Written 2:45 AM May 15, 1997 by gtimes@cybernet.dk in igc:pna.news
"Globalisation Wrong for India"
A PNA dispatch
archives: November 1996

A disaster for India and other developing countries
by Acharya Krtashivananda Avadhuta

Supporters of capitalism make vociferous campaigns in favour of
globalisation of the economy. Multinational corporations (MNCs), with the
collaboration of Bretton Woods institutions (World Bank, International
Monetary Fund) and the World Trade Organisation (WTO) have imposed their
strategic plan through the General Agreement on Tariffs and Trade (GATT).
The strategy is to allow MNCs free access to all countries, removing all
trade restrictions. The similarities amongst the "standard menus" of all
these institutions is obvious:


IMF AND World Bank
* Reduction of budgetary subsidies
* Removal of subsidies for agricultural inputs
* Removal of food subsidies
* Pursuance of liberal economic policies
* Promotion of foreign investment
* Import liberalisation
* Privatisation of the banking sector

* Reduction of subsidies
* Reduction of support for domestic agriculture
* Removal of PDS (food subsidies)
* Pursuance of free trade by developing countries
* Removal of restrictions on MNCs in utilities industries
* Removal of barriers on imports
* Lifting restrictions on entry of foreign investors

In his speech as outgoing chairman of the Group of 77, Luis Ferdinand
Jaramillo of Colombia presented a sweeping critique of North-South
relations. He traced the decline of the U.N., multilateral programmes and
the Third World in global affairs to the rising power of Bretton Woods
institutions, which are under the control of Northern countries. He commented,

"The Bretton Woods institutions for their part continue to be made the
centre of gravity for the principle economic decisions that affect the
developing countries. We have all been witness to the conditionalities of
the WB and IMF. We all know the nature of the decision making system in
such institutions. Their undemocratic character, their lack of
transparency, their dogmatic principles, their lack of purism in the debate
of ideas and their impotence to influence the policies of the
industrialised nations. We all know the way structural changes are imposed
and how projects are formulated. And how subsequently, when many of those
policies and projects fail their authors disappear from the facilities of
Pennsylvania Avenue. Nobody is then accountable for anything...."

Dubious Benefits
The question may arise whether globalisation is justifiable for countries
like India.

An audit of the performance of the Indian economy after reforms were
initiated in July 1991 fails to reveal any spectacular achievements. The
opening of the economy to foreign capital has not succeeded in attracting a
significant flow of capital or technology into the country, especially into
the productive sector. Exports have picked up, partly as a result of
devaluation of the rupee and partly because of general improvement in
world trade.

But after an initial slump, imports have grown rapidly, and present
indications are that there is likely to be a huge trade deficit by the end
of the present financial year. Foreign debt has increased significantly and
the WB has cautioned that the servicing of the debt and repayment
obligations may begin to exert pressure on the international balance of
payments in 1996-97 and beyond.

It may be asked whether an increase in foreign investment will lead to a
higher growth rate and better absorption of rural labour in
non-agricultural employment. Employment in the private industrial sector,
which stood at 7.55 million in 1982-83, was only 7.67 million in 1990-91 -
that is, after nine years. This is only a 1.5 percent increase. At the same
time, gross capital formation at current prices rose by four times - 400 percent.

Modern industry is knowledge intensive. It may result in jobs for the
highly educated, but it is unlikely that jobs will be generated for the
poor, especially the surplus agricultural force of rural India, even when
the growth rate of investment is high in the private sector.

Majority Unbenefitted
The failure of the reform process is evident from the speech of G.V.
Ramakrsna, member of the Central Planning Commission, for the Garg Memorial
Lecture at the Institute of Naval Architects, New Delhi in April 1995:

"Where are we now and how far have we come in the reform process....? After
three years, different people are looking at the reforms from their own
perspectives. They have more colour TVs, more channels on cable, more
imported goods, and so on. Nobody is any longer ashamed of conspicuous
consumption. Then we have the middle class, which is seeing this as an
opportunity for its advancement to the upper class. Many feel making money
one way or the other will get them into the high consumption category. Then
we have the lower class. They are worried as they ask: 'What is there in
this for us? We don't know what liberalisation is. We don't know what the
capital market is. What is our net gain in the package? We want jobs, less
inflation,' and they ask, have we got any of these?"

Even former Prime Minister P.V. Narasimha Rao, while speaking to his party
workers in July 1995, attempted a similar audit of the reforms. The report
said: "He began by delineating the social structure's three segments. The
crust according to him consists of about 60 million people (6.5 percent),
who do not need to be canvassed about the economic reforms.

"The next layers he believes contain about 250 to 300 million people (27 to
33 percent) belonging to the middle class, who are beginning to appreciate
the benefit of liberalisation.... It is the next segment, of 550 to 650
million (60 to 71 percent) of lower income and poor people who remain
unappreciative of the changes in the economy." (The Hindu Standard)

Amongst these lower income groups the largest consists of agricultural
labourers, who constitute 26 percent of the labour force. It is a sad commentary
on economic and political policies that almost half a century after Indian
independence more than half of her people are in that kind of plight.

To allow globalisation of the economy via financial markets, without an
appreciation or analysis of its implications, is bound to be disastrous.

Preparation Required
One can cite the example of Taiwan, which has recently opened up its
markets to imports, as proof of the merit of following reforms like
India's. But that country prepared for this for over 30 years. The same is
the case of Japan and South Korea. India needs to modernise its financial
institutions gradually before she throws the system open. It must be
realised that by this measure, India will lose control over her domestic
interest rate policy. In a primarily agricultural country, opening the
economy to large inflows and outflows of "hot money" moved around to take
advantage of quarter percentage point interest rate gains would be disastrous.

Also, Taiwan has an annual trade surplus of approximately US$40 bn and
sound foreign exchange reserves. India has a trade deficit, weak foreign
exchange reserves and huge debts (about $70 bn). Its industrial base is
also weak. Is it judicious at this moment to open up the stock exchange to
international capital movements? Before embarking on globalisation, India
should strengthen its village economy on a decentralised basis, modernise
its entire economic and financial system and strengthen her international

It has been claimed that allocation of resources is best when done under a
free market system. Unfortunately, with the present distribution of income
and wealth, there is no such thing as a free market in India. The
globalisation of India's financial sector would put the bulk of it into the
clutches of money lenders.

India at present needs to expand and strengthen its basic industrial
sector. Small scale industries, artisans, farmers, handloom weavers and
cottage industries should be encouraged through decentralised planning,
just allocation of resources and increasing credit facilities and training.

Without basic preparation, the introduction of so-called globalisation is
passing economic control on to MNCs, and whatever basic economic
infrastructure exists will be ruined instead of enhanced.

General mass reaction to such policies has thrown the previous Congress
government out of power. In the present "rainbow" coalition, Finance
Minister Cidambaram and Industry Minister Murasoli Maran are advocating
policies recommended by Harvard economist Michael Porter.

Chidambaram is a former Harvard scholar, and was Commerce Minister in the
previous Congress Party government. He is a strong supporter of the free
market and liberalization of the economy. There is no reason to believe
that he has radically changed his ideas and policies. The present
quasi-nationalistic coining of words - done at the insistence of his
communist colleagues in the present government - is only to camouflage the
real policies, which indiscriminately open India to the international economy.

Porter has show in his book Competitive Advantage of Nations that the
competitive edge acquired by specific industries in various countries in
global markets has not come from mere "laissez faire". Advantage is rather
the outcome of deliberate policies of governments that develop those
specific industries in a competitive way.

But this policy does not at all address the basic problems of strengthening
the village economy, decentralisation of industrial development and
streamlining of financial institutions. It is incorrect to say that present
government policy is radically different from that of the previous
goverment. In addition, it is also similar to policy followed in the
1980s. Capital formation is not the only criteria to be considered for
India's economic recovery. As mentioned, just allocation of resources
considering the economic future of the poorest people should be the
priority. This has been utterly neglected by all governments, including the
present one. The centralised character of the Indian economy must be
dissolved, or the people will revolt again.

Acharya Krtashivananda Avadhuta is Proutist Universal global office
secretary and author of numerous books on history, politics and economics.

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