Economic liberalisation and its faults 

#GS3 #Economy 

The virus reveals how dependence on private sector-led economic growth has proved to be disastrous 

  • Dr. Manmohan Singh’s 1991-92 Budget speech marked the beginning of the end of the ‘Licence Raj’ in India.  
  • The 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. 

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.  
  • 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. 
  • 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.  
  • Similarly, there were difficulties in finding out India’s production capacity of PPE, medical devices and diagnostics. The only government data available in the public domain is with regard to the production of vaccines. 
  • 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.  
  • 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.  
  • As a cost-effective producer of medicines, the world is looking to India for supply, but it cannot deliver due to its dependence on China, which has also forced India to impose export restrictions on select medicines. 

The dangers of dependency 

  • 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. 
  • Now the country is not able to get required quantities of test kits, PPE and parts of ventilators through importation.  
  • In the name of economic efficiency, India allowed unconditional imports of these products and never took note of the dangers of dependency. 
  • Developing countries were asked to ease their labour protection laws to facilitate global production and supply chains popularly known as global value chains. 
  • A virus has made us rethink our obsession with the economic efficiency theory. It implores us to put in place an industrial policy to maintain core capacity in health products so that we can face the next crisis more decisively. 
Print Friendly and PDF
blog comments powered by Disqus