PART II: Economic Development, but at what cost?

It would be a lie to say that Globalization was a new phenomenon. Globalization and global integration began thousands of years back. For example, Kanakalatha Mukund writes that the relations of the Tamil empires, such as the Cholas and the Pandyas, had trade connections with South-East Asian countries such as Laos, Vietnam, and Thailand. But the only difference between globalization then and the globalization that happened in the 1990s was the pace — institutions, the economy, and businesses opened up rapidly, and the change happened very quickly. 

The difference felt more prominent, because, between the time India attained independence and the time economic reforms were introduced in the 1990s, India was primarily socialist. Gurcharan Das believes that economic policies at that time were inward-looking, and trade in the international markets was actively discouraged. Unnecessary licenses to start a private business and state control over fixing prices and foreign exchange rates became the hallmark of the Nehru government, which prompted C. Rajagopalachari to call Nehru’s government the “License Raj”. Instead of choosing to use the surplus labour to produce consumer ‘wage’ goods that would have mitigated unemployment in the long run, our policymakers thought that rapid industrialization, through production and consumption of steel, was the key to economic development. 

The policies only became worse, with the Indira Gandhi government bringing in the Monopolies And Restrictive Trade Practices Act (MRTP), which puts restrictions on how much capital a company can own, classify them as monopolies accordingly, and robs them off of their chances to expand their businesses and increase their investment and the total capital of India. A paper by the International Monetary Fund states that in the latter half of the 1980s, India started to increase its imports of crude oil, whose prices had increased due to the Gulf War, thus depleting our foreign reserves. Political uncertainty peaked with the assassination of Rajiv Gandhi, and India’s credit ratings were poor, as it started defaulting on all of its short-term loans, thus lowering the confidence of investors and lenders. The consequences were disastrous — all the foreign exchange reserves were used up to buy machinery and hence, reduced to a bare $5.8 billion. India had to commit the shameful act of pawning its family gold weighing 47 tonnes to the Bank Of England in 1991 in exchange for money to buy imports. It was a full-blown crisis that had to be mitigated by opening up the economy.

The reforms initiated were helpful in many ways, and its most visible sign was the GDP growth rate in the subsequent years, which was close to 7% per annum. But there are other factors in economic growth that had to be considered. For example, a report from the International Labour Organization (ILO) says that between the time period of 1993-94 to 2004-2005, the real/salaried employment increased by a mere 2.8%. This was happening at the same time when the real household consumption expenditure increased by 40% and the GDP per capita rose by 52% from the period 1987-88 to 1999-2000, according to the National Accounts Statistics. The rural unemployment rate increased from 5.6% to 7.2% from 1993-94 to 1999-2000. Within the same timeframe, the urban unemployment rate increased from 7.4% to 7.7%. The fact that the income and expenditure of the population had increased but not the employment rate is concerning. Many blame the inflexibility in the job market to be the reason, citing the fact that there has only been a 17% decrease in the workforce employed in the agricultural sector, while the contribution by the agricultural sector to the economy has steadily decreased from 52% to 21% from the 1970s to 2004.

Another effect of these reforms and globalization was the rise of the middle class. An article by the Association Of Asian Studies says that with the growth in the GDP of the country, the country also saw the rise in the Indian middle class from almost 1% in the 1990s to nearly 5% in 2004-05. This has only risen more, with almost half of the Indian population now classified as the “middle class”. They have definitely benefited from the reforms, especially because of the fact that Multinational Corporations (MNC’s) have entered into the Indian market. One paper by Matthew Emde notes that these MNCs used the “cheap, talent pool”, including the skilled and unskilled labour, and the intermediate manufacturing systems to their benefit. For example, Japanese firms relied on India for 77% of their inputs in the 1990s after the reforms. At the same time, these MNCs brought in different goods across the world to the Indian market, thus expanding the choices available to the average Indian and eventually, increasing the expenditures incurred by these families. 

At the same time, there has been evidence of exploitation of workers, as well as the environment. For example, Alessandra Mezzadri from the School Of Oriental And African Studies, notes that with the expansion of the Indian garment export business, between 1995 to 2000, there was an expansion of the informal sector in this business, which started contributing more than the formal sector. This led to the “informalization” of the garment sector, especially in places like Delhi and Tiruppur, which led to the erosion of labour rights and other protections. When the environment is concerned, a classic case is of Pepsico India which entered India in 1989. Ever since its entrance in the Indian economy, studies have been conducted to show that the company extracted groundwater beyond permissible limits by 3,66,000 liters, which led to water scarcity in the Palakkad district of Kerala. Similarly, there were accusations that they contaminated the rivers by dumping waste containing lead and cadmium, and creating a plastic waste crisis, wherein almost 3000-4000 tonnes of plastic used by them to pack their drinks were not recyclable.

Thus, despite the fact that globalization helped India to bounce back economically, it is important to be cognizant of the fact that there were many downfalls for the same, and that they should be critically analysed. 

Siddharth G is a second-year undergraduate student at Ashoka University, pursuing Economics and Political Science. 

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