People's Democracy

India’s Failed Economic Reform - II

Dipak Basu

The most important indicator of success of an economic regime is employment generation. In this matter, the economic reformed regime has little to demonstrate.

EMPLOYMENT AND THE ECONOMIC REFORM

There are no reliable statistics regarding unemployment in India. The only statistics, the government produces on employment, are related to the organised sector of the economy, which is a very small part of the economy. We can only guess what is the real situation for the whole of the economy from these statistics, as given in Table 2.

Table 2

Employment in the Organised Sector (in Million persons)

            Source: Economic Survey, 2001-2.

Increase in employment in the public sector was much higher during the ‘planned’ regime of the 1980s than during the liberalisation phase of the 1990s. This is true for both the manufacturing and the construction sector. In the private sector, although the total generation of employment was higher during the 1990s, in the construction sector it has failed.

In manufacturing if we look at the detail we can see that the employment actually went down from 6.85 million in 1998 to 6.62 million in 2000; in agriculture employment went down from 1.49 million in 1992 to 1.42 million in 2000; in mining it went down from 1.12 million in 1994 to 1.01 million in 2000. The only sector that has showed improvement is the service sector, where employment went up from 17.53 million in 1990 to 18.92 million in 2000.

From the data obtained from the 55th round of the NSS, it is obvious that the usual status unemployment rose by 2.3 per cent in the liberalisation period. Unemployment increased far more, that is, 5.7 per cent in terms of daily status over this period. The main factors, which have contributed to persistently increasing unemployment, are drastic reduction in development expenditure by the government, indirect lay-off of workers in public sector undertakings, massive retrenchment of workers in the private manufacturing sector and closure of a large number of small-scale factories in different parts of the country.

Although the Montek Singh Ahluwalia Committee admitted that the daily status unemployment had risen from 6.03 per cent in 1993-94 to 7.32 percent in 1999-2000, the committee has recommended contractual recruitment of labour and an easy procedure for the retrenchment of workers. These policy measures if implemented will lead to still larger unemployment in the years to come.

EMPLOYMENT DESTRUCTION

There is no official statistics on how many jobs were destroyed during the period of ‘Economic Reform’. From various fragmented information we can compile a list of job destruction, which is however not exhaustive.

Coal Mines: 20,000 already lost, another 95,000 are waiting to be unemployed.  Coal is being imported from Australia and China.

Mica Mines: 8000 lost their jobs.

Fertilizer: 12,000 lost their jobs, now fertilizer is being imported.

Mining Machinery: 4000 people have lost their jobs. Machineries are imported from Britain.

Steel: 20,000 workers have already lost their jobs, another 23,000 in (IISCO) are waiting to be unemployed.  Steel is being imported from Korea.

Rubber: Rubber farmers are committing suicides in South India; rubber is being imported from Malaysia.  8000 workers of Dunlop are unemployed.  There is increasing volume of imports of tires from abroad.

Railway Wagon Industry: 12000 are about to be unemployed while wagons are imported from a number of countries.

Aluminium foils: 6000 already lost their jobs; these are imported from the US.

Medicines: In 1995, the government of India made it compulsory for the drug industries to have foreign partners and to pay royalty. India government had closed down public sector medicine manufacturing plants Job losses were about 1000. Medicine price since then went up by about 400 per cent. In 2001 all price controls on medicines were abolished.

Electricity: The World Bank has suggested that India should import electrical machinery from China if it wants loans from the World Bank for the liberalised electricity sector in India. Indian public sector electrical machinery manufacturing companies are not in the list of approved contractors of the World Bank. Major job losses are expected in this sector if reform measures are introduced.

Railway Engines: 6000 people will lose their jobs if this sector is privatised.

Aluninium: Already 4000 have lost their jobs, others are waiting to be unemployed.  Aluninium products are being imported from the US.

Most of the job losses are the result of the trade policy imposed upon India by the World Trade Organisation as part of the ‘Economic Reform’ process. World Bank has anticipated that even in 1992 when it gave a 10 billion US dollar loan to India to pay compensations to the future unemployed workers in the industrial sector of India.  Now EU is offering a similar kind of loan to India. It is essential to understand that the purpose is to scale down Indian industry in particular to open the economy for imports as part of the liberalised trade policy, an essential ingredient of the ‘Economic Reform’ process.

Effects of the liberal trade policy are being felt in agriculture in India. Rice farmers are getting bankrupt because their cost of production is more than the market price and rice is being imported from Thailand and other South East Asian countries. Wheat price is falling. However, because of the electoral importance of the wheat growing regions the farmers are receiving price supports and subsidies from both the central and state governments. Wheat is being imported from Australia. In future, it is likely be imported from the EU.

CONCLUSION

Success or failure of any economic programme is to be measured by the welfare it generates for the people. If an economic policy creates increasing hopelessness and unemployment, it is high time to think again and reverse the course of action. Reforms should aim at reductions in corruption, increased efficiency, increased employment and reductions in inequality and poverty. Instead in India economic reforms are hitting hard those who are the weakest in the society and are giving maximum benefits to the richer sections of the people. It is a false argument propagated by the international financial institutions controlled by a few Western nations, that economic planning is inefficient and a free market economy can increase welfare of the people. Recent history shows that introduction of the market system in the former socialist countries only brought poverty and misery for the once prosperous people.  Economic reform programme was initiated first in Chile, Bolivia, and Ghana during the mid-eighties. None of them could develop since then but went down under the piles of debts. India will not be any different in future unless it decides to reverse the process of self-destruction.

(Dr Dipak Basu is Professor in International Economics, Nagasaki University, Nagasaki, Japan.)

(Concluded)