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India's New Economic Policy of 1991

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India's New Economic Policy of 1991 was a neoliberal Structural Adjustment Program that allowed India to qualify for aid from the World Bank and IMF. In 1990, India faced an economic crisis and was "on the brink of default" on its debts.[1] In July 1991, "India's neo-Thatcherite trio - the prime minister [P.V. Narasimha Rao] and the ministers of finance [Manmohan Singh] and commerce [P. Chidambaram]" announced "the formulation of the most radical program of economic liberalization in independent India's history."[2] "The restructuring of economy envisaged by IMF involves the replacement of import substitution growth strategy by an export oriented growth Strategy. This was entirely against the spirit of basic ideology of Indian constitution that is, to attain an egalitarian social order without wide disparities in access to income."[3]

Neoliberal Economic Measures Taken

"Within weeks of announcing the reform package, the government devalued the rupee by 23 percent, raised interest rates, and revised the 1991/92 union budget, making sharp cuts in subsidies and transfers to public enterprises. Over the next six months, it abolished the complex system of industrial and import licensing, liberalized trade policy, and introduced measures to strengthen capital markets and institutions."[4] (The devaluation of the rupee had been advocated by the World Bank since October 1990, when it recommended a 20 percent devaluation.[5])

Among other measures, the new policies announced by Prime Minister P.V. Narasimha Rao in July 1991 included allowing foreign firms to own a 51 percent stake in joint ventures in India instead of the previous 40 percent.[6] The government also eliminated requirements for some 7,500 licenses, eliminated a billion dollars in export subsidies, and allowed exporters to keep 30 percent of their net foreign exchange earnings (an increase from 5-10 percent).[7] At the same time, the government cut subsidies on food and fertilizers.[8]

As of January 1992:

"So far it has devalued the rupee, cut government expenditure, abolished industrial licensing, slashed export subsidies and introduced exim scrip, a foreign exchange permit allowing companies to import goods to the value of 30% of their exports. The scrip is freely tradeable; the margin on scrip sales constitutes a hidden export subsidy. Clearances for foreign investors, once held up, have suddenly begun to flow through. General Motors Corp., General Electric Co., International Business Machines Corp. and, sensationally in view of past antipathies, Coca-Cola Co., have all signed recent deals. These and other liberalization measures are advertised on New Delhi posters with the symbol of an unchained elephant."[9]

1991 World Bank Loan

On December 5, 1991, the World Bank made its largest Structural Adjustment Loan to date: $500 to India.[10] This was "the first in a trio of fast disbursing assistance operations it is expecting from the Bank, worth more than $1 billion... The watershed reforms contained in the first budget the new Narasimha Rao government submitted in June excited the Bank, and fast track SAL negotiations began." Initially, India would receive $300 million, followed by the remaining $200 million a year later if the structural adjustment policies it agreed to remained in place.

"The funds from the record SAL will go alongside the $1.8 billion India recently obtained from the International Monetary Fund. The process has been going on steadily since July, when the Bank approved its first adjustment operation of any kind ever for India, a $150 million loan to help defray the cost of additional oil imports due to production shortfalls stemming from the shutting of wells at the Bombay High Field. To get that one, Indias Oil and Natural Gas Commission agreed to link domestic gas prices to international fuel oil costs and to encourage greater private participation in its energy sector moves the Bank welcomed.
"The SAL supports numerous reforms beyond public sector layoffs, including reduction of industries reserved for government ownership, selection of other industries in which foreign private businesses are encouraged to participate, reductions of trade restrictions, and a new regulatory and supervisory framework. Partly through those moves, foreign exchange reserves have more than doubled from Julys low to a fairly comfortable level of $2.8 billion, one Bank source said. A key test will be to see if continued implementation of the reforms next year allows the credit rating agencies to grant India access to the international capital markets."[11]

Resources and articles

Related Sourcewatch articles

References

  1. Structural Adjustment in India, Independent Evaluation Group, World Bank, Accessed May 6, 2012.
  2. Joe Rogaly, UNCHAINING INDIA'S ECONOMY: Radical program of market reforms could unleash another powerhouse, Financial Times of London, SECTION 1, NEWS; Pg. 39, January 31, 1992.
  3. Venu Menon, "Globalisation, state and disempowerment: study of farmers suicide in Warangal," December 3, 2006.
  4. Structural Adjustment in India, Independent Evaluation Group, World Bank, Accessed May 6, 2012.
  5. Jose Mathew, Chapter IV: The New Phase of Planning: New Economic Policy of 1991, Development policies of India with special reference to new economic policy a Gandhian critique, August 12, 2010.
  6. Official optimism, business caution over Indian economy, Agence France Presse, November 11, 1991.
  7. Anil Penna, "India announces sweeping trade reforms," Agence France Presse, July 4, 1991
  8. Coomi Kapoor, "India discards four decades of restrictions," The Times, July 25, 1991.
  9. Joe Rogaly, UNCHAINING INDIA'S ECONOMY: Radical program of market reforms could unleash another powerhouse, Financial Times of London, SECTION 1, NEWS; Pg. 39, January 31, 1992.
  10. India Adjustment Loan Is Banks Biggest Ever, The World Bank Watch, December 16, 1991, Vol. 1; No. 46; Pg. 1.
  11. India Adjustment Loan Is Banks Biggest Ever, The World Bank Watch, December 16, 1991, Vol. 1; No. 46; Pg. 1.

External Resources

  • Jose Mathew, Chapter IV: The New Phase of Planning: New Economic Policy of 1991, Development policies of India with special reference to new economic policy a Gandhian critique, August 12, 2010.
  • Waquar Ahmed, Amitabh Kundu, and Richard Peet, eds, India's New Economic Policy: A Critical Analysis, Routledge Studies in Development and Society, 2010.

External Articles

1991:

  • India Adjustment Loan Is Banks Biggest Ever, The World Bank Watch, December 16, 1991, Vol. 1; No. 46; Pg. 1.