THE inevitable has happened. The "reforms" have failed. However, they were destined to meet this end. As a matter of fact, a system such as ours has an in-built tendency towards a realisation of crisis. Of course, the nonsense continues. Swaminathan S Ankalesaria Aiyer writes: "India’s reforms have been a whopping success" (The Economic Times, July 25). And Aiyer is not alone. The government agencies and many others like him, relying not only on statistical jugglery but also on statistical frauds, attempt to show that post-liberalisation economy of the 1990s has performed distinctly better than the pre-liberalisation economy of the 1980s.

The reality, however, is otherwise. The earlier euphoria has withered away. In this analysis, relying largely on official data, their limitations notwithstanding, an attempt is made to nail the lie down that "India’s reforms have been a whopping success." But before we do that, we must state that even the pre-reform economy was a capitalist economy; the only difference between the pre-"reform" and "reform" stages lying in the route of capitalist development. Socialism was never on this country’s agenda.

Economic "reforms" in the form of macro-economic stabilisation began in July 1991 with the formal devaluation of rupee. Other stabilisation and structural adjustment measures followed subsequently. It is now well known that the external payments crisis in 1991 had forced the Indian government to approach the IMF for a bail-out and, taking advantage of this country’s vulnerability, the IMF imposed on us a set of conditions usually called the Structural Adjustment Programme (SAP) for "reforming" the economy.

The SAP involved dismantling of the state capitalist sector and the regulatory set-up, exposing Indian producer to foreign competition and encouraging penetration of MNCs in the economy. Not explicitly stated, it also implied abandoning the facade of protecting the underprivileged in the process of inegalitarian capitalist development. The opening up of the economy was resented by the Indian bourgeoisie as it directly hurt their interests. The then FICCI president K K Birla criticised the red carpet welcome accorded to foreign companies as early as in August 1991. The Indian bourgeoisie, however, admired other aspects of the SAP as bold and innovative, not realising that exactly the same package had always been advocated by the CEOs of the IMF and the World Bank to other crisis-ridden countries. The sovereign Indian government had the freedom to reject the "reform" package of which the opening up of the economy was an essential component. But the government meekly surrendered to the IMF and implemented the SAP vigorously, creating the impression that it is completely subservient to the international financial institutions (IFIs) which now mask the real face of imperialism. The results of this misdemeanour on the part of the government are now there for everyone to see.

The latest national income series of the Central Statistical Organisation (CSO), which takes 1993-94 as the base year, shows a marked slowdown in the GDP growth since 1997-98. The GDP rose in 1997-98 by 4.8 per cent. Even this rate of growth was spurious because one per cent of GDP growth in this year was chiefly due to the revision of pay scales of the government employees. The GDP growth rate was around 6.4 per cent per annum in 1998-99 and 1999-2000, and slipped to 5.2 per cent in 2000-01. For the 1990s, that is, the whole "reform" period, the annual GDP growth rate is 5.75 per cent, not different from the annual GDP growth rate in the 1980s.

Considering sectorwise, rate of GDP growth in the agriculture sector was 1.8 per cent per annum during the 1990s, as against 3.8 per cent per annum during the 1980s. Foodgrains output registered a still slower growth, that is, 1.63 per cent per annum during the 1990s. Thus, for the first time since independence, production of foodgrains increased at a rate that was distinctly lower than the rate of population growth. Is it not a cause of serious concern? The "reform" lobbyists usually evade this question.

The decline of agriculture in the 1990s and the existing plight of the peasantry are a direct outcome of the SAP under which investment in agriculture has been drastically reduced on the one hand and imports of agricultural products have been liberalised on the other. In addition, the shift of emphasis towards export agriculture and away from employment intensive foodcrops has led to a decline in foodgrain output growth and also in rural employment growth. The intensity of damage caused by these irrational structural adjustment measures has been so much that even the good monsoons during the last few years failed to arrest the retrogression in agriculture. Now it is common knowledge that agricultural growth was shockingly negative in 1997-98, 1999-2000 and 2000-01. These are surely the indicators of an emerging food crisis. The fact that the country has massive stocks of foodgrains is of little consolation. It merely reflects the country’s has reached food self-sufficiency in effective demand sense while, in normative sense, it still lacks an adequate supply of foodgrains. In other words, had the purchasing power of our workers, especially rural workers, grown adequately, the country would have been in the throes of scarcity.

Industrial growth has been sluggish during the "reform" period. The "reform" lobby’s claim that deregulation would show spectacular results by releasing the forces of development hitherto kept in check, turned out to be hollow. Even the Economic Survey 2000-01, which is an official document, admitted that the average rate of industrial growth during the "reform" period has been lower than that in the pre-"reform" period. As against 7.8 per cent per annum growth during the 1980s, the average annual rate of industrial growth during the eight-year period beginning from 1992-93 to 1999-2000 was only 6.0 per cent. The growth rate was lower in all the three sectors, viz manufacturing, mining and electricity. In terms of use-based classification also, there has been a lower growth rate in basic, capital goods and consumer non-durables industries. It is noteworthy that in the whole of the "reform" period the industrial sector registered an impressive growth only in 1995-96 when production rose by 12.2 per cent. The rate of industrial growth collapsed to 5.6 per cent in 1996-97. It rose to 6.7 per cent in 1997-98 but registered a further decline to 4.1 per cent in 1998-99. Since then, despite some modest recovery, the rate remained stuck at 5.7 per cent in 2000-01. According to quick estimates of the index of industrial production released by the CSO, the cumulative growth in the first quarter ending June 2001-02 declined to 2.1 per cent. The "reform" industrial boom, if it can be considered so, petered out in 1996-97 and since then, despite tall talks by the "reform" enthusiasts, expectations of robust industrial growth have been belied.

Besides the lower rate of industrial growth, there are now other signs of a deep industrial recession. In non-financial corporate sector, there has been a clear setback for the last five years. The annual growth of company sales has slipped from 20 to 24 per cent in the pre-"reform" years to 8 to 10 per cent in the second half of the 1990s. Profits after tax on net worth have also fallen from 14 per cent to a range of 6 to 8 per cent over the same period. In the same period, again, besides curtailment of current output growth, there has been a persistent fall in investment. In nominal terms, investment declined from Rs 1,39,774 crore worth in 1995 to Rs 60,663 crore in 1998. Due to a major project proposal, the proposed investment rose to Rs 1,28,992 crore in 1999 but it again plummeted to Rs 73,374 crore worth in 2000. In this recessionary situation, widespread closures of medium scale and small scale industrial units have been reported. Though exact figures of those who lost their jobs are not available, it must be alarmingly large.

The slowing down of industrial growth and the existing depressed industrial scene is not a short term consequence of the SAP but the direct result of the permanent damage caused by the liberalisation measures to the system. Economic "reforms" integrated India’s economy with the global economy and thus increased dependence of the country’s industries on exports. At present, because of the global slowdown with little chance of recovery, exports have suffered a setback. Secondly, opening up of the economy has brought imports with which domestic firms in a number of industries are finding it difficult to compete. Thirdly, decline in public investment has led to curtailment of effective demand in the domestic market. Finally, steep fall in agricultural production and growing unemployment due to widespread layoff have also caused a substantial reduction in effective demand. While going in for the SAP, the government had probably pinned hopes on black income-generated demand for durable consumer goods. But the linkages of durable consumer goods industries in a big country like India, where a sizeable population is below the poverty line, turned out to be too weak to take industries on a high growth path. The buoyant growth of the information technology sector, with which the "reform" lobbyists have always been obsessed, is welcome, but it can hardly fill the enormous gap created by the slowdown in the manufacturing, energy and other industrial sectors.

Now the latest NCAER survey on business outlook has indicated that the business confidence has fallen to its lowest level in the last two years. To be brief, contractionary features inherent in the public policies emanating from the SAP have led to a steep reduction in the share of development in the government’s total expenditure and a massive squeeze on investment in physical infrastructure. This obviously has resulted in the loss of expansionary stimulus. The existing malaise in the industrial sector is thus a direct result of economic "reform". However, with blinkers in their eyes, the establishment economists and their fellow travellers fail to see the damage the SAP has caused to the economy in general and to industries in particular.

The gross domestic savings rate has failed to increase during the 1990s. It was 24.3 per cent of GDP in 1990-91. Thereafter it continued to decline for three years and in 1993-94 it was at a level lower than that reached in 1978-79. The recovery started in 1994-95 and, for three years, gross domestic savings rate fluctuated around 24.2 per cent. It, however, declined to 22.3 per cent in 1999-2000. Gross domestic capital formation has always been higher than gross domestic savings by 1-2 per cent of the GDP, as foreign capital inflows bridged this investment-savings gap. Domestic capital formation, which was estimated to be 26.2 per cent of the GDP in 1997-98, declined to 23.3 per cent in 1999-2000. This level is around 2.2 per cent lower than the average for 1994-95 to 1996-97. Gross domestic fixed capital formation, as a proportion of the GDP, fluctuated in the range of 21-23 per cent during the 1990s. 1995-96 was an outlier as in this year the rate of gross domestic fixed capital formation rose to 24.2 per cent of GDP. These facts present a picture of stagnation.

It is now well known that no country can accelerate its growth unless it devotes a much higher proportion of its surplus value to capital accumulation. In common parlance, investment ratio has to be stepped up for acceleration in economic growth. China has at present an investment rate of around 40 per cent. East and South-East Asian countries, which registered rapid growth until they were hit by the currency crisis, had investment rates of around 35 per cent. By contrast, investment rate in India hardly reaches 25-26 per cent of GDP. No person in his senses can expect that a country with this rate of capital formation will realise an annual growth rate of 7 per cent. But the contention of "reform" lobby has always been that investment ratio will rise with the implementation of the SAP and that will, in turn, accelerate economic growth. But what has actually happened during the "reform" period clearly disproves the assertion of our liberalisers.

In India, there are real dangers of speculation replacing (long-term) investment and enterprise. As far back as in 1936 J M Keynes who was no admirer of socialism wrote, "As the organisation of investment market improves, the risk of the predominance of speculation does, however, increase….. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When capital development of a country becomes a by-product of the activities of the casino, the job is likely to be ill done." Keynes’s forceful description of the dangers of speculation replacing investment is very much relevant in the Indian context and should not be dismissed lightly. The finance minister with his eyes shut, however, refuses to see the danger.

The Indian economy needs to snuff out two types of speculative activity if it wants to escape a currency turmoil similar to that experienced by the East and South-East Asian countries in recent past. The first type of speculative activity pertaining to domestic investment is a perennial problem. The second one relating to external transactions has become important because of enormous growth of finance capital.