The Indian Awakening

THE INDIAN AWAKENING Shubhashis Gangopadhyay "The ultimate result of shielding men from the effects offolly is to fill die world widi fools."1 Xhe Indian governmentinitiated a process ofeconomic reform in June 1991. Compared to the record of the last four decades, these policy changes are revolutionary. But, however revolutionary, diey were utterly necessary: the country was on the verge of economic collapse. The most immediate crisis requiring attention was a shortage of foreign exchange reserves. Inflation was soaring and growth in industrial production had actually turned negative, dianks to a massive import squeeze. International grant-giving agencies, including die World Bank and die International Monetary Fund, publicly refused to rescue India from its financial crisis unless it went dirough major structural changes. It is not surprising diat die new government was forced to consider major changes in its economic policy. Pressure for change came also from die Indian people, aldiough dieir impart on government policy was more subde. The average Indian's perception ofdie role ofgovernmenthas changed dramatically over die last four or five years. Even in the mid-1980s, die popular solution to any problem was 1 Herbert Spencer, "StateTamperings with Money and Banks" in Essays: Scientific, Political, and Speculative, Vol. 3 (London: Williams and Norgate, 1891). Shubhashis Gangopadhyay is chairman ofthe Planning Unit ofdie Indian Statistical Institute in Delhi. He has been a consultant to the Indian Ministries of Finance, Industry, and External Affairs, and to the World Bank. He is die author ofnumerous articles on development economics. 137 138 SAIS Review WINTER-SPRING 1994 government involvement. By die end ofthe 1980s, die same people felt diat die principle cause of many problems was government intervention and diat die government should stay out of economic matters. This shift in popular perception is probably an important reason why the government has been able to achieve reform despite originally commanding only a minority in parliament Even die Rajiv Gandhi government, which had unprecedented strengdi in parliament and was extremely vocal about liberalization, was unable to bring about major changes in the economic environment. Change was also made possible by a new crop of committed officials involved in decisionmaking, in bodi die legislature and die bureaucracy. Dr. Manmohan Singh, die present finance minister, has turned out to be a great impetus for change. He is a long-serving and distinguished bureaucrat widi no immediate political aspirations, and is widely regarded by bodi die public and die opposition as a person of integrity. Consequendy, even when his policies have been attacked, Dr. Singh has not been accused ofhaving ulterior motives. The policy debates, dierefore, have focused on relevant issues rather than degenerating into personal slander. The reforms introduced and enacted since 1991 are bold and extensive, and represent a complete break with die past. To appreciate how comprehensive diey are, it is necessary to consider the record ofthe Indian government's economic policies since die country's independence. The Past In die early 1950s, India's economy, compared widi those of other developing countries, was large and promising. But over die last four decades India has been surpassed in economic performance by many ofits developingnation competitors. In his 1992 inaugural address Dr. Manmohan Singh lamented diis lackluster performance: In 1950, India's industrial sector was bigger than Taiwan's or Soudi Korea's. The share ofour exports in world markets was higher than diat of China, Soudi Korea, Singapore, Indonesia or Malaysia. The level of poverty in diese countries was equal or more dian what prevailed in our country. Over die years all diese countries have passed us by. They export much more than we do. Their industry is much more competitive dian ours. They have a higher level of foreign exchange reserves than us and barring China all these nations have succeeded in eradicating poverty and achieved the status ofmiddle income nations. Their per capita income [is] THE INDIAN AWAKENING 139 at least twice as high as ours. Their people are more educated, have better health facilities and enjoy a quality of life superior to that available to an average Indian.2 In diose days die most important elements of Indian policymaking were the Five Year Plans. These set medium...