The decade of the 1990s, about which there has been so much hype, was actually nothing short of an economic development disaster for India, when the real per capita consumption expenditure in rural India went down in absolute terms. The figure (at 1987-88 prices), which stood at Rs.164 in 1991, according to the National Sample Survey (NSS), was lower in every subsequent year of the decade, except 1997 when it came up to Rs.167; in 1998 it was Rs.153. It is not surprising that the headcount ratio of poverty for rural India showed an increase during the decade, reversing the declining trend of the 1980s. Such an increase in rural poverty in a country where rural poverty is already both massive and abysmal cannot but be called a disaster.
 
An important factor underlying this disaster was undoubtedly the sharp decline, relative to gross domestic product (GDP), in the development expenditure of the government. It is fashionable to decry government development expenditure as a "set of populist gimmicks" and to point to the large "leakages" that occur from such expenditure as it makes its way towards its ostensible target. But the fact remains that there is an unmistakable correlation between government development expenditure and the magnitude of rural poverty. Such expenditure, notwithstanding all "leakages", puts some purchasing power, directly or indirectly, into the hands of the rural poor; it does so inter alia by generating (again directly or indirectly) non-agricultural employment in rural areas. A curtailment in this expenditure both curtails the pace of (or even reverses) occupational diversification, and exacerbates poverty in the countryside.
 
This is precisely what happened in the 1990s. The reason for the relative decline in government development expenditure is not far to seek. From whatever data are available, it appears that during the 1990s the share of total government revenue in GDP (taking the Centre, the States and the Union Territories together) has not declined; the share of tax revenue has declined slightly but this has been offset by an increase in the share of non-tax revenue (including the surpluses of the much-maligned public sector enterprises). The share of total government outlay, however, has declined, since the gross fiscal deficit as a proportion of GDP has been curtailed. In addition there has been a change in the composition of this outlay, where non-development outlay (including, in particular, interest payments by the government) has increased at the expense of development outlay.
 
Now, the cut in the share of tax revenue, the curtailment in the share of fiscal deficit and the maintenance of a high interest rate regime are all associated with the process of economic "liberalisation". Once the economy adopts a more liberal trade regime, customs revenue, and hence by implication the overall indirect tax revenue, tends to fall relative to GDP. (It may be thought that cuts in customs duties could be offset by increases in excise duties, but this would be pushing the economy quite gratuitously into de-industrialisation). Once the economy opens itself up for capital flows, then (even in the absence of full convertibility of the currency) it has to worry about the "confidence of foreign investors", and in order to boost such "confidence" keep interest rates high and the fiscal deficit low.
 
In short, all the factors underlying the economic development disaster of the 1990s are associated with the policy of "liberalisation". The disaster, in other words, is a direct fallout of this policy. The usual justification advanced for "liberal policies" is that by attracting foreign investment they would lead to a faster rate of growth in the economy. The example of China is often invoked in support of this claim. Such invoking is not legitimate, since China's existing economic regime can by no stretch of imagination be called "liberal" in our sense; but let us leave this issue aside for the moment. There can scarcely be any dispute over the fact that China's phenomenal growth record is associated with its high investment ratios. It follows then that if "liberalisation" were to achieve higher growth a la China, it should be raising investment ratios here to start with. What is remarkable about the 1990s, however, is that the investment ratio has not shown an increasing trend; what is more, the ratio of gross capital formation to GDP has been lower in every year during the decade compared to the level attained in 1990-91. While the 1990-91 figure was 27.7 per cent, the figure for 1997-98 has been 26.2 per cent and for 1998-99 a paltry 23.4 percent. Thus, the economic development disaster of the 1990s has not even had a silver lining by way of an increased investment ratio that could put the economy on a higher growth trajectory.
 
It is shocking in this context that the Finance Minister should say that "the overall economic situation in the country was healthy" (The Hindu, February 13). But if his perception is flawed insofar as he ignores poverty, his prescription is inadequate insofar as he talks of tackling poverty. At the same meeting (of the Parliamentary Consultative Committee attached to the Ministry of Finance) he reportedly said that "the country had to work towards a growth rate of 7 per cent to eradicate poverty in the next 10 years." Between 1993-94 and 1998-99, as per the statistics provided by the Central Statistical Organisation (CSO), the country has already achieved a growth rate in excess of 7 per cent; in fact the growth rates for these five years were 7.8, 7.6, 7.8, 5.0, and 6.8 per cent respectively. Yet, at the end of these five years, rural poverty is perhaps higher than what it was at any time during the decade. To believe that five more such years would eradicate poverty betrays naivete.