Economic liberalisation and its faults (Why private sector dependence is proving lethal)

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 Economic liberalisation and its faults (Why private sector dependence is proving lethal)

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• Where it all started: The 1991-92 Budget speech of Dr Manmohan Singh (finance minister) was the start of dismantling the 'Licence Raj' in India. India got a new liberalised Industrial Policy, imports were made easier, and FDI allowed.
• What MNCs did from 1980s: The large companies of West started moving production to smaller firms in emerging countries, as it was far cheaper on both labour and raw material front to do so.

1. Since the polluting industries went abroad, the Western states also supported it
2. Ownership remained with the MNCs 
3. A global supply chain concept emerged in many products, especially garments

• Global chains: Many countries became a part of the global value / production / supply chains, but China made the most of this opportunity. 

1. Soon, instead of more decentralisation across countries, centralisation in a few began happening
2. China started adding huge value at its own level, becoming the manufacturing hub for the world  (through backward integration)
3. China took the leadership position in PPE, APIs and medical device diagnostics!  (PPE - Personal Protective Equipments, APIs - Active Pharmaceutical Ingredients)
4. A downside was the poor working conditions for labourers, without social safety. An unorganised army of labourers was created everywhere (making relief during COVID-19 difficult)

• COVID-19 hits: Today, most countries lack the manufacturing base to respond urgently to COVID-19. The US president had to invoke the '1950 Defence Production Act' to ask companies to shift from normal manufacturing to making the N95 masks.

1. UK issued similar instructions
2. Spain nationalised all hospitals, and France has indicated the same
3. Israel and Chile are controlling medicine prices
4. China's Jack Ma (Alibaba) sent a huge quantity of PPEs to the US (exposing the US completely)

• Simple lesson: Clearly, what is good for private companies is not always good for the country. The single-minded pursuit of private sector growth can be disastrous.
• India lost in two ways: Liberalisation hit India in two ways -

1. The end of 'License Raj' led also to end of information gathering by government. So it does not know how many medicines are being made by which pharma company in India! Other than vaccines, no information was instantly available.
2. Focus on more profits meant that private sector imported raw material from cheapest sources, and debased the API industry. Today, 70% of API imports are from China. For 58 medicines, dependence is upwards of 90%.
3. COVID-19 disruptions in imports has hurt medicine production in India badly. So India is not able to supply to the world (which is asking for it) - hence the exports restrictions

• Dangerously dependent even for PPEs: Governments are totally (100%) dependent on Reagents (chemical component for testing) and hence the cost of tests is high. For India's population of 1.36 billion, we need large scale of testing. Affordable tests are not happening due to imports dependence. India is neither able to make PPEs and ventilators nor able to import the same quickly.
• Message from the Virus: The virus has clearly given the signal to India that to meet the next pandemic head on, it will need to build domestic health products mfg. capacity.
• Summary : Economic liberalisation has destroyed the domestic medical manufacturing ability of India (and others) making it totally dependent on few centres of production.

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