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“Everyone is talking the talk, but not everyone is walking the walk,” stated Montek Singh Ahluwalia, in the closing remarks of his talk “Globalization and Indian Economy.” He addressed the topic of how India has managed globalization in the 90s at the Center for South Asian Studies, in September 2003.
Montek Singh Ahluwalia is the Director of the newly established Independent Evaluation Office of the International Monetary Fund. Prior to that, he served in the government of India for over 22 years between 1979 and 2001 in various capacities. He was closely involved in the design and implementation of India‘s economic reforms in the 1990s.
Mr. Ahluwalia suggested that most people in India now agree on India‘s greater participation in the global economy, but more needs to be done to achieve that objective. Even so, there have been significant changes made, especially compared to the 80s, when there was much talk of liberalization, but no action. Before the 1990s, India‘s economic model was dominated by a large public sector, which favored protections for domestic industry. There was distrust of the private sector and suspicion of foreign investment, with extremely high taxation levels on imported goods and a difficult business environment for foreign business interests. However, a balance of payment crisis in 1991 pushed India to seek loans from the IMF and liberalize the economy. Mr. Ahluwalia stressed that this economic liberalization led to a rapid paradigmatic shift that significantly reduced suspicion of the private sector. In the 90‘s people had begun to believe unambiguously that a successful private sector is a pre-requisite for a successful economy.
The Beginnings in the 90s
The liberalization of the Indian economy in the 90s began in what Mr. Ahluwalia termed the ‘gradualist‘ way. There was no vigorous ideological commitment towards the change in economic structure. Narasimha Rao, then prime minister of India, adopted what he called the ‘middle-path‘. Mr. Ahluwalia commented that this middle path was, in fact, more of a muddle path. The government indicated a broad direction of reform, but did not specify the pace or the extent of change. This had its advantages in minimizing political opposition and political risk. The disadvantages have been that the pace of growth was slower than what many had predicted. Nonetheless, an average growth rate of 5.6 percent through 2001 demonstrated the overall success of the new economic program.
An Assessment of the Changes in the 90s
Has gradualism worked? Has gradualism brought about a change? Has India benefited? Have the benefits been equally distributed across Indian states? These were some of the audience questions addressed by Mr. Ahluwalia.
Mr. Ahluwalia argued that India has undoubtedly benefited from the 90s reforms. His argument was substantiated by two major facts: the reduction of Indian poverty rates in the 90s and India‘s ranking second next to China, in a comparison of growth rates for large developing countries.
On the issue of inter-state growth rate, Mr. Ahluwalia sought to clarify the notion that richer states have become richer and the poorer states have become poorer. While acknowledging that two states, Uttar Pradesh and Bihar, which were already quite low in their growth rankings, have done even worse. But the richest states, Punjab and Haryana, have gone down to a middle ranking, while formerly middle-ranked states like Madhya Pradesh, states in South India and Rajasthan have risen in the growth rankings. The dramatic changes in these latter states have been largely due to the reduced role of governmental control. Private investment has led the growth, with state government ministers limiting bureaucratic roadblocks. The disparity in the performance of the many states in India reflects their policies and their leadership. Mr. Ahluwalia noted that there now exist sound models for growth in many states which can and should be applied by the leadership of underperforming states.
In closing, Mr. Ahluwalia noted a few questions that were not sufficiently addressed in his talk. How will the government deal with its challenge to increase spending and initiative in overall health, education and infrastructure? With the exception of the telecom industry, the government has failed to attract significant investment in infrastructure. How will the people of the lowest strata of the society be integrated into this new economy? Which are the specific groups that are harder hit by globalization? How does the government plan to ensure that benefits of globalization will be well distributed across the society? These are some of the challenging questions Mr. Ahluwalia left his audience thinking about.
Errata: The print version of this issue was incorrectly designated as Vol. 10, No. 4.
Vandana Baweja is a Ph.D. student in architecture at the University of Michigan.