This blog has been created long after these essays were written. Most of them were written as assignments for an Oxford University tutorial under Professor Indrajit Roy completed in the Michaelmas term in 2011 and as such have not been completely edited for the purpose of a blog posting. My primary interest is in the field of economics but the Indian political scene has always fascinated me and it was a worthwhile experience to research and understand the context in which the Indian socio-economic development has taken place. While a majority of the papers are specifically on India, there will be some on Pakistan, Sri Lanka and Bangladesh. The papers are mostly based on second hand research and have been cited to provide necessary reference to readers.

Wednesday, August 8, 2012

Economic Liberalization and Political Developments of the 1980s in India

The process of economic liberalization in India has propelled it in to an elite league of rapidly growing emerging nations. The governments in India have over the course of the last fifty years shifted “from a pro-capitalist state with a socialist ideology to an enthusiastic pro-capitalist with a neo-liberal ideology” (Kohli).Though one set of events in the advent of a grave crisis may symbolize this shift, in reality the change has been more gradual. The process of liberalization was meant to be put in place much earlier and historically there has been a move towards liberalizing in every situation of a looming economic crisis. The immediate debt crunch that forced the government to implement its economic reforms was only a pretext for enforcing these reforms. A range of factors contributed to these reforms being more effective than previous attempts. The growth of the middle class has been often been recognized as a product of liberalization, but it is also a major factor in the continuity of the economic reforms that have been initiated and implemented since the 1990s. The relationship between the market economics and the Indian political scene had become more intense over the 1980s. Indeed, the vested interests of the elite sections of society (even amongst the backward castes) have played a crucial role in determining the kind of liberalization the country is going through. The primary focus has shifted from alleviating poverty to getting dominating growth rates. While it is believed by many, that economic growth will eventually alleviate poverty and reduce income inequalities, the underlying preconditions that contribute towards those aims are simply not present in India yet. The paper aims to discuss the relationship between the economic reforms introduced and the political developments since the 1980s, to understand whether the economic reforms would be sustainable in the long run without a radical reworking of the state’s focus on development.
The ‘radical shift’ of 1991 initiated by Finance minister Dr. Manmohan Singh has been attributed by many as the causal action that has led to growth and development in the following two decades. However the initial impetus was present in the liberalization policies of the Rajiv Gandhi government. The root cause for India’s continued “marginalization was, quite correctly, ascribed to economic inefficiency (Corbridge and Harris).”; characterized by the inadequacy and incompetence of the public sector and the heavy regulatory framework. Hence the concentration was on “reorienting the public sector to facilitate expansion of the private sector” to allow domestic liberalization in the short run and shift the focus towards external liberalization later (Nayar). These seem on the face of it, a continuation of the policies that were to be put in place by the Indira Gandhi government, but they seek to do it in a fashion that would have showed a deeper commitment to liberalization than previous governments. The policies were unabashedly in favor of the middle classes with the deep tax cuts and the industrialists with the reduction of restrictions under the Monopolies and Restrictive Trade Practices act. It was also in favor of the urban classes with a penchant for imports of consumer goods. The only lacking aspect in the reforms pushed forward by Mr. Gandhi was the presence of deep crisis and hence the lack of fear and desperation that led to the reforms being stalled. An opposition from within the Congress had emerged that feared being labeled as ‘a party for the rich’. The opposition also came from “key veto groups with concrete material interests” in the excesses of the public sector, such as the labor and the bureaucracy. There was even opposition at one point from the urban middle classes that resisted the rise in prices of public sector produced goods which was aimed at raising resources. Though the reforms had stalled, the expenditures that the government officials, the upper and middle classes had benefited from did not. The higher growth rate during the period of the Rajiv Gandhi government depended heavily on rather imprudent expansionary policy, which supported the massive subsidies to both agriculture and industry on successive large fiscal deficits and external commercial borrowings. The fiscal profligacy meant India quickly ate down on its substantial foreign reserves and was borrowing to stay afloat. Even though the governments changed, fiscal deficits soared to over 9 percent of GDP as compared to 6 percent less than a decade before. The focus in the summer of 1991, bearing an impending debt crisis much akin to the currency devaluation in the Mexican ‘Tequila’ crisis of 1984, was to stabilize the economy and restore “a measure of credibility to India’s fading reputation for economic consequence” (Corbridge and Harris).
The mismanagement of the political process from the 1960s onwards had profound consequences on the political and economic development in the 1980s. Ballots, more often than not, were being decided by the power of money and the same was true with legislatures. The vast majority of Indian industrialists had become accustomed to beating the system of controls, where licenses and approvals were required for production, imports and exports. Industrialists became past masters at the art of what Stanley Kochanek has aptly termed “briefcase politics”. Industrialists maintained excellent relations with the politician and the bureaucrat through their offices in Delhi. But the discerning change was the growth of the small and medium size industrialists, mostly in the technology sector. The ``quiet revolution'' within Indian industry has transformed the configuration of interests that on the one hand seek to influence government policies and on the other provide the medium through which the new policies will take effect. The change to a new economic policy in 1991 may be interpreted as a political reflection of these changes within the Indian society (Pedersen).
The impact of the middle classes in India on the politics has had a direct impact on the nature of the economic reforms in India. The middle classes of the 1980s, succinctly described by Sumanta Dubey in his article “The Middle Classes”, included not only the traders and petty bourgeoisie but also professionals and the middle ranked employees of the nascent corporate sector. It may have also included the richer peasants who led a similar lifestyle, though their interests with regards to economic reforms might have been much different. It cannot be denied that it wasn’t until the elections that brought Rajiv Gandhi to power, that the influence of the ‘Middle Classes’ was known. In fact, they could be held directly responsible for bringing him down as well, as the allegations of corruption hovered around the Congress leadership. They brought him to power in the hope of him continuing in his mother’s footsteps to benefit them. The benefits that accrued to the middle classes were to be matched with poverty alleviation programs that promised to include those classes that were inherently excluded in the process of economic development. The ‘bias of the reforms’, as Corbridge and Harris put it, has been evident in that the impact of the structural reforms has favored certain groups over others. The 1980s has been dubbed ‘the age of populism and patronage’ precisely because of this failure of including the excluded. But due to “electoral compulsions” political parties had to resort to more populism to continue getting the votes while in reality just patronizing to mediate the conflicts that might arise otherwise. The consequences of the policies of the 80s, according to Deepak Nayyar, were quite visible, firstly in terms of reducing poverty, and secondly and probably most importantly, shifting the arena of conflict from “the rich versus the poor to the center versus the states”.
In a sense, the fact that economic reforms have continued, almost unhindered through the 1990s is a testament to the resilience of Indian democracy. The reforms initiated in 1991 could have been easily abrogated by the successive government that formed on the support of the Leftist parties. It could have easily reverted to old ways in the following government of the BJP led coalition which supported in its Hindu ideology a certain measure of the ‘swadeshi’ movement. Jenkins considers that political institutions can neutralize opposition to reforms by promoting longer time horizons and institutionalizing bargains between competing groups. By turning the entire issue of reforms from the center to the state level, the Center fostered a sense of competitiveness that “tended to quarantine political resistance to reform within the confines of state-level political systems (Jenkins)”. Jenkins calls this process ‘reforms by stealth’ whereby the Central government initiated reforms without much hullabaloo and quietly eased them into the system. The central government has also raised side issues to shift the focus away from reforms. In this process, in particular, the Ayodhya issue came in particularly handy for the minority Congress government.
The reforms since the 1990s have been highly successful by most counts. The reforms have led a high rate of sustained economic growth for the better part of the two decades since the reforms went into practice, piece by piece. India has transformed into a emerging global economic giant on the basis of not only its strong educated human capital, but also a growth of cheap labor, and phenomenal markets for global players. This could be described as the Shining India. The benefits have trickled down to the poorer classes but very slowly. The part that has not benefited from the reforms, on account of its bias towards certain groups, has fostered growing inequality both on urban-rural scale as well as on class lines. The analogy of the ASEAN countries for growth sustainability cannot be applied as the ‘underlying preconditions’ that Atul Kohli describes, are not yet in place in India. Land redistribution and focus on education, which serve to foster egalitarianism and enhance human capital, are required by a democracy, at least in the long-run(Kohli). The important question is can they ever be put in place in India where the ruling elite or their political support have vested interests in the bias of the reforms. Until and unless the focus of democratic politics in India doesn’t go back to including the poor in a market based economy that excludes them, then even stealthy diversions of anti-reform protests will not be enough to prevent a revolt, not including the elite this time however, but directly opposing them.

Works Cited

Corbridge, Stuart and John Harris. Reinventing India. Polity Press, 2006.
Jenkins, Rob. Democratic Politics and Economic Reform in India. Cambridge University Press, 1999.
Kohli, Atul. "Politics and Redistribution." Jayal, Niraja Gopal and Pratap Bhanu Mehta. The Oxford Companion to Indian Politics. 2010. 499-518.
Nayar, Baldev Raj. Globalization and Nationalism: The Changing Balance in India's Economic Policy 1950-2000. New Delhi: Sage Publications India Pvt Ld, 2001.
Nayyar, Deepak. "Economic Development and Political Democracy: Interaction of Economics and Politics in Independent India." Jayal, Niraja Gopa. Democracy in India. 2001. 361-196.
Pedersen, Jorgen Dige. "Explaining Economic Liberalization in India: State and Society Perspectives." World Development (2008): 265-282.