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How Reforms became Acceptable

 How Reforms became Acceptable Sarah Joseph India

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policies they imposed on debtors helped to

How Reforms became Acceptable

revive the economy. Patnaik and Chandrashekhar, in reply to liberal critics of the planned economy, maintain that in spite Sarah Joseph of certain flaws and contradictions the

I
ndia’s Economic Transition, The Politics of Reform edited by Rahul Mukherji is the third volume in the Oxford series, Critical Issues in Indian Politics. As is generally the case with most such readers, many of the articles are reprints but have been carefully selected to reflect the concerns of the book. This gives the collection more thematic coherence than is often found in seminar volumes. The broad focus is on the relations between state and economy in India after independence, the political context in which particular strategies of development were adopted and the impact of these strategies on state and society. Changes in economic policy and development strategies are seen as the prime movers which generated changes in state and society. Some of the articles explore the political and social environment in which changes took place, others discuss the effects of the changes on state and society.

As indicated in the editor’s introductory essay and the selection of articles, the overall narrative guiding the selection is that the mixed economy, welfare state and import substitution strategy adopted by the Indian state after independence proved very costly for the country. It also proved economically and politically unsustainable. Mounting economic problems and political protests by the late 1960s provided the environment in which govern ments began to experiment with liberalisation and economic reforms. The assumption is that economic reforms were the only rational option for the country given its objective of promoting faster, and more inclusive growth. But objective conditions needed to be complemented by ideational change among key decision-makers before reforms could become possible. Hence the focus in a number of articles in the book on questions such as why reforms gradually became acceptable among the elites, and how reforms were formulated and pushed through even in the face of opposition from many groups.

In his introductory essay Rahul Mukherji maintains that although growth rates

India’s Economic Transition, The Politics of Reform edited by Rahul Mukherji;

Oxford University Press, Delhi, 2007; pp x+460, Rs 650.

picked up after the 1980s as a result of reforms, human development has lagged behind and the challenge which lies ahead is to gain understanding of the social and economic barriers which are impeding the maturing of the welfare state in India. The book is divided into three sections titled ‘Development Strategy’, ‘The Political Economy of Reforms’ and ‘Economic Reforms and the Political Economy’. Significantly, all the three articles in the first section are by economists: Jagdish Bhagwati, Prabhat Patnaik with C P Chandrashekhar and Montek Singh Ahluwalia. They discuss the causes of India’s continuing poverty, slow rate of growth and fiscal problems after independence. The second and third sections are dominated by political scientists who address such questions as why political elites, who had earlier opposed liberalisation, changed their ideas, and how reforms were formulated and pushed through (Rahul Mukherji, Ashutosh Varshney, Rob Jenkins and Baldev Raj Nayyar). The third section discusses changes in state and economy generated by the reform process.

Reviewing the Planned Economy

Bhagwati, in his article ‘What Went Wrong?’ criticises the economic policies followed in the decades after independence. He maintains that the licence/ control system produced a large and inefficient public sector and also reduced the efficiency of the private sector. He quotes Friedrich August von Hayek to uphold the efficiency of market-based systems and argues that although India had a number of brilliant economists they were unfortunately willing to rationalise even the most outrageous policies of the government. He takes some credit for influencing the policies of agencies like the World Bank and International Monetary Fund (IMF) and argues that the structural adjustment planned economy should not be held responsible for the economic crisis which necessitated the IMF loan. They argue that the crisis was almost entirely speculative in origin and not related to the immediate performance of the real economy. They also question the benefits claimed for structural adjustment, that is, reduction of poverty and a faster rate of growth. They assert that even in a globalising era nation states need to manage the economy though perhaps not in the old way. In the third article in the section Ahluwalia discusses the post-1991 reforms and concludes that the policy of gradualism which was followed was, on the whole, beneficial for the economy. Among other things, delays and implementation failures reduced opposition and enabled a consensus-based compromise to emerge resulting, as he puts it, in a “strong consensus for weak reforms”. He is optimistic that the reform process will continue and will generate faster growth rates in future.

Mass vs Elite Politics

The second section focuses on how reforms were pushed through in the post-1991 period even in the face of opposition from different groups. Mukherji, in sometimes impenetrable language, addresses the question of why reforms became possible. He suggests that although the development strategies adopted after independence had some adverse economic effects and contributed towards the balance of payments crisis in 1991, the crisis also transformed the orientation of the executive towards pro-trade policies and together these factors produced an environment conducive to reform.

Ashutosh Varshney in ‘Mass Politics or Elite Politics?’ addresses the question of why Narasimha Rao’s minority government was successful in introducing economic reforms in 1991 and why reforms were successful in some areas and stalled in others. He defines elite politics as the debates and struggles which take place within institutionalised settings and mass politics as what takes place on the street.

march 22, 2008

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Economic & Political Weekly

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Varshney argues that reforms which do not directly affect the masses, such as capital market reforms, are easier to push through in a democracy than reforms which have a more direct impact on issues of mass concern such as the prices of essential commodities or labour market reforms. However, if other issues which arouse popular passions such as ethnic conflicts, occupy the public attention this may deflect attention away from reforms and thus help reformers. This was the case with the Rao government and the Babri masjid issue. Although this may seem a somewhat cynical position to take he argues that he is not advocating a strategy of incitement of the masses. Rob Jenkins in ‘Political Skills, Introducing Reforms by Stealth’, argues that neither the political incentives thrown up by reforms nor political institutions in India determined the fate of reforms. To push through reforms called for specific skills and Indian elites effectively took advantage of the institutions of democracy to build a coalition of interests in favour of reforms. Reforms were even implemented in states ruled by opposition parties which had opposed reforms. This they did by evolving strategies which invoked sentiments such as regional pride. Such tactics, he argues, are a part of the political process in India as in other democracies.

Baldev Raj Nayyar in ‘The Limits of Economic Nationalism in India’ studies the BJP’s record in office to argue that the need to build a wide coalition of support to woo votes has led to compromises and moderation among political actors and that after the 1980s, economic liberalisation became part of a centrist position in Indian politics, embraced even by right wing parties like the BJP.

Reforms-Induced Changes

The last section brings together studies of some of the changes generated in state and economy by reforms. The Rudolphs, in a previously published but still interesting article, discuss the emergence of a federal market economy in India. Jason A Kirk focuses on understanding New Delhi’s perspective on the World Bank’s state-level loans. He maintains that the centre supported the bank in the policy of providing sub-national adjustment loans because it

Economic & Political Weekly

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march 22, 2008

helped promote state-level reforms which the centre was not able to achieve on its own. Mukherji discusses the building of regulatory institutions in India, analysing the reasons for the divergent experience in the telecom and power sectors. John Echevierri-Gent argues that reforms have generated a new kind of rent-seeking which he terms market microstructure rents. When existing rules and institutions benefit particular participants they resist the introduction of more efficient rules. He examines the politics of the equity market microstructures in India and questions the thesis that markets are inherently efficient and apolitical, arguing that in the case of equity market reforms in India the impulse towards reform came from the state.

Anna Lee Saxenian discusses the emergence of the information technology industry in Bangalore and assesses the contribution which the industry can make to development. In ‘Public Sector Restructuring and Democracy: The State, Labour and Trade Unions in India’, Supriya Roy-Chowdhury examines the role of trade unions following liberalisation. Based on a study of three public sector industries in Bangalore she examines the role of unions in the face of rationalisation policies initiated by the managements. She attributes their acquiescence to such policies to a number of factors which include the external economic environment, changes in the relationship between political parties and unions (even between the Communist Party of India (Marxist) and its unions) after liberalisation, recognition by labour of the compulsions faced by public sector units to improve productivity in a competitive environment, and the inability of labour to put forward an alternative model of development. Stanley A Kochanek focuses on business/government relations after independence. He points out that after the 1980s, corruption became “externalised” and the politician rather than the bureaucrat became a central player. After 1991 there has been a change in the relations between business and government with business now being seen as a partner of government in promoting economic growth and organisations like Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industry playing a significant role in influencing economic policy.

These brief comments merely indicate the range of the articles in the book without attempting to critically review them. There is no doubt that exploring the nature of the changes which have taken place in state and society following liberalisation is an important area of research for political scientists and other social scientists, an area which in India has as yet not received the kind of attention it demands. This volume constitutes a beginning and students and researchers should find the collection interesting and useful.

Email: sarahjph04@hotmail.com

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