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ECONOMIC LIBERALISATION AND ITS FAULTS

Privatisation and Liberalisation

  • The 1991-92 Budget speech marked the beginning of the end of the ‘Licence Raj’ in India.
  • The 1991-92 Budget also announced the reduction of import duties and paved the way for foreign-manufactured goods to flow into India. Following this, most of the manufacturing sector was opened up to foreign direct investment.
  • India’s industrial policy was virtually junked, and policymakers and the political leadership became contemptuous of the idea of self-reliance.

History of the model

  • In the late 1980s, transnational corporations started shifting the production base to smaller companies in developing countries, especially Asia, in search of cheap labour and raw materials.
  • Developed countries supported the move because shifting the polluting and labour-intensive industries suited them as long as ownership remained with their companies.
  • Thus, the world witnessed the development of global supply chains in many products starting with garments, wherein huge companies with massive market power dictated the terms to smaller manufacturers down the value chain to produce cheaply.
  • Though many developing countries participated in the global production/value/supply chains, the substantial value addition in developing countries happened in a few production hubs, of which China emerged to be a major one.

How did China do it?

  • Manufacturing shifted from a decentralised production system spread across different counties to just a few locations.
  • However, countries like China defied the logic of supply/value chains ensuring substantial value addition for themselves.
  • They even carried out backward integration and thus emerged as global manufacturing hubs for certain products.
  • In the case of health products, China became the global supplier of active pharmaceutical ingredients (API), personal protective equipment (PPE), and medical devices diagnostics.

How does it affect the current outbreak?

  • This has major implications for the COVID-19 outbreak.
  • The resultant loss of manufacturing base has affected the ability of many governments, including of developed countries, to put up an effective response to the crisis.
  • With various countries depending on and asking the private manufacturers in their countries to produce essential equipment, it exposes the poor state of preparedness and dependence on imports for essential goods required to meet the challenge of any major disease outbreak.
  • This shows that what is good for the company may not be good the country in all circumstances.
  • So, the overwhelming objective of private sector-led economic growth has proved to be disastrous.

How has it affected India Specifically?

  • In India, economic liberalisation has damaged the government’s capacity in two ways. First, it incapacitated the government to respond to emergencies based on credible information. The dismantling of the ‘Licence Raj’ resulted in the elimination of channels of information for the government, which is crucial to make informed policy choices. For instance, as part of the removal of ‘Licence Raj’, the government stopped asking for information from the manufacturer to file the quantity of production of various medicines. As a result, it has taken weeks now and a series of meetings for the government to gather information about stocks and the production capacity of pharmaceutical companies.
  • Second, the logic and policies of economic liberalisation seriously undermined the manufacturing capabilities of health products in India. The short-sighted policy measures, with the objective of enhancing profitability of the private sector, allowed the import of raw materials from the cheapest sources and resulted in the debasing of the API industry, especially in essential medicine. According to a report of the Confederation of Indian Industry (CII), nearly 70% of India’s API import is from China
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September 2022
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