India. Craig Jeffrey

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СКАЧАТЬ and the improvements in TFP that are clearly observed in data on the 1980s. But what happened to bring about the changes that took place in patterns of investment, pushing up levels of private investment, and encouraging more investment in machinery?

      The nature of state–business relationships began to change when Mrs Gandhi was returned to power in the general election of January 1980, after the collapse of the short-lived Janata regime. Several leading scholars argue that government attitudes changed at this time from being anti- to pro-business (De Long 2003; Rodrik and Subramanian 2005; and Kohli 2006a, 2006b). Kohli says, ‘just after coming to power in January 1980 … Indira Gandhi let it be known that improving production was now her top priority. In meeting after meeting with private industrialists, she clarified that what the government was most interested in was production’ (2012: 30–1). Rodrik and Subramanian, in their joint work, argued that a change in the attitudes of the Congress political elite towards business had a big impact. A much more pro-business orientation on the part of political leaders made for significantly higher growth rates, because India had, until that time, performed so poorly in relation to the quality of its economic institutions – which meant small changes brought about big shifts. The change of attitude may have been a matter of political calculation on Mrs Gandhi’s part – promising to strengthen her hand against the threat still posed by the opposition – but it started to establish a more collaborative relationship between state and business: ‘the Indian state clearly signaled to domestic capitalists its intention to credibly commit to an environment where private enterprise would be supported and growth-enhancing policies followed’ (Kar and Sen 2016: 41).

This trend was further accentuated under the government headed by Rajiv Gandhi, who came to power at the end of 1984, in the general election that followed the assassination of his mother in October that year. Gandhi was interested in new technologies, and sought to encourage new industries, bringing in entrants to the business elite. Non-traditional business groups began to emerge, especially in western India and in the south. And, though they were modest (‘half-hearted’, as one of us put it at the time: Harriss 1987), Rajiv Gandhi’s government did introduce some reforms of industrial and trade policy, opening them up, even if only a little. We noted earlier the implications of the softening of import restrictions for the price of capital equipment for Indian investors. The consequence of changing political attitudes, of the advent of new business elites, and of the reforms that were implemented, was that by the late 1980s the deals environment had become both more ordered and more open, and this is seen by Kar and Sen as having been ‘the crucial enabling factor behind the increase in private investment in equipment’ (2016: 41).

      These arguments are not universally accepted. Arvind Panagariya, whose analysis of phases of growth we referred to earlier (see table 2.3) argued that only in the three years from 1988–89 to 1990–91 was there a distinctively higher growth rate, and that this was the fruit of the modest, piecemeal reforms that had been pursued to that time. The real break in the growth trend came only with more thorough-going market-friendly reforms that were launched in 1991 (Panagariya 2008). Panagariya, and others too, also thought that the growth of the 1980s depended upon unsustainable fiscal expansion. Large fiscal deficits were run up, government debt expanded hugely through the decade, exerting a big stimulus to demand – but in a way that was held to be unsustainable. Kotwal et al. (2011), from their review of these arguments and the evidence for them, reach the judicious conclusion that all of the factors that are referred to may have played a part. None of the other explanations, however, addresses the crucial question of how the settlement between business and political elites changed. The more ordered deals environment that Kar and Sen discern in the 1980s was then extended in the 1990s.

2.4 India’s ‘Economic Reforms’ and Growth in 1993–2001

In 1991 Indian economic policy took a new direction, in which the aim has been to promote economic growth through support for private enterprise. Under a minority Congress government headed by P. V. Narasimha Rao (whose own role in the change that took place has often been underestimated), the Finance Minister, Dr Manmohan Singh, embarked on far-reaching policy reforms that took India away at last from the state-led, closed framework established in the early years after independence. The measures that were initiated by Dr Singh, known generally as India’s ‘economic reforms’, and that have been continued with greater or lesser determination under succeeding governments, have been directed at reform of India’s investment regime, its trade policy regime, its tax system and its financial sector – broadly in line with the arguments long advanced by economists such as, notably, the Columbia professor Jagdish Bhagwati and the Yale professor T. N. Srinivasan, following from their criticisms of the licence-permit-quota regime. Their advocacy of liberalizing reform for long had little purchase among policy makers, but at last it took over the mainstream of official thinking on economic policy. Ideas matter. But it is hard to change official mind-sets, and it took a particular moment, even for ideas that had been expressed with vigour over a good many years, finally to shift official thinking (Mukherji 2013).

      The particular moment that made for a tipping point was that of the economic crisis that confronted the Rao government as it came into office. The immediate cause of the crisis was an abrupt fall in remittances, and oil price increases that were brought about by the Gulf War of 1990–91, but it was underlain by the deficit that followed from the expansionary fiscal policies that had been pursued by Rajiv Gandhi’s government, a widening current account deficit, and mounting external indebtedness. By the early summer of 1991, India had sufficient reserves to pay for only two weeks’ worth of imports. There certainly was a liquidity crisis, but it might have been tackled without embarking on structural reform. That it was ‘the harbinger of a significant structural adjustment-cum-liberalization reform’ (Kar and Sen 2016: 46), was the result of the persuasion of the international financial institutions and of the economic liberals in the Indian establishment, in a wider context in which neo-liberalism had become intellectually dominant (Harvey 2005). By 1991, it was widely thought by economists that the Indian economy was in urgent need of further and more radical reform. Even Rodrik and Subramanian (2005), though they thought that the growth surge that revived the Indian economy after 1991–92 was powered very substantially by the productivity growth and manufacturing base put in place in the 1980s, recognized that further reforms were necessary.

      In July 1991 a new Industrial Policy Statement abolished licensing except for 16 industries. The numbers of industries reserved for the public sector were reduced; automatic permission for foreign equity participation up to 51 per cent was granted for a number of high-tech, high-investment priority industries; there was significant trade liberalization in regard to capital and intermediate goods (though little change at this stage so far as consumer goods were concerned); there were financial reforms; and macroeconomic stabilization was achieved with devaluation of the exchange rate and reduction of the fiscal deficit.

Kar and Sen put it that ‘The increase in economic growth that was witnessed in the 1980s was consolidated in the growth episode of 1993–2001 when the growth of GDP per capita accelerated from 1.86 per cent per annum in 1950–1992 to 4.15 per capita per annum in 1993–2001’ (2016: 45). Their choice of the verb ‘consolidated’ is appropriate given that the rates of growth of GDP per annum, and of GDP per capita per annum, increased only very modestly in 1993–2001 over those attained in the 1980s. Private investment responded positively through the 1990s, following the reforms, and there was notably strong growth in private corporate investment. There was strong growth in the private sector, involving especially those whom Kar and Sen describe as ‘magicians’ (working in competitive export-oriented sectors) and ‘workhorses’ (supplying competitive domestic markets). The sectors that saw the strongest growth were communications (at an average of 15.7 per cent per annum through the period); banking and business services (averaging 7.4 per cent per annum, though within this sector IT grew at 15 per cent per annum); and the ‘traditional’ services – trade, hotels and restaurants (6.5 per cent per annum). The growth of manufacturing, too, was solid (an average of 4.9 per cent per annum) – with pharmaceuticals doing particularly well СКАЧАТЬ