Part of the Oxford Series of short introductions Political Economy of Reforms in India by Rahul Mukherji runs over 200 pages. The book’s four compact chapters addressing the major themes of economic reforms and social change in a chaotic democracy delineates both the success of India’s growth model in the post-liberalization period as well as the predicaments of poor infrastructure, inefficient public delivery system and low literacy levels that it produces.
The forces maintaining status quo and the forerunners of change are found to exist simultaneously. The political economy perspective in this book envisages that the pace of policy change is determined by the relative strength of the economic actors illustrating that the slow pace of economic change in 1980s could be explained by the unwillingness of the industrialists and middle class professionals. It also posits the critical importance of ideological propensities of the governing authorities especially when the government is required to respond to economic crisis. But, more importantly the author establishes a causal link between the growth model and public welfare in his political economy approach and rightly cites the process of economic growth as only a necessary condition for welfare of the underprivileged and poor. This argument stands particularly relevant in view of the emerging public concerns like displacement, poverty, undernourishment, environmental degradation associated with the developmental policies of the government. To cite an example, the relaxation of land acquisition norms by the present government has resulted in a political uproar particularly challenging the elimination of the social impact assessment requirement in the amended law and inadequate compensation that the displaced poor would get.
The first chapter explains economic change after 1991 in the framework of the ‘tipping point transformation model’, a model of gradual change that develops over a period of time and ends up in radical transformation primarily for endogenous reasons. The tectonic shifts after the emergency and especially since the early-1980s are observed, to demonstrate the ideational change in favour of liberalization and globalization. The author argues that the government recognized the deleterious effects of import substitution on India’s industrialization and therefore felt it necessary to liberalize by removing undue restrictions on private trade and investment, not because there were pressures from private business. The tipping point model appears to provide a half-hearted explanation of the nature of ideational change. The perspective of the PMO may not hold true for all departments and governing bodies. The inter-institutional difference in perceptions over liberalization runs counter to the simplistic consideration of an overall ideational change. To cite an example, the PMO and Ministry of Finance thought very differently about liberalization of software imports and it was primarily due to the pressures of the latter that the government was compelled to withdraw the concessions in the software policy of 1987. Secondly, posing India as a weak state and simultaneously arguing that economic change was initiated in the 1980s due to tough decisions taken by the then Prime Minister Rajiv Gandhi even by sidelining the powerful pro-protectionism industrial bodies like FICCI and drawing pro-competition bodies like AIEI closer appears contradictory. If the state is weak it will be difficult to ignore the apprehensions of the influential societal actors and institutions.
The post-1991 economic reforms were not a sudden response to the BoP crisis. The author argues that the policy change was path dependent. The political leadership was firmly committed to globalization and deregulation and the changing external dynamics after the end of Cold War provided an impetus for restructuring foreign economic policy. However, it remains to be explained how the government reconciles with the resistance by the industrialists that benefitted from import substitution in the past. Although, the big ones like Tata and Reliance, as pointed out, found relaxation of foreign investment norms favourable for capacity expansion, the small business enterprises faced the brunt of the competition. In the pharmaceuticals sector, for instance, adherence to TRIPS and inclusion of product patent harmed the prospects of the smaller drug companies that used different processes to manufacture products that were also produced by larger companies.
The chapter explains well the economic restructuring that takes place after 1991. The important ones that had a direct impact on the business prospects of the industrialists and contributed towards economic growth were industrial delicensing, foreign investment including portfolio investment, and devaluation of currency. It is shown that the policy change in these areas helped in the rapid growth of Indian business. Examples of Tata, Mittal, Infosys and Reliance are being cited to earmark the success saga of Indian business in the post-reforms period. The discussion however sheds the impact on SMEs and small business while eulogizing the big ones. In the infrastructure segment, mixed result of success and failures are being observed. Telecom is shown as a success story while the power sector is cited as one of the biggest failures. The politics of reforms in these sectors is being located on a case-tocase basis.
While inter-institutional dissensions determined the pace of reforms in the telecom sector, social pressures politicized the matter in the power sector. Observing the dynamics of a federal market economy, the author makes two important points: first, the States have become more autonomous after 1991 in attracting investment and second, the ones that have promoted private and foreign investment have witnessed high growth. But growth is not a complete guarantee to social development as the case of Gujarat would suggest. High growth in Gujarat has not translated into concomitant high scores in human development indicators, especially health and education. In contrast Kerela, has not been so much of a home for private investment but has done extremely well on education and health fronts. The author contradicts his own position when he observes that poverty reduction has happened at a time (2010–2012) when the growth rates have plummeted. But, he rightly observes the slow-paced growth in the agricultural sector and the plight of industrial labour class. While highlighting the weakness of exiting labour laws, it must be noted that their applicability might stand highly dubious when almost 90% of the workforce works in the unorganized sector and are not protected under these laws. So virtually the laws stand relevant for a minuscule 10% of the labour force.
The chapter on the nuances of India’s economic globalization and its engagement with the external world draws a contrast between the economic thinking in the early decades and the post-reforms period. The dominant idea during this period was that of import substitution which readily served the interests of bureaucrats and the rich industrialists. It encouraged rent-seeking and corruption rather than growth and poverty reduction. The author draws a historical sketch of India’s tryst with globalization in four phases after Independence. These are: limited globalization from 1947 to 1967, anti-globalization from 1967-75, halting globalization from 1975–90, and globalization from 1991 onwards. He analyses the interplay of external and domestic politics in determining the pathways to globalization during all these phases.
The first two phases when the ideas of import substitution were predominant are marked by the fluctuating relationships with the two superpowers. It is argued that India’s policy of nonalignment during the first phase helps it in getting assistance from both the camps. Second, the characterization of this phase as limited globalization implies that the leadership despite adhering to import substitution was not thoroughly anti-trade or anti-globalization. The central idea was to achieve economies of scale by promoting capital-intensive, basic and key industries like iron, steel and coal. It must however be acknowledged that the leadership in this phase takes economic decisions more independently than the ones in the next phase. Political dynamics of the second phase that is characterized by dissensions within the Congress Party and emerging alliances and association between Mrs. Gandhi’s Congress and CPI is what explains the shift towards nationalization and MRTP and FERA. But the argument regarding changing foreign policy dynamics auguring well with state-led development and greater restrictions on privatization is well proven. I would rather say that there was a convergence of domestic and external political interests that led to Left-oriented, socialist or anti-globalization policies during this phase. Strategic interests in both domestic and external politics became the guiding force behind anti-globalization stance of the government.
The third phase has been described as the period of halting globalization. The discussion takes into account the foreign policy constraints that inhibited India’s engagement with the US and East and South-East Asian countries. It is rightly observed that India’s ties with USSR were still intricate which disappointed US and its allies. The chapter however loses sight of the intricacies of domestic politics that marked ad-hoc policy shifts encouraging exports and partial economic globalization during this period. During the early-1980s preliminary steps were taken to liberalize industrial policies as the government had taken a pro-business stance by then. However, the ideology of socialism had to be maintained in rhetoric and the changes were initiated incrementally. This was probably the reason that there was little opposition to policy shifts initiated by Mrs. Gandhi. But, far-reaching changes initiated by the Rajiv Gandhi government especially relaxation of import licensing to encourage export-oriented companies led to sharp political reactions in response to which the government was compelled to backtrack at the turn of the decade.
In the last phase of economic globalization the author shows how ideas favouring liberalization, developed over a period of time, reaches its logical conclusion in the early-1990s in most significant ways. This goes well with the argument that ‘globalization is the logical culmination of liberalization’. It is also stated that such ideas are backed by external circumstances at the end of the Cold War period that leaves India with no alternative but to engage with the US and its allies in Europe and East Asia. More importantly, the author shows how India enhances its trade relations by signing trade pacts with several countries one after the other which further indicates that economic priorities had come to determine the fundamentals of India’s foreign policy. Adoption of fullfledged economic globalization meant that the Indian government would not hesitate to even trade with countries like China and Sri Lanka that pose a threat to its security. In fact, Sri Lanka is a good example to illustrate how neighbours in South Asia could sideline their political dispute and give priority to their trade relations. This is the only country in South Asia with which India has signed a free trade agreement.
In the third chapter the author attempts to understand the welfare and concerns of citizens in contemporary Indian society. He observes that while the resource base of the economy has improved substantially, redistribution leading to overall welfare remains a distant goal. The politics of patronage has been cited as a probable cause for economic deprivation of the poor sections. The author envisages variations across States in the nature of political patronage and the developmental outcome. In this comparative framework, Tamil Nadu is cited as a success story, while Uttar Pradesh and Madhya Pradesh are seen as poor governing States.
The chapter also studies the nuances of welfare politics in India by relating the three major welfare initiatives RTI, right to education, and MNRGES to the tipping point model of economic change. In this perspective, the author suggests how ideas favouring citizens’ welfare builds up over a period of time to produce desired welfare outcomes in the form of citizen-friendly policies. But ideas are also conditioned by electoral motivations. The author rightly observes that the UPA’s electoral success in 2009 was largely due to the MNRGES scheme that paid rich political dividends in getting the support of the rural poor. The tipping point model also holds true for the genesis of right to education. It is clearly shown how steps to curb child labour and promote literacy in the 1980s and 1990s culminated in a fundamental change towards translating literacy into a right that every citizen was entitled to. Finally, the RTI was found to be driven by the social processes especially the movement led by the MKSS in Rajasthan. It must however be noted that each of these welfare measures has its specific context of origin. Ideational change in government circles may not necessarily apply equally to all three. While MNRGES was a highly politicized scheme based purely on electoral permutation and combinations, the RTI was an outcome of the social pressures that had built up over a period of time, a point that the author illustrates empirically. In contrast, both factors were critical in producing right to education.
The last chapter summarizes the arguments made in the previous chapters. Although the arguments appear reasonably cogent in understanding social and economic change in India, the theorization of developmental outcomes based on changing patterns of state-society relations remains obscure. The power of ideational change independent of social influences portrays India as strong state which does not initiate any policy change unless it is convinced on its own. This explanation runs counter to the perception that India is a relatively weak state and is vulnerable to the pressures of powerfully political lobbies. Second, though the tipping point model could well explain economic reforms in India on the basis of institutionalization of ideas favouring economic globalization, it may not appear very convincing in elucidating the welfare politics in the post-reform period. In the latter, the author while accounting for the impact of social movements finally shifts the argument in favour of the power of ideational change within the government and bureaucracy. Welfare politics in India is more an outcome of civil society activism triggered by internet revolution and less to do with the benevolence of the entrepreneurial government.
The multidisciplinary approach in the book makes it an essential reading for manifold streams of knowledge.
Siddhartha Mukerji is Assistant Professor in the Department of Political Science, Babasaheb Bhimrao Ambedkar University, Lucknow.