13 chapter7

CHAPTER VII

SUMMARY AND CONCLUSION

Even aHer 55 years of planned development, India has not
succeeded to solving the basic problems of the Indian economy. The rate of
poverty and unemploynnent is increasing even after we completed 9 five
year plans. 'l'hough government of India launched various poverty
alleviation programmes they have not benefited properly the people who
were targeted. As P.C. Maholonobis once stated as a "result of economic
planning rich became richer and poor became poorer in India". It is a fact
that the fruits of development in our country is being appropriated by the
affluent sections in the country. It may be argued that the very orientation
of our economic policy is biased towards the upper strata of the Indian
society. Though vast ~n,xjority the people of India living in rural areas
of
nothing worth while has been done to improve the living conditions of the
rural people of our country. Progress and facilities were available only in
the urban centers of our country.
During the freedo'm struggle Gandhiji highlighted the central role of
agriculture and allied activities and cottage and traditional industries for the

Prepared by BeeHive Digital Concepts Cochin for Mahatma Gandhi University Kottayam

emancipation of the rural population. As Gandhi stated a number of times
"India lives in villages'. By neglecting the villages India can never make
any progress. Gandhiji during the freedom struggle stressed the importance
of a indigenous and rural based programme for India's reconstruction.
Gandhiji had a programme for the economic upliftment of the vast majority
of the rural people. The Ciandhian model of economic development was
never given a try in independent India. Nehru chosen the Western model.
Based on heavy industrialisation and implemented it through a centralised
planning mechanism that he borrowed from the Soviet Union. The
Development policy introduced by Nehru aimed at the elimination of
poverty and unemployment and the establishment of a socialistic pattern of
society in India. With this over all aim, government of India formulated a
programme of planned development of the Indian economy. Every five
year, a separate plan was formulated and each five year plan had its own
special objectives.
The first five year plan launched in 195 1 had visualised a doubling
of per capita income by 1980-81 leading to a sharp reduction in poverty
levels. The first plan lay )more emphasis on Agriculture. The plan was able to
attain its objectives in the agricultural sector. Though the first five year plan
achieved in increasing agricultural production. The actual achievement was
not more than half. Per capita income increased by only 50 percent during


40 years upto 1990-91. I'he overall development strategy of Government
of India was clearly defined in the Second Plan (1956-61), whose launch
coincided with the Industrial Policy Resolution of 1956, which delineated
the roles of the public and private sector, a division that was to last for the
next 35 years. rhe focus on heavy industry during the 2ndplan is well
known. What was not so well known at that time and the price for which
was paid later was the export of pessimism that crept into the economy and
more tragically, the neglect of land reforms. The second plan lay more
emphasis on heavy industries. A number of such industries were
established during the plan period. The importance of the

zndfive year plan

was that the subsequen~.plans more or less followed the development
strategy with minor changes here and there upto the late 80's.
During the early '70's there was increasing awareness among our
policy makers and planners that the benefits of development have not
reached the poorer sections of the people, though the five year plans were
intended to improve the lots of the poorer sections of the people. Therefore,
the government of India launched a number of poverty alleviation
programmes during the period. Integrated Rural Development Programme
(IRDP), Rural L.andless En~ploymentGeneration Programme (RLEGP),
National Rural Employmerlt Programme @REP) are the notable examples.
The design of these programmes was (and has been) faulty and a large part of


the funds were appropriated by the local functionalizes. Yet, the expansion of
the programmes perhap:$ constituted the first acknowledgement that the poor
did matter, even if only in terms of electoral politics.
There was stagnation of growth. It was recognized in the beginning of
the eighties (by Lndira Gandhi) that unless higher growth was achieved, the
economy would collapse. So she started liberalizing the economy by
removing some of the restrictions of investment. The result was remarkable.
Rajiv Gandhi liberalized further. and faster growth was marked in the 2"*
half of the 80's.

But it was fed by reckless extemal borrowing and

irresponsible fiscal expansion at home. The wages of such mismanagement
had to be paid in the early 90's, and the balance of payment crisis snow balled
into a serious external crasis in 199 1. It opened the watergate of sweeping
changes in the economic policy of the country. In order to tide over this
crisis Narasimha Rao introduced the new economic policy of globalisation.
The New Economic Policy announced by the Government of India in

June 1991 amounted to a 'U' turn in economic policy. It gave a deep burial to
the twin basic principles that gave the basic orientation to the planning process
throughout namely maintaining political independence, sovereignty and the
insistence that the main beneficiary should be the weaker sections and the
rural poor. Export promotion as against import substitution, dominance of the
market in place of direction by the state, pron~inencefor the private sector


instead of dominance of the public sector, openness to the international
economy and to foreign are the chief components of the NEP.
The central problems of the Indian economy still however, continue to
be widespread and extreme poverty, low productivity and ever increasing
disparities. If the performance of the post-1991 era is to be judged by these
yardsticks then there is little that can be said for the process that was ushered
in by the Narasimha Rao government. The only 'real' benefit of liberalization
was that it freed certain sections from the oppressive control of the state,
which under the pretext of central planning aimed at creating a socialist
pattern of society, gave us a corrupt system that resulted in a vastly unequal
and under-productive society.
The sections of population who were liberated from the oppressive
control of the state, not surprisingly, were the very ones who benefited
most when we were trying to create a 'socialist society'. Liberalization, as
we know it so far, has failed to address India's core economic problems.
Poverty has grown, pl.oductivity has fallen, and income inequality has
widened. That is mostly due to the fact that instead of becoming an all
encompassing process that would not only free the economy and stimulate
entrepreneurship and creativity. but also restructure government to make it
more accountable, transparent and honest, it just became an initial first step


that did away with the quota allocating industrial licensing policy, opened
up more areas to foreign investment and little else.
One could argue that without the liberalization package the economic
condition would have worsened. This is plausible. The roots of the problems
that afflict us today were sown in the previous decades. We know what these

are. Therefore. the biggest failure of the reform process ushered in 1991
was that it is based on partial judgements and false premises of the
economy. It has now remained stalled for long in the mire of crony
capitalism and bureaucratic sloth.
Stripped of all rhetoric, liberalisation was intended primarily to do
two things. First and foremost it was supposed to accelerate industrial
growth. Next it was meant to attract huge inflows of foreign investment to
finance infrastructure development. Neither happened. Industrial growth in
the decade 1981-91 was 7.7%. Since 1991-92 it has been 5.8%.' Foreign
Direct Investment or FDI[ from 1991 to 1999 amounted to US$ 12879
million. Of this IJS$ 2440 million are NRI investments suggesting that a
good part of it is actually money clandestinely stashed abroad and
returning to bolster equity positions of owner-managers, a somewhat quaint
terms to describe people with small individual holding who are still permitted
to manage companies as personal properties and private fiefdoms.


Former Finance Minister P. Chidambaram, was of the view that
India needed about US $ lo2 billion or Rs. 43, 000 crore of FDI a year to
pull itself up to world standards by the middle of the current century.
Instead of the US$ 90 billion we wanted, we have so far attracted only US$
13 billion. So how good was our liberalization?
There are other indicators too that strongly suggest that liberalization
rather than speeding up growth and development actually slowed it down.
Agricultural growth, which averaged 4.04% p.a. for the decade 1981-91, fell
to 2.3% p.a. for the period 1991-99.j The impact of this can be most seen in
food prices. The average annual price rise during the 1980s for food articles
was rice 5.6%. wheat 5.7% and pulse-11.2%. During the following decade

these changed respectively lo: rice 10.2% wheat 9.5% and pulses 11.4%.
Since 1981 the area under food grains and oil seeds crops has
remained almost static at about 150 million hectares, while the number of
people working on the land increased from 186.2 million in 1991 to 228.2
million in 1999. This suggest a major slowdown in the growth of real
incomes and wages in the rural sector because foodgrains production only
grew from 176.4 million tonnes in the year 1990-91 to 192.4 million tonnes
in the year 1997-98.'


The World Bank estimates the annual average growth of wage rates
of unskilled agricultural male workers in the 80's to be 4.6% as opposed to

2.5% in the 90s. It would seem that but for lower wages given the greater
availability of farm workers, the rise in food prices would have been
higher. While all through the 1980s the wholesale price index rose at an
average annual rate of 6.9%,it grew at 8.8% in the liberalized 9 0 s . ~
Employment generation in the organized sector too suffered. It was
growing at a modest 1.6% during 1981-91, just keeping pace with the
population growth rate. Since then the growth in jobs in the organized
sector has halved to 0.8% while the population continues to grow as before.
The power sector, which was a major source of concern at the
beginning of the last decade, too did not show any great leap forward
though the centerpiece of the liberalization policy was the opening up of
the sector to foreign capital and ownership. As a part of liberalization we
noted the worst examples of crony capitalism unfold. Promoters of power
projects were not only assured an extraordinarily high rate of return, 16% p.a.,
but were given all sorts of other guarantees as well. They were protected
against currency fluctuations, and payments and off-take were both
guaranteed, thus insulating them against all risks, giving the terms risk capital
an entirely new meaning.'


7'he foreign trade picture too was to radically change as a result of
liberalization. This it probably did. For imports. which were growing
modestly at the rate of 4.5% p.a. during 1991-2000. But did it make a big
difference to exports? Not really, because the change was miniscule from
8.28% to 8.41%. All the time we were being told that if imports grew so
would exports. But that just did not happen.'
The trade deficits have been growing exponentially. In 1980-81 the
adverse balance was Rs. 5838 crore; in 1990-91 this was Rs 10645 crore.
By 1998-91 it had swelled to Rs. 55478 crore. It would seem that besides
devaluation, ostensibly to make exports more competitive, we have had no
foreign trade policy worth the name. In 1981 one dollar was worth Rs. 8. In
1991 this changed to Ks. 18 and now to little more than Rs. 48.8
Table 7.1
India's External Debt Outstanding
Categories

Long-termdebt
Short-term debt
Total debt

1

- - -

/

1991

1

End -March
1 1 1995
6 /

US$ billion

nxmnii602001R

75.3
92.6
78.2 94.7
88.5
8.5
7
4.3
5.0
4.3
3.9
85.3
83.8
96.9
99.0
93.5
External debt -kev indications (ratios as ver cent)

-Sept.

2.80

I

Short - term to
6.7
Source : Economic Survey Minislry ojFinuncr Government oflndiu 2001-2002.


The 199 1 Census confirms that even after four and a half decades of
independence over 80% of all rural workers are employed by the
agricultural sector. As many as 52% of the men, and 18% of the women
living in rural India are farm workers. In many states the dependence on
the agricultural sector for employment has increased. This continuous
assured supply of labour to the rural sector clearly has a depressive effect
on the daily wages of agricultural and other rural workers. It is small
wonder that they comprise the bulk of the poorest among the poor.
In 1991 Mohan Guruswamy along with Shantanu Nagpal, tired to
estimate the incidence of poverty using basic human needs and quality of life
parameters. Among these were proper nutrition, shelter, access to services like
education, health. clean drinking water, and public transportation. Using these
expanded set of criteria we estimated that over 70% of Indians fell below
the poverty line. The conclusion of their analysis was that if those
yardsticks were adopted, the government would be pushed into adopting a
new set of policies to target its goals and prioritize them more
systematically. Evidently the system is still not ready for such a major
change.


Table 7.2
India's Global Position on Human and Gender Development

category y i k : e n t
index

Development
Gender
Index

Empowerment
Gender
Measure

2001

Norway

2001

1992

2001

0.939

0.91 1

0.937

0.752

0.836

0.936

0.901

0.935

0.568

0.738

0.735

0.933

-

1992

0.660

0.732

0.288

0.308

Australia

0.927

Sri. Lanka

0.7.4

China

0.594

0.718
-

0.578

0.715

0.474

0.321

Indonesia

0.637

0.677

0.591

0.671

0.362

0.362@

India

0.439

0.571

0.401

0.533

0.226

0.240@

Pakistan

0.483

0.498

0.360

0.466

0.153

0.176@

Nepal

0.364

0.480

0.310

0.461

0.315

Bangladesh

0.364

-

0.470

0.334

0.459

0.287

0.309

Mozambique

0.246

0.323
-

0.229

0.309

0.350

0.428@

[ 0.196

0.260

Niger

0.207

--

--

-

-

0.274

.
-

-

0.120@

@ relates: to 1999
Source: Human L)evelopment .Reports 1999 and 2001

Note:

Two papers by S8.P Gupta, Member Planning Commission and
Gaurav Dattl after analyzing the data thrown up by the latest National
Sample Surveys. concluded that the incidence of poverty has actually gone
up since 1991. Ciupta's co~nclusionsare quite disturbing. According to him
the incidence of poverty, ,which dropped from 44.5% in 1983 to 34.3% in
1990, grew to 43% in 1998. Datt is more charitable and came to the

conclusion that while urban poverty has shown a declining tendency, rural
poverty levels have been static because "the trickle down" did not take


place. He even suggests that it will not work-it is a make believe situation.
Even the experience of the USA has shown that growth does not trickle down
voluntarily. Only an enabled and empowered population that can
meaninghlly join in the growth process can suck it down. Indian record in
this is pathetic.
What direction the economy should take is the cruse of the debate
that is going on in this country. Protagonists of market guided globalisation
argue that the present problems sprang up because the economy was not
properly liberalised. So they advocate 'bold steps' means more liberalization,
opening up the economy fully to the global market forces etc. They base
their argument on the premise that there is no alternative to globalisation
'Globalise or Perish' is their maxim. Those who are critical of the present
variety of globalisation have adduced evidence to show that the new
economic policy will only lead to extreme concentration of wealth and
power in the hands of hardly 20% of the global population. The rest will be
left to compete for what left over. Multinational corporations have become
richer and more powerful than countries and World Trade Organization has
started playing political r,ole besides economic. This will create a deeply
divided world, an asymmetry that is portentous. So, they argue that we
should change our econclmic policy, take a turn towards an equitable,
sustainable and self-reliant path of development. Many believe that there


are thousands of alternative's others say that if alternatives are not
available we must bring in new alternatives. In this context, the present
study has come to the conclusion that the model presented by Gandhi as
outlined in chapter 6 as it based on self-reliance sustainability equity and
justice can provide a viable alternative for a country like India and that the
basic approach of Gandhi towards economic development will serve as a
suitable guide for the third world countries in general and even for the first
world if they are keen on creating a just and sustainable world order.

References and Notes

1

Economic Survey, Ministry of Finance. Govt. of India various issues

2

P. Chidamparam on Indian Economy, problems and prospects- lndia Today Weekly,
200 1

3

Economic Survey, Minist01 of Finance. Govt. of lndia various issues

4

Indian Agricultural Statistics at a Glance, 2000

'
'

World Development Report, 2000
~nron
power project controversy in Maharashtra
Economic Survey, Ministry of Finance, Govt. of lndia various issues
Economic Survey, Ministly of Finance, Govt. of lndia various issues


13 chapter7

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