SECTION-1:
INTRODUCTION
The Indian economy grew much faster in the 1980s than between 1950 and 1980. But this was driven by government expenditure through domestic and external borrowing, along with opening up to imports. The result was a severe balance of payments crisis. In 1991 when the crisis reached its peak, the government took massive loans from the IMF and World Bank, even though other options such as taxing upper-income groups and restricting imports were also available. This period was marked by the dominance of international finance capital and the collapse of the Soviet Union as a countervailing force to the Western countries, which led to a serious questioning of self-reliant development as pursued by India and many other developing countries. Major policy changes followed. Under pressure from the IMF and the World Bank as well as the US and other Western powers, successive governments in India embarked on the path of liberalization, privatization and globalization (LPG) and adopted the ideology of neo-liberalism. Neo-liberalism Liberalization involves loosening of government control over the economy in favour of market forces. Government investment is gradually withdrawn, while private capital, and specially foreign capital, are encouraged in all sectors. This implies that the broader social good is no longer the guiding principle, but expansion of the private sector into all parts of the economy including public services is assumed to be for the greater public benefit by definition, even though evidence may show that only some sections actually benefit. Privatization relates not only to government selling public sector units or shares in State-owned enterprises to private companies, thus gradually dismantling the public sector, but also opening up all sectors including education, health, infrastructure and so on to private players, in the belief that running these services as profit-making entities is better than promoting social well-being through government action. Experience the world over shows that this leads to reduced access of the lower-income groups to education, health, energy, transport and other public services and infrastructure. Globalization, the third element of LPG, means opening up the country to all sorts of imports at low taxes and with few government controls as regards items, quantity etc. Even more importantly, it means removing restrictions on the free movement of capital into and out of India. This is the single most important aspect of LPG reforms, and the one with the most disastrous consequences. It has immediate impact on the government’s ability to forge and implement an independent policy, since foreign investors can always threaten to take their funds out of the country if it adopts policies they do not like. LPG calls for minimal taxes, government regulation and government expenditure. This has serious consequences for the government’s welfare programmes and investment policies. Since 1991, successive governments in India have cut back social welfare programmes and public investments, much to the detriment of lowerincome groups and sharply widening social and economic inequality.
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