaries in the Indian press. After all, Yugoslavia was the darling of the west during the cold war. India and Yugoslavia were themselves closely linked under the Non-Aligned Movement. India also has a number of potential Kosovas and there are many opportunities for foreign intervention in India on similar “humanitarian” grounds. It is clear from the war coverage that India’s ruling establishment is nervous about these developments and it wants no discussion or debate on its own agenda inside the country, let alone any opposition to its agenda to emerge as a big power and empirebuilder in South Asia and Asia. The fact that the Vajpayee government has apparently collapsed in a controversy over naval weaponry indicates that there are rifts among the ruling circles over the militarisation agenda as well. This lesson emerging from Kosova and Yugoslavia cannot be lost on the Indian people. This is the time for all Indians to take a stand and ensure that they do not remain on the sidelines as important decisions on war and peace, economic reforms, or constitutional changes are decided on their behalf by a handful who have no right to do so. For example, Narasimha Rao and Manmohan Singh imposed the economic reforms on India through parliamentary procedure when they had not been elected to the parliament themselves from any constituency of India, when their party was not the majority party in the parliament and following an election when they made no mention of their impending economic plans. The coalition governments cobbled together afterwards also show how the political process in India places the people in the sidelines and makes

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them a spectator as the most unprincipled and illegitimate alliances are forged at the top by a small number of political party leaders. Our seminar series is organised to involve people in discussing the substantive issues facing us, facing the polity of India and the people of Indian origin living abroad who are so directly affected by the developments in India. In my estimation, these discussions are crucial for the people to have initiative in the hands, and to set and implement that agenda. The privatisation and liberalisation, economic restructuring, structural reforms, etc, have its origins in the Reaganite-Thacherite economics of the eighties. What were the fundamentals of Reaganomics? In the main, they were to cut back spending on the social sectors of the economy, escalate military spending, prevent the working people from demanding higher wages even through trade union activity, scale back safety and health standards for workers, relax rules for environmental protection, and to plunder as many countries and peoples as possible with the military stick under the anti-communist banner. The more the things have c hanged since then, the more they have remained the same. Reagan and Thatcher and even their immediate successors, Bush and Major, are gone, but the policies have come to stay. Today, Clinton and Blair are presiding over the same polices in the US and Britain respectively and they have gone further than Reagan or Thatcher in terms of cutting social expenditures, handing out money to the wealthy, militarising the economies, threatening other peoples with war, increasing job insecurity, etc., in their own countries. Those policies have since been exported to the rest of the world and have been espoused by the political and economic elites of many countries. In places like Russia, the kind of corruption and looting of the state treasury that is taking place makes the US savings and loan scandal pale in comparison. The scandals involving Harshad Mehta in India, the pyramid schemes in Albania, the BCCI collapse, the collapse of security houses in Japan, Britain and so on are products of the liberalisation and privatisation policies and many more are coming to light worldwide every single day. Anyone willing to look can see clearly how the reforms of the last two decades have created a situation where the overwhelming majority of the people and the bulk of the resources of this planet have come to be at the mercy of a small sections of financial, military and political operatives, enabling them to control the destinies of billion. In a qualitative sense, we are staring at the social

organisation of the middle ages when a few kings, nawabs and emperors mattered and the rest of the humanity existed for their pleasure. At the end of the 20th century, this humanity is facing a serious danger - the danger of the clock being turned back and civilisation being undone by a few powerful countries and monopoly combines. The choices are stark - either this humanity affirms its existence, and comes into control of its destiny, or they will be saddled with an anti-democratic and outdated social organisation imposed upon them by force. In India, I do not have to convince anyone that liberalisation and privatisation have not brought prosperity for the majority of her peoples, wealth for the country or a technical scientific revolution for the productive forces. If anything, the financiers and speculators of India and the world have been firmly embedded to suck the wealth out of India for years to come. In his last year in office, Narasimha Rao started speaking about “liberalisation with a human face” to give some legitimacy to his failed policies. Judging from how he was dropped by his own supporters and financiers from the leadership of his party and also by the electorate who expressed its verdict within the limited scope of electoral process, he fooled no one with this change of heart. But what happened? The policies of liberalisation and privatisation continued without Rao and Manmohan Singh after the 1996 elections, first under the stewardship of United Front involving the CPI and CPI(M) besides others and later under the National Front led by the BJP. Various adjustments to the policy were made to preserve the core content of liberalisation and privatis ation and create illusion among the people through the introduction of “poverty alleviation programs”. The left-centre coalition government lost its credibility very quickly as partners like Andhra’s TDP, Tamil Nadu’s DMK, West Bengal’s. CPI(M) etc. openly wooed international business in their states. These partners of the United Front initiated cut backs on the very “poverty alleviation” schemes that the UF government was championing at the centre and diverted the money from their state treasuries to grant new concessions to investors. In contrast, India’s farmers have risen in arms against the WTO agriculture policy, and the workers have risen against mass layoffs accompanying privatisations, mergers and take-overs. Subsequently, the BJP-led coalition of Vajpayee and Advani did go further in terms of enacting legislation for the reform of EXIM policy, bank and insurance

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sector reforms, and “internal security”, declaring all struggles of the people for socio-economic rights and national rights as criminal acts, invoking various draconian laws like the ESMA, AFSPA, and so on to attack strikes by transport workers, hospital workers, and teachers. Against all odds, in December 1998, the first allIndia strike organised by over 50 trade unions, political parties and organisations held countrywide agitation to oppose the policy of liberalisation and privatisation. The workers, along with the farmers and peasants are now in the forefront of the struggle against liberalisation and privatisation. One also can see the Confederation of Indian Industry, Federations of Indian Chamber of Commerce and Industry, ASSOCHAM and other trade organisations of the Indian business houses, most of the political parties represented in the parliament and state assemblies and the international financiers working feverishly to take the liberalisation and privatis ation policies further. For today’s discussion, I want to point out that the policies enunciated in 1991 by Manmohan Singh appear to have exhausted themselves and the Indian big business houses are divided over what direction to take. Judging from the reception the annual meeting of the CII, held earlier this year in Rajasthan, received from Indian government officials, or the reception the Indian government delegation received at Davos in Switzerland a few months back, it seems that the policies enunciated 8 years ago do not elicit much enthusiasm from their own quarters. For example, the leaders of different political parties had gone to the CII meetings in the past to swear their support for the liberalisation and privatisation. Similarly, international monopolies had flocked to Davos to cheer these policies. But these are all lacking this year. The response of the Indian government to this cooling off” has been to put forward its recommendations for “a second wave of liberalisation”. This second wave, unlike the first wave, envisages liberalisation of the financial sector and further divestment of the public sector undertakings. The Indian finance minister presented his budget proposals to the Lok Sabha in March and after warning that a serious balance of payment crisis in the capital account exists today, addressed himself to raising new capital both from inside and outside India. The budget contains all sorts of proposals to raise capital from NRI’s, such as tax concessions on capital gains and even the proposal to sell an identity card to all NRI’s for $1,000 each - there are 15

million people who are eligible for such identity cards! There are incentives such as reduced capital gains tax for mutual fund investment, new taxes on the 12 million or so tax-payers of India, and the sale of public sector comp anies. All these details can be found in the budget which is pending for approval in the Lok Sabha today. The question I want to ask is why has this capital account shortage appeared? What are the ramifications of this shortage and if there is an opening here for the people to put forth their proposals to reorient the economy and its direction. Why is there a shortage of capital? Firstly because the economy in India is not producing the surplus at a rate that will leave enough for extended reproduction of the economy. The investments in the last decade and before have not been geared towards ensuring such accumulation to assure extended reproduction. For example, between 1984 and 1987, India’s foreign armaments purchases were worth $17.5 billion, making India the second largest customer after Iraq for that period. We have heard about the Bofors scandals of the late 1980’s and also the balance of payment crisis of 1990-91, the former linked to making money by some middlemen and the later linked to devaluation, job cuts, price rises and ultimately the economic restructuring affecting millions and millions of people. The point here to note is that it is possible to see a direct link between the defence spending, current account crisis and lack of capital, not just in the case of India but in other economies as well. The economy of the former Soviet Union and other countries of the Warsaw Pact simply collapsed under the weight of their military expenditures, besides the plunder of the remaining surplus by elite of those countries. A similar phenomenon occurred in the 1980s under Reagan’s military expenditures that led to a dramatic increase in the US fiscal deficit and public debt. During the Gulf war, the US was able to make Japan, Germany, Kuwait and Saudi Arabia pay part of the costs. It was able to buy the support of Egypt by cancelling some of its debt. But in the present war against Yugoslavia, it could garner no support from anyone other than its closest alliance members. Today, there is open discussion in the media about the bonanza this war is creating for Raytheons and Lockheeds, who make the cruise missiles and bombers, and also the lucrative rebuilding opportunities in bomb -destroyed Yugoslavia. In short, war has become a very profitable affair for the US at this time. It is the logical outcome of the serious imbalance in the economy created by Reaganomics, rendering the economy unable to

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produce the necessary surplus for harmonious and uninterrupted growth. The experience of Hitler’s Germany in the 1930s and of Khruschev and Brezhnev’s Soviet Union in the 1950’s-1970’s show that when a country needs to militarise, it necessarily diverts resources to heavy industry to build the weapons and the military infrastructure. These expenditures do not produce a surplus for extended reproduction, but gives rise to a serious shortage of capital. Aggression and the annexation of other peoples and their territories for markets and sources of raw materials are outcomes of such economic policy. India today is on the track of militarisation. India says it needs over one hundred billion dollars to build roads, ports, and so on to facilitate the growth of its industry and to meet its national security needs. The dismantling of the state enterprises (public sector undertakings) under the cover of “swadeshi”, “Indian content” and so on are means to lay the foundation for the big business houses of India to take direct control of the heavy industry sector and to guide their development towards the future military-industrial complex of India. According to the announcement by the Government of India on September 18, 1998: It has also been decided to establish six joint task forces to evolve long-term partnership between the industry and the Ministry of Defence… ..the Defence Ministry has decided to throw open seven defence laboratories to the private sector in the three areas - Dual technology for defence and civil application; Biotechnology products; and Software engineering. The National Security Council and other bodies that oversee the purchase and sale of weapons are being integrated with the Indian big business houses and their trade association representatives. The consequences of such militarisation can be inferred from history as well as the current developments in the Balkans and the Middle East. The people of India must bring about a change in the direction of this militarisation, besides other changes, to protect the future of the country and the region. International capital is both colluding and colliding with India on this course of the Indian ruling circles. Indian government officials and business houses are desperately trying to find their suitors, today courting the Japanese, tomorrow the French, British, Germans, Americans and Russians. They think that their old cold war-era policy of “equi-distance from Moscow and Washington” will succeed in this post cold war

period too. But situations like Yugoslavia do not give them much comfort and they have harboured talk of a Russia-China-India axis and re-igniting the old military relationship with the Russians. It does not require much imagination to see that a military alliance against the one led by the Americans is in the making within the changed world situation brought about by the “liberalisation and privatis ation” program. The NATO attack on Yugoslavia have given a role to Russia in the European theatre, and if these powers succeed in keeping the lid on the Balkans, Asia will turn into the new theatre for military conflicts. In sum, economic changes around the world and in countries like India, China and Russia seem to be headed towards the formation of new military alliances and military conflicts. The military sectors of economy in all these countries are being strengthened after their initial stagnation or decline for a few years following the end of the cold war. The heavy price that the working people have been paying for the last decade of liberalisation and privatisation will now include the price of militarisation and war preparation. These developments indicate that there is no time to be lost to reorient the economy. In August 1998, the AIPSG launched its discussion on democratic renewal at a conference in New York, which includes the renewal of Indian economy besides other things. There, it argued out why the war on poverty must be placed at the centre of all economic policy today. It elaborated on the demand for a moratorium on debt payments and the release of those funds for winning the war on poverty. Similar proposals have been made by others, both in India and abroad and a broad discussion has begun in many countries about such demands. The Indian ruling circles argued in 1991 that if they defaulted on loan repayments at that time, international financial agencies would penalise them in the future. Today, the health of the Indian economy is even more precarious than it was in 1991, when India encountered a severe balance of payment crisis after years of military spending and debt build-ups. The living standards of the peasantry, workers, middle strata and other sections affected by the mergers, closures and rationalisations have been further depressed because many cannot pay for the essential services that have been privatised since then. The defence build up and the interest payments continue to drain an increasing share of the surplus produced by the people of India while at the same time raising the spectre of war. Only the people of India can force a change in the way the economy is

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run and they must do so by demanding that a war on poverty becomes the first order of business before any loan repayments or weapons purchases are done. As the discussion develops, the relationship between the renewal of economy and politics is becoming apparent. The economy must be organised to provide for the people and the political process must be organised so that people can exercise their sovereignty or supreme power, including on economic matters. I think these are the times for all of us to hoist the banner of vesting sovereignty in the peoples. It is not difficult to demonstrate that the people of India actually do not decide anything that has a 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 resources to end this curse of ignorance. But it has no shortage of funds to beam its propaganda into the remotest parts of the country through television to perpetuate backwardness, mysticism and submissiveness in the name of modernisation of the illiterate people. Poverty, ignorance and deprivation keeps the people ready to work at low wages. The international financial agencies and corporations are also very active in many countries, including India, in the disguise of helping various organisations fighting for “empowerment”. But their insidious activity is to ensure that none of these organisations link their struggles with the struggle for livelihood and against globalisation. It is my appeal to all the individuals and organisations who are fighting for any right, be it for literacy, for clean water, for a secular polity and so on - that they also address themselves to the issue of livelihood for all the people who constitute India. In doing so, they will

not only succeed in putting their own struggles on the agenda, but will objectively contribute to the unity of all the peoples and their movements. It is within such a broad movement of the people that all the struggles can succeed. It is the living experience of the people that the ruling circles do everything to keep their struggles disunited and isolated and exert maximum pressure for them to conciliate with their victimisers. By creating conditions for the broad discussion of the effects of globalisation on the people it will be possible to make them fight against the forces of globalisation and its chief proponents. We must impose our definition of what are the substantive problems of our times, the solution of which will enable the solution of all other problems. In conclusion, I want to reiterate that the time is now to put the war on poverty on the agenda. It is time to stop treating this as a policy objective, but to make this the program in itself. This means that it is necessary to elaborate on the strategy and tactics of this war, and to organise people behind this. Opposition to militarisation, and to the economic reforms are the two important elements I referred to in the beginning. People will have to stop the ruling circles from allocating funds for interest payments or the purchase of weapons until their needs for education, housing, healthcare, public distribution of essential food items, sanitation and drinking water have been met. People can not only seize the initiative in their hands and end their marginalisation from the economic activities of the country by taking up such a program , but in the process end the marginalisation of all their struggles for rights.

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