Sunday, September 23, 2012

Injustice and Gap

In the year 1991, India's foreign reserves, key to pay for our import bills comprising petroleum and other important items, dropped to such levels that not sufficient to last beyond 15 days. Reasons: Mammoth expenditure on development programmes which did not generate additional revenue. Taxation was not sufficient to support vast spending. Income from public sector undertaking was too small to meet growing demands. Corruption and inefficient machinery.

India started borrowing money from international moneylenders to meet country's demands and by 1991, our economy was so rickety that that India was not able to pay for the interest that were to be paid to international money lenders. No other country was ready to lend to India. prices rose sharply.

Under such circumstances, India approached World Bank and IMF. Against the 7 billion $ that India got to manage the crisis; world bank wanted India to liberalize and open her market for private sector. India agreed and we got reforms of 1991, also known as New Economic Policy.

Primarily our Economy is divided into three main sectors: Agriculture, Industry and Services. Economic reforms of 1991 has shown marked effect on certain areas of service sector such as telecommunication, Information Technology, finance, travel and hospitality. Among these, IT has significant contribution in India's GDP. Opening up FDI in service sector has raised the quality of the services. India has population of more than billion people. Some critics argue that globalization is strategy of developed countries to expand their market to other countries. Services sector posted growth rate percentage of 8.2% in 1992-2001 in comparison to 6.7% in 1980-1991. Thus this sector is utilizing the vast purchasing power billion plus population. In contrast, vital sectors such as agriculture and industry which can be rock solid foundation of the country, providing food security to the gigantic country and livelihood to the majority of the population, has shown declining trend in %growth of GDP. Agriculture sector drops from 3.6% in 1980-1991 to 3.3%  in 1992-2001 where as Industry drops down to 6.5% in 1992 from 7.1% in 1980-1991.

Sitaram Yechuri,  prominent Marxist leader, in one of his addresses said about recession," Rich have become the richer and the poor have become the poorer'  is unfortunately regarded acliché. But as most cliches do it makes sense. In the process of the poor becoming  poorer the actual domestic aggregate demand declined. The net result has been the inability of large sections of the people to buy leading to the inability of industry to sell  what it has produced resulting in a recession. This, in turn, is resulting in decline in employment. This, in turn, again is  strengthening the process of declining  domestic demand. This completes the vicious circle of the recession and unemployment." 

Although pure socialist view of economic equality for all  does not suit me. It is injustice for people working 12 hours and 6 hours to earn same. But pure capitalist view has increased trhe gap between the poor and rich. This gap can have serious effect on society. Developed countries are not shy of this effect. In USA, top 300,000 people earn an aggregate income equal to the bottom 150 million people in year 2005. This reminds me of "The Immortals of Meluha"  which explained the same dilemma.