Trade Liberalization – Completing 25 Years Post Opening The Doors


The year 1991 was a year noted for several  events that changed the course of the world that we see around us today. It was the year when Saddam Hussein declared the ‘long lasting’ violence against US and its allies. It was the year when the South African regime decided to repeal apartheid laws, thus bringing success to 28 years long struggle of Nelson Mandela. It was also the year when one of the all-time classics The Silence of Lambs was released. Above all, it was in 1991 that our economy’s doors were opened to the global market, leading to the emergence of a new paradigm in the Indian economy. As we complete 25 years of economic and trade liberalization, it would be a fruitful task to take a gander at the outcomes of this milestone, and ascertain how far we have achieved the goals of the liberalization policy.

The pre-1991 period was noted for strict sanctions on trade-related activities, particularly on foreign trade and transactions. The license raj and the bureaucratic red-tapism along with the socialist-fueled skepticism, brought India to a point where there was almost negligible foreign investments and trade. Borrowing heavily from the Gradualist principle of the Gandhism, our policy makers believed that whatever  was required for the subsistence of the masses could be found within the length and breadth of the country; what was actually required was time. The ideas of rural empowerment and upliftment contributed to this self-imposed confinement from the rest of the world. It is worth mentioning that this paradigm benefited several sectors of the economy – as we see in the case of indigenous success stories of Maruti Udyog, Campa Cola, and Mysore Sandal Soap etc. – which flourished due to the insulation from foreign competition. However, like a coin having two sides, this economic policy retarded the rapid economic growth that we would have achieved had we followed the free market principles.

The various characteristics of liberalization and its impact on the economy is a topic that has been exhausted. What needs to be looked at is how well we have liberalized ourselves: To what extent our economy has opened its doors to the foreign sector and how beneficial this process has been. Have we achieved the intended outcomes of the policy?

One among the several impacts of the liberalization was that it improved the flow of technology and information in India. One of the pushing factors of economic growth in countries like Japan, Germany etc. is the technological innovations that they possess. It was this factor that we lacked for the first few decades of independence. Though we witnessed the process of transfer of technology, there was no large scale transfer of ownership of technological information. For instance, when Suzuki Motors came into the Indian market, most of their innovations remained within the four walls of their R&D centers. Similar was the case with several other MNCs that came into the country. They were unwilling to share the innovations that they had access to. Thus, liberalization and the resulting technological transfer merely moved the location of innovation rather than transferring its ownership. This resulted in lower levels of technological growth hovering far below the expected levels.

A similar situation was created in the area of development. Till the late 1980’s, the concept of development was based on equality and overall well-being of the society. As the country liberalized and privatized its economic activities, wealth creation was largely confined to fewer sections of the society. This is evident from the fact that the number of billionaires grew from a mere two in 1990 to 46 billionaires in the year 2012. The goal of achieving holistic growth was lost. Liberalization brought with it the widening rural-urban divide and the concentration of wealth in the hands of few. It also gave rise to the trend of few large corporations creating monopolies in respective sectors and product lines, which is in stark contrast to the perceived benefits of having international competition and numerous stakeholders in each sector.

An evaluation of liberalization brings us to the conclusion that the growth that we achieved through the liberal policies was largely unsustainable. The growth went hand in hand with massive destruction of natural resources. Thousands and thousands of hectares of agricultural land was converted into industrial zones and several million forest woods were felled to clear the way for expansion of economic activities. When we tried to blindly adopt the western model of development, we were also inviting, unknowingly, the environmental crisis that the developed world faces today.

In a nutshell, it could be inferred that while the liberalization brought about materialistic achievements, it also changed the political-economic composition of the country from the self-sustaining village republic’s to that of a centralized nation-state. As Gandhi once said, it is now time to bring the Indian way of life rather than blindly copying the West; what our time demands is not just free-flow of goods but a liberal economy based on the principles of equity and equality.

-Contributed by Jiss Palelil

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