Political changes, unrest in parts of the country, and the 1990 Persian Gulf crisis compounded the already volatile situation. The crisis caused oil prices to rise, substantially increasing the cost of oil imports, and foreign exchange earnings to drop. India's creditworthiness, already under strain, became even more vulnerable as Indians from abroad withdrew their substantial foreign currency deposits and commercial banks reduced their exposure. Toward the end of 1990, India's creditworthiness was downgraded, effectively cutting its access to sources of commercial credit. By early 1991, India was on the brink of default.
The 80s will be remembered as the decade of global impoverishment linked to the Bank and the IMF's infamous medicine: the Structural Adjustment Program (SAP). These programs are being implemented in over 70 Third World and Eastern European countries with devastating results. The Bank-IMF sponsored SAP has two phases. The first phase is short-term macro-economic stabilization. It is followed by implementation of a necessary structural reforms phase. In the early 80s, most SAPs focused on a narrow range of policies aimed at reducing account deficits.
As the debt crisis deepened and it became obvious that the stabilization programs were not working, the US Treasury Secretary, Mr. James Baker came up with a strategy to solve the debt crisis. This was called the 'Baker Plan'. Under this plan, the WB was asked to impose more comprehensive conditions on the debtor countries. By 1990, majority of the countries that had received conditional loans from the IMF also received structural adjustment loans with harsh conditionalities from the Bank.
In 1992, the bank's lending for SAPs totaled 5847 million or 27% of its total commitments. More than 70 countries are subjected to 566 IMF and World Bank stabilization and SAPs in the last 14 years. These countries were told that the structural reforms were essential for sustaining growth and economic stability. Faced with the threat of a cut off of external funds Aid needed to service the mounting debts incurred from western private banks in the 1970s, these countries had no choice but to implement the painful measures demanded by the Bank.
Fourteen years after the World Bank issued its first structural adjustment loan, most countries are still waiting for the market to "work its magic". Despite global adjustment, the third world's debt burden rose from $785 billion at the beginning of the debt crisis in 1978 to $1.3 trillion in 1992. The structural adjustment loans from the Bank have enabled the third world countries to make interest payments to western commercial banks. Having done this, the Bank went on applying adjustment policies to assure a regular supply of repayments in the medium and long term. Thus, the structural adjustment has brought neither growth nor debt relief, it has certainly intensified poverty.
The series of policy measures launched by the Indian government are part of structural adjustment program in India. Government has taken up following measures to implement SAP :
· Devaluation of rupee by 23%
· New Industrial Policy allowing more foreign investments
· Opening up more areas for private domestic and foreign investment
· Part disinvestment of government equity in profitable public sector enterprises
· Sick public sector units to be closed down
· Reforms of the financial sector by allowing in private banks
· Liberal import and export policy
· Cuts in social sector spending to reduce fiscal deficit
· Amendments to the existing laws and regulations to support reforms
· Market-friendly approach and less government intervention.
· Liberalization of the banking system
· Tax reforms leading to greater share of indirect taxes
All the above men-tioned ingredients of SAP are based on the Anderson Memorandum titled "Trade Reforms in India" dated Nov. 30, 1990 submitted to Government of India by the World Bank. It is interesting to note that this memorandum was not disclosed to the then Prime Minister, Mr. Chandra Shekhar, the then Finance Minister and the Cabinet Secretary by a group of senior officials in the Finance Ministry. Incidentally, all these officials were ex-World Bank and ex-IMF employees
When these 'reforms' were initiated, the Government denied any pressure from the Bank or IMF but had few takers. But very few believed in it. The Government's claim that they had been independently decided to carried little weight. Later on the Finance Minister told Parliament that the loans of the Bank and IMF carry conditionality’s. In fact, the Finance Minister did not disclose about his correspondence with the IMF and the Bank, due to great public pressure, he presented to Parliament the terms of the IMF standby credit of $2.2 billion. But, the same consideration was not applied to reveal the policy conditions accepted under the Structural Adjustment Loan of $900 million by the World Bank. When news of the Bank having access to the 1992-93 budget and the Eighth Five Year Plan document prior to their presentation to Parliament,, the government was forced to make them public.
Under SAP, WB is not supervising individual sectors of the Indian economy such as agriculture, social sector and energy sector. The Bank now monitors the entire macro-economy such as balance of payments, fiscal deficit, foreign investment, money supply, etc. The public expenditure reviews are a part of the Bank's conditionality’s. Under this review, the Bank not only asks for cuts in expenditure but also gives detailed instructions for cuts in specific sectors. The health budgets in recent years are an example of this. Health, far from being accepted as a basic right of the people, is now being shaped into a saleable commodity, thereby, excluding those with less or no purchasing power. The existing distortions of health services in India are getting accentuated with the Government following the Bank's agenda on healthcare. The budget of 1994-95, of which health care forms just 0.58% is an indication of the government willingness to adopt Bank's policies. In India, the health care agenda is increasingly being set out by the Bank rather than by the people and the Indian state.
This is a compilation of different observations on India's economic policies with my own additions here and there.Thanks to the different websites and authors for the information provided