Post-1991 Liberalization Polices and Programmes and Impacts on the Reduction of Regional Disparity in India, Interdisciplinary National Seminar on Inclusive Growth and Development: A Social Science Perspective, Jointly organised by the Departments of Labour Welfare, Political Science and Sociology, Gujarat University, Ahmedabad, Friday, 26 February 2010
It is an honour for me to address you at the inaugural session of the Interdisciplinary National Seminar on Inclusive Growth and Development, jointly organised by the Departments of Labour Welfare, Political Science and Sociology of the Gujarat University. I would like to thank you for inviting me here and would like to share my thoughts on the impact of post 1991 policies and its contribution in reducing regional disparities in India and whether liberalization is a panacea for the regional disparities in the country.
Friends, if a village of Gujarat can boast of having millionaires, where do you see the urban -rural disparity? India is a vast plural country, full of diversities of religions, castes, languages, tribes, culture etc. India demographically speaking, is the second largest country after China and socially and culturally the most diverse in the world. Fragmented into different regions, its inhabitants have an emotional attachment to its region owing to commonality of religion, language, usages and custom. This sense of commonality somewhere influences the sense of discrimination or competition on economic, political or cultural grounds and desire for justice leads to rise of regionalism. By regional disparities, we may mean the wide differences in per capita income, literacy rates, availability of health and education services and levels of industrialization, etc.
As often being thought, the two main causes for regional disparities are dating from colonial times and as we know on the eve of independence, a newly born nation was left alone to tackle this problem. Secondly, deprivation of neglected state is not the only cause but sectoral imbalances in states like lack of industrial development along with agricultural development are the main causes behind regionalism. Above mentioned situation is enough to show the need of balanced regional development which had become the declared goal of Central Government and of its two principal agencies, namely, the Planning Commission and the Finance Commission. One of the objectives of Planning Commission has been to balance between different areas and regions. However these institutions work within overall socio-economic infrastructure of the country and the developing political process. Since 1991, with the introduction of liberalisation policy, efforts have been made to see that policies are percolated to the grassroot level and benefits are ripen by all the regions of India. Various policies have been adopted, prominent among others are, deregulating Indian industry; allowing the industry freedom and flexibility in responding to market forces and providing a policy regime that facilitates and fosters growth of Indian industry; liberalisation of industrial licensing policy; introduction of industrial entrepreneurs memorandum; liberalisation of the location policy; policy for small scale industries; scheme to attract NRI fundings and extension of some concessions especially for NRIs and overseas corporate bodies having more than 60% stake by the NRIs; electronic Hardware Technology Park (EHTP)/Software Technology Park (STP) scheme, etc.
The above liberalization policies have been aiming to ensure an all inclusive growth along with the theme of an all round development which is also one of the core concern in the vocation of education. I head the Gujarat National Law University where students hail from umpteen different backgrounds, socio-cultural backgrounds and cultural lives. They have to be integrated, assimilated and amalgamated in the core ethos of our National Law University otherwise they will not become efficient servers of the society and this is all the more important in the context of the theme of development which is related to liberalism. India marched ahead with its norm of development and the practice of “a true cosmopolitan pattern of life and sustenance” as a consequence of the development of the liberalization being implemented in the Indian scenario and my students too need to take a leaf out of these currents of globalization and convergence. We as academicians need to take this august opportunity to weld together our expertise and knowledge for advancing the concern of development and from a nationalist perspective.
Otherwise, in my classes, South Indians would be eating and talking “Uttapam” and “Sambhar” in one corner of the class and the students from Gujarat will be hailing the Mahatma and eating “Dhokla” and eating away into the culture of a conjoined educational culture in my University. Let us look into the theme of liberalization and how it has impacted the developmental pattern in India since 1991.
Economic Liberalization can be best comprehended as a development which has been initiated by the LPG (Liberalization, Privatization and Globalization) policies ushered in the Indian socio-economic firmament by Prime Minister Dr Manmohan Singh in the twilight years of the Indian heydays in the early part of the decade of the nineties. “Globalization” or “Convergence,” as it is termed as happens to the ruling decree of the day, thus entailing a neo-paradigm for the Indian nation state. China enjoys a lead of around 11 years as they opened up under Deng Xioping, in the year 1979. As Robert Keohane, an eminent International Relations expert has contended that regimes founded in the regions of the world polity happen to be the order of the day where-in, functionalism and integrative trends seem to be the panacea for the developing nation states of the world. The history suggests that India is no exception to the rule. Since the dissolution of the License-Quota-Permit Raj and the initiation of the single –window clearance theme attached to the policy makers of the Indian power corridors, the development pattern in India has been augmented by India by leaps and bounds. Still, one can delve inside the history of development as witnessed during the British times.
Regionalism happens to be a kind of fly in the ointment in the firming up of a national character in the Indian domain. Regional sentiments of the order of the “son of the soil framework” along with the notion of the creation of a separate statehood is argued as lending a truncated line to the Indian socio-economic and political rubric in a post-liberalization polity. In the words of an eminent scholar on nationalism and patriotic concerns, Benedict Anderson, “In an anthropological spirit, then, I propose, the following definition of the nation: it is an imagined political community, and imagined as both inherently limited and sovereign.
Whether regionalism is a threat to the rubric of the Nation?
Before we go into the concerns of regional disparities, the all important challenge of regionalism has to be pertinently explained. The formation of states along linguistic and ethnic lines has occurred in India in numerous instances since independence in 1947. There have been demands, however, to form units within states based not only along linguistic, ethnic, and religious lines but also, in some cases, on a feeling of the distinctness of a geographical region and its culture and economic interests. It is believed by some officials that conceding regional autonomy is less arduous and takes less time and fewer resources than does meeting agitation, violence, and demands for concessions.
It is also argued that regional disparities yield to a kind of augmentation of the concerns of alienation and marginalization in the resource-rich but neglected hinter-provinces of India. Still, this attendant regional paucity and a clearly discernible want of equity based resource allocation, and a want of transparency and allocation of resources augurs well for the regional satraps and the insurgents to clamor for a futuristic independent and autonomous stations, in and outside the Indian Union. This is one tendency in my opinion which needs to be tackled and can be successfully dealt with the mechanism of fast paced development and liberalization of both the economy and the polity without running the risk of being tagged as Neo-Colonialists.
In the analysis which emerges from the study of a Planning Commission Report, the following themes emerge: “…disparities in economic and social development across the regions and intra- regional disparities among different segments of the society have been the major planks for adopting planning process in India since independence. Apart from massive investments in backward regions, various public policies directed at encouraging private investments in such regions have been pursued during the first three decades of planned development...” The Report further quotes that, “…while efforts to reduce regional disparities were not lacking, achievements were not often commensurate with these efforts. Considerable level of regional disparities remained at the end of the Seventies. The accelerated economic growth since the early 1980s appears to have aggravated regional disparities. The on-going economic reforms since 1991 with stabilisation and deregulation policies as their central pieces seem to have further widened the regional disparities. The seriousness of the emerging acute regional imbalances has not yet received the public attention it deserves...”
Most of the studies on inter-country and inter-regional differences in levels of living and income are done within the theoretical framework of neoclassical growth models. These models, under plausible assumptions demonstrate convergence of incomes. Three notable recent studies however, indicate that in the Indian context these convergence theories do not explain the ground realities. The scope of analysis in this section is restricted to a comparative analysis of the emerging trends in fifteen major states in respect of a few key parameters which have an intrinsic bearing on social and economic development. The variables chosen by certain scholars for examination include those which have a bearing on gender and equity issues. 15 states together account for 95.5% of the population of India. The remaining 4.5% of the population is spread out in 10 smaller states and seven Union Territories including the national capital territory of Delhi. Leaving out these States and Union Territories from detailed study is mainly due to non-availability of all relevant data and also to keep the data sets analytically and logistically manageable. The fifteen States taken up for the detailed study have been grouped into two - a forward group and a backward group. The forward group consists of Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab and Tamil Nadu. The backward group comprises of Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. Thus, there are regional disparities in the way development has occurred in India, going by these authentic governmental estimates.
While the above analysis is one side of the story, let me now make an attempt to look within each important economic indicator or parameter and try to appreciate the positive trends that are also very visible in NSS data. These are emerging but concrete trends, which conclusively indicate the reducing regional disparities, post 1991.
The above picture suggests rightfully that India represents a picture of extreme regional variations. This has been the concern of policy makers and the 11th plan (2007-12) advocates inclusive growth, as we know, as a tool to minimize these regional disparities. Though the parameters of inclusive growth are very wide I am restricting my discussion on selected elements indicating inclusive growth in terms of their trends. Inclusive growth to my mind revolves around the following important economic indicators.
- Poverty reduction.
- Agriculture performance
- Increasing Rural Employment.
- Increasing urban - rural developmental linkages.
- Financial Inclusion
Estimates on poverty indicate a decreasing trend as given in the government census records.
- Income poverty has declined from 55% in the early 1970s to 28% in 2004-05 and in particular from 36% in 1993-94 to 21% in 2008-09.
- In terms of absolute number, the number of poor reduced from 320 million in 1993-94 to 300 million in 2008-09.
Although there has been progress in the decline in absolute number the fact that 300 million in India remain below the poverty line is a matter of grave concern. Further the concentration of poverty in the few backward states suggests the monumental task ahead in terms of further reducing regional disparities. Having said that it is equally important to take serious note of the fact that India attained the poverty reduction as a response to the policies adopted for poverty alleviation. The direct approach in terms of providing safety nets and anti-poverty programs in terms of self-employment programmes, wage employment programs, food subsidies, old age and maternity benefits etc need special mention The public distribution system along with National Rural Employment Guarantee Scheme are few programmes that hold the dynamism to transform the face of India.
Concerns in agriculture remain in terms of deceleration in growth from 3.5% during 1981-97 to 2% during 1997-2008 and its widest implications in terms of rising rural distress, farmer suicides etc. Yet agriculture dynamism in terms of 4% growth in agriculture in the last three years and record food grain production in recent years, exports in cotton, rice and sugar need to be paid adequate attention and given their place of achievement. It is worth mentioning that the New Agricultural Policy echoed around creation of favourable economic environment for promoting farm investments through (i) removal of distortions in the incentives (ii) improving in terms of trade with manufacturing (iii) external and domestic markets. Emphasis has also been made for location specific and economically viable improved varieties of agricultural and horticultural corps, live species and aquaculture. Need was felt to have regionalisation of agricultural research based on identified agro climate zones. National agricultural research system has a very wide network of research and technology and it has its research institute at every agro ecological pocket. Similarly reports of Indian Council of Agricultural Research and State agricultural Universities are flowed with achievements in terms of new varieties in almost all the regions. Thus in terms of agriculture an attempt has been made to curb out regional disparities. This attempt was extended to industrial development also.
Revolution in cotton production rates during 2003-04 to 2007-08 (averaging 20%) is a success story. Cotton production has doubled in six years implying higher rural income and trends in reducing the rural-urban divide. Lagging regions are showing relatively high growth in agriculture, which surely is an indicator of reducing regional inequalities post 1991 policy.
Gujarat’s performance in agriculture merits special mention here. It could be an eye opener for those who hold the post 1991 policies responsible for all ills. Semi–arid Gujarat has achieved a steady rate of growth of 9.6% per year in its agricultural state domestic product (SDP) (Gulati et al 2009). This is in contrast to the growth rate of 2.9% per year in the national GDP from agriculture. The main sources of Gujarat’s agricultural growth have been the massive boom in cotton production, growth in the high value sector comprising livestock, fruits and vegetables and the rise in wheat production.
When we take a look at what drove the agricultural growth rate in Gujarat, we find much of it attributable to the same policies of privatisation and liberalisation that are being held responsible for the falling performance in the agriculture sector at the national level. Improved market access, technical support, extension and credit, canal irrigation, management of groundwater, development of road and other infrastructure in terms of the private public model are the factors which explain the success story.
In the lighter vein much criticism is aimed at the food grain surplus at Food Corporation of India in terms of bad food management and distribution network but the same can be seen as indices of comfortable buffer stocks. After all India does have competent people at the right places who know their jobs and are asking us to take a break from endless criticism.
Increasing Rural-urban developmental linkages
Rural poverty measures have historically been higher than urban ones, but as India’s population has urbanized, we have seen falling rural poverty measures, and a rising share of the poor living in urban areas. Prior to the reform period, urban economic growth helped reduce urban poverty but brought little benefit to the rural poor. Studies undertaken by Kotwal et al 2009 show stronger evidence of a positive feedback effect from urban economic growth to rural poverty reduction is found in post 1991 data. This is happening through improvements in the rural employment distribution, in terms of sectors of India’s urban economy that use unskilled labour more intensively. Trade, construction and the unorganised manufacturing sectors have seen higher employment growth in the post reform period than the prior period.
Increasing Rural Employment and significant impact on Female labour participation
The Labour Force participation (LFP) and work participation rates (WPR) in rural India have increased which are important indicators of the increasing employment in rural India. The Labour Force Participation (LFP) in case of rural male has increased from 540 in 1983 to 546 in 2004-05 (NSS Reports on employment in India). The Work Participation Rates (WPR) has increased from 528 in 1983 to 535 in 2004-05 in case of rural male.
In case of females the LFP increased from 237 in 1993 to 249 in 2004-05, and WPR increased from 234 in 1995 to 242 in 2004-05. There is a clear indication of increasing female participation in the rural work force which indicates a bridging of the rural male- female labour participation as well as the urban- rural female labour participation divide, both important indicators of reducing regional disparities.
An analysis of the industrial composition of rural workers shows that the inertia among the rural male workers against inter-sectoral mobility is decreasing. The rural non farm sector (RNFS) employment share among males increased from 23% in 1983 to 34% in 2005. This RNFS spread is most visible within the manufacturing sector, construction sector, trade, hotel and restaurant, transport, storage and communication (NSS reports) once again indicating higher levels of rural employment.
With the onset of economic reforms in the beginning of the 1990s, a strong and resilient financial sector was considered necessary for accelerating the growth momentum in the country and also for expanding the coverage of financial services in a sustainable manner. Accordingly, the financial sector reform process placed more emphasis on creating a strong, vibrant and competitive banking system. An important step to bring financially excluded people within the fold of formal financial sector was the promotion of micro-finance in India. The Self-Help-Group (SHG)-bank linkage programme was launched by NABARD in 1992, with policy support from the Reserve Bank of India to facilitate collective decision-making by the poor and provide ‘door step’ banking. Banks, as wholesalers of credit, were to provide the resources, while the NGOs were to act as agencies to organise the poor, build their capacities and facilitate the process of empowering them.
Rural credit co-operatives in India were envisaged as a mechanism for pooling the resources of people with small means and providing them with access to different financial services. The short-term rural co-operative credit structure (STCCS) provides mainly short-term credit and other financial services, which are of particular relevance from the point of view of financial inclusion. At end-March 2006, the three-tier STCCS consisted of nearly 106,400 PACS (Primary Agricultural Cooperative society) at the village level, 370 district central co-operative banks (DCCBs) at the district level with 12,991 branches and 30 state co-operative banks at the State level with 962 branches. One PACS on an average, serves 6 villages. With a total membership of more than 125 million rural people, PACS is possibly one of the largest rural financial systems in the world. The number of borrowing members increased significantly between 1994 and 2008 (RBI reports).
To conclude, I would like to assert that being in the profession of education and legal learning, while the development of depressed regions is a national responsibility, the solution mainly rests with the local leadership in a fast paced urban revolution which is occurring in the urban landscape. Unless the local leadership—political, bureaucratic and intellectual—resolve to usher in development based on sharing the gains on egalitarian basis with the masses, results will be hard to come by. Resources are not the real constraint. It is the way resources are spent. Large sums are spent on education and health care in the backward States. But the results are not there. As someone said to me very recently, this happens because, for example, the teachers and medical personnel who are expected to provide the requisite services draw their salaries but provide poor services or no services. Unless this kind of work culture in public services changes, funds alone will not solve the problems.
Secondly, with divergent trends in various sectors of development, there emerges a resistance to vertical and horizontal fund transfers to the backward regions by forward regions. Immediately after the report of the 11th Finance Commission, there was an uproar from the so-called ‘performing States’ against increased tax revenue devolution to the backward States. This egalitarian approach does not work towards the progress of the performance culture though our depressed brethren are in an hour of developmental need. One of the main arguments was that non-performing states are rewarded for their non-performance. It is imperative that Centre and the leadership of the backward States should evolve institutional arrangements to ensure that funds transferred result in the best use in terms of development. It is heartening to see all the attempts which have been made to mitigate the regional disparities for overall development. Only with the balance development of region the spirit of National Integration can hold its ground. Our national integration does not mean unity of language, ideology or religion. It is as we have proclaimed many times, Unity in Diversity. The real basis of national integration should be widely share goals and values, commitment to what for want of a better word we call Indians without sacrificing the identity of sub-cultures.
Finally, I wish to say that the trickle down effects of growth as a result of the 1991 reforms is taking place which is getting reflected in reducing regional disparities. Since it is my honour to be amidst stalwarts of the academia, I would personally request more research to be undertaken in areas showing positive results (the Gujarat agriculture model for instance) so that policy recommendations can be made at a national level and further reductions in regional disparities can be attained. I also need to emphasize the fact that much remains to be done with regard to enabling the backward regions to come at par with the advanced regions and all of that can be achieved within the reform framework.
Thank you for your kind attention.
Bimal N. Patel
Dadabhai Naoraji was the first one to make an attempt to estimate national and per capita income in India. In India, the Manchester economy was being implemented where-in, one can take a humorous and romantic take on the theme and say that in Kalidas’s, epic work, Kumar Sambhavam, he went on to compare the condition of the Indian economy with that of a Cloud which arrive in the rainy season to quench the thirst of the people and the lonely heroine who is feeling isolated as her partner has left her to a foreign land. If the Clouds are to be utilized for a heavy rain in one single moment then they will go empty and the dry earth will be devoid of its rain and no comfort will come to the love starved heroine, but we, the Indians need a consistent rainfall and development so a killing of the clouds or the Chicken will lead to a permanent lack of development, love in the sense of the heroine and rainfall for the nation, that was just a humorous aside. He placed per capita income of India at Rs.30 in 1870 compared to that of England of Rs.450. However, since necessities in India cost only about one-third as compared to England at that time, the real difference in terms of purchasing power parity was not fifteen times but only five times. The statistical reporter of the ‘Indian Economist’ ran a series of articles on the standard of living in India in 1870. One of the items which was given region wise was value of per capita agricultural output for 1868-69. According to the same estimate, it varied from Rs.21.7 in Central Province to as low as Rs.11.1 in Madras. Others were Bombay (Rs.20.0), United Provinces (Rs.12.1), Punjab (Rs.17.4) and Bengal, including Bihar and Orissa (Rs.15.9). The Cambridge Economic History of India, vol. I and II, Dharma Kumar and Tapan Ray Chaudhri, Orient Longman, Third Edition (1991).
A differential investment limit has been adopted for 41 reserved items. The investment limit is up to five crores are prescribed for qualifying as a small scale unit.