politcs of economic reform kohli

7/28/2019 Politcs of Economic Reform Kohli

1/11

Politics of Economic Growth in India, 1980-2005: Part II: The 1990s and BeyondAuthor(s): Atul KohliReviewed work(s):Source: Economic and Political Weekly, Vol. 41, No. 14 (Apr. 8-14, 2006), pp. 1361-1370Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4418059 .

Accessed: 01/03/2013 02:00

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .

http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of

content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms

of scholarship. For more information about JSTOR, please contact [email protected].

.

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to

Economic and Political Weekly.

http://www.jstor.org
http://www.jstor.org/action/showPublisher?publisherCode=epwhttp://www.jstor.org/stable/4418059?origin=JSTOR-pdfhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/stable/4418059?origin=JSTOR-pdfhttp://www.jstor.org/action/showPublisher?publisherCode=epw


2/11

Politics o f Economic Growthi n I n d i a , 1980-2005

P a r t I I : T h e 1 9 9 0 s a n d B e y o n dIndia's economic growth has not accelerated dramatically. What aggregatechange is noticeable predates the liberalising reforms by a whole decade andindustrial growth in thepost-reform period did not pick up. Moreover, theproblems posed by India's current pro-business model of development includedisquieting implications for the quality of India's democracy. Why should the commonpeople in a democracy accept a narrow ruling alliance at the helm? Is ethnic andnationalistic mobilisation a substitutefor pro-poor politics? And, is Indiaincreasingly stuck with a two track democracy, in which common people are onlyneeded at the time of electioins, and then it is best that they all go home, forget politics,and let the "rational" elite quietly run a pro-business show?

ATUL KOHLIH aving analysedthe political economy of the growthexperiencen the 1980s,thesecondempiricalpuzzle orthepaper mergesby uxtaposing conomicperformance- especiallyperformancef themanufacturingector nspecificand of industryn general during he 1980sagainst hat n the1990sandbeyond.A numberof scholarshave in recentyearsdemonstratedhat, houghgrowth nmanufacturingn the 1990swas somewhatowerthan n the 1980s,theshift ngrowth rendsince 1991-92was notstatistically ignificant see e g, Nagaraj2003, and Table 3 in PartI of this paper].The stunning act isthen his: nspiteof all the noise aboutreforms for andagainst- the growthrate of India'smanufacturingndustrywas notinfluencedall thatgreatlyby the reforms Figure2 in Part ).The real breakin growthoccurredaround 1980. Since thennothing ramatic aschangednterms f theaggregate utcomes.The growth data is furthersupportedby employmentdata:employmentn manufacturingemained onstantaround12percent of the workforceduring he 1980sand the 1990s[Nagaraj2003, p 3708]. The reformshavethus neitherhelpednor hurtgrowthandemploymentby much.1Why?Onceagain,observinghe moreproximateconomicdetermi-nantsof these rendshelpssetupthepuzzlefor adeeperpoliticaleconomyanalysis. t is clear romTable2 (Part )that he overallratesof capitalformationn the Indianeconomydid not altersignificantlybetween he 1980sand the 1990s.Whatdid alter,however,was the compositionof this investment Figure3 inPart );public nvestments eclined n the 1990s and hebalancewas filled by a varietyof private nvestors.As alreadynoted,theremighthave been a slight decline in the growthrate ofproductivityf theeconomy,butnotbymuch Figure in Part ).So, the secondempiricalpuzzleconcerns heimpactof reformson investment overall tabilitybutchanging omposition andon therateof growthof productivityf labour ndcapital,wherevery few gainsare evident.That ndia n 1991adopted fairlysignificant et of economicpolicy reforms s well known.A list of reformsundertakens

alsoreadilyavailable lsewhere Jenkins 999,pp 16-28;Kumar2000;Frankel005].The mportantssuesdeserving urattentioninsteadare wo:whywerethereformsundertakenndhow havetheyevolved;andwhy has the impactof reformson aggregateeconomicgrowth,especiallyon industrial rowth,beennegli-gible.Before ackling heseissues,a few interpretiveommentson the natureandthe scope of the reformsare in order.The economicreformsundertakenince 1991have nfluencedboth India's ndustrial olicy andexternaleconomic relations.The varietyof industrial olicy reforms furtherdelicensing,removalof MRTPconstraints,ax concessions,openingof yetnewer areashitherto eserved or the publicsector,andtaminglabour-arebestviewedascontinuationfreformswellunderwayduring he 1980s.Thesereforms lsoought o bejudgedmainlyaspro-indigenoususiness, nablingwellestablished usinessesto growandallowingsome new ones to emergeand flourish.In lightof the discussionabove,none of these reforms houldbe all thatsurprising.Where herewas a significant lementofdiscontinuity, ndthusof surprise,was in the area of India'sexternal conomicrelations,ncluding,hetrade, oreign nvest-mentand financialrelations.As is also well known,startingn1991,importquotaswere removed fully only in 2001), tariffscamedownslowlybutsurely, urrencywasdevalued,heforeigninvestment egimewas liberalised,andvariousrestrictions nexternalinancial ransactions ereeased.Someofthesereformshelped ndian usiness; thersputenormousompetitive ressureon them. nadoptingheseexternal conomic eforms,he Indianstate was responding o a sharplychangedworldand, in theprocess,attemptingoestablish new socialcontractwithIndianbusiness:we will continue o putour full weightbehindyou,but you, in turn,mustbecome morecompetitive.Thescopeof India'sexternal conomicreformsmustbe keptin perspective.By India'sownpaststandards,hechangeswerequitedramatic.nacomparativendglobalperspective, owever,India's peningotheworld emains elativelymodest. nausefulessay,BaldevRajNayar 2001)hasdocumentedhis"modesty".

Economicand PoliticalWeekly April8, 2006 1361

This content downloaded on Fri, 1 Mar 2013 02:00:34 AMAll use subject to JSTOR Terms and Conditions
http://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp


3/11

Onthe trade ront,forexample, ariffsdid come downsignifi-cantly,but thedeclinebegan n 1987.during heRajivGandhiyears,and owardsheendof themillennium,tillaveragedome30 per cent, amongthe highestin the world. India's shareofforeigntradeat some 25 percentof the GDP was also amongthelowestin theworld n theearly21st century Table3). Thestoryon foreign nvestments not all that different.While theinflows n the1990swerehugecomparedothepast averagingnearly 4billion, ncludingbothdirectandportfolionvestments- on a percapitabasis Indiaremained ne of the leastexposedcountries o foreigninvestmentn the world.Andfinally,it iswell known thatcapitalmovements n India remainrelativelyrestricted.Now, let us firstbrieflyvisit the issue of politicsof reforms.Whydid the same setof reforms hatproveddifficult o pursueduringthe 1980s become more likely in the early 1990s? Asuperficial nswerwouldpoint o the economic"crisis" f 1991.As already ndicatedabove,however,the "crisis"mainlypro-vided an opportunityor policy reform: he real causes weredeeper.A number f politicalanalystshavedrawnourattentionto these deepercauses [Jenkins1999; Pederson2000; Nayar2001:HarrissandCorbridge 000]. Buildingon theirwork,itmakessensetoseparateheunderlyingtructural ariables romthepoliticalprocess,and hen o thinkoftheunderlyingtructuralchangesas both external o India andwithinIndia,especiallyin India's business community.The reforms became moreacceptable uring he 1990s then because the worldin whichIndiaoperated hangedand becauseIndiancapitalsplit politi-cally.withasignificantactionat eastwilling oexperimentwitha moreopeneconomy.Let us elaborate:Foremostamong the significantexternalchanges was thedeclineandthedisintegrationf the SovietUnion. Thischangewas profoundly onsequentialor India. What I have in mindhere s notonlythe diffuseand theoftcited issue of thedeclineof a modelof development.Theresultingpressureswere nsteadmoreconcreteand more serious.First. he SovietUnion was animportantradingpartnerIndia-SovietUniontradewas closeto$ 6 billion owardsheendof the1980s)whichprovidedndia,in exchange or a varietyof goods, oil, armamentsnd defencematerials.Much of this exchangedid not involve use of hardcurrencies.Witha sharpdeclinein exports o Russia, he issueof maintainingndupgrading efenceforcesbecame ntimatelyrelated o the availabilityof hard oreignexchange.Improvingexportearningsand maximisingother sources of foreignex-changethus becameissues of nationalsecurity.While neverpublicisedas such,theseissues must have createda new senseof urgency or "liberalisation". loselyrelated o this,the dis-integrationf the Soviet Union also meant he loss of a militaryandpoliticalally, creatingpressures o shoreup relationswiththe US. As most developing country eadersunderstand,m-provedpolitical elationswith heUS,inturn, ften nvolveclosereconomicrelations,especiallythe openingof an economytoAmericangoods andcapital.A secondimportant lobal changethatdevelopedover the1980swas thegrowingavailability f investibleresources inforeignexchange, oboot- in the formof portfolionvestments.WhileaFaustian argain mainlybecauseof theirvolatilenature- theymighthaveappearedttractiveoforeign xchange tarvedIndiandecision-makers. vento Indianbusinessmen,portfolioinvestmentmust haveappearedess threatening it is in somewaysmoreakinto sellingyourshares npublic,overwhichone

has some control thangreenfield oreigninvestment,not tomentionacquisitions ndmergers.And, inally, t musthavebeenclear o Indian ecision-makersthatWTOwas goingto happen it actuallycame intobeingin1994),andthatIndiawould be a signatoryo WTOagreement.GivenWTO'srequirements,t must also have beenclear thatimportquotaswould have to go and thattariffswould havetocome down within some time boundperiod.Mitu Senguptaduringher researches husfounda number f decision-makers,includingManmohaninghandAmarNathVarma, rguinghatthese external onsiderationswere importantonsiderationsnwhy Indiahadto liberalise n the early 1990s.2While ndia's"world"hus ndeed hangeover he1980s, omevery important hangeswithin India also must be takenintoaccount.Most mportant,hereluctance f Indian usinessgrouptowards xternal pening oftened, houghwithin imits.Duringthe 1980s,segmentsof Indian apitalbecamemoreefficientandbusinessobbyingunderwentomesignificant hanges.We havealready iscussed bove hesteadygains nproductivityfIndianindustry hroughouthe 1980s. One can thensuggestthatsomeIndianbusinessgroupswereprobablymoreready o dealwithforeigncompetitionn the 1990s than nthe 1980s.Theclearestevidence for this claimis available n the changingpatterns fhow Indian apital rganisedtselfpolitically nd nthedemandsit then made on the stateduring his period.StanleyKochanek1996A;1996B)hasablydocumentedomeof these changes n businessorganisation ndlobbying.Verybriefly,during he 1980s, India's two mainnational hambersof commerce the Federation f IndianChambers f Commerceand ndustryFICCI) nd heAssociatedChambersfCommerceandIndustryAssocham) reorganised.They increasingly e-camemirrormagesof eachother withdiffering egionalbase),buttheyalso slowly lost ground o the newlyconstitutedCon-federationf Indian ndustryCII) ntermsofpoliticalnfluence.TheCIIincreasingly ame to representndia'smore"modernm"industries especiallyengineering irms,often locatedin thesouthof India who were more nterestedn exports.The CIIwas also runprofessionally nddeveloped uch close ties withIndianbureaucracyhat it came to be dubbedas the "juniorpartner"f thegovernment;o muchso that he 1993-94budgetcame to be called the "TarunDas"budget,referringo TarunDas,the director f CII[Kochanek 996A,p 167].Over he nextdecade,these patternsbecamenearly nstitutionalised;or ex-ample,MontekSinghAhluwalia n 2004 wasopenlydiscussingthe need or"public-privateartnership"nindustry nd nvitingthe privatesector "to be partof the decision-making"IndianExpress,December29, 2004). While notquite"India ncorpo-rated", here s morethana shade of a move towards"Koreaor TaiwanIncorporated"n thesechanges.Though somewhat of an oversimplification,ndiancapitalbasicallysplitduring he 1980sin its politicalandpolicy pref-erences.On heonesidewere hemore"modem",xport-orientedbusinesses, epresentedy theCII.Theyfavoured moreopen,competitiveeconomy.And on the otherside were the olderbusiness houses that maturedduringthe importsubstitutionregime.Theywererepresented y bothFICCIandAssocham;theywerealsoconsiderablymorewaryof external pening.Aswill becomeclearbelow,theactualpoliticalprocess urroundingeconomic iberalisationwas morecomplexthanthischaracter-isationmightsuggest.Nevertheless,withsomesignificant usi-ness namesandorganisationswillingto supportheopeningof

1362 Economicand PoliticalWeekly April8, 2006



4/11

theeconomy, India's pro-liberalisation policy-makers must havefelt emboldened. Changing global conditions and splits withinthe ranks of Indian capital thus provided the new structuralconditions within which India's technocraticelite pushedthroughsome significant policy changes in the early 1990s.Beyond the structuralchanges, the political process of eco-nomic liberalisation was also revealing of the underlying powerdynamics. As I analyse this, the basic picture that emerges isone of the political and economic elite attempting to accommo-date each other, but within the context of considerable fragmen-tation of political power: this political dynamics, I will suggest.was economically consequential. To highlight only some of themain events, as the balance of payments situation deterioratedthroughout 1990. the issue of India approaching the IMF for a"structural djustment" ype of a loan was again at the forefront;India accepted such a loan in 1990 with a caretakergovernmentin charge. In early 1991 then, just a couple of months beforethe "big bang"announcement of new liberal economic policies.theCIIfloated a "themepaper" n April 1991, arguing for radicalshifts in India's economic policies towards a more open andcompetitive economy [Kochanek 1996B: 538]. When the Con-gress government,with ManmohanSingh as thefinance minister,actually announced the policy shift. the main forces supportingsuch a shift included the narrow political leadership, the tech-nocratic policy elite, a segment of Indian capital, and externalactors, expressing their preferences mainly in the form of policyconditionalities set by the IMF.In spite of India being a fairly mobilised democracy, it wasthen thecase thatmajoreconomic policy changes arrived n Indiawith a narrow support base. If further evidence was needed tosupport this claim, notice, for example, that critical reforms inindustrial policy in 1991 were made as executive decisions.Anticipatingnationalistopposition to global opening, thegovern-ment used legal technicalities - they included the policy changesin a "statement"rather than in a "resolution" - to avoid anydiscussion and a vote in the parliament. Similarly, the effortsto reduce fiscal deficits over the next few years encounteredopposition. Once gain, as yet another example, the governmentreduced some fertiliser subsidies and increased petroleum prices(in September 1992) only afterParliamentwent into recess. Othersuch examples could be readily multiplied. The simple point,however, is that liberalising reforms were pushed forward by anarrowcoalition, and thatan element of "stealth"clearly charac-terised the politics of economic liberalisation [see Jenkins 1999].aimed at circumventing nationalist and popular opposition.The "bigbang"rhetoric of a dramaticpolicy shift aside. India'seconomic policies during the 1990s altered only incrementally.respondingto objective changes, theevolving views of key policymakers, and to a variety of political pressures. Early reformsincluded internalderegulation of industry, attempts to tame thedeficit, and slow but steady external opening. The industrialpolicy reform included furtherdelicensing of the private sector,removal of MRTP restrictions, tax concessions to business, andsome further efforts to tame India's well entrenched and activistlabour. India's private sector rightly interpreted these policychanges as creating "operational freedom it has never enjoyedbefore"(Eco0nomicTimes, November 9, 1991). The stock marketboom that followed was probably not unrelated to what wasinterpretedas a sharply pro-business policy shift.In line with the IMF's "structuraladjustment"prescriptions,a second importantelement of early reforms included efforts to

cut the budget deficit. Since it was difficult to increase revenues- especially in light of tax concessions to the corporate sector- the burden of these efforts fell on reducing expenditures. Aftersome early success, say, the first three years, these soon ran intonumerous problems. For example, cutbacks in subsidies wereresisted by such politically consequential groups as farmersandexporters, further cuts in social expenditures were likely to costpopularelectoral support,and decline in public investments wasbeing widely associated with the continuing industrialrecession.Even big capital started arguing for greater public investmentsin such areasas infrastructure.Concernedabout economic growththen, the Indiangovernment by 1994 chose not to accept furtherIMF loans, started arguing that further cuts in budget deficitswere neither possible nor desirable, and the decline in currentexpenditures came to a halt; the reduction in budget deficits thatwas actuallyachieved unfortunatelycame attheexpense of socialspending and public investment [Kumar 2000: 807-8].The attempt to integrate the Indian economy with the globaleconomy was, of course, the thirdmajorcomponent of thereforminitiative. As alreadynoted, duringthe 1990s most importquotaswere removed, tariff levels came down, and laws governing theinflow of foreign capital were liberalised. However, the politicalprocess of India's global opening turnedout to be quite conten-tious and, in the end, a variety of pressures, especially businesslobbying, limited the speed and scope of such an opening. Forexample, as also discussed above, India's major chamber ofcommerce, the CII. supported the opening of India's economyin the early 1990s. By contrast, the other two chambers, FICCIand Assocham, arguedthroughoutthe 1980s for internalderegu-lation but for "going slow" on the external front. Within two-threeyears of the "big bang" opening, as the balance of paymentcrisis eased, a variety of Indian business houses came together- in a group the Indian press dubbed as the "Bombay Club" -to oppose India's external opening [Kochanek 1996A: 168-70].They argued that rapid liberalisation will destroy India's indig-enous industry, especially capital goods industry; according tothem, tariffs should be broughtdown very slowly, and the inflowof foreign investment should be limited. Citing Korea as theirmodel, they asked for more government help and for a moreselective integrationwith the global economy. Along with FICCIand Assocham members, heprominentspokesmenof theBombayClub included senior officials of the CII, underlining the pointthat, as far as external opening is concerned, Indian capital isnot as factionalised as the organisational politics of competingchambers might suggest.The nationalist element in Indian business's protests found astrong echo in the swadeshi politics of India's main oppositionparty at the time, the BJP. A variety of more diffuse issues -such as intellectualproperty ightsandrapidopeningof tradein commodities nd services also fed thenationalistwrathofIndia's political class. The BJP mobilised these sentiments ef-fectively in the mid-1990s, putting the ruling Congress govern-ment on the defensive. The early momentum of reforms thus gotbogged down in the nearly normal complexities of India'sdemocratic olitics.Theresults ncludeda steadybutrelativelyslow-paced integrationof Indianeconomy with the globaleconomy, a trend that has pretty well continued into thepresentperiod.Of the majorpolicy reforms nitiated n 1991 then,internalderegulationasproceededhefurthest, lobalopeninghasbeenrealbutslow andmodest,and heattemptso trimcurrent ublic

Economicand PoliticalWeekly April8. 2006 1363



5/11

expenditures have not made much headway. Two other reformareas - privatisation of public enterprises and labour reforms -werealso discussed at theearly stages, andhave been periodicallyrediscussed. Anticipating serious political opposition, however,various governments have mostly left these policy reform areasalone. A pattern thus emerges. Internal deregulation and themodest global opening were changes that were either demandedby Indian business groups, especially big business, or somethinga significant faction of Indian business could live with. Theunwillingness or the inability to privatise public enterprisesand/or to tame India's organised labour in turn underline the "soft"or fragmented nature of state power in democratic India. Thepolitics of continuing budget deficits is in parta result of similardemocratic pressures, but it also highlights the commitment ofIndian policy-makers to economic growth, and the related will-ingness to use public expenditures to facilitate this outcome. Inspite of the much pro- and anti-reform rhetoric aboutIndiagoingneo-liberal, therefore, both the political process and the processof policy reform reflect a much more complex patternof stateintervention in the economy: while some liberalisation is real,Indian state remains activist. willing to support and to workclosely with Indian business, but at the same time state actorsremain hemmed in by a varietyof democraticpolitical pressures.

Now, leaving aside the issue of politics and policies of reform.the second major vexing issue concerns their limited economicimpact. In the words of Montek Ahluwalia, the reforms "wereexpected to generate faster industrial growth and greater pen-etrationof world marketsin industrialproducts,but performancein this respect has been disappointing" [Ahluwalia 2002: 75].With reform advocates themselves expressing disappointment,the real debate in the literature is about explaining the disap-pointing performance.The "disappointment"of course has to bekept in perspective: at some six per cent annual growth, Indiais still among the world's fastest growers: exports have grownsteadily; and the balance of payment situation has improvedconsiderably since the reforms. And yet, it is the case thatindustrialgrowth in the 1990s and beyond did not improve overthe 1980s (Figure 2 in PartI), growth in total factor productivityin the post-reformperiod was somewhat lower than in the 1980s(Figure 4 in Part I), the modest export growth continued to besurpassed by growing imports, and public investment declinedwhile the share of public debt in the GDP continued to grow.Contending explanations, as one might expect, tend to suggesteither that reforms have not gone far enough [e g, Ahluwalia2002], or thatthey have already gone too far, too quick [Patnaik1999; Chaudhuri 2002].3Focusing mainly on the political economy of growth, what issurprisingis that, at least at the aggregate level, India's reformsseemed to haveneitherhelped norhurteconomic growth by much.How does one bestunderstand his outcome? As before,one needs

to focus both on issues of ratesof investment and of productivity,neither of which improved much in the post-reform period.Some of the post-reform economic indicators are presented inTable 3. Along with the data presented above, they underlinethe point relatively well known to observers of India, namely,that private investments, including corporate investments, havefor the most part remained buoyant in the post-reform periodbut public investments have declined (see Table 2 and Figure 3in Part I and Table 3 here). Private corporate investment shotup rapidly after the reforms but peaked in the mid-1990s. Sincethen the rate of growth of corporate investments has declined

but still remained at a level generally higher than in the earlierperiods. Capital formation in the household sector by contrasthas grown rapidly since the mid-1990s.One must attributethe continued buoyancy of private sectorinvestmentstothevarietyof pro-business ndustrialpolicy changesintroducedin the post-1991 period. The fact that the investmentboom originated mainly in the "registeredsector," especially inthe first-half of the 1990s [see Nagaraj 2003: 3711], furthersuggests two observations: reform policies initially helped bigbusiness more than small business; and that big business feltrelatively comfortable with the slow pace of external openingof the economy, at least until later in the 1990s, when continuedimports and foreign investor produced goods brought forwardprotestsanddiscouraged further nvestments. The relatively highrates of private investment are also one of the main forcespropelling steady growth of industry (though not at a very highrate) in the post-reform period. The pro-growth and the pro-business drift of the Indian state - that began in the 1980s andcontinued into the 1990s andbeyond - are thusmainlyresponsiblefor the respectable performance of the Indian economy.Several related observations furthersupportthe point that themain dynamics underlying sustained growth is not so muchliberalisation as it is the state's continuing pro-business orien-tation. First, contrary to what one might expect from furtherliberalisation. the labour intensity of Indian industrydecreasedsteadily during the 1990s [Chaudhuri2002: 160]. Second, theunregisteredsector of Indian industry - which one presumes tobe moreexport-orientedandless capital intensive - did not attractmuch new investment in the post-reform period [Nagaraj2003:371 1]. Relatedly, there is no clear evidence thatexportsof labour-intensive goods grew sharply.Fourth,and this is quite important,the level of concentration in private industryhas increased since1991: for example, market capitalisation of the top 10 privatecompanies increased from 2.2 per cent of the GDP in 1990 to12.9 per cent in 2004 and sales of the top 10 companies duringthe same period grew from 2.3 to 9.3 per cent of the GDP.4Andfinally, the share of employment generatedby the manufacturingsector has remained largely unaltered over the last decadeand a half.

Leaving aside the issue of private industry, public investmentsin India as a proportion of total economic activity declinedTable3: Some Post-Reform Economic Indicators

Year GDP IndustrialCapitalFormationElectricity InternationalGrowth Growth (PerCentGDP) Generated Trade(PerCent) Per Cent)Private Public Growth PerCentGDPSector Sector (PerCent)Exports mports1990-1991 5.6 7.0 13.9 9.0 9.6 6.2 9.41991-1992 1.3 -1.0 12.9 9.2 4.0 7.3 8.31992-1993 5.1 4.3 14.2 8.2 4.8 7.8 10.21993-1994 5.9 5.6 13.4 8.0 5.0 8.1 9.61994-1995 7.3 10.3 13.2 8.8 6.1 8.1 10.91995-1996 7.3 12.3 16.7 7.7 5.8 8.9 12.01996-1997 7.8 7.7 15.9 6.9 3.5 8.6 12.31997-1998 4.8 3.8 15.3 6.4 3.4 8.5 12.21998-1999 6.5 3.8 15.1 6.5 4.6 8.3 11.51999-2000 6.1 4.9 15.6 6.2 5.0 8.4 12.42000-2001 4.0 7.0 15.9 6.0 4.6 9.9 12.72001-2002 4.4 3.7 16.2 5.9 4.0 9.4 11.82002-2003 5.8 6.3 16.6 5.6 5.0 10.6 12.72003-2004 8.5 6.6 16.8 6.0 6.5 10.8 13.3Average 5.7 5.9 15.1 7.2 5.1 8.6 11.4Source: Author'sestimates based on, EconomicSurvey, GovernmentofIndia,variousissues, http://indiabudget.nic

1364 Economic and Political Weekly April 8, 2006



6/11

noticeably during the 1990s (Table 2 and Figure 3 in Part I andTable 3 here). The underlying dynamics are not hard to under-stand.Given the fragmentednatureof statepower in India,publicauthoritiesfind it hardto raise taxes and revenues. A variety oftax concessions to the rich and middle classes have also cut intothe revenue pie, as has the decline of import duties. The serviceand agriculturalsectors remain largely untaxed. The pressureonthe expenditure side is merciless, especially paying interest onthe growing public debt. and defence expenditures. Faced withsevere fiscal pressuresin 1991, along with a loan and associatedconditions of the IMF. the Indian government sought to trimthedeficit. While the successive governments have made someheadway, they have been unable to control currentexpenditures.The budgetdeficit has thus been reduced mainly by cutting publicinvestments, including in infrastructure. Among the variousconsequences. notice the sluggish growth of such vital inputs toindustrial growth as the supply of electricity (see Table 1); therate of growth of electricity generating capacity in the 1980s wasnearly double that of the 1990s [see Nagaraj 2003: 3713]. Cananyone doubt that such state shrinkage is hurting India's eco-nomic growth? It is no wonder that various analysts, of a varietyof persuasions, seem to agree that public investments in Indianow need to be stepped up (Ahluwalia 2002; Mohan 2002;Nagaraj 2003; and Chaudhuri 2002).The continued buoyancy of private investment and the declineof public investment in India constitute key elements of India'seconomic growth "story"in the 1990s. An additional issue thatdeserves furtherattention is that the rate of growth of productivityof the industrialeconomy in the 1990s did not improve over the1980s [Kumar 2000: 806-07]. While the international openingof the economy has led to a fair amount of restructuringandconsolidation of Indian industry [Basant 2000], as well as toincrease in technology imports, somehow none of this is addingup to any sharp improvement in efficiency. Why? The answerof reformadvocates seems to be that tariffs are still too high andthat the labourregime remains rigid. While this may be the case,it is also possible that one should not expect too much from mereinternational opening, especially in a large economy, with arelatively small role for international trade and investment.Moreover, the claim that trade opening will enhance economicefficiency may also have the causal sequence backwards,at leastfor late-late-industrialisers. If east Asian countries like SouthKorea are to be a model, note that state supported improvementsin industrialefficiency came first,andexport success only second[Amsden 1989; Kohli 2004].While the Indian state indeed recommitted itself to privatesectorled growtharound1980, India is no SouthKoreaor Taiwan.The fact is that the Indian state has neither done enough to helpimprove the efficiency of the private industrialeconomy, nor hasit done much at all to improve the life-chances of its poor. First,India's dismal infrastructure ontinues to add to thecost of privateindustry.Second, while there is much talkof improving the laboursituation, not only is the action limited, but even the underlyingmodel of change is mispecified. Once again, if east Asia is tobe the model, labour regimes in such rapid growers as SouthKoreacombinedjob security, trainingon thejob, continuing skillimprovements, and strict discipline, involving repression; the"model" is thus neither fully desirable nor likely to be replicatedin India. Third, the state has done not nearly enough to helpimprove the technological efficiency of the Indian economy.Importsof foreign technology have helped somewhat. However.

with the declining R&D investment in the private sector, andwith the continuing cuts in the role of the public sector, the trendis nearly in the opposite direction. Fourth,the efforts to improveIndia's human capital have been minimal. And lastly, both theincentives and pressures on the private sector to boost exportshave remained insufficient. These series of inactions - some asa result of political incapacities and others due to the lack ofimagination - may cumulatively help us understandwhy pro-ductivity growth of India's industrialeconomy has not improvedin the post-reform period.

Politics of Economic Growth in the StatesFinally, there is a thirdpuzzle, namely, of considerable varia-tion ingrowth performanceacross Indian states in thepost-reformperiod. The basic growth data for Indian states during the 1980sandin the post-reformperiod (1990-2004) is provided in Table 4.The mainthing to note is thatthe rates of economic growth acrossIndianstatesstarteddiverging morein the 1990s than nthe 1980s;for example, the coefficient of variation in the 1980s was 0.14and in the 1990s, 0.29 [see Bhattacharya and Sakthivel 2004,Table 1]. Those who have used alternatemeasurements, such asgini coefficients, have found a similar patternof divergence inthe 1990s [Shetty 2003, Table 6: 5197], and even those sym-pathetic to reforms seem to agree [Ahluwalia 2000]. The analy-tical issue raised by this trend then is, how to make sense of thediverging growthperformance.One strandof market ogic wouldexpect capital to move to capital-scarce areas where it mightcommand higherreturns, eading to some convergence followingliberalisation.While a dozen years may be too short a time periodto judge, the issue does arise: why are Indian states diverginginstead?Of the 16 major states listed in Table 2, notice that, whencompared to the 1980s, economic growth rate in the post-reformperiod altered significantly in only half the states (i e, increasedor decreasedby one percentagepointor more). Economic growthincreased notably in Gujarat,Kerala and West Bengal; by con-trast,following reforms,economic growth declined by morethanTable 4: Economic Growth n Major ndianStates, 1980-2004

States 1980-1990 1990-2004 1980-2004AndhraPradesh 4.81 5.33 5.1Assam 3.91 3.00 3.4Bihar 5.20 4.2 4.6Gujarat 5.71 8.11 7.1Haryana 6.68 6.63 6.65HimachalPradesh 6.10 6.44 6.3Karnataka 6.10 6.38 6.3Kerala 4.50 5.69 5.2MadhyaPradesh 5.18 4.74 4.9Maharashtra 5.98 5.92 5.95Orissa 5.85 3.94 4.7Punjab 5.14 4.14 4.6Rajasthan 7.17 5.68 6.3TamilNadu 6.35 5.70 5.97UttarPradesh 5.88 3.76 4.64West Bengal 5.20 7.12 6.32All-India 5.60 5.90 5.8Source: RajyaSabha UnstarredQuestionNo1285,dated March 4,2002 and'LokSabha UnstarredQuestionNo3170, dated March 2, 2002 andCentralStatisticalOrganisationwww.indiastat.com).hefigures orBihar,MadhyaPradeshand UttarPradesharenotstrictly omparableacross years because, following1994-1995,theydo notinclude heregions that have come to constitute the states of Jharkhand,Chhattisgarh nd Uttaranchal espectively.

Economicand PoliticalWeekly April 8, 2006 1365



7/11

a point in Bihar, Orissa, UP, Punjab and Rajasthan. Thoseworking with more specific state-level data on manufacturingin the registeredsector have established that the decline in growthin select states was more statistically robustthanthe growth pick-up [Nagaraj 2002, Table 3]. Somewhat broader data on growthrates in the secondary sector as a whole, however, are broadlyconsistent with the overall growth trends in Table 4, at least interms of the eight states in which growth rates increased ordecreased by a percentage point or more.5 Given the problemsof dataquality and availability at the state level, I will focus mycomments below on the divergence in the overall economicgrowth rates across states: moreover, given that only a smallnumber of states are being analysed, where statistical findingsare not likely to be robust, the discussion should be treated asrough and ready.Within these constraints, how does one best explain thateconomic growth picked up significantly in the post-reformperiod in Gujarat. Kerala, and West Bengal and declined assignificantly in Bihar. UP, Orissa, Punjab and Rajasthan?Figures 1 (A, B. C, D and E) provide some preliminary insights.First, let us set aside some plausible explanations. One mightbe temptedto hold that liberalisation enabled less well-off statesto attractcapital due to higher marginal productivity of capitaland thus to grow more rapidly: this is not true (see Figure 1A).One might also be tempted to hold that growth patternsexhibitcontinuity, that states thatgrew rapidly in the 1980s also contin-ued to grow rapidly in the post-reform period: again, this is nottrue (see Figure ID). And finally, though the data on this is notpresentedhere, there is little association between rates of literacyandthe rateof growthacross Indianstates[Ahluwalia2000: 1664].What then is the most likely explanation forgrowthaccelerationin some states and deceleration in others?Let us assume as beforethat growth rates reflect both shifts in levels of investment andin productivity. Unfortunately. unlike the national level, invest-ment and productivity data for individual states are not readilyavailable. On the issue of investment patterns.what we do knowinstead is that, following reforms, public investments declinedacross Indiaand that this was also the case for most Indian states[Ahluwalia 2000, Table 8: 1642]. One may propose then thatthis decline hurtgrowth prospects of those states most who areunable to readily attract new private investment. By contrast, thestates thathave done betterareprobably those that have attractednew private investment, both domestic and foreign. While directdata to support this claim are not available, the numbers of"private projects under implementation"collected by the Centrefor Monitoring the Indian Economy is broadly supportive, es-pecially at the two extremes. One centralcomponent of the largerpuzzle of varying growth rates across states is then this: whyare some states better able to attract new private investmentthan others?

Data in Figure 1A again provides some clues. The states inwhich growth decelerated by more than a point - presumablybecause they failed to attractnew private investment - aremostlyIndia's poor states (Figure 1A): Bihar, UP, Orissa andRajasthan.The only exception - Punjab- is really not an exception becausegrowth deceleration in that state was more a function of declinein the agricultural growth rate and quite probably unrelated tothe issue of policy reforms: industrial growth in Punjab in boththe 1980s and in the post-reform period remained in the six percent range. Whether a direct function of their poverty or not,the poor states then may fail to attract new private investment

Figure1A:Economic Growth n Rich and Poor StatesPost-reformGrowthRate (1990-2004)Accelerated Decelerated

State Per High Gujarat,West Bengal PunjabCapitaIncome Low Kerala Rajasthan,Bihar,Orissa,UPNotes:1 Growth ccelerationanddeceleration nall the fivefigures (1A,1B,1C,1D and1E) isjudgedbya movementof atleast one percentagepointover the 1980s.

2 Highand low state percapita ncomes (orrichandpoor)are simplydefinedas above and below the national ncomeaverage in 1991.Figure1 B: Economic Growth n States with VaryingInvestmentClimate

Post-reformGrowthRate (1990-2004)Accelerated DeceleratedInvestment Favourable Gujarat PunjabClimate Not favourable West Bengal, Rajasthan,Bihar,Kerala Orissa.UPNotes: 1 The data of investment climate is from IndiaToday, August 16,2004, p 21. The factorsthey includedwere percent of state GDPspenton administration,apitalexpenditure,percapitabankcredit,industrial isputes, percent of sickpublicenterprises,gross capital

formation,and industrialworkers n 15-59 population. There areclearly some problems of endogeniety here. The resultingcategorisation hould thus be treatedonlyas roughand ready. Amoresystematic analysisof investment limate n a subset of thesestates is broadlyconsistent withthis categorisation. See, WorldBank,Improvinghe InvestmentClimate n India,WashingtonDC,2001, Table3.1, p 47.because of poor infrastructure Figure IE) or more broadly, anunfavourable nvestment climate (Figure 1B). Moreover, India'stwo other major and very poor states - Assam and MadhyaPradesh- also fit this pattern,though economic growth in themdeclined by less than one percentage point (Table 4). So, onepattern seems fairly clear: following policy reforms in 1991,India's poor states have not done very well. Growth decelerationin them probably reflects a decline in public investments and aconcomitant failure of private investment to fill the gap. Insteadof seeking a higher rate of return n capital-scarce areas- a trendthat may still unfold over the longer term - private capital inIndia for now seems to be shirking India's poor states with poorinfrastructureand unfavourable investment climate. Thatpublicaction will be needed to reverse this trend ought to be clear.The issue of why post-reform economic growth acceleratedin yet other states is more muddled. As already noted, the threestates where growth accelerated by more than one percentagepoint are Gujarat, West Bengal and Kerala; economic growthin the secondary sector in these three states also followed thistrend [see Bhattacharya and Sakhtivel 2004, Table 6]. Theunderlyingdeterminants,however, arenotobvious. While Gujaratis clearly one of India's richest states, both West Bengal andKerala are closer to the national average in terms of per capitaincome; investment climate in both Kerala and West Bengal isalso considered to be not all that favourable (Figure IB). Thepattern of post-reform industrial growth in India's other richstates during the 1990s also ought to be noted: it picked upsignificantly in Tamil Nadu, somewhat in Maharashtra,stayedabout the same in Karnatakaand Punjab, and declined signifi-cantly in Haryana [Bhattacharyaand Sakthivel 2004, Table 6].What conclusions, if any, might one draw about the underlyingdeterminants?

1366 Economicand PoliticalWeekly April8. 2006



8/11

Except for Haryana, one pattern that does seem to stand outis that post-reform industrial growth in India's better-off stateseither accelerated(Gujaratand Tamil Nadu) or stayed about thesame as in the 1980s (Maharashtra,KarnatakaandPunjab).Thesestates are generally blessed with good infrastructure and moredesirable investment climates (see India Today,August 16, 2004,pp 20-21). When juxtaposed against India's poorest states -where economic growth declined across the board in the post-reformperiod- an importantconclusion emerges: private inves-tors in India continue to favour India's better-off states over thepoorerstates.Incommon sense terms this is not all thatsurprising.What it does underline, however, is that the patternof economicreforms in India is not following the free marketlogic of capitalmoving to capital scarce areas. The logic evident instead is moreakin to a Mathew effect, namely, to him who hath shall be given.If "initial conditions" of Indian states are clearly important orattracting nvestment and for growing, two important qualifica-tions ought to be added. First, varying initial conditions arethemselves a productof past patternsof development, especiallythe role of varying state governments and of state politics. Thus,such importantfactors as quality of roads, availability of elec-tricity, levels of education, labour discipline, and law and orderconditions - all factors that private investors take into accountwhen deciding in which state to invest - are traceable back tothe past developmental activities of state governments. Andsecond, variation n initial conditions does notexplain everything;the quality of state governments also matters.For example, whyhas Gujaratexperienced morerapidindustrialgrowth in thepost-reform period than other similar better-off states? And why doeconomic prospects of some such poorer states as Bihar seema lot worse than of some other poorer states, say, MadhyaPradesh?I will return o some such issues momentarily. Fornow,why have such middle income states as West Bengal and Keralaexperienced rapid growth in the post-reform period? This isespecially puzzling in light of the fact that these are India's"radical"states that are presumably not too attractive to privateinvestors. More detailed state-level research is clearly needed.6One tantalisingclue to theeconomic performanceof these radicalstates is providedin Figure 1C.Labourmilitancy declined in boththese states during the 1990s: for example. labour disputes inWest Bengal declined from some 9.6 million in 1981 to 3.8million in 1995, and in Kerala from 2.2 million in 1981 to 1.7million in 1995. Is it possible that, desiring growth, communistparties in power have demobilised their organised supporters?If so, significant improvement in industrial production mightreflect improved productivity via enhanced capacity utilisation,as well as by attracting some new investment.Leaving aside the issue of cross-state variations, let us nowbriefly contrast the specific states of Bihar and Gujarat to geta sense of how differences in initial conditions are combiningwith governmental initiatives to create the Mathew effect. Biharis well known for its poor infrastructure,poor quality workforce,and poor governance [see Kohli 1991: World Bank 2005]. Inspite of these obstacles, Bihar's economy during the 1980s grewat a respectable rate of some five per cent per annum. Followingthe reforms, however, the average growth rate fell by a wholepoint (Table4). A pronounceddeceleration in agriculturalgrowthrate was partof this decline. However, the deceleration of growthin the secondary sector as a whole was also quite significant[BhattacharyaandSakthivel 2004, Table6], andthatin registeredmanufacturing during the 1990s was quite dramatic [Nagaraj

Figure 1C: Economic Growthand LabourUnrest in the StatesPost-reformGrowthRate (1990-2004)Accelerated Decelerated

Decreased West Bengal, UP,Orissa,RajasthanLabour KeralaUnrest Unchanged Gujarat Bihar,Punjabor IncreasedNote: The figureson labourunrest are "mandaysost"and were taken fromvarious issues of the StatisticalAbstractsof India. The decrease or

increase in labourunrest is estimatedby the changingpicture n the1990s when compared o the 1980s.Figure 1D: Economic Growth n the 1980s and in thePost-reform Period

Post-reformGrowthRate (1990-2004)Accelerated DeceleratedGrowth High Gujarat Orissa,Rajasthan,UPRate inthe 1980s Low West Bengal,Kerala Punjab,BiharNote: Growthrates in the 1980s are categorised as high or low simplyasabove or belowthe nationalaverage.Figure 1E: Economic Growth nStates withVarying nfrastructure

Post-reformGrowthRate (1990-2004)Accelerated DeceleratedQuality Good Gujarat,Kerala PunjabofInfrastructure Poor West Bengal Rajasthan,Bihar,UP, OrissaNote: The datafor hequality f infrastructures fromIndiaToday,August16,2004, p 20. The factorsthey includedwere standardisedmeasures ofavailabilityf electricity,paved roads,bankbranches,postoffices andtelephones. The top 10 "big tates" have been categorisedas having"good"nfrastructurend the bottom10 as having"poor"nfrastructure.2002, Table 3]. While the reasons behind the deceleration aremany [see World Bank 2005], the decline in both public andprivate investments is noticeable. A variety of fiscal pressures,including the need to "service"a populist polity, led to significantdecline in public investment, from an annual average of some15-20 per cent of total public spending in the 1980s to some 5-10 per cent in the post-reform period [World Bank 2003, Ch 3].While data on private investment in Bihar is not available, thedata on new state level private projects collected by the CMIEindicates that Bihar in recent years was attracting the fewestprojects among all of India's majorstates. A variety of Bihar'sinitial conditions, including the investment climate, are clearlypart of this "story." However, it is also the case that repeatedgovernments in Bihar have simply not been developmental.Consumed by the need to broaden and maintain their electoralpower, the priorities of Bihar's political leadership are anythingbut growth promotion. In the words of the World Bank, yes, theWorld Bank:Bihar has not been proactive in courting private investment orarticulatinga developmentstrategyand "vision."Thus, the gov-ernmentdoes not have an investmentcouncil, conveying a lackof concern about fostering and protecting private investment[WorldBank 2005: p 32].This absence of state activism for development is costingBihar dearly.By contrast, "liberalisation"has proved to be a boon to a statelike Gujarat.The average annual rate of economic growth in thepost-reform period in Gujarat accelerated by more than two

EconomicandPoliticalWeekly April 8, 2006 1367



9/11

per cent over the 1980s (Table 4), with the growth in the sec-ondarysectorjumping by nearly threepercentagepoints, up intothe double digits. The underlying dynamics are again not hardto understand. The initial advantages were significant: goodinfrastructure;productive labour force: and a prolonged recordof pro-business government. If Bihar was at the lowest end ofattractingnewprivate nvestment,Gujaratwas at theotherextreme.As partof an explanation, Aseema Sinha (2004) has very nicelydocumented, how in the 1990s Gujaratbecame even more of anactivist, pro-business state:The government of Gujarat) ontinuedto invest in projectsandsectors where it expected privateinvestment to need furtheren-couragement.To acceleratedevelopmentof theelectronics ndus-tryfor instance,the stategovernmentannounceda special incen-tive package, which included investmentsubsidy and sales, taxbenefit, and five additional electronics industrialestates were

planned. n 1995-2000manynew stateagencieswerecreated, uchas the Gujarat nfrastructure evelopmentBoard andthe GujaratPowerCorporation.These signified an enhancementof the staterather han its withdrawal(p 88).This activist industrial policy is a lot more east Asia thanneoliberalism at work.To sum up, the reforms of 1991 have opened up new oppor-

tunities for some Indian states and left others at a disadvantage.While initial economic advantages and disadvantages wereimportant, so has been the contrasting behaviour of state levelgovernments.Heretoo, of course, institutional nheritancematters.Nevertheless, the interstatedynamics of differential growth ratesseem to be propelled by similar forces as were evident at thenational level: regional states thathave effectively created a pro-business alliance for growth seem to be experiencing the mostrapid economic growth.Conclusion

In this essay I have argued that the recent acceleration ofeconomic growthin Indiawas more afunction of thepro-businesstilt of the Indian state and less a result of the post-1991 economicliberalisation. In order to support this argument, I have offeredthree types of evidence: first, growth acceleration around 1980coincided with the strikingbut the less noticed shift in the state'seconomic role initiated by IndiraGandhi; second, the aggregateeconomic performancesince liberalisation, especially industrialgrowth, has not improved over the 1980s; and finally, the inter-state variation in economic growth in the 1990s also seems tofollow the same pattern, with pro-business state governmentssucceeding handsomely in attractingprivate investment and thusgrowing rapidly.With the argument now in place, what remains is mainly totease out some concluding implications. Readers may wonderwhatthe stakesarein distinguishing pro-business andpro-marketpolicies? The answer is in part scholarly, that is, getting causalconnections right, and in partnormative, that is, are the ongoingchanges fair and just? We are now living in a world in whichdemocracy and capitalism have emerged as the most desirablemodes for organising national political economies. The realdebateabout nationalchoices is thus increasingly about "varietiesof capitalism". With advanced industrial economies providingmainly three alternatives - the neo-liberal model of Anglo-America, the social democratic model of Scandinavia, and thestatist model of JapanandSouth Korea- the debatefordeveloping

countries increasingly is, which model is best to emulate. Mypersonal preferences are social democratic, but for now that isnot too relevant. The neo-liberal model has in the recent yearsbeen hegemonic, or near hegemonic. With numerous countriesadopting - or apparentlyadopting - neo-liberal policies, a press-ing scholarly issue is: how successful have these policies been?The discussion about India is part and parcel of this broaderglobal debate. Champions of neo-liberalism generally want toembraceall successful cases - such as recent India- as examplesof the virtues of theirprescriptions, while distancing themselvesfromfailures,often arguingthattheirprescriptionswerenotreallyimplemented, or urging us to imagine how much worse thingsmight be had their prescriptions not been implemented. Againstthese arguments - which are often put forward and supportedby enormously powerful institutions around the world - somelone scholars chip away at this hegemony, arguing instead thatgrowth successes in the developing world resemble more thestatist model of Japanor South Korea, where activist states haveallied closely with business groups to push national economieson an upwardtrajectory.Since a narrow alliance of political andeconomic elite is not easy to institutionalise, east Asian modelshave also often had unsavoury politics. Against the neo-liberalmodel that holds that all good things can go together, the eastAsian model puts into sharp relief the tradeoffs that modemdevelopment efforts might involve.If India's recent economic growth was really a result of pro-market policies, then, in principle, there ought to be very fewcosts, only widespread benefits: after all, decentralised marketssupport democracy; competition creates a level-playing field;efficient use of factors of production ought to create labour-intensive industrialisation and thus rapid employment growth;terms of tradeought to shift towards the countryside, benefitingthe rural poor: and since capital moves to capital-scarce areasin search of high returns,regional inequalities ought to diminishover time, mitigating inequalities. Unfortunately, many of thetrends noted above do not fit these expectations. India's growthacceleration is instead being accompanied by growing inequali-ties, growing capital intensity of the economy, growing concen-tration of ownership of private industry, and nearly stagnantgrowth in employment in manufacturing industries. This evi-dence is more consistent with the view that the developmentmodel pursuedin India since about 1980 is a pro-business modelthat rests on a fairly narrow ruling alliance of the political andthe economic elite.

Rapid economic growth is essential for poor India. It is alsothe case that India's development strategyfrom the Nehru periodwas much in need of change. However, none of this implies, orought not to imply, that any new growth strategy that producesthese outcomes is beyond critical scrutiny. India's success atgrowth acceleration is to be admired. However, the currentgrowth experiment has to be kept in proper perspective. India'seconomic growth has not accelerated dramatically. What aggre-gate change is noticeable predates the liberalising reforms by awhole decade and industrial growth in the post-reform perioddid not pick up. Moreover, the problems posed by India's currentpro-business model of development include disquieting impli-cations for the quality of India's democracy. I raise them at theend only as questions. Why should the common people in ademocracy accept a narrowruling alliance at the helm? Is ethnicand nationalistic mobilisation a substitute for pro-poor politics?And,is India ncreasinglytuckwitha two-track emocracy,n




10/11

whichcommonpeopleareonlyneededatthe time of elections.andthen t is best that heyall go home.forget politics,and letthe "rational"lite quietlyrun a pro-business how?13Email:[email protected]

Notes[A very earlydraftof thispaperwas presentedat the "CrisisStates ResearchWorkshop",ndiaInternationalCentre,New Delhi, December 16-17,2004.I would ike to thankNeera Chandhokeand JohnHarriss or theopportunity,and the workshopparticipants or theirsuggestions. A second draftof thispaperwaspresented tthe Centre ortheAdvancedStudyof India,Universityof Pennsylvania,Philadelphia,on November 11, 2005. Many thanksto thecentredirector.FrancineFrankel or theopportunity, nd to Sunila Kale andJeffreyWitsoe, centre staff members,for useful discussions. I would alsolike to acknowledgethe helpfulcomments of R Nagaraj,RobertKaufman,Anil Jacob,andRoy Lickliderand the research assistance of PrernaSingh,especially in preparing he tables and graphs.]1 There is an interestingparallelhere with the situation n Latin America.An important tudyof LatinAmericanreformsby ECLAthusconcluded:"The reform results were neitheras positive as supporterspredictednoras negativeas opponents eared.Indeed,the reformsperse seem to havehadasurprisingly mall mpactat theaggregate evel (includingongrowth,investment and inequality)"[Stallings and Peres 2000, p 384].2 Senguptaprovided his information o me in a personalcommunication,for which I am much obliged. Also see Sengupta (2004).3 Advocates and critics alike do not always clarify why they think whattheythink.Ahluwalia, orexample,seems to suggestthat urtheroweringof tariffbarriers,urther peningof theeconomyto direct oreign nvestment,andenhancing abour"flexibility,"are the next stepsnecessary o improveIndia'seconomic performance.Why he believes that these policies willdo the trickis never madeexplicit; it is as if all "sensible"people mustof course agree. An occasional reference is made to east Asia, with asuggestion that this is how east Asia did it. While my analysis too isinfluencedby east Asian successes, East Asia is a diverse place, and thefastestgrowingstateswithinthatregion, such as South KoreaorTaiwan,werehardlyduring heirpeakperforming eriodsmodelsofopeneconomieswith "flexible" labour regimes [see Amsden 1989; Wade 1990; Kohli2004]. Criticsof reform,by contrast, eem to harkback to some imaginedgolden periodof Nehruand Mahalanobis.Not only is the desirabilityofthe return o that old importsubstitution model of developmenthighlydebatable, t is also not likely that such a return s a realisticoption inthe contemporary"globalised"world.4 Thesearemyowncalculations.Companydatawastaken romBusinessworld,August22-September6, 1998 and December27, 2004, the sales datafor2004 were collected from www.valuenotes.com. For one study thatdocuments hat urther onsolidationhas been the maincorporate esponse(alongwithgrowinguse of foreign technology) to economicreforms,seeBasant 2000.5 See Bhattacharya ndSakthivel2004, Table 6. One exceptionis Punjab,where he declineinoverallgrowthrateseems to be drivenmorebydeclinein theagriculture rowthraterather hanby a decline in the rateof growthin the secondarysector, which seems to have remained n the 6 percentrange duringboth the 1980s and the 1990s. The secondarysector datafor the 1990s also indicatesconsiderablegrowth pick-upin Tamil Naduand MadhyaPradesh and a considerable decline in Haryana.6 For one such study, see Sinha (2005).

ReferencesAhluwalia,IsherJudge(1985): IndustrialGrowth n India:Stagnationsincethe Mid-Sixties,Oxford University Press, Delhi.Ahluwalia, Montek S (2000): 'Economic Performanceof States in Post-ReformsPeriod',Economic and Political Weekly,May 6, pp 1637-48.-(2002): 'EconomicReforms nIndiaSince 1991:HasGradualismWorked?',Journal of EconomicPerspectives, Vol 16, No 3, Summer,pp 67-88.Amsden, Alice (1989): Asia's Next Giant: South Korea and LateIndustrialisation,Oxford University Press, New York.Balakrishnan, Pulapre and Kesavan Pushpangadan (1994): 'Total

Factor-ProductivityGrowth n Manufacturingndustry:A FreshLook'.Economic and Political Weekly,July 30, pp 2028-35.Bardhan,Pranab 1984): The Political Economy of Development n India,Basil Blackwell. Oxford, UK.Basant,Rakesh 2000): Corporate esponse oEconomicReforms',Economicand Political Weekly,March4, pp 813-22.Basu, Kaushik 1983): 'TheBudget:A Critiqueof Its Rationale',Economicand Political Weekly,March 19.Bhattacharya,B B and S Sakthivel(2004): 'RegionalGrowthandDisparityin India:Comparisonof Pre-and Post-ReformDecades', EconomnicndPolitical Weekly,March6, pp 1071-77.Chaudhuri,Sudip (2002): 'Economic Reforms and IndustrialStructure nIndia', Economic and Political Weekly,January12, pp 155-62.De Long,Bradford 2003): 'India since Independence:An AnalyticGrowthNarrative' in Dani Rodrik (ed), In Search of Prosperity: AnalyticNarrativeson EconomicGrowth,PrincetonUniversityPress,Princeton,New Jersey.Deaton, Angus and Jean Dreze (2002): 'Povertyand Inequalityin India:A Re-Examination', Economlicand Political Weekly, September 7,pp 3729-48.Easterly,William 2001):'TheLostDecades:DevelopingCountries' tagnationin Spite of Policy Reform 1980-98', Journal of Economic Growth,6,pp 135-57.Echeverri-Gent, ohn(forthcoming):Politics of Markets:Political Economyof ReformingIndia's Stock Markets.Evans,Peter1995):EmbeddedAutonomy:tateandIndustrialTransformation,PrincetonUniversityPress, Princeton,New Jersey.Frankel,Francine2005):India'sPoliticalEconomy,1947-2004: TheGradualRevolution,OxfordUniversityPress, New Delhi.Harriss, ohnandStuartCorbridge2000):Reinventing ndia:Liberalisation,Hindu Nationalism,and Popular Democracy, Polity, Oxford,UK.Jenkins,Rob (1999): DemocraticPolitics and EconomicReform n India.CambridgeUniversityPress.Johnson,Chalmers 1982):MITIand theJapaneseMiracle: The GrowthofIndustrialPolicy, 1925-1975,StanfordUniversityPress, Stanford,Calif.Kapur,Devesh forthcoming): emocracy,DeathandDiamonds:TheDomesticImpactof InternationalMigration rom India.Kochanek,Stanley 1996a):'Liberalisation ndBusinessLobbying nIndia',Journalof Commonwealth nd ComparativePolitics, 34 (3). November1996, pp 155-73.- (1996b): 'The Transformation f InterestPolitics in India',PacificAffairs,68 (4), pp 529-50.Kohli,Atul (1987): TheStateand Povertyin India: The Politics of Reform,CambridgeUniversityPress, New York.

-( 1989):'Politics of Economic Liberalisation n India'.WorldDevelopment.Vol 17, No 3, pp 305-28.-(1991): Democracy ndDiscontent: ndia'sGrowingCrisisof Governability,CambridgeUniversityPress, New York.- (2004): State-DirectedDevelopment:Political Power and Industrialisationin the Global Periphery,CambridgeUniversity Press, New York.Kumar,Nagesh (2000): 'Economic Reforms and Their Macro-EconomicImpact',Economic and Political Weekly,March4, pp 803-12.Milanovic, Branko (2003): 'The Two Faces of Globalisation: AgainstGlobalisationAs We Know It', WorldDevelopment,31, 4, pp 667-83.Mohan, Rakesh (2002): 'Fiscal Correction for Economic Growth: DataAnalysis and Suggestions', Economic and Political Weekly,June 10,pp2027.Mookherjee,Dilip (1992): 'IndianEconomy at the Crossroads'.Economicand Political Weekly,April 11-18, pp 791-801.Mukherjee, Pranab (1984): Beyond'Survival: Emerging Dimensions ofIndianEconomy.Vikas PublishingHouse, Delhi.Nagaraj, R (2000): 'Indian Economy since 1980: Virtuous Growth orPolarisation',Economic and Political Weekly,August 5, pp 2831-39.- (2002): 'Performance f India'sManufacturing ectorin the 1990s: SomeTentative Findings' in Shuji Uchikawa (ed), Economic ReformsandIndustrial Structure n India, Manohar,Delhi, pp 13-26.-(2003) 'IndustrialPolicy and Performance since 1980: Which WayNow?', Economic and Political Weekly,Vol 38, No 35, August 30,pp 3707-15.Nayar,Baldev Raj (1989): India's Mixed Economy:TheRole of Ideologyand Interest in Its Development,PopularPrakashan,Bombay.-(2001): 'OpeningUp and Openness of IndianEconomy', Economic andPolitical Weekly,September15, pp 3529-37.

EconomicandPoliticalWeekly April8, 2006 1369



11/11

Nayyar,Deepak(2001): 'EconomicDevelopmentand PoliticalDemocracy:Interactionof Economics and Politics in Independent ndia' in NirajaGopal Jayal (ed), Democracy in India, Oxford University Press, NewDelhi, pp 362-96.Panagariya.Arvind (2004): 'India in the 1980s: Weak Reforms, FragileGrowth',unpublishedmanuscript,Department f Economics,Universityof Maryland.Paranjape.H K(1980): 'New Statementon IndustrialPolicy'. EconomicandPolitical Weekly,September20.Patel, I G (1992): 'New Economic Policies: A Historical Perspective',Economicand Political Weekly,January4-11, pp 41-46.Patnaik.Prabhat 1999): 'The Performanceof the IndianEconomy in the1990s', Social Scientist, Vol 27, Nos 5-6, May-June.Pedersen, Jorgen Dige (2000): 'Explaining Economic Liberalisation inIndia:StateandSociety Perspectives',WorldDevelopment.Vol 28,No 2,pp 265-82.Rodrik,Dani and Arvind Subramanian 2004): 'From 'Hindu Growth' toProductivitySurge: The Mystery of the Indian Growth Transition'.unpublishedmanuscript,March.Sen,AbhijitandHimanshu2004):'PovertyandInequalitynIndia',Economicand Political Weekly. n two parts,September 18 and 25. pp4247-63and 4361-75.Sengupta, Arjun (2001): Reforms, Equity and the IMF. Har AnandPublications,Delhi.Sengupta,Mitu(2004): 'The Politics of MarketReform n India:TheFragileBasis of Paradigm hift',unpublishedPhDthesis,Department f PoliticalScience, Universityof Toronto.Shetty,S L(2003):'Growth f SDP andStructural hanges nStateEconomies:InterstateComparisons',Economic and Political Weekly,December6,pp 5189-5200.Sinha. Aseema (2005): The Regional Roots of DevelopmentalPolitics in

India: A Divided Leviathan,IndianaUniversity Press, Bloomington.Sinha,Aseema (2004): 'Ideas,Interests,and Institutions n Policy Change:A Comparison f WestBengalandGujarat'nRob Jenkins ed),RegionalReflections:ComparingPolitics across India'sStates,OxfordUniversityPress, New Delhi.Srinivasan,T N and S Tendulkar 2003):Reintegrating ndia with the WorldEconomy, Institute for InternationalEconomics, Washington DC.Stallings, Barbaraand Wilson Peres (2000): Growth, Employment,andEquity: The Impact of Economic Reforms in Latin America and theCaribbean,BrookingsInstitutionPress, Washington DC.Stiglitz, Joseph 2002):GlobalisationandItsDiscontents,WWNorton,NewYork.vandeWalle,Nicolas(2003):PoliticsofAfrica'sPermanentEconomicCrisis,CambridgeUniversityPress, New York.Virmani,Arvind(2004a): 'India's Economic Growth:FromSocialist Rateof Growth o BharatayaRate of Growth',WorkingPaperNo 122,IndianCouncil for Researchon InternationalEconomicRelations,New Delhi,India.- (2004b): 'Sources of India's Economic Growth:Trends in Total FactorProductivity',WorkingPaperNo 131, Indian Council for Research onInternationalEconomic Relations, New Delhi, India.Wade,Robert 1990): Governing he Market:EconomicTheory nd the Roleof Government n East Asian Indutstrialisation, rinceton UniversityPress, Princeton,New Jersey.Wallack,JessicaSeddon 2003): 'Structural reaks n IndianMacroeconomicData', Economic and Political Weekly,October 11, pp 4312-15.Williamson, John (1990): 'What WashingtonMeans by Policy Reform'in John Williamson (ed), Latin American Adjustment:How MuchHas Happened?Institute or InternationalEconomics,WashingtonDC,pp 7-38.WorldBank 2005):Bihar:Towards Development trategy,WashingtonDC.

SPECIAL ISSUEWATERCONFLICTS N INDIA

February 18, 2006'MillionRevolts'in the Making -Biksham Gujja,K J Joy, Suhas Paranjape,VinodGoud, ShrutiVisputeContendingWater Uses: Biodiversity s Irrigation: ase of Keoladeo NationalPark -Malavika ChauhanContendingWaterUses: Social Undercurrentsn a Water-ScarceVillage -Anjal Prakash,R K SamaContendingWaterUses: Bridgeover the Brahmaputra -Chandan Mahanta,AnjanaMahantaEquity,Access and Allocation:Conflict n the Bhavani -A Rajagopal,N JayakumarEquity,Access and Allocation:Discriminationn an Irrigation roject -S N Lele, R K PatilWaterQuality:Pollution hroughAqua Culture:KolleruWildlifeSanctuary -J Rama Rao, Jasveen Jairath,P UmeshWaterQuality:Unclogging he KhariRiver:StakeholdersCome Togetherto HaltPollution -Srinivas Mudrakartha,atin Sheth, J SrinathWaterQuality:Bridging he Ganga Action Plan:Monitoring ailureat Kanpur -Praveen SinghSand Mining:GroundwaterDepletion n Papagani Catchment -M ChandrasekharaRaoMicro-LevelDisputes:GravityDam in Trouble:Forest OfficialsWho Missedthe Wood for the Trees -Nandita Singh, ChandanSinhaMicro-LevelDisputes:TraditionalWaterHarvestingStructure:Communitybehind'Community' -Prakash KashwanMicro-LevelDisputes:Failureof Community nstitutions:Shapin River Basin in Jharkhand -Pankaj Lal,KamaldeoSingh, KapildeoPrasadDams and Displacement:AlternativeRestructuring f the Sardar Sarovar:

Breaking he Deadlock -Suhas Paranjape,K J JoyDams and Displacement:When MultipleConflictsOverlap:HaribadProject n MadhyaPradesh -Rehmat, ShripadDharmadhikaryDams and Displacement:MajorLoss, MinorGain: PolavaramProject n AP -R V Rama MohanTransboundaryDisputes:Two Neighboursand a Treaty:BagliharProject n Hot Waters -Rajesh SinhaTransboundaryDisputes:Politics and LitigationPlay Havoc:SutlejYamuna LinkCanal -IndiraKhuranaPrivatisation:n Chhattisgarh, RiverBecomes PrivateProperty -Binayak Das, Ganesh PangareFor copies write to: Circulation Manager,Economic and Political Weekly,HitkariHouse, 6th Floor, 284, Shahid Bhagatsingh Road, Mumbai 400 001.


politcs of economic reform kohli

Documents