30 Years of the New Economic Policy

A fiscal deficit. A balance of payment crisis. The threat of inflation. Growing imports. Excessive spending on developmental policies. These problems ravaged India as we set foot into the 1990s. No country was willing to lend us funds. We were desperate for a solution.

India approached the World Bank and the International Monetary Fund and received a 7-billion-dollar loan to manage the crisis. For availing the loan, India was forced to liberalise and open up the economy, remove restrictions from the private sector and open its doors to globalisation. It has been 30 years since the New Economic Policy came into effect. Has it been a boon or a bane?

Despite its very many advantages, the New Economic Policy is widely considered to be a bane for the country. Unemployment, inequality and poverty are indeed the biggest problems created by the New Economic Policy. Owing to a large-scale technological upgradation, there was a lesser requirement for unskilled labourers. In a country with a high growth rate of population, there could be no bigger disadvantage. The impact of the same has been long lasting. In 2019, India’s unemployment rate was 5.27%. This has only been worsened by the Covid19 pandemic. Today, there are the additional problems of educated unemployment and a mismatch between the demand and supply of labour. Inequality has also been worsened due to the NEP. with the richest 10% holding 77% of all wealth and the poorest 50% being entitled only to a meagre 2.8%. Jobless growth has been an unremedied, chronic feature of globalised development and the recovery process has proven to be insufficient to absorb the unemployed, under-employed, and the youth entering the workforce for the first time. Though absolute poverty has come down by a significant amount, relative poverty has not. These are major socio-economic issues that Governments have failed to tackle efficiently.

The other big problem was that the NEP caused us to overlook agriculture. There is no doubt that agriculture, India’s “so-called” backbone, has suffered heavily in the hands of globalisation. Reduction in public investment, removal of subsidies and constant policy change has reduced the primary sector to a pathetic state, despite the fact that it still provides a livelihood to almost half of India’s population. Agriculture’s ever decreasing contribution to GDP is a proof of the same. Currently, agriculture provides employment to 41.5% of India’s population whereas it only contributes 17% to the GDP. Information Technology, Genetic Engineering and Biotechnology, which are the drivers of globalisation are bound to create new risks of marginalisation and vulnerability amongst agricultural communities.

Many other issues such as increased degradation of the environment, lesser demand for domestic goods, dying arts and crafts, issues with disinvestment policies, failure of tax reforms and fiscal policies can all be contributed to the economic reforms of 1991. India has, in fact, slipped down ranks in both the Human Development Index and the Global Hunger Index in this period. Taking all of this into account, one can conclude that there seems to be more negatives than positives to the LPG policies of 1991.

So, what is the solution? Each problem has to be dealt with separately and effectively. Let us look at unemployment first. This is a problem is entwined with education. Though India has a Right to Education policy, most schools offer only selective subjects. In this regard, the New Educational Policy, which is to come into effect from this academic year, has to be applauded as it promotes vocational skills. That brings us to the biggest problem in the job market – a mismatch between demand and supply. India is a country where students are encouraged to focus only on a few select subjects. This creates a surplus in that field and a deficit in others. Even in fields like engineering, students often stick to computer or software engineering whereas there is an increasing demand for data science engineers, cloud engineers etc. Another issue is that these graduate students lack the skills that will land them good jobs. Companies are unwilling to incur in-house training costs in addition to recruitment costs. This has a two-fold solution. Firstly, such skills should be provided by colleges or universities themselves. It would not do if the IITs and the IIMs continue to remain islands of excellence in a sea of mediocrity. Secondly, there should be an awareness with regards to what skills are required in the market and what alternate career opportunities are available. This can be achieved with the help of career counselling. Ironically, such counsellors are in deficit in the country.

The other problem to deal with is agriculture. Agriculture has an untapped potential which if channelised properly would do wonders for the country. The dwindling contribution to GDP means that the per capita income of agricultural labourers is also diminishing. This causes them to quit agriculture and unsuccessfully search for other job opportunities, rendering them unemployed. To pinpoint towards the major cause of most issues in the agricultural sector is easy. It is the existence of middlemen. Removal of middlemen, setting up of corporate societies and self-help groups, intensifying agricultural marketing practices and diversifying into fields such as agro processing, horticulture, beekeeping and nursery will benefit the sector immensely. Another major cause of concern is the fact that there is lack of infrastructure. Indian agriculture loses produce worth crores every year because of lack of storage facilities. Construction and maintenance of storages, roads and other facilities will also result in job creation. Digitalisation and enrolling in National Agricultural Markets or e-NAMs should be popularised by the use of awareness campaigns. If the primary sector is back to its former glory, India truly has wonderful days ahead.

Last but not the least, a more general problem that most Governments have faced should be addressed – the problem of execution. India is not facing these problems because we lack brilliant minds or good policies. It is only because of the fact that we have failed to execute these plans properly. To do so, the Government needs to have a system of checks and balances in place, try to curb corruption and slowly try to revamp the bureaucracy. Another solution is for the Government to privatise some of its executionary functions to private organisations to increase efficiency. One good example of the same would be when the Government outsourced the functions of the passport office to private organisations and retired to a mere supervisory role. This will allow the Government to carry out its functions in a much better manner.

To conclude, going forward, the Government should continue to reap the benefits of the New Economic Reforms but should also focus on a more wholistic development of the country to ensure that the benefits of development trickles down to every segment of society.