CHAPTER I

INTRODUCTION

Background

To say that plann~~ng is basically related to economic/development

policy will be stating the obvious. Planning is meant to develop a

programme of action tot translate into reality an economic policy. As

pointed out by experts, cluestions relating to economic policy making are

directly dependent upon the perccptions and vision of the policy makers on

development and no policy making is done in a vacuum. It has to take into

account the cxisting socio-political realities of the country. In a democracy

policy makers are (or used to be) political personalities. They were

supposed to be medwomen of vision, of well thought out ideas about how

their countries should develop and also about the programme of action

required for achieving those goals. So economic policy making is basically

derived from the politics of policy making. Therefore, any study on

economic policy or planning regime will have to incorporate a political

economy perspective and hence the study undertaken in this thesis has

adopted a political-economy approach also.

I>e\clop~ncnt policies and models were discussed in depth and detail

even during the thick o f the national struggle for Indian independence. The

Indian National Congress constituted a Planning Corn~nittee in (1947) to

fonnulatc cconomic d~:velopment policies to be incorporated into the

agenda of nation building after attaining political independence. Gandhi, of

course, played a pioneering rolc in this endeavour also. He had laid down

his views on the structure and goals of the new India to be built following

the attainlncnt of' freedom. In the "Hind Swaraj or Indian Home Rule" he

gave a bluc print of the India of his dream. He believed that India had a

message lbr the world-the message of a nonviolent civilization that

facilitated the unobstructed working out and realization of spiritual goals

through ethically ordered and organised way of living. Gandhi thought that

it was the duty of independent India to demonstrate to the world that it is

possible to organise all aspects and departments of her national life in the

light of and in tune with the message of nonviolence. So he conceived of

an entirely new develop~nent model based on an entirely different set of

assulnptions and ethical principles (which will be discussed in some details

in chapter 6 ) which were opposed to the basic assu~nptions of mainstream

economics. (;andhi, in his de\,elopment model e~nphasised among other

things, scll~rcliance and self-sulticiency. swadeshi, liberation of the rural

poor from it11 forms of oppression and deprivation and participation of the

masses i n i~ation building. Ilc also described lieedo~n as poor inan's

Swaraj. He. therelixe. formulated an economic agenda suited to the

realization of the above targets and goals.

Jawaharlal Nehru, the first Prime Minister of India into whose hands

the steering u heel of the destiny of the nation was first entrusted, had an

entirely different vision of new India. He wanted to modernise India as fast

as possible and to catch up with the West in terms of economic

development. Industrialisation was, for him, the key to India's quick

transformation. '.lndustrialise or per ish was the economic slogan he put

forward. tle believed that industrialization of the Western type would serve

as a panacea for all the socio-economic ills of India. Like the Mahatma he

also wanted to wipe evely tear from every eye, to eradicate rural poverty,

ill health. illiteracy. inequalities and backwardness of every kind. He

wanted India to emerge as a strong, self-reliant and modern nation state,

equal to any of the most developed nation of the West. In his over

enthusiasm to moderni:ie India. he rejected the Gandhian model and

adopted the Western as he thought that the former was regressive and the

latter scientific and modern.'

Salient Features of the Nehru's Development Strategy

Nehru's model of development emerged as the driving force of the

strategy of development adopted in the mid-fifties at the time of

formulation of the Second Five Year Plan. This strategy has continued

right upto the eightics with a short interregnuin of about 2-3 years when

Janata Part) was in po\bcr during 1977-80. Nehruvian model was based on

long-term development strategy which accorded greater preference to the

long-term goals of development. rather than succumbing to the immediate

and short-term goals. The strategy, therefore ernphasised

(a) High rate of saving so as lo boost investment to a higher level

(b) It preferred a heavy industry bias to develop the industrial base of

the economy

(c) It opted for the protectionist path so as to safeguard infant industry.

(d) It encouraged import substitution so as to achieve self-reliance

(e) It aimed at enlargement of opportunities for the less privileged

sections of the society.

To achieve the objectiv~: of growth with social justice was thus the goal of

Nehru's model since it intended to foster a self-generating path of

develop~nent with an assurance to the conimon man that poverty,

unemployment. disease and ignorance will be removed so that individuals

could realise their potential with the extension of social and economic

opportunities. Since i t was thc credo of the fifties that market mechanism

could not bring about judicious allocation of resources to meet the

objective ot'growth with social justice. a much yeater role was assigned to

the State. The principal functions of the State in the economic sphere were

the development of economic and social infrastructure. The economic

infrastructure was concerned with enlargement of irrigation, power on

industrial development and irrigation for agricultural development. By

increasing social infrastructure in the form of education and health, the

State intended to develop skilled manpower so that it could provide the

necessary skills needed for the functioning of new industries. To

channelise investment into socially desired lines of production, the state

nationalised major banks. Thus in the Nehruvian model the State controlled

the commanding heights of the cconomy through the public sector.

In giving practical shapc to this vision of the economy after

independence. Nehru made some departures from the Gandhian notion of

self-reliance. One of these was with regard to decentralisation. He favoured

centralised planning as the route to rapid economic development and

modernisation.

K.N. Kaj. while speaking about the intellectual debate in the

Planning Commission in the early fifties, recalled that on the one hand,

persons like him were fully convinced that rapid agricultural development

and promotion of small scale industries, based on locally available raw

materials and catering to local market, were the only channels along with

income levels could be raised in the countryside and fuller employment

opportunities created for the ruri~l population. On the other hand, they were

also aware that a hard core of modern, technologically advanced industries

must be built in the country. not only to strengthen its defences and

itnprove its competitive position with other countries, but also to support

and sustain agricultural growth and rural development on a technologically

sound footing.'

Nehru's departure from the Gandhian views should not, however, be

lnisconstrued as an attempt to de-emphasisc self-rcliancc. Whilc Gandhi

e~nphasised self-reliance at the grassroots' level ensuring the participation

of the rural masses in the nation building process, Nehru placed greater

emphasis on autonomy at the national level, in the sense of the country

becoming self-reliant with regard to basic materials, be it food, steel or

technology. I t was in pursuit of this view of self-reliance that the

Nehruvian development strategy can be said to have deviated from

Gandhiji's vision. It is tr.ue that Nehru also attempted decentralisation but

whatever experimentation was attempted in the field of decentralization

was conspicuous by the absence of the essential democratic component,

and these cxperirnents were top-down and hence largely unsuccessful. The

Communit> 1)evelopment Programme, taken up as part of the planning

strategy. failed principally because it was a top-down exercise. with very

little democratic decision-making. In fact, very few local bodies involved

in the programme allowed to function without interference from above.3

Indeed economic decision-making became more centralised with

each succcssive Five Year Plan. Planning became an instrument for

concentrating powers in the hands of the union government vis-a vis the

states. At the same time, the latter took over whatever powers the local

bodies possessed at that time. In the process the economic system became

deeply bureaucratized. Controls and regulations introduced in the name of

optimal allocation of sciarce resources led to increasing centralisation,

widespread corruption and inefficiency.

As pointed out by Arjun Sengupta, in the formulation of his

development vision and strategy. Nehru was deeply influenced by the twin

legacy of the Indian national movement viz., independence (understood as

sovereignty) and evaluation of every programme in terms of how it would

benefit the poor. Right from the first phase of planning India had to depend

upon foreign capital or foreign aid.4 But Nehru did not allow foreign aid to

manipulate development policies or put pressure on the country. Of course

it was a political agenda. But Nehru's policy of import substitution

industrialisation is to be: understood against this policy perception of

~ e h r u . ~

A short commcnt on the main elertient of Nehru's development

paradigm-socialis~n-is in order at this juncture. For Nehru socialis~n did not

mean the statc ownership of all the means of production, as in the erstwhile

Soviet IJnion. Ifis emphasis was on social justice based on equity and

better income distribution and programmes accelerating economic growth

that would reduce disparities both econo~nic and social. So he saw a place

for the private sector also in the process along with the public sector. This

was what he meant by his mixed economy model. The "commanding

heights" approach adopted by Nehru is to be understood properly. What he

wanted was to use the: public sector enterprises to serve his over all

economic policy and guide the direction of the economy. Thus in the

Nehruvian model the role of the public enterprises was focussed as

instrument of planning lor rapid and guided industrialsiation."

In fact the expansion of the public sector extending to the major

sectors of the economy was the result of Indira Gandhi's policy decisions.

Shc abolished the privy purse system, which had no impact on the

economy. I3ut bank nationalisation had tremendous economic fall out. Its

economic impact in renns of raising the rate of savings. in terms of having

credit available to the poor, in terms of the effects on moneylenders who

exploited thc rural pool- werc almost phenomenal. There are analysts who

arguc that in nationalising those banks Indira Gandhi was swayed more by

political considerations than by economic results. It is not necessary here

to examine the merits of such arguments. Whatever be the motives, it was a

policy justified by economics results. Coal nationalisation also may be

cited as another example.

lndira Gandhi had to effect some fundamental policy shifts after she

came back to power again in 1980.' Economic growth had stagnated

percapita income in the last 30 years marked hardly one percent growth. It

was clear that without rapid economic growth the system could not

survive.' l'herc were also very strong political compulsions from within

the country and outside to go in for drastic policy changes. Reforming the

economy was a conlpelling priority for Indira Gandhi. So she initiated

reforms in thc economy on lines of liberalisation. But she was extremely

careful in the matter. She did not want to compromise on the question of

political sovereignty; she also did not want to give out an impression that

liberalisation was anti-poor. At the same time it was unavoidable that the

economy should be freed from the shackles that restrained its growth. So

she removed the binding constraints. The system of licensing was

liberalised. For an investment upto 100 crores, no license is required. So

the big investors-the large houses and the corporate giants-alone were kept

under the licensing system. Statistics show that the economy responded

well to these steps and there was substantial improvement in the rate of

growth. See the table 1 . I

Table 1.1

GDP Growth Hates at Factor Cost (1993-94 prices) ~

Year GDP Growth Rate

1981-82 -~

6.2

1982-83 ~p

2.8

1983-84 -~ ~p - ~

7.5

1984-85 --

4.7

1985-86 ~

4.6

1986-87 --

4.1

1987-88 3.4

Source: RBI, Hlr~~dhorook of Slati.stics on Indian E c o ~ ~ o n i ~ ~ (2000)

I t is i~nportant to ]note here that the economic policies were worked

out within the general perspective of the legacy of our national movement.

But the period of Rajiv Gandhi marked a drastic departure. He put great

emphasis on immediate iiberalisation. Political co~npulsions prompted him

to adopt populist policies. The result was that he could not control fiscal

deficit. I'hc high growth rate achieved during his tenure was offset by the

very high rate oT tiscal deficit. See the tables 1.2 and 1.3.

Table 1.2 Budget and Balance of Payments Indicators

~. . - (Rs. Crores)

1980-81 1990-91 Budget deficit

Revenuc account 1,175 18,580 Balance of payments deficit

On merchandise account 5,967 12,413* On current account 1,657 11,382*

Imports Total 12,549 43,190 capital goods 1,910 10,470

Exchange rate** Rs. Per 17s $ 7.9 17.95

Long-term external debt Total (US $ billion) 18.7 57.3

Note: *refers to 1989-90. ** Exchange rate refers to December end, for example, December 1980 for 1980-81.

Source: Ecunornic Survey 1 9S12-93, Government qf India

Table 1.3 Trends in Parameters of Deficit of Central Government

T G G ~ e f i c i t 1 Primary Deficit 1 Fiscal Deficit (As per cent of GDP)

1990-9 1 3.3 2.8 6.6

1999-2000 ,+--- ;:; 2000-200 1 * 2001-2002(~~)# . ~~

* Provisional arid unaudited as reported by Controller General of Accounts, Department of Expenditure. Ministry of' Finance. # The ratios to GDS at current market prices for 2001 - 2002 (HE) are based on CSO's Advance Estimates released in January, 2002

Note: I . Ratios to GDS at current market prices (Base: 1993-94) 2. The fiscal deficit excludes the transfer of States' share in the small savings

collections. Source: Ecorrornic Survey. var~ious issucs

0.7 0.8 0.2

5.4 5.5 5.1

The Crisis of 1990s

In I90 I lndia did face an economic c r i s i ~ . ~ The liberalisation which

India started in the mid-eighties was followed by a substantial increase in

short-tenn borrowings from global financial markets, particularly the Euro-

currency markets at higher colninercial rates of interest. During that period

official development assistance (ODA) flow had become minimal. The

increased shorr-tenn borrowings led to shorter repayment schedules which put

strains on India's foreign exchange (FOREX) balances. India was forced to

borrow more and this only aggravated the situation. In the global financial

market too the demand fix funds far exceeded supply and India had to

compete with other borrowers. Unfortunately, the ratings on the Indian

economy given out by the Standard and Poor and the Moodys sent wrong

signals that India is facing a solvency crisis. Even the NRI community for

inexplainable reasons were forced to accept these signals as true and started

heavy withdrawals of their funds. l 'he government of India at that time was

just like a ship without a captain and some even thought, without a compass.

The crisis was thus deepened. necessitating immediate action on crisis

management.

Ironically enough the deplorable state of Indian political economy was

atlributed to thc inward looking policy architectured by Nehru and followed

n~utnris i ~ ~ : i i ~ ~ t i , / i , s by successive go\c~m~ncnts of India and a drastic departure

from the Nehruvian policy was propounded as a sine qua non for salvaging

the economy from the deep mire of underdevelopment and backwardness.

Consequently the Government of India started introducing major and

hndamental economic reforms of far-reaching consequences optimized by the

term globalization following which India devalued the exchange rate,

abolished the licensing system for industry, reduced trade protectionism and

liberalised threign investment as desired and dictated by the GATT and the

WTO. The logic of the pro-reform or pro-globalization economists is simple

and direct, albeit questionable: eradication of poverty and generation of

employment is possible only if we achieve a high level of economic growth

(say, 5 to 7 percent, some even argue for a two digit growth) and this level of

economic growth can be achieved only by pursuing a bold strategy of

economic reforms that includes open markets, non-discrimination and global

competition in international trade. It means uniting the world in a common

market and a regime of ikee: trade. wor~dwide.'~

Suggested Economic Refbrms-an Overview

The IMF-WB package contained three sets of measures, namely

crisis management, medium term macro-economic stabilization, and long-

term structural ad.justment. The package also involved a predetermined

pattern of sequencing of remedial policy actions, yearly targets on major

economic fundamentals and constant monitoring. India being the sick

patient any change i l l the sequencing was at India's own risk, the IMF-

World Bank would have no responsibility in the matter.

The crisis management measures included sale of gold, gold swap

for foreign currencies, exchange rate corrections, hike in bank rate, bridge

loans, appeal to NRIs not to aggravate the crisis and starting of a dialogue

with the IMF-World Iilank group. The medium term macro-economic

stabilization was expected to last five years-1991-96. During this period

India was to cut the size of the government, the level of non-plan

expenditure and also thc fiscal deficit. The target for fiscal deficit was to

cut it froin the high of8.3 percentage of GDP in 1991 to a low of 5 per cent

by 1996. Thc other ~nediurn term stabilization measures included in the

package were ( i ) reduction in the rate of growth of money supply (M3) and

consequently the inflation rate to single digit level, (ii) sift from a regime of

ad~ninistcrcd prices to a regime of free-market prices or at least market

determined prices for commodities and services (iii) reduction in current

account deficit and bringing back balance of payments (BOP) viability.

The third component namely the structural adjustment progralnlne

(SAP) meant to do away with controls on capacity creation, production and

prices. and let rnarkct forces influence the investment and operational

decisions 01' domcstic and li)rci_en econo~nic agents within the domestic

tariff area. lo allow competition and therefore international relative prices

to influence the decisions of thcse agents, to reduce the presence of state

agencies in production and trade. except in areas where market failure

necessitates state entry, and to liberalize the financial sector by reducing

controls on the banking system. allowing for the proliferation of financial

institutions and ins t ru~~~ents and permitting foreign entry into the financial

sector. These were based on the notion that greater freedom given to

private agents and market functioning would ensure more efficient and

Inore dynamic outcomes. Obviously, these aims had particular policy

implications in the different sectors. There was general understanding that

as per the original pattern of sequencing, India would start implementing

the long term structural adjustment measures only after the Indian economy

is adequately stabilized. But unfortunately what happened was that even

before the macro-economic stabilization was achieved, India started

implementing long term structural adjustment measures in such critical

areas like industrial policy, tradc policy, financial sector reforms and fiscal

policy. 'Phc negative consequences of these changes in the pattern of

sequencing have become manifestly clear today.

The Present Predicament

l'hc NEP has also not produced the expected results. When the policy

was initiated in 1991. the then finance Minister stated in Indian Parliament

that within 2 to 3 years Indian 1;conomy will make tremendous progress and

able to solve the basic problems. But the experience of the past 12 years

proved him wrong. See the table 1.4 of macro-econotnic indicators

Table 1.4

Trends of Major Macroeconomic Indicators: 1990-91-2001-02

Source : E L . O ~ ~ ( I I I I I C , S I I I . ~ , C , I , , ,L~;~I; . sII . I~ o ~ ' F ; ~ ~ ~ I I ~ ~ ~ 2()()/.2()()2

Thousands of snlall' units have closed down. Multinationals have

pushed O L I ~ the indigenous companies from certain fields. They in turn have

pushed out cobblers, blacksmiths or weavers in villages. The very

subsistence of' hnners is in danger because they must switch over to new

crops for foodgrains have a limited outlet. Subsidies are vanishing for them

while their Ikropean counterparts continue to enjoy them.

Note what Joscph E. Stigliz., ex-World Bank Chief economist, says

'IMF push for capital market liberalization for all nations was driven by

financial market ideology, IMF has conceded defeat, but only after the

damage was done'." Out of the three limbs of the Washington consensus,

two that is short term capital and free trade. have already become

unpopular. With the collapse of the Mexican and the South East Asian

economies. which revealed in short terms funds, the idea of short term

funds is a dirty one now. evt:n evil

Even abo~it free trade, that is free marketl no one is sure now that it

is a remedy. "'The view that the developing nations must quickly lower

import barriers, and slash state's role in industry is being challenged." The

research findings of Dani Rodrik. a Harvard University Economist suggest

that there is no automatic linlc betwecn openness and growth in developing

nations.

The alnbitious Multilateral Agreement on Investment, which would

have meant that any one could invest without restrictions in any country,

has fizzled out. And equally ambitious 'millennium round negotiations' at

the WTO have not fallen through.

Aticr the discredited currency market liberalisation and the

suspected tast-track tLee trade, what remains in the globalization baggage is

Foreign Direct Investment. This is not an issue totally unconnected with

the other two. Foreign Direct lnvestment (FDI) is commended partly to

fund trade deficit, a part of i t liberalized trade. At least for India the oft-

repeated logic for foreign investment is the difficulty in the foreign

exchange front.

As a result of free trade, and more particularly allowing short term

investment in stock market, a country is forced to maintain a high level of

foreign exchange reserves to pay for the imports and also partly to defend

its currency threatened by risk of short-term capital flight. The effect is that

a country ends up investing more in foreign countries than what the foreign

countries invest in their country. For example, China has kept its foreign

exchange reserves invested in IJS dollar securities and that is more than

double the amount of American investment in China. This is equally true

of India. 'l'he Forcign Ilirect lnvestment ( F D I ) ' ~ in lndia till now is about

$15.3 billion. whilc tlie amount of Indian Inicstment in US securities is

over 32 billions.

Who invests more the US in India, or India in the US? The figures

speak for themselves. 4nd yet recent history has established that however

high the foreign exchange reserves are, it cannot defend a currency in a

liberalised currency market.

1,ook at what happened to the role models- the countries the Fund-

Bank combine highlighted to other countries, namely Argentina, Brazil,

Mexico. Indonesia, Korea and Malaysia. They are in deep trouble. They

were following the prescriptions of the Fund-Bank combine to tide over

their financial crisis. I'he IMF and the World Bank have even stopped

mentioning the names 0 1 these countries. Even though the Fund-Bank

combine released the funds thcy demanded, they couldn't put the

economies of these countries in order. The crisis in these countries acted

as a shock and now the protagonists of unbridled cornpetition have started

speaking about giving a hurnan facc to econornic refortns.

But today the situation is different. even in the heartland of

glohalization. the west. tiven the World Bank has accepted in its Report for

the year 2000 that glohalization would meet with stiff resistance froin

localization. ( h e of' thc p a t e s t operators and beneficiaries of the free

market, George Soros, has condemned globalization as market

fundamentalism. A serious discussion on globalisation has begun: the

recent events have helped to kick start a profound rethinking among

governments, nlainstrearn economists, and corporations. Thus in less than a

decade after its advent, even its most ardent supporters abroad find it

difficult to defend whole-heartedly, this idea now. The notion of there is

no alternative-TINA-is rejected by a number of peoples movements

worldwide. Instead of TINA people suggested many alternatives to

capitalism and globalisation; they say: bring in new alternatives-BINA-

and there are thousands of alternatives-TATA.

The lesson is obvious for India. Rabindranath Tagore said "God has

addressed a distinct set of questions to each nation. No nation can answer

its questions by copying the answer papers of others. What the IMF and

World Bank. the IJS and its intellectual counterparts in India have been

doing is to copy the suggested answers of the West for the questions

confronting India. The world has no model for India. It may be said that by

refusing to accept a model, one should build a model for oneself to be a

model. As Gandhi suggested India can become a model for the world. It is

at this point that the search for an alternative model become an imperative.

'This is the background against which the present study is made.

Hypothesis

I'he assumption on which the study proceeds is that the development

policies thllowed by the successive governments in independent India were

defective mainly because they did not incorporate Gandhian perspectives

and construct a develop~nent policy based on Gandhian views on

development.

Objectives

1. To examine the policies of development followed by successive

governments of India, including the New economic policy

2. To analyse the policy content of the development policies in general

and the new economic policies in particular.

3. To assess the impact of new economic polices on the agricultural

sector of Kerala.

4. To attempt an evaluation of these policies in the light of Gandhian

model of development.

Methodology

In the study both analytical and descriptive methods are followed.

The analytical part is based on both primary and secondary data. The study

relies more on the secondary data. The secondary data are collected from

various sources

For collecting prirnary data a questionnaire is prepared. Data is

collected from different sections of the people of Kerala. The data collected

are analyscd electronically by using statistical techniques. Graphs and

diagrams are shown fbr greater clarity. Conclusions are arrived at on the

basis of these analysis.

Chapterisation

The thesis is divided into seven chapters. The first chapter mainly

covers a general survey of the policy regime to serve as a background for

the study. Also other technical details of the study are given. The second

chapter tries to give an overview of the state of the Indian economy during

the British empire. This again, is to show the historical continuity of the

process of colonisation though operating differently at different periods.

The third chapter examines in some detail the development policies of

government of India since independence. In chapter four a brief account of

the new economic policy initiated in India since 1991 is given. Chapter

five focuses on the impact of the new econo~nic policy made on Indian

economy especially in the agriculture sector. It also gives the result of the

survey conducted to study thc response of the people about the new

econo~nic policy. In Chapter 6 an attempt is made to critique the new

econo~nic policy from a Gandhian perspective. An outline of the Gandhian

developmen1 model is given here. Chapter 7 presents conclusions and

recommendations of the study.

Conclusion

Now, the admitted collapse of the Nehruvian model in India, and the

collapse of thc colntnunist ideology all over the world seem to have offered

what might appear to be an easy alternative in capitalism or free market as

the only way l'he Westemised Indian elite has already welcomed the idea

of globalisation as the only remedy for India's multidimensional problems.

The debate is made too simple: 'If socialism falls, capitalism must

succeed'.

But the ~nultidimensional crisis that the nation has accutnulated over

decades cannot be resolved by debating the relative merits of socialism and

free market ideas. A thorough inward looking exercise, an audit of our five

decade experiment with the western model, is called for.

During the freedom struggle Mahatma Gandhi had highlighted the

importance of promoting agricultural and allied activities like cottage and

village industries for the emancipation of the rural population of our country.

He emphasised the integration of agriculture and industry. Gandhi had

reminded the other leaders a number of times that "India lives in her villages"

and that by neglecting the villages India could not make any progress. Along

with the political struggle Gandhiji had launched a comprehensive

programme known as the Constructive Programmes for the economic

upliftment of the rural people of our country. To hiin the focus of

development is to provide the basic needs to all people.

Gandhiji emphasised a self-reliant and village based economy. In

the Gandhian economic system, the production system should be based on

the ideal of progressive and regulated minimization of needs and not on

that of multiplication of wants. The economy should be life-centered. This

means that the socio-economic system should operate on the ethico-

economic principle of optimum and not on the principle of maximization.

Consequently it is to be ;I non-exploitative and sustainable economy based

on simple and limited technology. Social and economic organisation

should be decentralised based on the principle of optimum autonomy and

trusteeship.

Unless the spiril. of swadeshi or self-reliance is revived, the

traditional Indian econorny might exist for some more time without being

heard and finally recede into oblivion over a period. This would spell

doom for thc rural poor, the economically and socially, backward classes

and also for the oppressed and the marginalised sections. But the present

developments in India positively call for the revival of the swadeshi spirit.

Swadeshi is no1 a chauvinistic thought. It is really an alternative

economic philosophy, idea. having global significance. The Gandhian

approach to development is based on an austere life that avoids over-

exploitation of high energy sources and over-burdening of the environment.

It advocates a largely local living with controlled trans-country commerce

and transport After the energy crisis, and environmental findings,

swadeshi is relevant as ;I global alternative. Does it mean that swadeshi

rejects large-scale industry totally? No. Even Gandhiji was only against

industrialism that uproots rural life and not against industrialization that

subserves, and not subordinates, the traditional economy. What is needed is

an ever expanding ant1 never ascending oceanic or concentric/circle of self-

sufficient and self-reliant face to face communities. The national lifestyle has

to be oriented to preserve the ethos of the nation and not just to be lifeless

imitations of others.

References and Notes

I 1. D. Sethi. /ndian Eccinorny U?rde/o. Siege, p.23

Quoted by IS Gulati in liis article New Economic Policy and Self Reliance in Econornic Developrrrent und Que.~r,for Alternatil~es, p. 14 1

' Quoted hy IS Gulati in in his article New Economic Policy and Self Reliance in Econotnrc Developmenl and Questfir A/ter?ratives, p. 142

4 At that time foreign capital meant foreign aid-see Arjun Sengupta-ibid-p. 124 s For a detailed dimension of this see ihid-pp. 125- 127 " lhid 7 Availed 1M.F. Loan and Started [he Process o f Liberalisation of the Economy X 1.M.I . ~~rsisted a number of co~iditio~is Tor releasing funds to Government of India

In 1985, the World Bank initiated and in-depth research (the cost o f which was about

$25 million) on India s industrial and trade policy directed by Robert. J. Anderson

and Garry Pursell. This research effort generated 10 confidential reports, 2 research

reports by Garry Pursell, 4 working papers, 2 major World Bank reports and many

small confidential in-house research papers that fed into the Anderson

Memorandum, see World Bank ( 1990)

On the whole. the picture! is not satisfactory. The record o f growth rate i s not as

expected. While the share o f government consumption remained the same even after

economic rrlbrms werc initiated, private consumption showed a decline from 7.3%

in 1980 to 6.8% in 1995. Though GDS increased from 17 to 22%, GDI increased

from 11.7% of GDP i t t 1980 to 14.2% in 1995, capital expenditure increased only

from 1.6% to 1.8% during the same period. This suggests that the size o f the

government did not shrink to any extent. The increase in external debt looks

dangerous. I t increased from 20.58 billion dollars in 1980 to 93.76 billion dollars in

1995, an increase o f more than 4 times in just 15 years. External debt expressed as a

percentage of GNP and also of exports showed substantial increase. The debt service

ratio which was 9.3% in 1080 increased to 27.9% in 1995.

The distribution o f Government expenditure shows that except interest payments

which increased liotn 17.1% in 1981-90 to 25.6% in 1991-95, al l other items like

goods and services, wages and salaries, and capital expenditure shows a major

decline. In spite ofecortontic reforms which required a big scaling down o f subsides,

the decline in the item is marginal from 42.6% to 40.1%.

Another disturbing fictor in the econotnic fundamentals i s the significant

increase in the net pri\:ate capital inflow from 868 mill ion dollars in 1985 to 3592

mill ion dollars with the warning that India's commitment on repayment liabilities i s

going to be huge in the future. Concessionary aid as percentage o f GNP also

declined fiom 1.3% in 1985 to 0.8% in 1995.

'O M.P. Mathai - Re.votd (7lobalizution: A Gandhinn Perspective in : Spirirunlity of Cotnmoti I.z~ture, p 147-1 56

I I Joseph E. Stiglitz. (;lohulisation utld its Disconrents, p.69

" World [Ievelopment Rcport-200 1