Politics of Economic Growth in India, 1980-2005, Part I: The 1980s

1251 For the last quarter of a century India’s economy has grown at an average rate of nearly 6 per cent per annum. Considering that India’s economy hardly grew in the first half of the 20th century, and then following independence, grew at a sluggish rate of some 3 to 4 per cent per annum, this recent growth acceleration is quite remarkable. It is the case that India’s recent rapid economic growth has been accompanied by growing inequalities; the share of the poor in this new growth is also being vigorously debated [see, for example, Deaton and Dreze 2002; Sen and Himanshu 2004]. Nevertheless, there is no denying that the Indian economy in recent decades has been one of the world’s fastest growing economies. Moreover, unlike in much of high growth east Asia, the Indian economy has grown within the framework of a democracy. The scholarly questions then abound: How has India done it? What lessons, if any, can others draw from the Indian case? While the cumulative changes in the nature of the Indian economy since independence, as well as the shifts in the global context of India, must be part of any full explanation of “how India has done it”, a central issue for interpretation also concerns the changing role of the state within India: Has India’s growth acceleration resulted from the state’s embrace of neoliberal policies, or from some more complex but identifiable pattern of state intervention? This paper attempts to answer this question. One respectable interpretation of the recent Indian experience, let us call it the pro-market interpretation, emphasises the process of economic liberalisation in India that began earnestly in 1991 [Srinivasan and Tendulkar 2003]. India’s earlier sluggish growth, according to this well known line of thinking, was largely a product of a highly interventionist state and of a misguided import substitution trading regime. In 1991, the argument might continue, India adopted a pro-market strategy that liberalised its internal regulatory framework, reduced tariffs, adopted appropriate exchange rate policies, and allowed foreign investors to play a significant role in the economy. As a result, to repeat the metaphor used by the Economist (India Survey, May 4, 1991) the animal urges of Indian entrepreneurs were “uncaged”: capital accumulation in and the efficiency of the economy improved, propelling India into the ranks of the world’s fastest growers. While widely embraced, this pro-market interpretation is unable to explain some important empirical anomalies in the Indian record, and is plagued by some logical inconsistencies. First, economic growth in India started accelerating a full decade prior to liberalisation of 1991 [Nagaraj 2000; De Long 2003; Rodrik and Subramanian 2004; Virmani 2004]. Why? Second, industrial production in India – a key object of reforms – did not accelerate following the liberalising reforms; if any change is observable when the post-reform industrial growth is juxtaposed against the 1980s, it is nearly in the opposite direction [Chaudhuri 2002; Nagaraj 2003]. Again, why? And third, if a set of policies is supposed to work anywhere and at any time, why have some states within India responded well, while others have not [Ahluwalia 2000]? India’s record also has to be situated in a broader comparative context. By international standards, India’s embrace of the global economy has been relatively modest [Nayar 2001]. The economic record of many other developing countries that have also liberalised, and often more deeply, is, at best, mixed [for Latin America, see Stallings and Peres 2000; and for sub-Saharan Africa, see van de Walle 2003]. India’s superior economic Politics of Economic Growth in India, 1980-2005 Part I: The 1980s