India was faced with a serious balance of payments (BOP) crisis in 1990-91, following a decade of expansionary | policies, accompanied by both indiscriminate commercial borrowing abroad and trade liberalization, and in the immediate context of adverse international developments especially with respect to the price of oil. Thanks to the same expansionary policies financed by large scale internal borrowing and large budgetary deficits arising from an unwillingness to tax the rich to finance increased government spending, India also ran into a fiscal crisis, with government's revenues falling far short of expenditures. The twin crisis of BOP and fiscal crunch was used by the minority government of Narasimha Rao to push through a programme of structural adjustment dictated by the world bank and the IMF. The essence of this programme, pursued especially vigorously by the NDA government during the last three years, has consisted of the following steps:

• A sharp reduction in government spending, especially on capital formation development and social welfare.

•  A programme of privatization of public sector enterprises, ostensibly on efficiency grounds, but in reality for ideological reasons and to meet fiscal deficit targets set by the Bank and the Fund by raising revenue through sale of public sector assets at unconscionably low prices.

•  Accelerated liberalization of imports of both goods and capital

•  Numerous tax and other concessions for both foreign and domestic capital, to attract inflows of capital and stimulate investment.

• A severe cutback in government subsidies for food, fertilizers and power, accompanied by a rise in the costs of borrowing for government resulting from financial deregulation leading to higher interest rates.

• Active promotion of stock markets and speculation, accompanied by discouragement of household saving in other forms of small savings

•  Deregulation of industry and gradual removal of protective legislation for labour.

It has been repeatedly claimed by the proponents of reform policies that the crisis of the Indian economy in 1991 and its earlier slow growth were the result of too much state involvement in the economy, both as direct producer and as regulator. As a corollary, it was claimed that the policies of deregulation and opening up of the economy to foreign capital and commodity imports, accompanied by a process of privatization and withdrawal of the state to make way for the "efficient" private sector, would unleash the inherent dynamism of the economy and that rapid growth, greater employment and reduction of poverty will follow. What has been the track record?

TEN YEARS OF REFORM 1991-2001: THE RECORD

Table 1 shows average rates of annual growth of GDP over different quinquennia, starting from 1971., Table 2 shows the sectoral GDP growth rates in the 1990s. Table 3 presents data on the shares of gross domestic capital formation in GDP during each quinquennium between 1970 and 2000. Table 4 presents data on trends in tax top GDP ratio over the 1990s. Table 5 shows the rates of growth in employment for different periods as seen from national sample surveys. Table 6 shows the headcount ratios of poverty as seen from successive rounds of the national sample survey. The following conclusions emerge from a careful perusal of the data presented in Tables 1 to 6:

Growth

• The GDP growth rate during the 1990s has been more or less the same as in 1980s i.e. THERE HAS BEEN NO BREAKTHROUGH AS A RESULT OF LPG (Table 1)

• Second half of 1990's has seen a deceleration in the rate of GDP growth (Table 1)

• Agriculture has seen a sharp decline in growth and is in crisis. (Table 2)

• Food grains growth has been slower than the growth rate of population during 1990s, for the first time since independence (1.6% vs. 1.8%)

• Industrial production has also decelerated sharply in the second half of 1990s (Table 2)

• Main growth sector in the 1990s has been "services" including especially real estate and financial services. A part of the "growth" in services is merely on account of pay revisions for government and quasi government employees (Table 2)

Equity

• Bonanza to the rich, manifested especially in a decline in the tax to GDP ratio (Table 4). If the tax-GDP ratio had remained constant at the level it was just prior to the start of the reforms, the additional revenue in 2000-01 would have been of the order of Rs. 26000 crores!

•  Sharp decline in pro-people subsidies, leading to increase in prices of food grain, electricity and mass transport fares.
  
  

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