Liberalisation Only in Name

After more than four decades of following the socialist and mixed economy models, India´s political economy entered uncharted waters after the country reached the edge of bankruptcy in 1991. At that time, Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh initiated the process of economic reform which will now doubtless be affected by the outcome of the forthcoming general elections..The process has been erroneously described both by the Rao regime and various commentators as market-oriented liberalisation based upon the model set by the United States and, to a lesser extent, by Western Europe. In line with this description, the World Bank and the International Monetary Fund, as well as many Western and Indian analysts, are attempting to chart a course for India based on the Western experience. Others have tried to draw lessons from the experiences of the Southeast Asian tigers and China, which began serious economic liberalization programmes in the mid-1970s, well ahead of India..But what India is doing is unlike anything done before in any nation. It is trying to graft a modern 2lst-century market economy upon a population which remains illiterate or semi-literate except for an upper crust of about 10 percent, and an infrastructure which can be described as backward at best. How India handles this experiment and emerges from it will be of particular interest to other countries in the region..India´s politics and economy mirror the rotten conditions found generally in the region; the only difference is that, in India, it is on a grander scale: corruption, nepotism, mud-slinging, misuse of legal fora, inefficiency and uninterrupted political infighting. Big business buys the political influence needed to capture domestic markets to make profits from goods in scarce supply, without investing in research and development or finding new ways to provide improved goods or services to consumers..In India, economic reform, liberalisation and market-orientation have meant little more than the removal of irrational and constricting rules to facilitate the import of new generations of technologies. All that has been done so far is to use the liberalised atmosphere to produce goods that were previously imported illegally or at huge cost. These goods are now made locally by indigenous firms working in collaboration with foreign counterparts from whom those goods were previously imported. No skills are acquired and neither is research and development done to independently produce goods and services of standards capable of competing in the international market..Liberalisation, thus, is being used only to upgrade the range of goods and services offered in the local market place. The economics of scarcity is simply being played out at a higher level of price and quality. In a world economy where the shelf-life of both products and series is measured in months, India is bound to again fall behind within two or three years once the technologies being imported at present become obsolete..It is wishful thinking that the country will be able to afford the import of latest generation technology without indigenously developing technology-intensive and higher value-added products and services for export. Genuine market orientation facilitates such indigenous developments because it encourages competition. A simple process of lifting constraints for competition among foreign goods made in India and not of producing goods capable of competing internationally is far from enough..There is much pride in India that Mercedeses, BMWs, Opels and Toyotas will now be made locally. But all of those products were developed to serve the consumers of countries that have nothing to do with India and who live in societies and environments completely different from those of Indian consumers. There is no merit in simply transplanting products and services. The goods and services relevant to Western cultures and economies cannot be introduced in India without modification. What is happening in India is far indeed from market-orientation or competition-based economic reform. So far, India has simply dabbled in dismantling onerous regulations which have in the past enriched big business and politicians. Deregulation has been egalitarian to the extent that it has widened the scope of enrichment. Medium-sized local companies can now aspire for large profits and small-time politicians can also hope to have bank accounts in Switzerland, Jersey and the Bahamas..But even before this hazardous experiment finds its feet, it faces the threat of being unravelled by the elections in India, especially if they result, as is very likely, in a prolonged period of political uncertainty arising from a weak government at the Centre. Against this backdrop, a retreat into governance by politicians, big business and Indian mafiosi will deal a heavy blow to hopes for genuine political and economic reforms. The true victims and sufferers of such a retreat will be India´s long-suffering people.