It’s time to review the neo-liberal economic policy in India, which has been in place for more than three decades. The policy borrowed from the free-market worldview advocated by the Chicago School and which was later adopted by Margaret Thatcher and Ronald Reagan in their respective countries, was first introduced in the early nineties by the P.V. Narasimha Rao government in India. With the adaptation of the new policy India discarded its mixed economy policy tilted towards socialism and embraced free-market economy, which is capitalist in nature. In the beginning, there was a lot of hue and cry over the change in policy by a minority government, but the dust settled eventually. The government has withdrawn itself from many sectors and allowed the entry of private sector. Initially, the new policy appeared successful as the country’s GDP registered impressive growth and foreign direct investments (FDI) increased. But after a period, the euphoria died down bringing with it lower growth rate, rising unemployment and price rise. The situation further worsened with COVID-19 induced lockdown, which increased government expenditure in the welfare sector and limited private investments. Thus, the question of whether India should continue with its neo-liberal policy or revert back to mixed economy days is now being hotly debated by economists.
Supporters of neo-liberal policy claim that higher growth rate ensures development of all sections of people, a view which is strongly objected by some economists on the pretext that inclusive growth can’t be ensured through trickle-down effect. They argue that real growth will only take place when the purchasing power of India’s huge rural population increases. In fact, in his very first presidential speech in the central hall of the parliament former President Pranab Mukherjee advised the then Manmohan Singh government not to depend much on trickle-down effect to ensure inclusive growth as a large section of India’s rural population had no access to basic amenities even after many years of Independence.
The former President was also right in stating that the neo-liberal policy does not attach much importance to primary sectors like health or education. This is why during the last three decades while many super specialty hospitals have come up in big cities, not much improvement has taken place in rural healthcare. Similar developments have occurred in the education sector too. Rural India is far behind in terms of educational infrastructure as compared to urban areas. The large gap was highlighted when it was found that eighty per cent of students studying in government schools in India, do not have access to digital facilities. Surely, it is high time now for the government to take necessary steps to reduce the urban-rural divide. Without bridging the divide no matter which policy is adopted, there will exist two Indias one for the rich, where twenty per cent of the country’s population live with all basic amenities and another India for the rest 80 per cent who will always struggle to have two square meals a day.
