India. Craig Jeffrey

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СКАЧАТЬ was the framework to be adopted. Most imports were made subject to discretionary licensing; and on the other side of the trade regime what has been called ‘export pessimism’ seemed reasonable. There was very general agreement, even among Indian capitalists, that the state had to play a leading role in raising the finance that was required. It was generally accepted – in a context in which Soviet planning was seen as having been remarkably successful in bringing about rapid industrialization – that the state should plan development. A key instrument in the policy framework was the Industries (Development and Regulation) Act of 1951, setting up a system of licensing, controlling entry into industry and governing most aspects of firm behaviour. Licensing, of industries and of imports, together meant that competition, both domestic and foreign, was restricted, and this in turn – it came to be recognized – led to inefficiency (Bhagwati and Desai 1970 – the first sustained intellectual critique of planned industrialization – and Bhagwati and Srinivasan 1975 are definitive sources on the arguments involved). Indian entrepreneurs found themselves tied up in red tape or mired in rent-seeking activities, given the revenues that could be obtained by securing a licence with an actual or a near monopoly in a particular industry. Inefficiency was not at all incompatible with profitability. The era of what came later to be pilloried as the ‘licence-permit raj’ was once described by a leading industrialist to one of us as that of the ‘handkerchief-on-seat’ culture – meaning that customers just had to wait their turn, whether for the supply of vital equipment or for consumer goods such as motor-cycles or cars.

      The story of India’s economic growth in the long period of the political dominance of the Congress Party, from the foundations of the republic through to 1989 – only briefly interrupted, by the Janata government that ruled from April 1977 to the beginning of 1980, following Mrs Gandhi’s Emergency of 1975–77, when democracy was suspended – is, therefore, often represented as one of failure. According to Kar and Sen, ‘For most of this period, the Indian economy experienced a prolonged stagnation in growth right up to the 1970s, with a nascent recovery in the growth rate in the late 1980s’ (2016: 29). Their analysis, however, like that of many others, shows clear differences from decade to decade (see their fig. 1.2, giving decadal averages of growth of output per capita): there were higher levels of growth per capita in the 1950s (at about 2 per cent per annum) than in the 1960s (1.49 per cent), and the 1960s were better than the 1970s (0.84 per cent), which was the time of the so-called ‘Hindu rate of growth’, when the rate of economic growth hardly kept pace with that of the population. Then there was ‘recovery’ in the 1980s (3.19 per cent), even if the acceleration was not sufficient statistically to count as a structural break.

      There is another way of understanding the history of the period, however. According to this view, state planning of the economy, in a framework of import substitution industrialization, was really quite a success story, at least to begin with. Thanks especially to the Second Five Year Plan, designed by P. C. Mahalanobis, the country achieved a remarkable transformation of its industrial base over a very short period of time. The industrial growth rate was above 5.5 per cent per annum in the 1950s, and about 6 percent in the 1960s (Kar and Sen 2016: fig. 3.2), and investments in that time in heavy engineering and infrastructure can be shown to have delivered significant benefits for long-run growth. Unlike other countries that pursued import substitution industrialization strategies, India succeeded in developing the capacity to make machines (a point made notably by Griffin 1999).

But in spite of its relative success in the 1950s and early 1960s (the period of the first three five-year plans), state planning entered into crisis in the mid-1960s. An important book from the time had the title The Crisis of Indian Planning (Streeten and Lipton 1968). A range of factors were involved, including the failure to address the problems of the low productivity of Indian agriculture, and the persistent poverty of the mass of the rural population – which also had the effect of constraining the demand side of economic growth. But the increasing inability of the state to raise the necessary resources to maintain the rate of public investment was especially important (Hanson 1966). From the mid-1960s, the rate of economic growth declined quite sharply (as the calculations of both Panagariya and Kohli, reproduced in table 2.3, clearly show). In the view of liberal economists, especially, the situation was exacerbated by policies enacted under governments headed by Mrs Gandhi after 1969 that were decidedly anti-business. Leading banks were nationalized (in 1969); the passage of the Monopolies and Restrictive Trade Practices (MRTP) Act 1970 was aimed at increased regulation of big business houses; and the Foreign Exchange Regulation Act (FERA) in 1973 struck at inflows of foreign investment and technology (see Panagariya 2008: ch. 3).

      The conclusion reached by Kar and Sen, ‘that the policy framework played an important role in contributing to the economic stagnation of the 1960s and 1970s’ is well-founded, no doubt. And policy distortions helped to shape a manufacturing sector that used too little labour and too much capital (Kochhar et al. 2006: 17). We think that it is also important, however, to acknowledge both that the late 1960s and 1970s were difficult times in many developing countries – not least in the wake of the oil price rises of 1973–74 and a global economic downturn – and that capabilities were built in India at this time that stood the country in very good stead in later years. We think, for example, of the investments in human capital through the technology, management and research institutes that were established, as well as of the investments in heavy engineering and in infrastructure.

      We do not believe, therefore, that the first thirty years of independent India should be written off simply as a time of economic failure, while recognizing that there is no doubt of the accumulation of problems making increasingly for stagnation. The relationships in this time, between the economic elite and the Congress political elite, were uneasy, with mistrust on both sides – not an environment at all conducive to crucial investments involving large initial sunk costs. The Congress political elite was divided: a minority, but one to which Nehru was at least sympathetic, influenced in part by a positive reading of the Soviet experience, sought to move India in a socialist direction; but most were inclined to be supportive of private business even if they thought that the public sector had to be the key driver of growth. The result was that, as Vivek Chibber showed, in an important study of the state and late industrialization in India, ‘the Indian state managers’ agenda was frustrated by a well-organized offensive launched by domestic capitalists’ (2003: 9). India did not build, at this time, a developmental state of the kind established, for example, in South Korea, in which the state was able ‘to harness capitalists to its project’ (Chibber 2003: 9). Their influence in the leading political bloc meant that the prominent business groups were able effectively to scupper the disciplinary part of state-planning. The Planning Commission lacked the capacity to discipline either ministries or firms. At the same time, as Chibber also explains, the Congress government was very effective in weakening the labour movement that might have supported disciplinary planning.

While successfully resisting disciplining by state managers, capitalist firms benefitted from the subsidies and protection offered them under the import substitution industrial strategy. Bureaucrats were able to exercise a great deal of discretion in the allocation of licences, permits and quotas, and big Indian companies devoted a huge amount of effort to lobbying, so as to secure them, as well as to making demands on government to modify regulatory policy. As Bhagwati puts it, ‘the industrial-cum-licensing system … degenerated into a series of arbitrary decisions … because the administrators were so empowered’ (1993, cited by Kar and Sen 2016: 39). In terms of the analytical framework that Kar and Sen set out, there was a disordered deals environment, not at all conducive to growth. It was inclined to be closed as well. South Indian industrialists whom John Harriss interviewed (in 2000), for instance, spoke about their having been excluded from a lot of deals-making in Delhi.

      Accelerating Growth in the 1980s

      As we have argued, the 1980s saw an acceleration in the rate of economic growth over the trend line of the previous three decades (see table 2.1), even if it was only a ‘nascent recovery’ according СКАЧАТЬ