India's neoliberal path to perdition

Vinod Vyasulu/ Catch News |

Since the 1980s, the world has been governed by an economic philosophy known as neoliberalism. This is a faith in the universal rationality of the market, the importance of an individual as a utility-maximising agent and a fervent belief that governments have ‘little’ to do with economic policy – that little being the enforcement of a minimum of laws.

It was this philosophy that guided Ronald Reagan in the US, Margaret Thatcher in the UK, and the policies of the International Monetary Fund (IMF) and the World Bank. The IMF and the World Bank promoted this around the globe under the fancy name of ‘The Washington Consensus’.

It was in 1981 that India took a loan, which the then Finance Minister R Venkataraman said the country really did not need, from the IMF. This loan indeed was paid off early.

In 1982 the public sector auto maker Maruti Udyog was set up, based upon the mess created by Sanjay Gandhi, the younger son of the then Prime Minister Indira Gandhi, who played a prominent role in the Emergency. Maruti Udyog was set up to make a ‘people’s car’, and the considerable resources of the Indian state were devoted to ensuring the success of the automobilisation of India.

The incredible mess on the Indian city streets today has its origin in that decision. Some call this progress.

It is important we remember both these points as we consider the economic path India has chosen. From a ‘socialistic pattern of society’ and ‘growth with social justice’, the country today looks to the Sensex and the GDP growth rate as indicators of success. The government was to be business friendly with the ‘ease of doing business’ is its holy grail.


In 1991, the country embarked on economic reforms based on a prescription of Structural Adjustment recommended by the World Bank. The government undertook a process to control its fiscal deficits.

One way to do this was by privatising many public sector units – remember BALCO? Another was by withdrawing from many activities it was earlier involved in, and leaving them to the forces of the market.

Some 25 years later, we have a high rate of growth – well above 5% – and the Sensex, which is one indicator of corporate India’s performance, hitting record highs. One-third of the population is still below the poverty line. Government deficits are still not under control, but there is no longer any panic on this front.


What is not publicised is that formal employment is not being generated, that the quality of jobs has changed from formal to informal, that for most people the daily hours of work has gone beyond eight. There has been a systematic casualisation of labour through outsourcing. Casual labour means that workers do not get benefits like paid leave, medical care and so on.

Pensions will no longer be paid to civil servants who join after 2005. Inequality has increased tremendously, with the rich increasing their share of national income. And within the rich, the top 1% has grabbed the largest share.

While this is well known, it is difficult to research this issue because the government has stopped publishing Income Tax data that it used published from 1922 to 2000.


In the name of ‘efficiency’, the government has been withdrawing from many areas, especially in the social sector. In the complete faith that the public sector is inefficient, and that the private sector by definition efficient, the government has moved from running schools to encouraging the private sector to set up schools and even universities.

With mounting evidence that the quality of education is poor across the country, the focus is on encouraging parents to send their children to private schools.

In the health sector, the government is clear that it cannot provide the services, and must depend on the private sector to set up hospitals. It has introduced various schemes that bring in the insurance companies. What ever evidence is available shows that access, forget treatment, remains a problem for many, not just the poor. What was once seen as entitlements of citizenship are now seen as services that people must pay for. In some cases, subsidies can be considered, but then subsidy is a bad word.

The government is encouraging cities across the country to hand over the provision of drinking water to the private sector as they are more ‘efficient’. Cities like Delhi and Bangalore have seen sharp increases in the cost of drinking water, and a deterioration in the quality of it, especially for the poor and the vulnerable. The system of fair price shops proving subsidised food grains to the poor is being replaced by a system of direct transfer of benefits to the ‘target groups’ through bank accounts.

In all this, the government has placed its faith in the modern information technology and ‘eGovernance’. Well-meaning engineers like Nandan Nilekani have proposed a biometric identity for people, called the Aadhaar. This raises many issues of privacy and surveillance that are complex. Aadhaar has become a Frankenstein monster they no longer control.

The issue is now before a Constitution bench of the Supreme Court. The judgement they render will have a great bearing on which way India will move. We have to wait and see. Meanwhile, I remain an (irrational) optimist.

The author is a Professor and Vice Dean, Jindal School of Government and Policy, Sonipat.