With the entering of the industrial revolution in its adult stage in Europe during the nineteenth century, liberalism fanned out. However, along with it, the doctrine of “laissez-faire” also gained currency. This doctrine upheld that the government of a state should have no authority over economic matters. It was regarded that the maximal economic performance was achievable only where the competency of market forces of supply and demand were left to work themselves out. The “perfect competition” theories of various economists like Marshal and Richards endeavored to showcase that an economy comprising of numerous equally smaller units of production would spontaneously work to amplify social value.

Laissez-faire:

The laissez-faire asserted complete independence of the economy and the political system. The champions of laissez-faire customarily urged government protection in the hours of crisis, chiefly when faced by the competitors from the external world. From the unbridled industrialization, when the social inequalities and mass destitution emanated, an analog of a command and direct economy developed and gained ground in terms of new ideas. Certain countries chose for command and control based economies with full state control on the economic organizations. This is known as red-tapism. State-controlled economies like USSR were examples of this model.

India in immediate post-independence years trod the path of the Nehruvian model of mixed economy which was founded on self-reliance, equitable distribution, socialism, and the welfare state. It certainly had its applications as well as limitations. It gradually helped to fabricate a strong and indestructible economic base for the country. Simultaneously, it also erected a Byzantine “Licence raj” with bottlenecks to industrial evolution in the form of bureaucratization. The time of the early 1990s seemed suitable for the changes because of the pressure on PSUs and the changing world dynamics.

Apparently, more or less in the late eighties and nineties, a whiff of freedom appeared to blow over the entire world. A breakthrough in democracy took place in nearly every communist country in east Europe, which brought with it the idea of economic liberalization. The year 1991 was the time when apart from economic liberalization in India, the world saw the breaking apart of the USSR which gave rise to new nations from the larger Soviet structure. Democratic movements with a hint of moving towards a liberalized economy became prevalent in nearly every communist country in East Europe breaking out of the USSR.

Evolution of Economic organization:

The transition to the market economies hastened its pace in every part of the world as governments disassembled state controls and unlatched new doors for engagement and entrepreneurial activities. To an extent, the globalization of economies prompts the progress and repositioning of technology and fanning of communications. Along with it, the world saw the arrival of a new era of international cooperation through the UN organs and other international institutions like the World Bank and International Monetary Fund which intended to help the needy countries in the arena of international trade and economic development. India at that time switched it’s gear to a liberalized economy under the stewardship of the then Finance Minister Dr. Manmohan Singh and the then PM PV Narasimha Rao.

Economic Reforms in India:

India’s attempt at economic reform began in 1985, when the GOI abolished some license regulations and other controls that restrained competition. After this initial attempt, there was a slowing down of the process. A fresh wave of reforms was initiated by the government in the year 1991 using the suggestions by the IMF and World Bank which was known as the Washington consensus. By July 1991, it had depreciated the currency, thus making it partially convertible, reduced restrictions on imports, the import duties on capital goods had been reduced and rules were liberalized in terms of setting up organizations, expanding them, and diversifying their resources. Snipping of the subsidies successively liberalized the business and triggered the orientation of global interest in India. This was further helped by eliminating production licenses, and the easing of restrictions on repatriating dividends and royalties.

These initiatives were taken by the government in mid-1991 which was a period of both crises and opportunities set India on a path of tremendous growth. The unstinting policies which hampered growth, reservation of industrial items for small scale industries which did not allow any large firm to produce them, quick changes, corruption, and an unprecedented soaring of dollars had pushed the country to the fringe of financial doom. The main ground of economic liberalization was that India cannot hinge on the bounty from multilateral organizations and Overseas development funds. Indian exports are income-sensitive and thus India should expand and build up its export capacity. That was to a large extent not feasible in an economy tied up in regulatory knots, shackled by red tapes and locked out of the world by a cocoon of protectionist policies. This was changed by the LPG of 1991.

Reaping the fruits of Liberalization:

The beginning years of recalibration after the 1991 LPG shift showed exceptional progress with the country making the fastest record of recovery from a deep macroeconomic crisis. Exports were convalescing and there was a spike in export earnings. The foreign exchange reserves achieved a respectable look by 1999 as compared to the precarious situation in the year 1991 when India had just enough reserves to pay for imports of three weeks. The debt situation slowly but steadily moved away from the crisis point. The emboldening of foreign investments paved the way for an increase in foreign direct investment and inflows of FIIs into India. There had been a secular spread of the economic growth in India after the 1991 reforms at least till 2013 with a peak during the FY2007-2008. The growth raised the confidence of the world to invest in India leading to the expansion of industries and a rise in the purchasing power of Indians to such an extent that it led many observers to believe that the trickle-down theory is not completely to be derided.

Nonetheless, if we solely wait for the sake of the benefits reaped by the trickledown effect it may take moon ages for them to reach the masses, especially the poor. This needs an array of reforms which generally have a dearth of political will, and informed decision making. Such reforms necessarily involve some hard decisions which are generally avoided by the politicians as recourse to populist measures. The reforms of 1991 had a dearth of emotional appeal in opening up the domestic market to the world and had unalloyed idealism in believing that competitive spirit will raise the standards of economy in India. But the 1991 reforms of LPG came at a time when the economic ground was shifting across the world, so India needed to act too, which it did under the apt expertise of Dr. MM Singh.

Challenges and India’s way out:

To increase the agricultural and industrial strengths (the primary and the secondary sectors) of the country are the major challenges before the Indian economy. Bringing in diversification and the innovation using the benefits of the LPG in the agricultural sector should be enough to expand its potential to boost the economy given the number of people it has employed. Technological advancement is needed by the industrial sector to improve the quality of the industrial output and to be competitive in the global race. But the ghosts of bureaucratization of “business set up processes” since the days of the Hindu growth rate have not left India Inc. yet.

But steps like the recently passed Farm bills can probably not be the answer for this. One can never expect that the food security of the nation can be secured by not providing the Farmers their minimum dues. The logic of MSP should not be done away with through the Farm bills. If competition is to be brought, then the rich Farmers should be involved in the competition at the national and global scale. They should be the ones who should invest to improve the quality of infrastructure in Indian agriculture. At the local level, the produce of the small Farmers needs to be procured at MSP in APMCs giving them their dues. This way the benefits of liberalization can be used in Agro-markets in India.

Effective mobilization of Human Resources across the economy along the liberalized guidelines for development is indispensable especially in post-COVID times when people will be hesitant to come out in the open after months of staying in lockdown. Besides all of these, there is also the need for industrial character in the people and their attitude to shape themselves with the changing times in a globalized world. Economic efficiency and economic reforms cannot merely be a matter of policies and an automatic direct product of the right economic policies. What is indeed called for is not a cutback in the role of government, but making the government more responsive to cater to the needs of its citizens and the economic space. This elucidates the fact that less governance is no substitute for good governance.  The base for economic reforms for harnessing the benefits of liberalization can only be built when conventional people perceive a drastic improvement in the quality of their lives through a growing economy.

The author is a student member of the Amity Centre of Happiness.