A Brief History of India’s Education System

Part 3A: Education Under Neoliberalism: 1990–2014

[This article is a part of a series of articles on India’s Education Journey from Macaulay to NEP. This is the third part of this series. The previous articles have been published in previous issues of Janata Weekly.]

A: Discarding Nehru Model for Neoliberalism

By the mid-1960s, the Nehru model was in crisis. The economy had started stagnating, and both industry and agriculture were in serious crisis. While during the first fifteen years after independence (1951–65), manufacturing output grew at a healthy average annual rate of 7.1 percent, the subsequent 15 years (1965–80) saw this rate fall to only 3.8 percent. [1]

1980s: Partial Liberalisation

The Nehru model had led to a gradual growth of capitalist classes both in the cities and countryside. With the domestic market saturating and economic growth slowing down, the capitalist classes started pressing the government for a relaxation in import controls on raw materials and machinery, in the hope that this would lead to a boost in exports.

Liberalisation of imports required foreign exchange, and so in the early 1980s, the Indian Government decided to approach the International Monetary Fund (IMF) for a huge foreign loan of SDR 5 billion (roughly $6 billion). Indira Gandhi, who was the Prime Minister then, knew that taking any such loan would require the acceptance of an economic reform package. Anticipating that there would be significant domestic opposition to these conditionalities, the government in its negotiations with the IMF offered to voluntarily implement economic reforms and partially liberalise the economy, without signing a formal agreement with the IMF on such an economic reform programme. The reforms promised included reducing government subsidies to the people, and gradually removing restrictions on imports and taking vigorous steps to promote exports.[2]

The IMF agreed to grant this loan, the largest ever given by the IMF to a third world country at that time, as it wanted to increase its lending to the underdeveloped countries (or ‘developing countries’—as they are called in international official jargon). Acceptance of an IMF loan by a country like India would greatly increase IMF’s acceptability amongst the underdeveloped countries. The loan was granted in November 1981. [3]

The economic reforms led to a revival of manufacturing growth in the 1980s, with the average annual growth rate rising to 8.8 percent during the second half of the decade. An important reason for this was a substantial liberalisation of imports. This import liberalisation was not tied to a larger export effort; its main immediate thrust was towards producing more goods—especially luxury goods—for the domestic market. The flip side of this was a rising trade deficit, which in turn led a large increase in the current account deficit (CAD).[4]

Consequence: Entrapped in Debt

To finance the growing CAD, the government resorted to external commercial borrowings. Debt servicing of the borrowings led to a further rise in CAD, and that led to yet more borrowings.

To understand this, it is important to understand the difference between ‘internal debt’ and ‘external debt’ for underdeveloped countries like India. They can repay internal debt in their domestic currencies, but not external debt. Due to inequalities in world trade, international trade only takes place in the currencies of the developed countries, like the dollar, euro or yen. Therefore, when an underdeveloped country, like India, accumulates foreign debt, it cannot repay it in its domestic currency, in this case rupees. It has to repay it in international currency like say dollars. And if it does not have enough foreign exchange earnings to pay the service charges on this debt, it will then need to borrow yet more dollars for this, leading to a further rise in its external debt, eventually pushing the country into an external debt trap.

This is precisely what happened with India. As fresh debt was contracted even to pay off old debt, the loan terms became stiffer, the maturity period shorter, and this led to a rapid escalation of the country’s external debt, from around $20 billion in 1980 to more than $80 billion by 1990.[5] The Indian economy was caught in an external debt trap: we were borrowing from abroad to pay even the service charges on our previous debt.

The developed capitalist countries, who not very long ago were the imperial masters of most countries of Asia and Africa, were looking for just such an opportunity. They had been forced to retreat and grant independence to India and other countries colonised by them after a tidal wave of powerful independence struggles had swept across these countries in the years after the end of the Second World War. Ever since then, they had been looking for alternate ways to bring the former colonial world back under their hegemony and ensnare it once again in the imperialist network, so that they could once again control its raw material resources and exploit its markets.

By the late 1980s, with the Indian economy caught in an external debt trap, the Western imperialist powers sensed that the time was opportune to force the Government of India into restructuring the economy on their terms. The World Bank (WB), an international financial institution that is decisively controlled by the US and West European countries, submitted a memorandum to the Indian Government in November 1990 ‘suggesting’ economic reforms like opening up the economy to foreign investment, liberalising trade, privatisation of the public sector, reforming the financial sector, and so on. Simultaneously, the Western creditors put on hold fresh loans to the Indian Government, demanding that it implement these policy changes. [6]

With foreign loans drying up, the foreign exchange reserves of the country plummeted to just $1.2 billion by end-December 1990. By early 1991, the Indian Government was entrapped in a situation wherein, if it wanted to avoid external account bankruptcy, it had no option but to accept the demands of its international creditors.

1991: Globalisation Begins

The Nehruvian model of development had gradually led to a huge increase in the wealth of the capitalist classes: the capitalists, big farmers, big traders, politicians, bureaucrats, smugglers, dealers, distributors, black marketeers, mafia, etc. They comprised less than 5 percent of the population. But due to their economic power, they now exercised a decisive influence over the mainstream political parties in the country and so were in a position to influence the direction of economic policies.

By the 1970s, the path of relatively autonomous capitalist development preferred by the Indian capitalists after independence had become mired in severe structural crisis. And so in the 1980s, they mounted pressure on the Indian Government to experiment with partial liberalisation. While it entrapped the Indian economy in an external debt crisis, it also led to increased growth. The capitalist classes now came to the conclusion that in order to expand their profit accumulation, they had to abandon their dream of independent capitalist development, accept the conditionalities imposed by the imperialists, dismantle the Nehruvian model and open up the economy to foreign investment and imports.

In accordance with their wishes, in mid-1991, the Congress Government of Narasimha Rao–Manmohan Singh went in for a Structural Adjustment Loan from the WB–IMF, in return for which it signed an agreement pledging a thorough restructuring of the Indian economy. The main elements of this Structural Adjustment Package (SAP) accepted by the Government of India were: [7]

• Free Trade: Removal of all curbs on imports and exports;
• Free Investment: Removal of all restrictions on foreign investment in industry, agriculture and the financial sector;
• Reduction of Fiscal Deficit: Bringing down the fiscal deficit to near-zero, by reducing government subsidies to the poor, including food, health and education subsidies;
• Free Market: No government interference in the operation of the market. This means:
• Privatisation of public sector corporations, including public sector banks and insurance companies;
• Privatisation of essential services provided by the government, like drinking water, health, education, etc.;
• Removal of all government controls on profiteering, even in areas like foodgrains.

It is this ‘restructuring’ of the Indian economy at the behest of the country’s foreign creditors that has been given the high-sounding name globalisation. This has been accompanied by the propagation of an economic doctrine popularly known as neoliberalism which claims human well-being can best be advanced by free markets, including privatisation, free trade and deregulation.

Since 1991, while governments at the Centre have kept changing, globalisation of the Indian economy has continued unabated, which only means that all the mainstream Indian political parties are in agreement about the implementation of neoliberal economic policies. The essence of these policies is that the economy is now being run solely for the profiteering of big business houses, abandoning all concern for India’s impoverished masses.

Notes

1. C.P. Chandrasekhar, “From Dirigisme to Neoliberalism: Aspects of the Political Economy of the Transition in India”, Development and Society, Vol. 39, No. 1, June 2010, pp. 29–59, http://isdpr.org.

2. Praveen K. Chaudhry et al., “The Evolution of ‘Homegrown Conditionality’ in India: IMF Relations”, The Journal of Development Studies, Vol. 40, No. 6, August 2004, http://people.hws.edu; Arvind Panagariya, India in the 1980s and 1990s: A Triumph of Reforms, 6 November 2003, http://www.imf.org; Atul Kohli, “Politics of Economic Growth in India, 1980–2005, Part I: The 1980s”, Economic and Political Weekly, 1 April 2006, p. 1255, http://www.princeton.edu.

3. Praveen K. Chaudhry et al., ibid.; Atul Kohli, ibid.; Arvind Panagariya, ibid.

4. C.P. Chandrasekhar and Jayati Ghosh, The Market that Failed: A Decade of Neo-liberal Economic Reforms in India, Leftword Books, New Delhi, 2006, http://cscs.res.in.

5. Ibid.

6. Dalip S. Swamy, The World Bank and Globalisation of Indian Economy, Public Interest Research Group, Delhi, 1994, pp. 5, 15, 19.

7. There are several articles available on the internet outlining these conditionalities. See for example: Structural Adjustment in India, World Bank, 2012, http://lnweb90.worldbank.org; Montek S. Ahluwalia, Structural Adjustment and Reform in Developing Countries, April 1994, www.planningcommission.nic.in; Ashwini Deshpande and Prabirjit Sarkar, “Structural Adjustment in India: A Critical Assessment”, Economic and Political Weekly, 9 December 1995, http://www.epw.in; David Harvey, A Brief History of Neoliberalism, Oxford University Press, 2005, pp. 7–8, 29, 64–66.

[Neeraj Jain is a social activist and writer. He is the convenor of Lokayat, an activist group based in Pune. He is also the editor of Janata Weekly, India’s oldest socialist magazine. He has authored several books, including Globalisation or Recolonisation?, Education Under Globalisation: Burial of the Constitutional Dream, Nuclear Energy: Technology from Hell, and most recently, Union Budgets 2014-24: An Analysis.]