Liberalization, Privatization and Globalization: Appraisal

An appraisal of LPG policies implies an appraisal of NEP (New Economic Policy) or an appraisal of Economic Reforms initiated since 1991. Appraisal of LPG or NEP requires that the reader appreciates or understands the merits and demerits of this policy with reference to the Indian economy.

Merits of The LPG Policies

Following observations highlight the merits of LPG policies:

A Vibrant Economy

As a result of LPG reforms, Indian economy has definitely become a more vibrant economy. Overall level of economic activity has trended up as indicated by GDP growth. Post LPG policies, the growth of GDP shot up to as high as 8 per cent per annum.

Stimulant to Industrial Production

LPG policies have worked as a great stimulant to industrial production in the Indian economy. It is owing to these policies that IT industry in India has achieved global recognition.

Curb on Fiscal Deficit

Mounting fiscal deficit has been a serious threat to the process of investment in the Indian economy. It was as high as 8.5 per cent of GOP prior to 1991. Thanks to the LPG policies, there has been a significant increase in government revenue. Consequently, fiscal deficit has been contained to around 4 per cent of GOP. This is not sufficiently low, yet significantly lower than before.

A Check on Inflation

Owing to a greater flow of goods and services in the economy, LPG policies brought a check on the rate of inflation. Till 2007-08, it ranged between 4-5 per cent which is not a serious threat to interest rate structure. However, in the years (2011-12 to 2013-14), inflation started hovering in the range of 6-9 per cent per annum. For year 2016-17, inflation rate is estimated to be 3.39 per cent. It may be noted that high inflation triggers a rise in interest rate, implying a rise in the cost of investment. Accordingly, growth rate is adversely impacted.

Consumer’s Sovereignty

Consumers’ sovereignty has definitely expanded over time. This is evident from the fact that a large variety of goods and services from the diverse global markets are now within the easy reach of the buyers. Producers are widely responding to the consumers’ choice and preference. Consequently, overall level of expenditure of the households has tended to rise, implying an overall rise in the welfare status of the people.

A Substantial Increase in Foreign Exchange Reserves

Depletion of forex-reserves was one of the compelling reasons for the government to shift to LPG policies. Thanks to these policies, Forex reserves of the country have now reached a comfortable level. Good amount of forex reserves enhances economic confidence of the global investors in the Indian markets.

Flow of Private Foreign Investment

Private foreign investment has taken a quantum jump after the adoption of LPG policies. This has been a matter of great relief to the government in view of the facts that: (i) domestic economy was not generating enough of surplus for reinvestment, and (ii) indigenous technology was getting obsolete. It is significant to note that private foreign investment is often accompanied with innovative techniques of production.

Recognition of India as an Emerging Economic Power

Due to LPG policies and the consequent rise in the overall level of economic activity, India is now being recognized as an emerging economic power in the world. This recognition (particularly by developed nations of the world) not only raises India’s economic ranking in the world, but also boosts confidence of the global investors in the Indian economy as their preferred destination of investment.

A Shift from Monopoly Market to Competitive Market

Launch of LPG policies has caused a significant shift in the structure of the Indian markets. Indian markets are now increasingly shedding its monopolistic character, and becoming more and more competitive in nature. For instance, a couple of decades back, products like cars, refrigerators, ACs and PCs were the monopoly markets of select brands only. Now a variety of these products are available at competitive prices.

Briefly, owing to LPG policies, the Indian economy has definitely gained a ‘growth momentum’. The process of growth has not only accelerated, but has also become more diversified. There is a definite change in welfare level of the people. Recognition of the Indian economy as an emerging economic power in the world is of crucial significance.

Demerits of LPG Policies

Following observations highlight demerits or negative impact of LPG policies in India:

Neglect of Agriculture

Growth of GD P has primarily been triggered by the growth of secondary and tertiary sectors. Agricultural sector has suffered a serious neglect and its growth rate has depleted to a miserably low level (2-3 per cent per annum). Accordingly, India is witnessing a widening gulf between the rural and urban economies.

Set-back to agricultural sector implies a set-back to the principal source of livelihood of the masses in India. Indeed, neglect of agriculture implies spread of poverty. And it is pertinent to note that slow growth of agricultural sector must ultimately hinder the process of growth of the industrial sector as well.

This is because:

• agricultural sector is an important source of raw material for the industrial sector.
• agricultural sector is the principal source of labour supply to the industrial sector
• agricultural sector is a significant source of demand for the industrial products like tractors and thrashers.

Urban Concentration of Growth Process

LPG policies have resulted in the concentration of growth process in urban areas. Think of any MNC, you will hardly find its trace in the rural areas of the country. All MNCs are focusing only on urban areas, where they find conducive infrastructural facilities. This has further widened the ‘rural-urban divide’. Any such economic dualism deepens social dualism as well. Together, economic and social dualism are a big threat to the process of growth and development.

Economic Colonialism

India suffered nearly 200 years of political colonialism during the British rule. Now, while MNCs are expanding their economic control, we might suffer a sort of economic colonialism. Implying a situation where MNCs are exploiting the Indian markets to sell their products and in the process, domestic producers are marginalised owing to their poor competitive strength.

Spread of Consumerism

Spread of MNCs in the country as a consequence of LPG policies has resulted in a large-scale spread of consumerism. A variety of global brands in the market has lured the masses to become spendthrift, going beyond their means. The Indian society is adapting itself to the western culture of spending through borrowing. This may expand size of the market for the traders and the manufacturers but certainly enhances vulnerability of the households as consumers.

Lopsided Growth Process

LPG has accelerated the growth process of the Indian economy, but it is lopsided. It is not an inclusive growth process. It is a growth process that does not embrace all the sectors of the economy. Rather, it is a growth process which is increasingly relying on ‘service sector’ of the economy. It is just an ‘IT-focused’ growth process which is gradually over-shadowing the process of industrialisation, besides neglecting the farming sector.

Cultural Erosion

Globalisation has also led to cultural erosion in the Indian society. Economic prosperity has taken a lead over all other parameters of life. Everybody wants to be economically independent and well-off, regardless of his responsibility towards the family or the society. Loyalty towards the family and loyalty towards the society which used to be the strongholds of the Indian social culture are being discarded as of vintage-value in the wake of materialism.

Conclusion

Should we or should we not subscribe to the LPG policies – is a debatable issue. But avoiding the intricacies of the debate, we can definitely make one concrete observation that LPG policies were the only way out to accelerate the pace of growth and development. Indeed perusal of LPG policies was to a great extent a matter of economic compulsion rather than a matter of choice for the politicians of the country.

However, a compulsion should never mean an abject surrender. It is strongly recommended that LPG policies are pursued with guarded precautions. We must see to it that we do not surrender to big players in the international markets. We must see to it that we do not compromise with economic interest of our domestic producers, while allowing a free access to the foreign investors in the Indian markets. We must see to it that we do not become economically subservient to multinational corporations. We must be in a position to channelize FDI (foreign direct investment) more into areas of infrastructure rather than retail trading or fast-food junctions.