Essay on the Impact of the New Economic Policy in India

Coming to the issue of the impact of the new economic policy on the vulnerable sections, Rangarajan argues, “analytically, we need to address two sets of issues.

One is whether the new economic policy affects in any way the specific policy measures that we normally undertake in order to improve the conditions of the poor. Second, is there anything in the new economic policy which per se has an anti- poor bias? The new economic policy which may be a convenient expression to refer to the measures introduced since July 1991 is not the total economic policy of the Government.

There are many other elements which continue to remain as an integral part of the overall economic policy. Among these are the measures which can be broadly termed as anti-poverty programmes. In the total economic policy there are four elements which can be identified as being meant specifically for poverty alleviation:

First, since agriculture is the mainstay of the majority of. the population, growth in agriculture and, therefore, resources allocated for agriculture are an important part of the attack on poverty. This is not an acceptance of the trickle-down theory. It is common knowledge that in states in which agriculture has made spectacular progress poverty levels have come down. Therefore, allocation of resources for agriculture is an important indicator.

Second, we have evolved over time a reasonably satisfactory food security system. An integral part of this is the public distribution system. With all its shortcomings, the public distribution system has played a notable role in avoiding acute conditions of scarcity and met to a certain extent the minimum requirements.

Third, there has been a substantial expansion in programmes which are intended to provide additional employment. The various employment guarantee schemes as well as the credit-related integrated rural development programmes are examples of such programmes.

Fourth, expenditure on education and health also has an important bearing on reducing poverty levels.”

“Is there anything in the new economic policy which is inherently anti-poor? The poor are affected most when growth is low and when prices rise. The slowdown in growth in 1991-92 and the sharp increases in prices in the same year are sometimes cited as consequences of implementing the new economic policy. This is not a correct assessment.

There was a decline in agricultural production in 1991-92 and it is well known that the performance of agriculture from year to year is mostly a function of the weather. The collapse of industrial production in 1991- 92 can be traced in a large measure to the high degree of import compression that was brought about which would have been inevitable in any case whether or not we shifted to a new policy orientation. Has the attempt to contain fiscal deficit affected, anyway, the poor more? While there has been some attempt to reduce fertiliser subsidy as part of the efforts to moderate the fiscal deficit, the food subsidies have been maintained.

There is a dilemma here which we have to resolve. Unless we make the public distribution system more focused and directed towards only the weaker sections and low-income groups, keeping the issue price unaltered or changed moderately despite an increase in procurement prices will not be sustainable over a long time.”

One aspect of the new economic policy which has created certain misgivings among the organised labour relates to the several suggestions that have been made with respect to non-viable public sector units.

While the approach should be to reorganise the loss-making public sector units in such a way as to improve their viability, quite clearly, there are cases in which their viability will depend on some reduction in the labour force.

The Government is again going slow in this area because of the anxiety not to create a difficult situation for labour. That is why various alternative schemes have been thought of, such as the sale of the company to the labour if they are willing to accept it, setting up a national renewal fund to provide compensation for people who may be rendered jobless, etc.

The public sector units being compelled to carry on with all the labour force, irrespective of whether or not the units are viable, is also a situation that is not sustainable over a long time. Hence a solution which is also reasonable and acceptable to labour will have to be found.

As rightly pointed out by C. Rangarajan, “redundancies and closures occurring as a consequence of modernisation and technological upgradation are not a new phenomenon. This has occurred in a big way in centres like Ahmedabad and Kanpur where there has been a concentration of the textile industry.

It must be recognised that restructuring of the workforce becomes necessary for efficient growth which alone can lead to sustainable employment growth in the medium and long term. At the same time, workers rendered unemployed in these processes cannot be left high and dry. Provision for fair and reasonable separation benefits is necessary, but more important is their redeployment, with training, if necessary, as a part of the overall strategy of expansion of employment opportunities.

What, in fact, is being attempted in the new economic policy, with the instrumentality of the national renewal fund, is that the hardships of the workers affected in the unavoidable and inevitable loss of jobs are minimised by providing them a fair deal in terms of separation benefits and opportunities for their productive redeployment.

The national renewal fund, constituted on a non-statutory basis, envisages the provision of resources solely for the rehabilitation of labour resulting from modernisation, technological upgradation, restructuring (including revival) or closure of industrial units.

It will assist workers in this process for their retraining, redeployment and placement in new employment, besides contributing towards compensation payments, including legal dues and those under the Voluntary Retirement Scheme, under the fund called the National Renewal Grant Fund (NRGF).

Far from adversely affecting employment elasticity, the restructured growth during the 1990s is expected to be far less capital-intensive and far more employment-friendly. First, with the removal of distortions in the factor markets, the new economic policy regime can be expected to lead to greater use of labour in the production processes as has been the experience of several labour-surplus developing countries which have succeeded in increasing their exports and overall growth of manufacturing industries. Second, the processes of deregulation and liberalisation are likely to particularly benefit the employment-intensive small and decentralised sector which, it must be recognised, had to bear a heavy burden of bureaucratic hurdles in the past.

In the restructured economy these sectors, particularly the rural non-farm sector, agro- processing and agri-business in general, urban small enterprises and the services sector, all of which have shown high potential for employment generation, are likely to grow faster. Third, the overall objective of the new economic policy is to improve productivity and efficiency. In a competitive environment, both public and private sector units are expected to show improved productivity and greater expansion in output.