1990, the year when India faced its worst economic crisis ever since Independence.The crisis which made India unfasten its journey towards high degree of economic nationalism with far reaching and radical regulations in the economy.
2020, the most unprecedented year in history, the year that led to the spread of coronavirus crisis globally and hit India adversely like a tsunami. A tsunami that has been hitting India ever since it kicked off with increasing number of cases and shocking amount of deaths.
Today marks India’s 30 years of liberalisation. With the introduction of the new industrial policy on 24 July 1991, India had witnessed ever changing economic and political revolutions.
The role of the public sector had been revised as part of the policy. The NIP 1991 established a focused reform agenda for the public sector, which included the disinvestment programme. Major industries that were formerly reserved for the public sector had been welcomed by the private sector.Foreign investment, likewise, had been welcomed under the policy. To distinguish and highlight the post liberalisation era, the post 1991 time period can be demarcated from the 1980s economic recession. The Covid crisis on the other hand was one of the most brutal crisis on people.Not only did it impact every Indian citizen economically but also physically and emotionally.Overwhelmed hospitals, lack of oxygen and packed crematoriums was a snapshot of the covid crisis in India.
Both the crises did not develop overnight. They were a result of decades of imprudence, lack of efficiency ,with a contribution of policy errors and malfeasance.
March 1991 marked the growing fiscal imbalance over the 1980s, spiralling oil prices due to Gulf war which adversely affected the import of India.Foreign exchange reserves were at Rs 2500 crore only. Debt was unbelievably high with foreign debt amounting to 23% of the GDP and the internal public debt was 55%. Just when India’s economy was on ventilator, India had a new Government with PV Narasimha Rao as its Prime Minister. With the economic crisis there were added political instabilities due to the assassination of Rajiv Gandhi. The battle to save India economy was still on and became the responsibility of Dr Manmohan Singh who was declared as India’s Finance Minister. In July 1991, the government’s policies changed India. The India Rupee was devalued by 9% and then 11%, under the New Trade Policy, quotas were removed which made exports easier,47 tonnes of gold was transported to Bank of England enabling India to borrow 400 million dollars.PJ Kurien ,The Minister of State of Industry introduced the New Industrial Policy, under which the industries reserved for public sector were reduced from 17 to only 8.
With these radical economic changes by the government, India changed – fiscal deficit was curbed , FDI was welcomed and domestic market became free.
Comparably, the first images of COVID-19 in India are associated with migrant labourers trudging back to their villages hundreds of miles away. With most of the economy shut down, the fragility of India’s labor market was patent. It was estimated that in the first wave, almost 10 million people returned to their villages, half a million of them walking or bicycling. After the economic stoppage, the International Labor Organization had projected that 400 million people in India risk falling into poverty.The Agricultural sector being the largest employer was shaken drastically. The credit rating agencies had drastically cut India’s GDP forecast from their earlier projection. However, the key to handle this crisis was to ensure that this temporary shock does not become a more permanent shock. The crisis led to substantial layoffs with firms closing down.The goal of the Government should have been to form bridges between now and then so that the economic conditions of the most vulnerable households in India like the poor and the migrants could be revived.The small and medium firms which received shocks after shocks needed utmost help from the Government in power. However during such an unprecedented time, when the highest priority of the Government was to spend money on medical facilities, ventilators and masks , it could only provide a temporary income support to the affected households and firms. Some of the measures undertaken by the Government included ‘Pradhan Mantri Garib Kalyan Anna Yojana’ which was announced in March 2020, to reach out to the poorest of the poor, with food and money in hands, so that they do not face difficulties in buying essential supplies and meeting essential needs.The Ministry of Commerce and Industry launched The Invest India Business Immunity Platform to help businesses withstand COVID-19.The Department of Agriculture, Cooperation and Farmers Welfare, Government of India took several measures to facilitate the farmers and farming activities at field level during the lockdown period, by operating ‘mandis’ that included direct marketing from the farmers.
However with the increase in the magnitude of the corona crisis, the financial position kept worsening for several quarters. The country’s unemployment rate reached 27.1% indicating a bloodbath in the wake of the pandemic. The booster dose announced by Mr Modi for the economy of 20 lakh crore rupees aimed to focus on farmers, MSMES and agricultural sector.To make India ‘self reliant’ and use the crisis as an opportunity was the goal of the Modi Government.
India’s economic challenge has created havoc on economies across the globe.With normal economic activity disrupted on an unprecedented scale, the pandemic’s fallout is one of the biggest shocks in generations.
As compared to the 1990 economic recession , Covid economic crisis remains yet unsolved. The duration of this crisis is a big uncertain element.The solution to this current economic distress is not only reliable on fiscal and monetary measures like the 1990 recession , but also on public healthcare -finding a vaccine, finding effective antivirals and finding appropriate ways of testing.
The biggest lesson from either of the crises has been the need to have a counterintuitive heart.We are all interconnected and the crisis has no border.The need to communicate with other nations, exchange ideas ,services and technologies are the ideal measures for building long term resiliency in the face of such challenges.Embracing the world by opening up and allowing exchanges is the only way to grow in the global family that we have.
Author: Suhani Gulati
Welham Girls School