Rivers of ink have been spilt over the past few weeks in recollections and nostalgic anecdotes marking three decades of India’s economic liberalisation. Mint carried a column debate between Jayati Ghosh (taking a more critical stance on the 1991 reforms and their ‘neoliberal’ nature) and Montek S. Ahluwalia (discussing the essence of the 1991 reform package in context to that time and India’s pre-existing economic landscape). I neither attempt to take any of these sides nor wish to offer any further submissions in the “economic” debate around the 1991 reforms, its intended outcome realisation, or the controversy surrounding their success-failure in reducing absolute poverty levels.
A point less echoed and emphasised in the entire discourse and the economic debate is the ‘political’ and ‘political economy’ considerations seen during the India of the 1980s and the 1990s, which seemed far more different, and yet, in some ways, quite similar to the ‘political’ and ‘political economy’ context of our times.
Incremental, Gradualist Reforms Shaped The '90s
When I discuss these topics during the lectures from a taught course, ‘Political Economy of Late Development: Reflections from India and China’s Post Reform Growth Story’, the key academic reference used is Atul Kohli’s two-part series, ‘Politics of Economic Growth in India-1980-2005’, published by the Economic and Political Weekly.
Kohli, in his work, provides a detailed insight into the ‘political’ and the ‘political economy’ landscapes shaping India’s growth trajectory during the 1980s, the 1990s and later in the 2000s. It highlights the essence of seeing India’s entry into the global economic landscape (say, during the 1990s) as a product of incremental, gradualist reforms of the 1980s based on attitudinal shifts observed in the state-capital-private business relationship.
However, what’s central to the pursuit of Kohli’s arguments and thesis is a theoretical and more abstract question: Did India’s growth acceleration (during the 1990s and 2000s) result from the state’s embrace of neoliberal policies, or from some more complex but identifiable pattern of state intervention?
To answer this question, Kohli employs a smart theoretical distinction, seeing India’s growth experience in a two-part distinct, interpretative category: the ‘pro-market’ vs. ‘pro-business’ experience.
The 1991 and the post-1991 period is understood as part of the ‘pro-market’ growth trajectory, where pursued economic reforms, undertaken more on the capital market side, allowed our “markets” to operate more freely and flexibly in certain sectors, such as telecom, automobiles, aviation, IT, construction, consumer goods, etc. The aim was to crowd in private investment opportunities.
The Rich Got Richer; ‘Garibi Hatao’ Fizzled Out
It is true that a push for market-led growth allowed economic possibilities and upward income mobility for higher-income classes across the nation. However, the distributive end of any such growth-accrued gains failed to bring greater income and social mobility amongst the more vulnerable and economically depressed classes. Welfare distribution or essential social expenditure was not prioritised in fiscal policy for most of the 90s and thereon.
Nevertheless, this period saw a strengthening of the ‘state-capital-private business’ alliance like never before, and some might say, even at the cost of pre-existing social and economic protection available to India’s deeply fragmented and highly unorganised (informal) labour force.
This ‘pro-market’, inequality-feeding growth boom experience, according to Kohli, was not possible without a gradualist nudge anchored by the ‘pro-business’ measures undertaken during the 1980s. In the early 1980s, Indira Gandhi realised that her socialist politics of Garibi Hatao (remove poverty) was running out of steam. Land reforms were difficult to implement. Anti-big business measures, such as the Monopolistic and Restrictive Trade Practices Act (MRTP), Foreign Exchange Regulation Act (FERA) and the nationalisation of banks, deeply eroded the state-capital-private business compact, which seriously hampered growth as well. So, a change in guard from the status quo in economic thinking (as dominant during the 1970s) was needed.
Politically, too, Indira Gandhi and her advisors might have calculated that a realignment with big capital may not be too costly, in part because the poor were already loyal to her — there wasn’t a credible national-level opposition.
But it was also because state support of business may lead to higher growth and lower inflation, an outcome that India’s largely poor electorate might appreciate.
'Growth First' Became The 80s' Mantra
And so, the three components of the ‘new model of development’ that Indira Gandhi adopted from 1980 were centred around prioritisation of economic growth as a state goal, supporting big business to achieve this goal, and taming labour as a necessary aspect of this strategy.
Powerful committees, such as the L.K. Jha Committee (to study the overhaul of economic administration), the Abid Hussain Committee (to review trade), and the M. Narasimham Committee (to consider financial reforms), were established to study how this major transformation was to be implemented.
Without these ‘pro-business’ measures and a concrete push given to ‘growth first’ policies in the 1980s, it would be hard to imagine the ‘pro-market’ growth experience seen during the 1990s and the 2000s. It is true that the economic reforms undertaken since 1991 influenced both India’s industrial policy and external economic relations. But the variety of industrial policy reforms — further delicensing, removal of MRTP constraints, tax concessions, the opening of yet newer areas hitherto reserved for the public sector, and taming labour — can be best viewed as a continuation of reforms that were well underway during the 1980s itself.
‘Taming’ And ‘Disciplining’ Labour
More importantly, what’s vital to understand is how the roots of neoliberal economic activism, observed from the reform cycle beginning in the 1980s and pushed more aggressively in the 1990s, were stretched upon a collective belief built around the “taming” of India’s labour activism.
The density of labour unions weakened, strikes went down, “work-to-rule” movements were increasingly characterised by Indira Gandhi, who was once regarded as a leader of the Left, as “anti-social demonstrations of irresponsibility by a few” during the 1980s.
Laws were introduced and the space in collective bargaining for workers was shrunk even more.
Of course, within the limits of India’s fragmented state power, this ‘labour-disciplining’ strategy wasn’t possible to the same extent as seen in East Asia, where nations such as China, South Korea and Singapore were more brutish in policing workers for a cohesive form of capitalism aimed at driving growth.
The Indian scenario could not be the same despite a national agenda to do so because of its two operative and constitutive governance realities. First, its federal and fragmented polity insulated by a diverse and ethnolinguistically segregated social and economic class, and second, its democratic functioning with a maintained separation of powers between the legislative, executive and judiciary.
The Economic Reform Story Turns A Full Circle
And this makes one bring the flashback picture back to the present now. This national signalling effort (as seen during the Indira-Rajiv years of the 1980s) aimed at “disciplining labour” and renewing the ‘state-capital-private business’ compact for the aspirational goal of ‘higher growth’ is also the status quo now, under the Narendra Modi Government that came to power in 2014. Somehow, the circling of India’s national economic reform story remains centred around “growth”, without much emphasis upon “deliberative redistribution” or applying the principles of a welfare state, which is what the Constitution envisages India to be; it doesn’t focus on prioritising meeting the socio-economic needs of the poor over making the rich richer.
What’s intermittently worse now than what was seen during the Indira Gandhi-Rajiv Gandhi years and the Narasimha Rao-Manmohan Singh period is a wholesome “political” attack on the two aforementioned “operative realities” of our governance ecosystem.
Widening democratic deficit, a breakdown in the federal relationship, and a deep erosion of social trust within economic actors (farmers, workers, firms, households, and the government) is only compounding the issue.
The nation has been pushed further into a chronic crisis of confidence, which, no matter the policy, wouldn’t allow for any proximate or deeper factors of economic growth to sustain themselves or become the means to an end — ensuring a higher order of well-being for all citizens.
Kohli argued quite prophetically in the early 2000s: “India’s economic growth (in the 1990s) did not accelerate dramatically. What aggregate change was noticeable predated the liberalising reforms by a whole decade and industrial growth in the post-reform period did not pick up. Moreover, the problems posed by India’s current ‘pro-business’ model of development include disquieting implications for the quality of India’s democracy..."
(The author is Associate Professor of Economics, OP Jindal Global University. He is currently Visiting Professor, Department of Economics, Carleton University. He tweets @prats1810. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)