The following piece was originally published in the October 1994 edition of the Freedom First Magazine. It contains important excerpts from the speech of Prof. Gangadhar Gadgil who was invited to deliver the Rajaji Birthday Lecture in 1994, by the Rajaji Foundation. 

Prof. Gangadhar Gadgil delivered this year’s. Rajaji Birthday Lecture. The subject: “The Swatantra Economy – Obstacles and Challenges”. Referring to the new economic policy, Prof. Gadgil observed: “Even five years ago, it seemed impossible that such far-reaching changes in our economic policy and system would take place so soon and on such a scale. But the seemingly impossible appears to be taking place. Rajaji and those like Minoo Masani who shared his views stand vindicated. A Swatantra economy is enlarging and is taking shape.” 

Is the process of liberalization irreversible or will it continue by its own momentum and even gather strength? asked the speaker and answered that the process was unlikely to reverse itself for the simple reason that “socialist centrally planned and highly regulated economies do not work. They are not only inefficient, they are also unsustainable.” However, warned Prof. Gadgil: “A realistic assessment of the situation does not indicate that the liberalization process will be unhampered and smooth.”

According to Prof. Gadgil factors favouring liberalisation were: 

Economic power in the world was now in the hands of free economies who also control international institutions like the World Bank and the IMF. The rulers of these countries are convinced that “the economic lame ducks in the world can be set on their feet only through Liberalization”

In Europe, in North America and in the Asia Pacific Region, large free trade areas are being established.

Even diehard dictatorships in countries like Burma, Vietnam are liberalizing their economies for survival and growth.

To obtain essential imports we have neither to export or obtain in capital from abroad. This necessitates our attracting foreign private investment which will only come if our economy is free and open in large measure. 

While these factors indicate that liberalization is by and large irreversible, there are threats, as is evidenced from the problems in Russia where the process could end in failure and reversal. 

Dealing with the conditions that could defeat the liberalization process in India, Prof. Gangadhar Gadgil pointed out the crucial importance of law and order and price stability. “If life and property are not secure, if criminals can interfere with and impose arbitrary burdens on business and commerce, if there is an unholy marriage of crime and politics and inflation runs wild the liberalization process would be arrested and throttled,” warned Prof. Gadgil. 

Evidence of a breakdown of law and older are already available not only in North East India and Kashmir but has reached serious proportions also in states like UP and Bihar. In Bombay criminal elements engaged in smuggling, drug trade and real estate development virtually brought commercial activity to a standstill twice in the recent past

Another factor obstructing the liberalization process is the activities of trade unions engaged in large scale intimidation. By opposing the closure of inefficient, loss-making units;, the break-up of public sector monopolies and privatisation of public sector enterprises, these unions were actually throttling growth. What is worse is that they make use of criminal elements in doing so and some of them have been taken over by criminals. 

Among other dangers to the liberalization process were : 

• Fiscal discipline, frauds in the financial sector and uncontrolled monetary expansion;
• the reluctance of public sector monopolies to relinquish their monopoly control with ministers in charge of these monopolies themselves resisting the process of liberalization and insisting on giving approvals on ‘a case by case’ basis or as some wags put it on ‘a suitcase by suitcase’ basis;
• the fact that despite the declared intention in giving up licencing, controls and subsidies, entrepreneurs are continuously subjected to various regulations by politicians and bureaucrats. 

The politicians and bureaucrats who obstruct the liberalisation process for their own narrow selfish ends have unfortunately the support of large classes of people like employees in the public sector, farmers, small manufacturers and others who benefit from the controls, regulations and subsidies in our present economy. In reality the losses they suffer because of the present economic system, are far more than the gains they secure from it. It is however a very difficult task to bring it home to them.

Perhaps the biggest obstacle to liberalization is the emasculation of the people and the development of the habit of total dependence on the state for the solution of their problems. “When a population loses its character and ability to be sturdily self-reliant, it is unlikely to support the dismantling of the socialist welfare state. On the contrary, the people are likely to support continuation of the socialist welfare state because it protects them from demands that a free market economy makes on them,” observed Prof. Gadgil. 

Emphasizing the importance of voluntary organizations and voluntary effort in social life, Prof. Gadgil expressed the view that this would help reduce the social and political malaise from which the country is suffering. Unfortunately the country had “a large army of pseudo voluntary social workers, who are exploiting society for their.own benefit. Instead of being the defenders of individual liberty and independent voluntary effort, they are becoming instruments of corruption. These voluntary workers and the politicians generate cynicism in society and give rise to extremist movements, which are committed to wholesale destruction of the existing order.”

Pointing out the need for voluntary workers who steadily build independent social organisations which are committed to steady, constructive effort and which firmly resist encroachments on individual liberty by the Government”, Prof. Gadgil said that fortunately there were, even today a few such organisations in India. He pointed out men like Anna Hazare and Pandurangshastri Athavale who have built such organisations. 

Concluding the 1994 Rajaji Birthday Lecture, Prof. Gangadhar Gadgil underlined the crucial need for the policy of liberalisation to succeed. He said: “Liberalisation might cause pain in the short run but it will bring immense benefits in the long run. It has been done in so many Asian countries, which until recently were as poor and undeveloped as we are. We must learn from their experience and find ways of minimizing economic distress as we progress along the path of liberalisation.”