Neo liberalism and Washington Consensus -

The concept and name of the Washington Consensus were first presented in 1989 by John Williamson, an economist from the Institute for International Economics, an international economic think tank based in Washington, D.C.

1. Neo-
liberalism in
India
•Neoliberalism is a policy model that encompasses
both politics and economics.
•It is a set of economic policies that have become
widespread during the last 40 years.
•Neoliberalism is a policy model that encompasses
both politics and economics.
•. It favors private enterprise and seeks to transfer the
control of economic factors from the government to
the private sector.
A general characteristic of neoliberalism is the desire
to intensify and expand the market, by increasing the
number, frequency, repeatability, and formalization
of transactions.
•The ultimate goal of neoliberalism is a universe
where every action of every being is a market
transaction, conducted in competition with every
other being and influencing every other transaction,
with transactions occurring in an infinitely short
time, and repeated at an infinitely fast rate.

2. Neo liberalisation vs Capitalism
•Neo-liberalism is not an economic structure, it is an ideology followed by a
set of people called capitalists.
•Capitalism is an economic system which follows neo-liberalism as its policy.
Capitalism is often thought as an economic system in which private actors
own and control property in accord with their interest, demand and supply
determines prices in markets in a way that can serve the best interests of
society.

3. Who advocated Neo-liberalism
•TheWashington Consensusis a set of 10 economic policy prescriptions
considered to constitute the "standard" reform package promoted forcrisis-
wrackeddeveloping countriesby Washington, D.C.–based institutions such as
theInternational Monetary Fund(IMF),World Bank, and theUS Treasury
Department.
•The term was first used in 1989 by English economistJohn Williamson.
•Neoliberalism is often associated with the leadership ofMargaret Thatcher, the
prime minister of the U.K. from 1979 to 1990 (and leader of the Conservative
Party from 1975 to 1990) and Ronald Reagan, the 40th president of the U.S. from
1981 to 1989.

4. Why Neo liberalisation
It often refers to adogmaticbelief that
developing countries should adopt
market-led development strategies that
will result ineconomic growththat will
“trickle down” to the benefit of all.

5. General Characteristics
➢Freeenterprise,competition,deregulation,andtheimportanceofindividualresponsibility
➢Oppositiontotheexpansionofgovernmentpower,statewelfare,inflation
➢Minimizinggovernmentcontrolofindustryandboostingprivatesectorownershipofbusinessand
property
➢Freemarketcapitalismandtheefficientallocationofresources
➢Globalizationratherthanheavilyregulatedmarketsandprotectionism
➢Areductioningovernmentspendingandlowertaxes
➢Lessgovernmentcontrolovereconomicactivitytoenhancetheefficientfunctioningoftheeconomy
➢Anincreaseintheimpactbytheprivatesectorontheeconomy
➢Governmentinterventionwhenit'sneededtohelpimplement,sustain,andprotectfreemarketactivities

6. Washington Consensus
•TheWashingtonConsensusisasetof10economicpolicyprescriptionsby
Washington,D.C.-basedinstitutionssuchastheInternationalMonetary
Fund(IMF),WorldBankandUnitedStatesDepartmentoftheTreasury.
•ItwasdrawnfromtheadviceofJohnWilliamson.
•Itconstitutesthe“standard”reformpackagepromotedforcrisis-stricken
developingcountries.
•Theprescriptionsencompassedpoliciesinsuchareasasmacroeconomic
stabilization,economicopeningwithrespecttobothtradeandinvestment,
andexpansionofmarketforceswithinthedomesticeconomy.
•It minimized the state’s role in the economy and pushed an aggressive free-
market agenda of deregulation, privatization, and trade liberalization
•It paved the way for the domination of the Western-style capitalism.
•It was aggressively promotedby the IMFand the World Bank.
•Aim: To advocate free trade, floating exchange rates, free markets and
macroeconomic stability.
•Importance: To determine policy towards economic development in Latin
America, South East Asia and other countries.

7. Ten principles of Washington Consensus
•Fiscalpolicydiscipline,withavoidanceoflargefiscaldeficitsrelativetoGDP.
•Redirectionofpublicspendingfromsubsidies(especiallyindiscriminatesubsidies)towardbroad-based
provisionofkeypro-growth,pro-poorserviceslikeprimaryeducation,primaryhealthcareand
infrastructureinvestment.
•Taxreform,broadeningthetaxbaseandadoptingmoderatemarginaltaxrates.
•Interestratesthataremarketdeterminedandpositive(butmoderate)inrealterms.
•Competitiveexchangerates.
•Tradeliberalization:Liberalizationofimports,withparticularemphasisoneliminationofquantitative
restrictions(licensing,etc.);anytradeprotectiontobeprovidedbylowandrelativelyuniformtariffs.
•Liberalizationofinwardforeigndirectinvestment.
•Privatizationofstateenterprises.
•Deregulation:Abolitionofregulationsthatimpedemarketentryorrestrictcompetition,exceptforthose
justifiedonsafety,environmentalandconsumerprotectiongrounds,andprudentialoversightoffinancial
institutions.
•Legalsecurityforpropertyrights.

8. Fiscal policy
discipline in
India after
1991-
Trends
The Debt crisis of the early 1980s prompted several
analyses that emphasized the negative role of fiscal deficits
of economic development.
This negative view of fiscal deficit swas consolidated in the
“Washington Consensus” agenda.
The first and foremost principle of Washington consensus
is to lower the government borrowing to avoid the large
fiscal deficits with respect to GDP.
Afiscal deficitoccurs when a government's total
expenditures exceed the revenue that it generates,
excluding money from borrowings.
Fiscal Deficit = (Revenue Expenditure -Revenue Receipts) +
Capital Expenditure -(Recoveries of loans +other receipts).

9. Fiscal
Deficit
Years Fiscal Deficit
1980-81 5.55
1985-86 7.55
1990-91 7.61
1995-96 4.91
2000-01 5.46
2005-06 3.96
2010-11 4.79
2015-16 3.94

10. Redirection
of Subsidies
to Primary
health care
and primary
education
•For socio-economic
transformation , high priority was
assigned to education , building of
new institutions and investment
by Research and Development by
the state.
•Without education ,ability to
absorb technology for sustainable
development and structural
change would be limited.
•Special administrative structure
was built to carry out community
development as part of the efforts
at transforming and developing
the rural India.

11. Statistics –Subsidies in India
•Expenditure on major subsidies as per cent of revenue expenditure after declining from
13.0 per cent in 1990-91 to 8.7 per cent in 1995-96 started rising to reach a level of 9.6
per cent in 1998-99. In 2002-03, expenditure on major subsidizes increased to 11.9 per
cent from 10.0 per cent in 2001-02.
•With the dismantling of the administered price mechanism for petroleum products from
1 April 2002, subsidies in respect of LPG and kerosene distributed through thePublic
Distribution Systemare now explicitly reflected in the budget.
•This partially explains the spurt of 35.3 per cent in the expenditure on major subsidies in
2002-03. The spurt in major subsidies in 2002-03 was also because of an increase in food
subsidy by Rs. 66.77billion necessitated by the widespread drought in the country.
•Some of the major initiatives taken so far to rationalize the budgetary subsidies include
targeted approach to food subsidy (BPL families) under Public Distribution System,
allowingFood Corporation of India(FCI) to access market loans carrying lower interest
rates, encouraging private trade in food grains, liquidating excess food grain stocks,
replacing unit based retention price scheme with a group based scheme in the case of
fertilizer subsidies and proposed phasing out of subsidies on PDS kerosene and LPG.

12. Subsidy –Punjab case
•A reduction in fertiliser subsidy by around Rs 35,000 crore as announced in the
Union Budget is expected to hit Punjab real hard. The state, which is one of the
highest per hectare consumers of fertilisers in the country, is set to lose almost Rs
3,141 crore on subsidy and this burden is likely to get transferred to farmers.
•Experts said even this amount may go up if fertiliser rates go up and that is quite
likely due to rising rates of fertilisers in the international market.
•Farmer GurdipSingh said: “Government is heading towards putting more and
more burden on the farmers by decreasing subsidies and increasing taxes.”
•government is stressing on using organic and liquid fertilisers instead chemicals,
because of which subsidy for chemical fertilisers is being decreased
•gricultureDepartment officer in the state said that Punjab is not prepared to
switch to organic products on vast areas under cultivation, and as a result it has
to face losses on subsidy as per its consumption rate.

13. Increasing Tax Base:Third Principle
•According to the tax data, the number of new individual tax payers (based
on returns filed) increased from 63.5 lakh in 2015-16 to 80.7 lakh in 2016-
17.
•But all this increase cannot be attributed to demonetization because there
is some natural trend increase in new taxpayers. Instead, this impact by
measuring the increase in taxpayers in the post-demonetization period
(Nov. 9, 2016-end-March 2017) relative to the increase in the same period
the previous year is estimated.”
•Now the Ministry of Finance has published itsannual report (FY 2016-17).
At page 185, Chapter III, under the CBDT heading, the report discusses the
number of new tax payers added from 2014-15 to 2016-17. It is important
to note that 2016-17 is part data up to November 30, 2016.

15. Determination of Interest rate in India
•In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors.
•Steps to liberalize interest rates started in the late 1980s. Certificates of deposits were introduced in June 1989 and
commercial paper in January 1990. However, the reforms did not gain momentum until mid-1992 when rates of
interest in India were gradually decontrolled in a variety of ways. The most important interest rates are now market
determined.
•These include all deposit rates with the exception of fixed deposit rates that The official interest rate is the
benchmark repurchase rate.
•In 2014, the primary objective of the RBI monetary policy became price stability, giving less importance to
government's borrowing, the stability of the rupee exchange rate and the need to protect exports.
•In February 2015, the government and the central bank agreed to set a consumer inflation target of 4 percent, with
a band of plus or minus 2 percentage points, from the financial year ending in March 2017.
•This data shows that even in the year 2018, the interest rate is determined by the central bank of the country not
by the market forces. The neo liberalism policy and the institutions which implement that were not able shift the
power to the market forces.

16. Competitive
exchange
rate
•The year 1993 also marked the beginning of the era of a freely
floating exchange rate system.
•From 1975 to 1992, the rupee exchange rate was officially
determined by the Reserve Bank of India and was based on a
weighted basket of currencies of India’s major trading
partners.
•The 1991 balance of payments crisis resulted in two successive
devaluations following which India adopted a dual exchange
rate system from March 1992 to February 1993.
•Subsequently, in March 1993, exchange rates were unified.
Since August 1994, the rupee is convertible on the current
account.
•Capital account convertibility is allowed for foreigners, foreign
based corporates and non-resident Indians. Several types of
exchange controls have been dismantled and the Indian rupee
is no longer pegged. The process of integration of the Indian
financial market with the rest of the world is in process.

17. Trade Liberalism in terms of Import
•At the beginning of economic planning, India was importing from selected countries only. After
liberalism, India import different goods and services from different countries of the world.
•At present India get its imports from almost all the countries of the world. For the purchase of
machines and equipments, we depend mainly on OECD (Organization for Economic Cooperation
and Development) countries and East European countries.
•For the supply of food grains and petroleum products, we depend on OPEC (Oil Producing and
Exporting Countries) countries. The OECD countries supply largest part of our imports. In 1997-98
out of the total imports of Rs.1,51,553 crore, the imports of Rs.75,593 crore were made (49.9%)
from these countries.
•Other important suppliers of our imports are USA, Belgium, Germany, Japan and Britain. Imports
during January 2017 were valued at US$ 31955.94 million (Rs. 217557.32 crore) which was 10.70
per cent higher in Dollar terms and 12.07 per cent higher in Rupee terms over the level of imports
valued at US$ 28866.53 million (Rs. 194134.02 crore) in January, 2016.
•Cumulative value of imports for the period April-January 2016-17 was US$ 307311.86 million (Rs.
2065656.42 crore) as against US$ 326277.38 million (Rs. 2120158.57 crore) registering a negative
growth of 5.81 per cent in Dollar terms and 2.57 per cent in Rupee terms over the same period
last year.

18. Foreign Direct Investment in India
•Before 1991, foreign investment was negligible. The first year of reform
saw a total foreign investment of only $74 million.
•However, investments have steadily risen since then, except for occasional
blips between 1997and2000 and 2008 and 2012 –owing to theglobal
economic slowdown.
•As of 31 March 2016, the country has received total FDI of $371 billion,
since 1991.
•In terms of FDI inflows, India continues to be among the top ten countries
globally ,and fourth in developing Asia ,India’s FDI inflows have increases to
$49 billion in2015 as compared to $35 billion in 2014. Reforms as ushered
through the ‘Make in India’, ‘Digital India’ and ‘Start up India’ campaign –
appears to be showing results.

19. FDI Inflow

20. Privatization of PSUs
•Privatization in infrastructure sector started with the modification of
relevant legislation to permit private enterprises to enter power
generation in October 1991.
•Reforms have been successful in telecommunication sector. Foreign
equity participation up to 49.1% was permitted in case of a joint
between Indian and a foreign firm.
•Half of India’s 235 Central public sector enterprises (CPSEs) are under
scrutiny for a possible disinvestment.
•The government’s think tank NITI Aayog has recommended a strategic
sale in over 40 public sector undertakings (PSUs) and outright closure
of 26 sick PSUs.India carried out the regulation policies in 1991.

21. Deregulation and Property Rights in India
•Deregulation in India may have created a winner –take –all environment
where the largest firms drive out any competition .Small firms may
continue to face constraints in their attempts to grow.
•According to economic survey 2012-2013 at the end of March 2012 there
are four institutions regulated by Reserve Bank of India as all India financial
institutions.
•They are EXIM BANK, NABARD , SIDBI ,NHB .
•In addition to this, over the last several decades conservative libertarian
and neo-liberal groups have put constitutionaldemandsfor greater
property protection on the agendas of courts in several countries. India has
also signed the agreement (TRIPs) with WTO.

22. Conclusion
•India is attracted towards neo-liberalism policy and started implementing all the 10 policies advocated by
Washington consensus.
•The recent figures and growth pattern shows that definitely neo-liberalism has contributed to the growth of the
country but whether the growth has reached the entire population?
•At Global level, Indian economy is one of the fastest growing economy but still ranked 60
th
among the 79 countries
in the Inclusive Development Index (2017).
•The rise in the income disparities has slowed down the other economic objectives like poverty reduction, gender
inequality, regional imbalances etc.
•The recent failure of economic reforms was the reflection of underscoring the need of the most important problem
inclusive growth and sustainable development.
•The biggest challenge before policy makers is not economic growth but inclusive growth. The countries which
advocated globalization are now moving towards Deglobalization and protectionism to save their population.
•In this situation, India has to rethink its stand on neo-liberalism and look back the what is really required for the
welfare of the country.