Liberalisation, far from giving India prosperity, has only produced a skewed morality

Logic choppers have taken over. Newspapers are full of reference to debates over whether the economy is in a recession or merely experiencing a slowdown. Whatever way it is defined, the reality does not change. Despite an excellent monsoon, foodgrain production was already down by five million tonnes last year.

Farm investment has levelled off. Prospects are therefore not any better in the current year. The flurry of high industrial growth last year is by now a faded memory. going by the data of the first five months of 1996-97, the downward trend in the industrial production index is of an ominous proportion.

While overall output is barely five to six per cent higher when compared to last year's performance, a large quantum of the industrial production ends up as unsold stock.

In a number of crucial infrastructural industries, output is actually turning out to be less than last year's. Export growth, too, has tapered down to less than one half of what it was in 1995-96. The simultaneous fall in imports, it is being assumed, is indicative of the decision on the part of industry to cut back on expansionary activity.

The so called sensitivity index is the Bombay Stock Exchange has already dipped below 3000 on one occasion, and may do so again. Sections of industrialists are apprehensive of the speed at which the government is permitting external capital to enter the vital sectors of the economy. Globalisation is in full bloom and foreign parties can now have automatic entry into practically any sphere; they have been permitted to hold majority of equity in such basic activities as mining.

The finance minister has meanwhile been out of the country, deferentially attending the annual meeting of the World Bank and the International Monetary Fund in Washington and generally scrounging for investible funds.

The gentleman deserves the utmost sympathy. He has to suffer the consequences of the process set in motion by his predecessor during his 1991-96 tenure. It was a primordially simple model of economic growth the previous regime had sketched. The government should shun development work and move away from public investments. It must sell off lossmaking public undertakings as well as hand over to private parties, at a song shares of profitmaking public sector units.

Ensuring capital formation in industry or agriculture is no part of the government agenda. This task is to be left to private entities, including foreign investors. Direct taxes must be lowered to encourage private activity. Import duties should similarly be slashed across the board to encourage import of sophisticated equipment and technology and, in addition, provide the competitive edge to inefficient domestic industrial units.

Consumption, particularly luxury consumption, must rise. This will sustain the demand side of production and help create the just ambience for growth. In any event, promoting savings should not be the government's specific concern. And why bother, foreign investors are a-coming, they will take charge of such details. Foreigners possess superior technology, they have capital to spare, they have the international market at their disposal, they will lead you along the path of smooth, rapid growth.

Five years have come and gone. Things have not quite turned according to these prognostications. The average growth rate for the quinquennium 1991-92 to 1996-97, it now appears, could not be much higher than the much derided Hindu rate of growth, 3.5 per cent per annum, that was once assumed to be our perennial fate. Despite liberalisation, we have evidently been unable to extricate ourselves from the shackles of that destiny.

Troublesome times. The fact that the model of economic expansion which formed the basis of the IMF-World Bank structural adjustment programme has been a grim no success is something the drum beaters on behalf of liberalisation find it difficult to admit. To do so is to acknowledge that their occupation was always a bit of a sham.

Liberalisation has not given us growth. It has not led to any perceptible improvement in the rate of either domestic savings or capital formation. It has not helped to cut back the fiscal deficit. The inflationary potential, therefore, remains as threatening as it was five years ago. Notwithstanding the periodic bouts of depreciating the external value of the rupee, liberalisation has not boosted exports in any appreciable manner. Certainly it has not narrowed the gap in the balance of trade.

There has been one major propaganda plank. Thanks to the measures and policies adopted in 1991, our foreign balances have now reached a comfortable plateau. Whether we will still occupy this plateau a year hence is the question. That apart, liberalisation has not cut back, but actually increased, the size of our long term external debt and the burden of service payments it entails.

And lest we forget, liberalisation has meant the gradual dismantling of some of the richest profitmaking public enterprises set up in the country through long years of sustained endeavour. The rough treatment accorded to loss-making industrial units and the levelling off of investment because of government withdrawal from the arena have also led to widespread unemployment in town and country.

The creamy layer, who have gained much in recent years, are unfazed. Their man in North Block, the country's finance minister, is seized of the matter. He has to make provision this year for $14 billion to service mounting for eign debt. He has to worry about whether some of the non-resident Indian deposits in banks due for repatriation this year, amounting to as much as five billion dollars, could be persuaded to abide with us. He has to take into account the rising gap in the trade account too.

His focus is on three major assumptions. One, in inflow of extra funds on behalf of foreign institutional investors. Two, a sharp rise in direct foreign investment. And, finally, a generous contribution by foreigners to global depository receipts floated by Indian companies in the international capital market.

The finance minister needs to collect at least $15 billion during the current fiscal year to keep his ship of hope afloat. The prospects are however bleak, the noblesse are not obliging. The GDR issues are a total flop. FIIs have shied off. They could hardly to otherwise given the parlous state of the share market.

The finance minister's advance boast over his ability to entice as much as four to five billion dollars of direct foreign investment into the country in the course of the year is turning out to be an even greater embarrassment.

It is accordingly in the realm of possibility that the foreign exchange balances the country currently holds -- of the order of $17 billion -- may all of a sudden do a Houdini. To speculate by how much it might shrink and over what number of weeks is altogether futile. Once foreign balances start falling, that very fact often generates a tendency for these balances to fall further. A development of this nature is known in vernacular as the consequence of pushing the panic button.

Meanwhile, logic choppers have taken over the domestic quadrangle. The dialectics over recession and pushover occupies the centrestage. A section of industry, gravely disturbed by the increasing presence of multinational entities, is pressing hard for a level playing field. Another section is laying the blame on the banks.

The high interest rate structure is supposed to be acting as a restraint on supply and demand. None is prepared to respond to market signals. What the liberalisation theologists are desperately looking for is help from the state. But they cannot admit that, even to themselves. The government is hesitant for its own reasons. A lowering of interest rates may not be to the liking of FIIs and NRIs.

There is nonetheless some free entertainment, such as the thesis you cannot hold liberalisation responsible for the collapse in national morality. Those to whom making money whether by hook or by crook is the sole objective of life and living will not readily agree to having received encouragement from the free market doctrine of return maximisation.

A whole lot of ministers at the Centre during the 1991-96 regime were without question thieves and crooks. The existence of a causality between their venality and liberalisation cannot, of course, be statistically established. The thieves and crooks, therefore, continue to ride high.

Consider the following statement from a well known former state chief minister. He was referring to the St Kitts case. He would not demur that a former prime minister named in the case might have committed a criminal impropriety. But then, the former state chief minister goes on to argue most forcefully, the former prime minister deserves to be complimented. He did not commit the impropriety to further any personal interests. He did it for the sake of someone else.

This is the new edition of morality liberalisation has spawned. True, he is a thief. But have a heart, he stole on behalf of someone else. Therefore, he is not a thief.