How global reform failed India's poor

A monsoon approaches, but economic reforms have barely touched agriculture

By Mark Tully
Special to CNN

NEW DELHI, India -- Ten years ago this week, the Indian Finance Minister Dr Manmohan Singh delivered his budget speech which heralded the beginning of the reform of India’s economy.

Shackled by socialist controls, inhibited by fear of imports, distorted by the impact of politics on investment decisions, the finance minister admitted the economy was “in deep crisis” and announced the first measures to liberalise it.

The reforms have improved life for the middle classes but done little or nothing for the poor. In India at least the case for capitalism has not yet been made.

Less than two years after India took the advice of the World Bank and the International Monetary Fund and started to unscramble the socialist controls smothering its economy -- controls so tight that an efficient manufacturer could even be punished for producing and selling more than his industrial licence allowed -- the then Prime Minister, Narasimha Rao, panicked after losing elections to two state assemblies.

Even at that early stage he reckoned he’d been defeated because the high profile reforms were not doing anything for the poor, the majority of the electorate, and so ordered the finance minister to go slow.

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The first reforms barely affected most Indians. They had no money to invest so the ending of industrial licensing didn’t affect them.

They brought very little in the market so the devaluation of the rupee and relaxation of import controls on consumer goods didn’t matter to them.

If Narasimha Rao had been more courageous he could even have persuaded the electorate in those early days that the reforms would help them by stepping up economic growth and so creating more jobs.

As it turns out, he would have been deceiving the voters. The economy had expanded but new jobs have not been created.

This is because the market, which now in India is meant to have taken over the task of allocating resources from the old licence permit raj run by the government, has failed the poor.

It has not created a broad-based demand for Indian industrial products with the result that the growth of jobs in industry is slower now than it was in the decade before the reforms started.

The market has been even less effective in agriculture, still far and away the biggest job creator.

Rubble without reform leaves India as a warning to other governments about globalization

Last year the growth rate of agriculture was lower than it used to be in the eighties, and the market was unable to cope with what food the farmers did produce.

Even in the most progressive states, farmers have committed suicide because the price their produce raised hasn’t paid off the loans they have taken for seeds, fertilizers, and irrigation charges.

The government has had to intervene in the market to prop up food grain prices, and finds itself left with a vast stock of grain but no customers. . One economist has said of the past 10 years: “The reforms have barely touched agriculture, bypassed small scale industry, and made little difference to those who live on the margins of society”.

The reforms have made a difference to the middle class. They now have a wide choice of motor cars to buy whereas before the automobile industry never saw the need to introduce new models because the government protected it from competition.

Those who can afford air fares no longer necessarily have to fly the government owned Indian Airlines to get about their own country.

The smuggling of computers and other consumer goods has declined because customs duties are no longer prohibitive.

Bootleggers who used to provide Scotch Whisky for the elite are feeling the pinch because imported brands are now available in the open market.

The market has done exactly what the noisy and sometimes violent opponents of capitalism say it always does increased the divide between the rich and the poor.

So India, with its huge population and its problem of poverty, stands as a warning to those world leaders who insist that market economics, capitalism, and globalism, are the way ahead.

They will not be believed until they can demonstrate that their economics work for the poor as well as those with money in their pockets.

That has still to be demonstrated.