ABSTRACT
Introduction This chapter looks at a very clear theoretical prediction of neo-liberal economics. The neo-liberal school is adamant that it has basically solved the problem of development. Poor economic outcomes, it argues, are due to mistaken or poor policies, so amending those policies will improve growth and efficiency. This conviction is manifest in the extreme reluctance of neo-liberal economics to consider alternatives. In analysis by neo-liberal economists it is frequently the case that reform is considered synonymous with liberalisation and that the success of reform can be measured by the degree to which liberalisation has been implemented. This chapter introduces the case study of India and shows how a (perceived) disappointing economic performance after independence came to be blamed on excessive government regulation, intervention and an inward-looking trade strategy. The chapter illustrates how five policy areas were substantially liberalised over the course of the 1990s. These are fiscal policy, international trade, the capital account and foreign direct investment, the financial sector, and the role of the state. For each of these policy areas the relevant neo-liberal theory linking liberalisation to growth is introduced and a summary made of corresponding reforms during the 1990s. Together, policy reforms in these five areas indicate that the Indian economy has been substantially liberalised since 1991. The strong implication is that economic growth rates and economic efficiency should have increased after 1991. The next section demonstrates the first paradox: despite the clear predictions of neo-liberal theory, neither growth nor efficiency increased in India, despite extensive liberalisation, over the 1990s. The chapter then considers the second paradox: growth and efficiency both increased sharply in the late 1970s and early 1980s, at least a decade before the onset of sustained liberalisation in 1991. The chapter then shows that the structural break in growth and productivity after the late 1970s can be causally related to the very sharp increases in public investment that occurred at the same time. From this, the chapter then goes on to argue that reforms in 1991 had a very different implication and meaning from the conventional wisdom. The chapter concludes by questioning the validity of the growth-liberalisation nexus champi-
oned by neo-liberal theorists, arguing that there is a crucial need to consider alternatives.
