This Slowdown is a Fallout of Liberalisation

India lost its low-cost advantage without gaining a foothold in the competitive space of higher-end products

- Narendar Pani

As the economic slowdown begins to really hurt, the instinctive response has been to focus on the actions of the BJP government. This is perfectly understandable, given the destructive effects of demonetisation and the implementation of the GST. Yet, the focus on the government converts the debate on the economy into a BJP-versus-Congress game show. In the process, it ignores the fundamental structural impediments that are holding back the economy.

These impediments include those that resulted from policy responses to the challenges that emerged during the process of liberalisation. And, these impediments cannot be adequately analysed unless we step back from the mindset of the last three decades, where any critique of reforms is seen as necessarily being a step backward.

If we look beyond the short-term crisis management that goes for economic policy in India and trace the course of the economy during the 28 years since liberalisation, it is not difficult to spot the measures that have created the current impediments to growth.

Boosting competitiveness

In his 1991 Budget speech, Manmohan Singh had made a persuasive case for liberalisation. The foreign exchange crisis that had forced the country to quite literally pledge its gold was the result of India not being competitive in the global market. In order to improve the competitiveness of the Indian industry, it had to learn to compete with global products. Allowing foreign capital and products into the domestic market would help the Indian industry learn to compete, in an environment they knew better than their foreign competitors.

What followed was not quite in line with the original script. While the economy did move on to a higher growth path, it was not because Indian products became more globally competitive. What did become globally attractive, helped by a weakening rupee, was the cost of inputs.