After 30 years of liberalisation, is it time for another pivot in India?

“No power on earth can stop an idea whose time has come"

Technically, Manmohan Singh cannot lay claim to this line. The finance minister that fateful day exactly 30 years ago, Singh had used this quotable quote from French writer Victor Hugo (him of 'The Hunchback of Notre Dame' fame) to set in motion the most dramatic transformation independent India underwent ever, before or after.

Also technically, neither Singh nor his prime minister Narasimha Rao could have claimed the ideals this lofty quote encapsulated. The economic cliffhanger the nation was faced with left them with hardly any other option–getting the desperately needed international loans meant capitulating to stringent terms by the likes of the IMF, which included cleaning up of the Augean stables of North Block and years of profligate spending and bad fiscal decisions. A more honest quote, perhaps, would have been 'necessity is the mother of invention'.

Or 'reinvention', in this case.

1991 was a very different world as Singh rose to present the budget that sultry and uncertain afternoon. The newly-anointed Congress government was not just a minority, its supreme leader who held it all together had been murdered just a few weeks ago. If that wasn't enough, it was clear that the dire state of the nation's finances could not be papered over anymore–forex reserves were at barely a billion dollars, with the economy tottering on the edge. The balance of payment crisis, with its resultant transfer of the nation's gold bullions abroad, were ignominious milestones. On a perverse level, with Mandal and Masjid raging on the streets and the political narrative undergoing a cataclysmic upheaval not just domestically but all over the world, the impact was, to some extent, underplayed as far as the nation's collective psyche went those days.

The clarion call of change was already clanging around–three weeks before the epochal budget of July 24, 1991, the rupee underwent devaluation, while a new trade policy freed up the intensive controls on exports and imports. The man behind this was then commerce minister P. Chidambaram, who would himself create a history of sorts a few years later with his own 'dream budget'

But before that, the Rao-Singh duo had to do the all-crucial pivot, and on July 24, that's exactly what was done – a new industrial policy and deregulation of markets and cutting of taxes. It spurred investment, the flow of capital, and the veritable launch of a new India.

“It was mindboggling, the biggest step taken in the Indian economy since Indian independence,” says Sanjay Aggarwal, president of the PHD Chamber of Commerce and Industry. “Could we have done better? Yes, of course, but you should remember that everybody was sitting pretty in the 'licence raj' and nobody had the guts to do anything, until July 24, 1991!”

In figures, liberalisation has been a runaway success. GDP rose from slightly less than Rs 6 lakh crore to around Rs 200 lakh crore now. Foreign investment grew more than 300 per cent in just the first 15 years.

But dig a little deeper, it gets a bit murkier. While the years of liberalisation did help lakhs of Indians out of poverty and hundreds of thousands move up a notch from the lower-middle class bracket into a comfortable middle or upper-middle class existence, its fruits have not exactly been equitably distributed.

The biggest issue was jobs. Hard to believe as it may appear, all this growth has not spurred the job market. Reserve Bank of India figures for the first decade of liberalisation show that growth in non-farm jobs was just 3.05 per cent, while the growth the previous decade during the supposedly slow 'socialist' era was better, at 3.67 per cent. The news only gets worse – in the last decade (2010-2018), the growth has slowed down to a flat 2 per cent -- and that is a figure before absolute devastation struck in the form of the coronavirus pandemic last year.

Then there is the matter of human development. According to the UN index, India's position was 114 among all world nations when liberalisation was set in motion in 1991, which has only further fallen to 131 as of last year.

Yes, liberalisation pushed up the nation's wealth and standing in the world, with the educated urban-middle and lower-middle classes reaping its fruits handsomely over the last three decades or so. It opened up India to cultural, social, and technological trends, changing lives, livelihoods, and lifestyles dramatically. Yet, three decades later, it would seem the nation needs another pivot, and not just because of the protracted slowdown or the turbulence caused by the pandemic.

“In a post pandemic world, economic liberalisation is going to take a new disposition under the 'new normal' situation,” argues Anusree Paul, associate professor, School of Management, BML Munjal University, Gurugram. “Trade agreements are going to be more inclusive and strategic to create an enabling environment for businesses to grow.”

Like in 1991, the situation right now is apt for liberalisation 2.0. The march of technology has spawned opportunities, as well as challenges, equally. The pandemic has rewritten the rules of trade engagement. Particularly of concern to India would be to ensure that its economic reconfiguration not just ensures growth of wealth, but in ensuring that all citizens get as equitable a share as possible in the spoils of progress, and not get left behind in the avalanche of change. This is indeed an idea whose time has come.