Economic Liberalisation and its Faults


  • 1991-92 economic reforms marked the beginning of the end of the ‘Licence Raj’ in India. The reforms included 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

Economic Liberalisation – a Disastrous 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.
  • Though many developing countries participated in the global supply chains, the substantial value addition in developing countries happened in a few production hubs, of which China emerged to be a major one.
  • 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.

A Danger of Dependency:

  • 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.
  • For Example, The U.K. asked the country’s manufacturers to produce ventilators in order to provide care for critical COVID-19 patients.
  • Similarly, the U.S. invoked the Defense Production Act of 1950 to ramp up N95 mask production.
  • This 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 India had affected by the Economic Liberalisation:

  • 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
  • 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 CII, nearly 70% of India’s API import is from China.The disruption in the supply of API due to the COVID-19 outbreak has impacted the production of not only medicines required for COVID-19 patients, but also of other essential medicines in India.
  • Similar dependence exists with regard to PPE, medical devices and diagnostic kits. The 100% dependence on Reagents, an important chemical component for testing, is limiting the capacity of the government from expanding testing because the cost of each test is ₹4,500.
  • Dependence on imports affects the ability of Indian diagnostic companies to provide an affordable test for all those who want to test for COVID-19
  • Global supply/production chains not only destroyed the manufacturing base in developed and developing countries; they also resulted in loss of jobs and poor working conditions in these sectors.
  • Developing countries were asked to ease their labour protection laws to facilitate global production and supply chains popularly known as global value chains.
  • As a result, people were forced to work in precarious working conditions without any social security net.
  • This created an unorganised army of labourers and is preventing many developing country Governments from effectively offering relief.

Source: The Hindu

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