OUR ECONOMY reforms, which were adopted after 1991, are responsible for the crisis in the markets. At that time, our economic reformers didn’t pay any attention towards making regulation over markets stronger. The government is currently not regulating the open market properly. Brokers are playing games on a regular basis. Satyam fiasco is also a repercussion of this failure. It seems that present economic policy is also faulty. So it is high time for us to resort to corrective measures.

In fact, reduction in Statutory Liquidity Ratio, Cash Reserve Ratio and Repo Rates are good tools of Reserve Bank of India for generating more funds with Indian banks. These efforts have been made by government to reduce the level of recession. It may be effective too, because these efforts have made available more lendable resources to the industry, trade and agriculture.

Through this fund, the Reserve Bank of India may start open market operations to overcome this crisis. On the other hand, the Indian market is part of global market and globalisation is not without dangers and risks. There is a possibility of failure of these measures too. These measures may increase the level of inflation excessively.

Reserve Bank of India is concerned with the measures taken to regulate the supply of money, the cost and availability of credit in the economy. Further, it also deals with the distribution of credit between uses and users and also with both the lending and borrowing rates of interest of the banks. Besides price stability, to encourage economic growth and to ensure stability, exchange rates of rupee has also come under the purview of Reserve Bank of India.

Hence, it is time to think about our new economy policy. Now sixteen years have passed since we initiated economic reforms, laying greater emphasis on liberalisation and privatisation. Now the question arises whether these reforms have ensured higher and sustained economic growth which the supporters of these reforms argued they would, whether these reforms have led to higher growth rate and reduction of poverty and unemployment which was expected of them. The answer to these questions is in the negative.

Presently, retrenchment in the private sector is in full swing. Aviation, automobile, BPO, media, banking, retail and IT sectors are in the grip of recession. These sectors are incurring huge losses. They are demanding help from the government. Jet Airways chief Naresh Goyal and Kingfisher head Vijay Mallya are demanding all kind of concessions, including huge cut in sales tax, whereas since beginning maximum concessions are being provided to all private sector enterprises. In spite of that the private sector is retrenching young work force.

In this connection, a question arises: Why is the private sector paying more salary to their employees for same work which employees of public sector are also doing? Obviously, the private sector is imitating the American market where capitalist culture prevails. Private sectors banks are distributing loans without proper appraisal and accountability. If income of a borrower is less than the installment, the loan amount will certainly not come back. Through this step we can increase our profits, but it will run up only to a short period. Nowadays, American banks are facing the same situation.

In the new economic policy, the concept of mixed economy has been abandoned. The government has started reforms in public sector enterprises. The main elements of government policy towards public enterprises are:

1. Government equity in all non-strategic sector undertakings has been lowered from 100 per cent to 26 per cent.
2. Those public sector enterprises which are potentially feasible have to be restructured and revived.
3. Those public sector enterprises which are not potentially viable would be closed down.

In this exercise, without proper investigation some good public sector enterprises like Modern Food, Balco, CMC, HTL, LJMC Hotels, HCI, IBP, VSNL, PPL, HZL, Maruti and IPCL were disinvested up to 26 per cent. The new approach adopted for public sector disinvestment is called ‘strategic sale’. Simply put it means that the government, instead of off-loading a minority percentage of its equity in markets either at home or abroad chooses to sell blocks of shares, usually more than 26 per cent of its stake, to an investor, ideally having a strategic interest in the company. This is accompanied by the transfer of management control. Latest recession in the Indian market is just a repercussion of such measures which are being implemented by the Indian Government.

The strategic sales approach to public sector disinvestment during 2001-2002 and 2002-03 was quite successful. But Supreme Court in its judgment in September, 2003 restrained the Central Government from proceeding with disinvestment in Hindustan Petroleum Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) through strategic sales without amending the law. The Supreme Court also pointed out other irregularities in sale of public sector undertakings.

New economic policy was successful for a long time, but latest recession is defeating the concept of new economic policy, despite so many concessions being provided to the private sector. Besides, private sector never took any interest to invest in infrastructure sector too.

The UPA Government decided to raise resources from the capital market and for this, it pledged to devolve full managerial and commercial autonomy to public sector enterprises, while there should have been proper control. The government, Reserve Bank India and SEBI did not regulate the share market. The private sector did everything for making profits, nobody paid any attention towards the crisis. Today, the private sector is hoping to get relief from the government, while earlier it used to exploit the consumers on the one hand and workers on the other.

It is true that some public sector undertakings are running at a loss, but they are fulfilling social responsibilities. After bringing reforms in public sector organizations, the situations might have been changed. But supporters of the new economic policy thought private sector to be a panacea of all problems.

The followers of economic reforms argued for diluting the role of public sector as it does not guarantee competence in production laid great stress on government failures in promoting economic growth. They, however, turned a blind eye to the market failure.

It is not being suggested that we should go back to ‘licence raj’, what we are stating is that markets need to be tuned efficiently by the government. The stock market scam of 1992 led by Harshad Mehta, stock market scam of 2001 engineered by Ketan Parikh and present slump are examples of ineffective control by the government. Again UTI debacle of July, 2001 suspending the sale and repurchase of US 64 units has shown how activities of mutual funds need to be efficiently regulated and not left to the free working of markets.

Apart from ruling of markets and private sector what is needed in the context of the Indian economy is the overriding role of government in stepping up public sector investment in infrastructure if sustained rate of higher growth rate is to be achieved. Government role is also crucial for adequate investment in social sectors such as education, health care and poverty mitigation programmes which are normally neglected by the private sector. Increase in public sector investment will generate demand for the industrial output and by this means help in lifting the economy out of recession.

Besides, for the purpose of poverty elevation, undertaking of rural infrastructure like irrigation facilities, flood control projects and to utilise not only accumulated food stocks but also to generate employment opportunities for the poor is where the government should increase its overheads. We should not follow blindly, IMF-inspired policies.