When after independence we established the National Planning Commission, we placed the State at the head of the economy in all the decision making processes hoping that the controlling mechanism would bring out all that is necessary for rapid economic development. We did not realise that the business of the government is not business. We therefore created a closed economy, raised a big tariff wall to protect our industrial structure so that it could grow. In the process we created an industrial and trade regime in which enormous powers were handed over to ministers and bureaucrats. We followed this up with fiscal policies which led to the growth of a parallel economy which today accounts for nearly half the national production in the country.

It is not as if in the last fifty years no developments have taken place. We have had industrial development, our coverage of education has expanded, we have succeeded in establishing a large network of railways and communications and we have a reasonably modern scientific establishment. But, by and large, taking an overall view, development that has taken placed has bypassed a large majority of the people.

We have sunk more than two 2 lakh crores of rupees (Rs.) in the public sector. And we associated the public sector with public interest in only one sense - protecting the employment of those employed in these public sector enterprises. Considerations such as whether these added to national wealth, whether they meet the needs of the community were thought irrelevant. This investment of Rs.2 lakh crores did not give a return of even 2.5%.

This was the policy we followed for nearly forty years after independence. We built, step by step, a highly controlled economy - a regime of multiple controls, restrictive regulations and wide ranging state intervention. A large proportion of the nation's savings was appropriated by the State to finance government expenses and subsidise the losses incurred by public sector undertakings. Instead of enforcing fiscal discipline, the government took the soft option of printing additional currency notes and borrowing heavily from within the country and abroad. The industrial economy of the country, protected by the state and insulated against external competition, was prevented from growing. Not surprisingly in a world of rapidly advancing technology, India lagged far behind.

The powers that be called it a mixed economy. But it was a mixed economy with the wrong kind of mix. It was a mix that was highly biased in favour of the public sector, and in which private initiative and entreprenuership were not allowed to thrive. Even the most elementary management functions of the private sector, the residual sector under the all-pervading Industrial Policy Resolution of 1956, like "who" manufactures "what" and in "which" place and sells to "whom" and at "what" price were dictated by the government. As a result, this highly regimented Indian economy could grow only at a meagre 3.5% per annum till the 1970s. Real GDP growth moved up to 5.5% during the 1980s even with the half-hearted liberalisation policy that was announced then.

By 1989 the situation in the balance of payments front and in the area of foreign exchange assets became so precarious that the country was driven almost to the brink of default. India's creditworthiness sank so low that that no country was willing to advance or lend monies to India. This crisis in the Indian economy left the then government with no other choice than to bring about major economic reforms. But the initiation of market- friendly reforms was largely due to the conditions insisted upon by the International Monetary Fund (IMF) and not because of conviction. Whatever the reason, the overall annual economic growth rate improved to over 7% during the three year period ending 1996-97.

Between 1989 and 1992 the following major economic reforms which were earlier considered 'unthinkable' under a regime which was bent on building in India a 'socialist pattern of society' also known as 'Nehruvian socialism' were introduced:

• Nearly eighty per cent of industries were de-licensed,
  
  
• MRTP restrictions were eased considerably.
  
  
• Foreign trade was liberalised; procedures simplified and the Rupee devalued to bring it nearer to acceptable parity.
  
  
• The Rupee was also made partially convertible along with an in-built mechanism to link a portion of the imports with actual export earnings.
  
  
• Foreign investment was liberalised permitting up to fifty percent equity holding by investors abroad.
  
  
• The private sector was allocated a major role in the economic growth of the country.

These measures resulted in an improvement in the foreign exchange reserves, the trade imbalance was brought under control and government expenses restrained. India's credibility was restored in the eyes of the world.

The feasible potential of a high growth rate of over 7% was achieved. But the vigour soon evaporated when the exigencies of the need to hold on to power led governments to give in to populism and the reforms soon lost their thrust. By 1996 the hard decisions needed to push through reforms in the public sector, particularly , privatisation in the right sense; labour policy reforms, agriculture and social sector reforms, etc. were not taken. The overall growth rate fell to around 5% in 1997-98 and 1998- 99, with a sharp decline in demand, slowdown in industrial output and high rate of inflation.

MNCs which have come into the country have been viewed with suspicion as being detrimental to domestic Indian companies. In fact several Indian companies were either sold off or got merged with the MNCs. At the same time, several MNCs which came into India discovered that there were no easy pickings even among the 200 million plus middle class and shut shop.

The impact of the liberalisation process on agriculture, has, at best, been marginal although agriculture provides livelihood to 65% of the population. At the same time, contrary to popular belief that agriculture is highly subsidised, Indian agriculture suffers from a negative subsidy of Rs.113,000 crores. This is according to a submission by the Ministry of Commerce itself to the World Trade Organisation (WTO). Indian agriculture is the Cinderella of the Indian economy. Like Cinderella it has been neglected all along, while industries were pampered.

Another example of the State's anti-farmer policies is the dumping of agricultural commodities like wheat, onions, etc. by way of imports whenever there is a shortage. The farmers are thus denied the benefit of increased prices. Any worthwhile liberalisation policy should ensure that agriculture gets the importance it deserves in the Indian economy.

The present slump in growth of the Indian economy is unfortunate also in the context of the fact that almost 50% of Indians subsist in acute material deprivation. It is necessary that Insofar as the population explosion is concerned, the Liberal position is that population control measures to attain a sustainable level of population, will improve the quality of life.

In other words, overall economic policy should be guided by the principle of competition, efficiency, productivity and enhanced consumer satisfaction. The basic idea of a free economy in the liberal view is efficiency, full employment and the well being of the people keeping in view the central liberal belief in the dignity of the individual, and, the fact that economic deprivation robs the individual of his or her dignity, measures will be taken to enable people to overcome poverty.

At the same time, a free market system is alive to its social obligations. A government in a social market economy will focus its attention on the social sector which has been sadly neglected. These include the provision of clean drinking water, primary health care, primary education, basic infrastructure like roads and the like. Even here government's focus should not necessarily mean that enterprises and organisations outside the government are not allowed to participate in the social sector. It should be open to anyone or any organisation which seeks to participate in these activities.

[Based on a discussion and general acceptance of Part II of this Paper by a National Workshop on Liberalism held in Mangalore from March 26 to 28, 1999]