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How the State Changed Its Mind: Power, Politics and the Origins of India's Market Reforms

There are a set of dubious though politically expedient explanations for the origins of India's market reforms. These explanations problematically construe India's "paradigm shift" as the outcome of a non-ideological and "inevitable" process of intellectual evolution among policy "technocrats". The paper proposes an opposing view of the policy process, in which conflict is central, and the deliberate exercise of power is crucial to why some policy alternatives are privileged and selected over others. It is suggested that far from being the one inescapable conclusion to the lengthy debates over economic strategy that were typical to India's economic history, the 1991 reforms arose out of the political defeat of many credible alternatives. These reforms represented the surprising eclipsing of not only an alternative economic paradigm, but also the reversal of almost 50 years of nationalist anxiety over India's position of disadvantage within an inequitable global order. In light of this, the "paradigm shift" is viewed as a political event that might have been eluded under different political circumstances, and not as an historically necessary phenomenon brought to light by an elite team of "experts".

SPECIAL ARTICLEEconomic & Political Weekly EPW may 24, 200835How the State Changed Its Mind: Power, Politics and the Origins of India’s Market Reforms Mitu SenguptaIt is now well known that 1991 is an important year in India’s economic history. In that turbulent year of failing monsoons, chaotic politics and a severe balance of payments crisis, Narasimha Rao’s minority Congress government introduced a “new economic policy” (NEP) that signalled a surprisingly major rupture with the past. Widely seen as representing a definitive shift in India’s guiding economic “paradigm”,1 theNEP carried the promise of a systemic and multi-arena approach to liberalisation [Srinivasan 2001], alongside a greatly minimised role for the state in the economy. With its emphasis on integrating India with global markets, the NEP was in step with not only the strident economic liberalism of the “Washington Consensus” model of policy reform [Ahluwalia 2006],2 but also its core assumption of a benign international order. 1 IntroductionIn the past 17 years, the policies spawned by the shift in paradigm have profoundly altered the country’s economic landscape, trans-forming the state’s relationship with not only the domestic private sector, but also international markets. The reforms have elicited both praise and criticism – proponents complain about their slow pace [Ahluwalia 2002], while critics worry that they have contri-buted to rapid increases in poverty and inequality [Jha and Negre 2007]. All sides seem to agree, however, that, for better or for worse, the basic features of the economic paradigm introduced in 1991 are now firmly entrenched, having survived multiple changes in government [Mukherji 2002]. The initiation and remarkable persistence of the 1991 reforms have always been regarded as somewhat of a puzzle by India-observers. Indian democracy was long considered unfavourable terrain for major policy change, much less one of paradigmatic proportions [for a thorough review of this literature, see Jenkins 1999]. Not surprisingly, the phenomenon has remained the focus of lively debate. An overview of these debates, however, reveals a worrying trend: a gradual eclipsing of the more complex arguments on the subject by a cluster of politically expedient characterisations. Indeed, a prevalent explanation of the NEP is that it is the product of a non-ideological, non-partisan and ultimately “inevitable” process of intellectual evolution among India’s policy elites. The 1991 reforms are often represented as a refreshing change in “mindset” [Joshi and Little 2001] or “mentality” [Panagariya 1994] among policy intellectuals, who gradually owned up to the blunders of “statism” and disposed of the old policy regime, much as prudent adults eventually cast off their errant, adolescent ways. This long-awaited maturing of There are a set of dubious though politically expedient explanations for the origins of India’s market reforms. These explanations problematically construe India’s “paradigm shift” as the outcome of a non-ideological and “inevitable” process of intellectual evolution among policy “technocrats”.The paper proposes an opposing view of the policy process, in which conflict is central, and the deliberate exercise of power is crucial to why some policy alternatives are privileged and selected over others. It is suggested that far from being the one inescapable conclusion to the lengthy debates over economic strategy that were typical to India’s economic history, the 1991 reforms arose out of the political defeat of many credible alternatives. These reforms represented the surprising eclipsing of not only an alternative economic paradigm, but also the reversal of almost 50 years of nationalist anxiety over India’s position of disadvantage within an inequitable global order. In light of this, the “paradigm shift” is viewed as a political event that might have been eluded under different political circumstances, and not as an historically necessary phenomenon brought to light by an elite team of “experts”. Mitu Sengupta ( is with the department of politics and public administration, Ryerson University, Toronto, Canada.
SPECIAL ARTICLEmay 24, 2008 EPW Economic & Political Weekly36outlook is said to have spread through both state and society, meeting with little or no reasonable resistance. The present paper contests this depoliticised characterisation of the origins of the 1991 reforms, which has led to much exagger-ation of the depth of intellectual support for these reforms, particularly within the state. I argue that, far from being the benign product of a cumulative progression of ideas among universally accepted “experts”, Rao’s reforms were borne out of prolonged political and ideological contestation over different explanations of past policy failures and different prescriptions for change. Furthermore, far from being the one, unavoidable conclusion to these long debates over reform options, the NEP was founded on the political defeat of an alternative economic paradigm and, more significantly, of an alternative position on the politics of the global order, both of which had enjoyed high regard for decades. Readers are urged to view “paradigm change” as a political event that might have been circumvented under different political circumstances rather than an historically inescapable phenomenon that reigns without intellectual alter-native or meaningful political resistance. The main aim of this paper is to pave the way for more authentic explanations of the 1991 reforms that are predicated not on the enervating assump-tion of inevitability, but on a rigorous inquiry into the politics behind why the state apparently “changed its mind”. 2 An Inevitable ‘Change in Mindset’?TheNEP was presented in the Indian Parliament as evidence that “no power on earth can stop an idea whose time has come”. These weighty words of Victor Hugo conveyed the impression of inevit-ability. Indeed, India’s market reforms have been widely portrayed as the inevitable consequence of “globalisation”, which, inturn, is persistently characterised as an inexorable and “irreversible” process [Lal 2000: 46]. This thesis of inevitability is usually supplemented by two politically expedient arguments. The first is that the 1991 reforms are intellectually continuous with the liberalisation policies pursued by past governments. This helps dispel concern that they were imposed on India by the inter-national financial institutions (IFIs). The second is that the reforms were spearheaded by a small group of exceptionally able men who succeeded in winning over the unconvinced through the art of argument and persuasion. This suggests a robust consensus among policy intellectuals on not only the need for reform, but also a particular type of (neoliberal) reform. ‘Learning’ and Continuity: By far the most pervasive character-isation of the post-1991 reforms is that they bear intellectual continuity with prior attempts to liberalise the economy. The rise of economic orthodoxy in India is portrayed as the outcome of a linear and cumulative process of “learning” 3 among the country’s policy elites. Domestic policy officials are said to have “learned” from various errors of omission and commission of past govern-ments, as well as from larger global “lessons”, such as the crumbling of state socialism, the decline of welfare statism, and the success of the open economies of east Asia. The image created is one of a wholesome intellectual exercise, based on a candid appraisal by non-partisan and non-ideological policy “experts” of the existing paradigm’s strengths and weaknesses. When the weaknesses piled up too high, the paradigm as a whole was (justifiably) discarded. Thus, as Nayar suggests: “Through a process of ‘social learning’ key leaders had come to the under-standing that earlier policies had failed to meet India’s own goals, and there was hardly any merit in persisting with them. The same conclusion was, of course, self-evident to the IFIs” (1998: 350).All in all, the concept of “learning”, or at least its underlying assump-tions, remains the dominant explanation of “paradigm shift” – of why the state “changed its mind” – though there appears to be some quarrel over when the lessons of such learning were first manifest.4 Men of ‘Courage and Commitment’?The claim of intellectual continuity through “learning” is often stapled together with the idea that theNEP was masterminded by a small and cohesive pro-market “team” that first made its appearance in the mid to late 1980s [see, for example, Acharya 2001; Nayar 1998; Shastri 1997].5 At the core of this team were a cluster of senior civil servants, many of who had worked in either the World Bank or the International Monetary Fund (IMF) prior to their government appointments. Heroic depictions of this team are all too abundant. Their contribution to the initiation and buoyancy of India’s market reforms has been faithfully chronicled, with descriptors such as “men with commitment and courage” [Das 2000: 240] and “policy entrepreneurs” [Dash 1999]. The men in question are said to have gradually won the confidence of critical segments of the political and bureaucratic elite in administration after admin-istration in the 1980s, thanks to their “professionalism” and “fresh”, “innovative” ideas [Shastri 1997]. Such qualities are also evoked in explanations of their constant employment in top government jobs for more than two decades [Nayar 2000, 1999]. It is striking that there is little to no discussion of the political strategies these men may have employed to suppress dissent (rather than simply win it over). The question of power and its deliberate usage is extracted from the equation. The team’s relationship with the IFIs is also beheld in glowing terms. The opportunity “for the IMF/World Bank to interact with ‘like-minded’ policymakers at the highest levels of decision-making” is said to have lent India’s reform programme “credi-bility” and “support” within international circles [Ghosh 2006: 417]. Overall, the readiness of Indian officials to (finally) welcome policies long-recommended by theIFIs is construed as reason for relief, not concern. Nayar sums up the position like so: “[i]f the IFIs applied pressure at all, they were pressing against an open door” (2001: 147) and “the contemporary leadership was no less nationalist in its aims than the founding fathers; however, the world in which it functioned had meanwhile changed and required a different approach” (1998: 349). The characterisation of India’s market reforms as the outcome of a linear, rational and home-grown process of “learning” among policy elites transmits the impression that a good deal of serious thought by some highly capable people – “experts” or “techno-crats” – has gone into the decision to change tracks: no reasona-ble person could have proposed otherwise. In this view, it was the irremediable failing of the old paradigm, not politics, that led to
SPECIAL ARTICLEEconomic & Political Weekly EPW may 24, 200837its ejection. The argument eases anxiety that the reforms were carried out at the behest of any particular social class [as suggested by Corbridge and Harriss 2000], or for that matter, at the behest of theIFIs [as argued by Chossudovsky 2003]. Finally, the contention that “learning” in India ran parallel to a similar process among international policy elites [Nayar 1998] creates the perception of a firm global consensus on (neoliberal) market reform. In the following sections of the paper, I provide a critique of such politically expedient notions, and propose that the intellectual shift behind the 1991 reforms was the result of complex political struggle rather than linear consensus-building. I suggest that the old paradigm was expunged not because of an incontrovertible consensus on its failings, but because those who supported its retention (even with substantial modification) suffered a decisive political defeat. 3 Reading ‘Paradigm Shift’ as a Political EventPolicymaking as a Political Process:The claim that authorita-tive knowledge – any authoritative knowledge – emerges from a linear, cumulative and value-neutral process of inquiry is predi-cated on a downplaying of dissent and an exaggeration of consent. The problem is nowhere more apparent than in the view that Rao’s reforms were the unique and inevitable outcome of a protracted process of “learning” among policy intellectuals on the subject of best economic strategy for the country. These individuals are seen to have set aside their interests and ideolo-gical differences, converging on not only similar diagnoses of past policy failures, but also on similar prescriptions for reform. An opposing view of the policy process – especially in its agenda-setting stages – might be one in which conflict is central and consensus rare. Such conflict may be set in motion during periods of disillusionment with the prevailing policy regime, which are marked by aggressive quests for alternatives. These quests for alternatives typically engender multiple interpreta-tions of past policy failures as well as multiple prescriptions for change. Past policy failures may be diagnosed in different ways, leading to varying proposals for reform. Some may call for a radical break with the existing regime, while others will remain content with minor adjustments at the margins. On this heavily contested terrain, the proposals that ultimately find translation into new policy will do so not because of their inherent logical or ethical superiority, but because they are backed by power. It is this second depiction of the policy process, in which the exercise of power is central to why some alternatives are privileged over others, that better fits the Indian record. This claim is substanti-ated below through an examination of two major episodes of discontentment with the statism of the Nehru-Mahalanobis model – the 1960s and the 1980s – in which multiple diagnoses of past failures as well as multiple prescriptions for change were in evidence.6 Policy Contestation in the 1960s: It is often forgotten that discontentment with the Nehru-Mahalanobis model7 began well before 1991. The paradigm was seriously questioned in the mid-1960s, when the country was confronted by a looming crisis in agricultural production. Policy officials were particularly alarmed at this time by India’s increasing dependence on American food aid, and seemed prepared to undertake major revisions of the existing agricultural policy regime. A rift developed among these officials, however, on the proposed direc-tion of agricultural policy reform [Lewis 1995: 53-166; Frankel 1978: 246-92; also see Kux 1994].8 At least two distinct factions emerged, each armed with a different analysis of the problem of flagging agricultural growth, and not surprisingly, generated different prescriptions for change.The first faction drew on left critiques of Nehruvian statism, and comprised left-minded individuals in both the party and administration. Chief among these was Indira Gandhi’s finance minister, T T Krishnamachari, who had held the same portfolio under Nehru. For the left, the remedy to both slowing growth and enduring injustice in the countryside was to strengthen the state’s role in India’s “mixed economy”, and press on with measures such as land reform, anti-monopoly legislation and nationalisation. In contrast, the second direction of proposed agricultural reform was shaped by critiques of the prevailing paradigm from the right. These critiques had acquired fresh currency during Lal Bahadur Shastri’s brief term as prime minister, which followed Nehru’s death in 1964 [Frankel 1978: 246]. When Indira Gandhi assumed office in 1966, advocates of economic liberalism were influential in both party and govern-ment, and called for an agricultural reform based on technologi-cal innovation and market incentive. This second approach was led by Indira Gandhi’s food minister, C Subramaniam, but included other important policy officials, such as M S Swami-nathan, I G Patel, and S Bhootalingam. Relations between propo-nents of these two approaches (broadly statist left and pro-market right) quickly soured, and the stage was set for an extended contestation over the explanation of past blunders and the mapping of new priorities. But who among these factions would ultimately prevail? FormerUSAID director John Lewis offers a fascinating account of how foreign donors, led by the US, tried to orchestrate the “pro-liberalisation” group’s triumph in the ongoing conflict over agri-cultural policy [Lewis 1995: 132-66].This was done by funnelling research and information towards it, by lobbying on its behalf, and by lobbying against its opponents (it is said that Krishnama-chari was replaced by Sachin Choudhury as finance minister due to American pressure).9 The objective of this strategy, which Lewis refers to as “ongoing dialogue”, was to “strengthen the handof like-minded members of the government” (ibid: 164). It was hoped that the members of Subramaniam’s group, who “exhibited broad streaks of economic liberalism” (ibid: 134), would ultimately support a thoroughgoing liberalisation of the existing paradigm. Lewis, for one, seems convinced that the donors’ plan to manufacture a victory for Subramaniam’s group would have succeeded had it not been for American president Lyndon B Johnson’s clumsy tactics.10 Johnson’s humiliating policy of “short-tethering” food aid to India amid famine conditions provoked public outrage and empowered the left, precipitating Indira Gandhi’s abrupt withdrawal of any promise of a major
SPECIAL ARTICLEmay 24, 2008 EPW Economic & Political Weekly38break with statism. Thereafter, Indira Gandhi’s policies took a “radical turn” [Joshi and Little 2001: 52] with tougher import controls, anti-monopoly legislation, and a spate of nationalisa-tions. Paradoxically, however, her government initiated a number of agricultural reforms that were in keeping with the priorities set by Subramaniam’s group (this issue will be addressed in the next section). Lewis’s recounting of the battles over different reform direc-tions during the 1960s underscores the conflict-driven nature of the policy process. It is evident from his analysis that politics are what ultimately determine the outcome of these struggles, not the snowballing of consensus around the accepted merit of any partic-ular set of ideas. Lewis’s analysis also suggests that during periods of conflict over proposed policy alternatives, actors that are formally outside the state (such as USAID in the mid-1960s) may penetrate the state’s internal decision-making terrain with relative ease. In fact, different factions within the policy elite may solicit such intervention in their quest to triumph over one another, thus allowing “non-state” entities space to act within the state. Policy Contestations in the 1980s: Indira Gandhi’s return as prime minister in 1980 following the “Janata interregnum” is often viewed as the start of a second, more vigorous period of questioning of the Nehru-Mahalanobis model, provoked, initially, by concern over an alarming drop in India’s industrial growth rate. As in the 1960s, perceptible rifts developed over how the problem should be explained and how it should be fixed. It is possible to identify three distinct policy factions in the 1980s.11 First, were the orthodox statists, who insisted on reinvigorat-ing commitment to the existing regime and its emphasis on struc-tural, redistributive change. Second, were the selective liberalis-ers, who argued for maintaining the parameters of the existing paradigm, though with significant market-oriented modifications thought to be growth-enhancing. Third, were the market radicals who called for a comprehensive, multi-arena liberalisation of the entire economy, and a clear prioritisation of growth as the chief objective of development. It is this third group that is often referred to as the “team” behind the reforms. This team, we may recall, is said to have gradually built consensus around its vision of change. A more careful review of this period suggests, however, that no such consensus was in view. When the Congress was restored to power in 1980, the ortho-dox statists were already a marginalised group, their downfall marked by the wearing down of Indira Gandhi’s sympathy for the left in the late 1970s, and the ousting of statist heavyweights such as D P Dhar and P N Haksar from elite policy circles. Indeed, in 1980, it seemed that Indira Gandhi was eager to embrace liberal critiques of the existing economic model [on this, see Kohli 1989]. An Economic Administration Reforms Commission was appointed under the chairmanship of L K Jha, who was widely known for his pro-market position (Jha had served as Shastri’s principal aide, and had backed Subramaniam’s group in Indira Gandhi’s administration in the mid-1960s). Three other high-profile reform committees were created, each headed by a senior civil servant known for his pro-market views.12 Yet senior officials from this period tend to insist, usually rather strenuously, that the ongoing economic liberalisation was not intended as a route to “paradigm shift”.13 Rather, liberalisation initiatives under Indira Gandhi were in line with the broad param-eters of the existing statist strategy and its governing (“socialist”) philosophy. The thrust of Indira Gandhi’s reform lay in relaxing controls on the domestic private sector, which was seen as a route to enhancing growth. Privatisation, trade liberalisation and, more importantly, cutbacks in public investment and social spending were carefully avoided [Sengupta 2001: 44-65], with political-bu-reaucratic elites unprepared to abandon equity as an overarching policy objective. It was on the basis of this very approach, further-more, that India succeeded in securing a major loan from the IMF in 1981 [Chaudhry, Kelkar and Yadav 2004 and Sengupta 2001].The thrust of liberalisation under Rajiv Gandhi was no diffe-rent, at least in terms of its conformity with the existing paradigm. Although the private sector was now promoted even more aggre-ssively [Patnaik 1985], there was no “conclusive and irreversible shift in official economic thinking” [Corbridge and Harriss 2000:151]. If anything, Rajiv Gandhi’s exit as prime minister, which was followed by a cascade of short-lived governments, was marked by a strengthening of the accent on cautious, highly selective liberalisation, if not a partial return of statist orthodoxy. The late 1980s were witness to an increase in the influence of the Planning Commission, which was dominated by prominent leftists and Gandhian socialists. As the decade drew to a close, there was little to no sign of an impending paradigm shift. Even the Congress Party’s election manifesto of 1991 made no open reference to the enormity of the policy changes just around the corner. But what, then, of the market radicals?While Rajiv Gandhi was certainly sympathetic to the market radicals’ position, this was more so in private than in public.14 Even though the market radicals had articulated a clear alterna-tive to the prevailing emphasis on selective liberalisation, they remained marginal players within the policy elite throughout the 1980s. Key members of the so-called team behind the reforms were lightweights at the time, tucked away in relatively minor advisory positions.15 In contrast, many advocates of the second position occupied powerful policy roles up until early 1991 – indeed, until the very last gasps of the Chandra Shekhar govern-ment – and had entered loan negotiations with the IMF when crisis seemed imminent.16 No linear, incremental and cumulative process of learning that had concluded decisively in favour of the market radicals was in evidence. Far from inevitable, a full, multi-dimensional paradigm shift to neoliberalism was only one among several market-oriented reform options in the late 1980s, and then too, not the likeliest one.The market radicals’ moment of triumph, however, finally arrived in 1991. They were catapulted into commanding positions in the formal government hierarchy, most notably in the prime minister’s office (PMO) and the ministries of finance and commerce. The market radicals also came to occupy some of the choicest policy roles outside government, securing directorships and other top jobs in some of the country’s most prestigious policyresearch institutes (such as National Industrial Policy Framework, Indian Council for Research in International
SPECIAL ARTICLEEconomic & Political Weekly EPW may 24, 200839Economic Relations and National Council for Applied Economic Research. This is a trend that has been without setback [Shastri 2001]. To be sure, the rise to power of the market radicals was as surprising as it was meteoric – a point that is all the more striking when nationalism is recognised as an additional axis of the debate on economic reform in India. Nationalism as a Second Axis of Contestation: The concept of a linear, incremental and cumulative process of “learning” derives from the literature on public policy choice in advanced industrialised countries, and may make some sense in the context of the post-war intellectual histories of these states, in which the range of debates over economic strategy was arguably much narrower than in India. In developed countries, such debates have been largely about the appropriate nature and scope of state intervention within the confines of capitalism and liberal democ-racy.Neither socialism nor communism has featured as a serious contender. In India, ideological fractures run deeper, and are compli-cated by the legacy of post-colonial nationalism. The concept of learning and the literature it stems from cannot easily be applied in this context. Nationalism, as argued below, adds a second axis or dimension to the debate over state versus market, rendering it all the more unlikely that Indian policy elites would have inevitably converged, through a linear process of consensus-building, ona Washington Consensus model of economic reform. Consider, for example, the legendary antagonism between the “socialist” Jawaharlal Nehru and the “free marketer” Sardar Vallabhbhai Patel. Nehru and Patel, along with their leading advisors, differed vastly on the mix between market and state, in particular on the question of the extent of state ownership. They found common ground and even camaraderie, however, in nationalism; in their deep mistrust of a global order they believed to be dominated by an imperialist west, and in their scepticism about the country’s possible gains from trade. Perhaps much the same can be said of the conflict between Indira Gandhi and Lal Bahadur Shastri, or between Indira Gandhi and Morarji Desai, or more generally, between the left and the right in India. Neoliber-alism, with its call for an aggressive retreat of the state from all arenas of the economy, and its sanguine view of the politics that define the international order, was not on the radar for either. As seen above, challenges to the statist paradigm were fairly continuous, provoked by objections from both the left and the right. However, even though liberalisation arguably became more vigorous from one period to the next, with widening scope and deepening reach, it remained firmly contained within the parameters of a nationalist world view in which the principle of “self-reliance” was central. Neither a total jettisoning of the state, nor a significantly revised perspective on the global order was entertained, other than by a small, relatively marginal minority that appeared destined for oblivion even in the mid to late 1980s. It seems that prior to 1991, liberalisation, however extensive, was always delimited by nationalism. Indira Gandhi’s puzzling decision to pursue agricultural reforms in line with advice from Subramaniam’s group in the late 1960s, despite an overall shift to the left, is best understood through this lens. Her government’s selective steps towards the economic right were fired by a ferocious nationalism inflamed by Johnson’s short-tethering of food aid amid famine conditions. Deliberate DecisionsThe cautious economic liberalisation of the 1980s is also best understood through the lens of nationalism, and should be viewed as a conscious strategy befitting of a particular world view rather than as the product of muddled priorities and weak political will.17 The decision to retain the existing paradigm was deliberate, even celebrated. The prevailing mood, especially in the early 1980s, was one of ‘tiermondisme’ nationalism, stemming in part from the idea that India had successfully resisted the type of radical market reform forced on to other developing countries through theIFIs’ “structural adjustment” loans.18 In fact, through-out the 1980s, appraisals of the existing paradigm were mainly positive, its strengths extolled by scholars [Adams 1990] and policy officials alike.19 One should note that such “bullish” assessments of the policy regime of the 1980s have resurfaced in recent years, with a spate of influential studies arguing that the high growth rates commonly associated with the post-1991 period really belong to liberalisation in the 1980s [Rodrik and Subramaniam 2005; Kohli 2006 and Virmani 2004]. A major significance of the Washington Consensus model was that it presented a set of diagnoses and prescriptions that was bereft of all scepticism about the relationship between developing countries and global markets and, for that matter, between devel-oping countries and the institutions of global governance. Its undiluted focus was on the internal causes of past policy failures, and on the onus of national governments to get “policies right”. The external causes of policy failure, long-emphasised by develop-ment economists, were studiously overlooked [for further analysis along these lines, see Gore 2000]. With its firm silence on the politics of the global order, the Washington Consensus had little grounding in India’s intellectual and political history. This was a new beast that represented a rupture with not only the statism of the left, but also with almost 50 years of nationalist anxiety over India’s unequal relationship with powerful global actors. In fact, quite far from having organic links with the past, Rao’s reforms marked a breach with whatever little intellectual consen-sus there might have existed between the left and the right in India on the question of economic reform. These reforms signi-fied a paradigm shift of multiple dimensions, constituting a profound change in not only prevailing ideas about the state’s positioning with the domestic economy, but also the state’s positioning within the international arena. This was far more than a transition from “state” to “market”, since much “market reform” had occurred prior to 1991. The most significant aspect of the 1991 reforms is that they signalled a transition to the political ideology of neoliberalism, and to its attendant assumption of a benign (liberal-capitalist) global order. Ultimately, an ideological shift of such depth and magnitude is ill-explained by reference to a cumulative process of intellectual evolution among policy elites, albeit fired in its final stages by a few men of “courage and commitment” (who would then, quite naturally, inherit the mantle of power). The shift is far better explained as the political defeat and subsequent displacement of


SPECIAL ARTICLEEconomic & Political Weekly EPW may 24, 200841well as the same proposal for change (of paradigm shift).22 Notably, they shared withIFI officials not only an official ideology, but also an easy camaraderie arising from their similar educa-tional and career backgrounds. The market radicals were thus briskly pushed to the forefront by the political elite, possibly as only a temporary measure, in face of the looming crisis. When theNEP was finally released, along with a bundle of IFI loans, the market radicals swiftly consolidated their position, concentrating their new-found power in the PMO23 and the ministry of finance. Opponents were deftly marginalised, typically eased out of elite decision-making circles through appointments of sufficient symbolic value, but little real power. It is instructive that such developments were not unique to India. In Mexico, Chile and Argentina, the political weight of proponents of economic orthodoxy was greatly enhanced during these countries’ protracted debt negotiations with the IFIs. The securing of loans was followed by a similar pattern of political consolidation by the market radicals, and the concentration of power in a few key economic ministries, a process of centrali-sation that was strongly encouraged by theIFIs [Teichman 2001]. The Latin American examples suggest that, like in India, the IFIs did not have to rely solely on formal conditionality to realise their preferred policy outcomes. At the same time, these were not cases of “leaning against open doors” either. The more apt characterisation is of a very deliberate prying open of the door to neoliberal reform, achieved through the skilful use of power and political strategy. It is unfortunate that many otherwise insightful analysts of the Indian reforms do not quite get this characterisation right. Varshney (1999), for one, attributes the success of “pro-liberalisa-tion” technocrats in India to the autonomy they acquired when their usually interfering political bosses became embroiled in the chaotic politics of the late 1980s. Varshney does not explain, however, how these pro-liberalisation technocrats beat out opponents to neolib-eral market reform within the policyelite.He assumes there were none.Other important contributors to the literature, such as Nayar (discussed above), are given to the same assumption, and present the transition to radical market reform as a wholesale transformation of priorities within the state, thus minimising the extent, intensity, and indeed ugliness, of the intra-state conflicts that were at the heart of India’s paradigm shift. In India, the staying power of the market radicals no doubt owes to a range of factors, such as support from the new corpo-rate elites, an increasingly consumerist middle class, and of course, the IFIs and international investors. The distractions presented to the political elite by the complex logic of coalition politics must have also helped the market radicals maintain momentum. Their initial ascent, however, was the consequence of a narrow political victory – pulled off by a small segment of the political-bureaucratic elite, through some dexterous manoeuvres, clever political alliances, and a timely nudge from theIFIs – at an unusually turbulent moment in India’s economic history. It is no wonder that genuine support for neoliberal reform within the state has remained thin, limited to a small (though undoubtedly powerful) cluster of policy intellectuals in Delhi. This is despite persistent attempts by proponents to “sell the reforms” to policymakers at the state and local levels, and, more ironically, even to many top government officials. In fact, resist-ance from within the state has remained a particularly distress-ing problem for proponents. As Virmani laments: “What is not acceptable is internal criticism, sabotage, and worse from within the ruling set-up – this has a much more devastating effect on the credibility of reforms (than questioning by the public)” (2004: 55). Virmani does not, however, attempt to explain the problem, other than by an off-hand reference to the “old ‘crab theory’ of Indians in operation” (ibid: fn). The attitude is not surprising. The depth of alienation within the state is too easily misjudged when paradigm shift is viewed, in upbeat form, as the product of cumulative learning among ideologically neutral and non- partisan experts. Dissension is seen as arising from ignorance or opportunism, not reasonable intellectual concern, and resistors are treated as obstructionists, not legitimate political opponents. Indeed, such apolitical explanations of the reforms can prove to be enormously politically expedient.5 ConcludingRemarksThis paper has argued that the reforms initiated in 1991 were borne out of prolonged contestation among competing factions within the policy elite over different explanations of past policy errors and different proposals for change. It is suggested that far from being the one, inescapable conclusion to the lengthy debates over reform options manifest throughout India’s economic history, the transition to a neoliberal market model was, at best, highly contingent. It was paved upon a largely unforeseen defeat of an alternative economic paradigm, as well an alternative position on the politics of the global order, both of which had been beheld in high regard for decades. In light of this, India’s paradigm shift should be viewed as a political event that might have been eluded under different circumstances, rather than as an historically inexorable phenomenon that holds sway without meaningful alternative or resistance.Notes1 Terms such as “paradigm change” or “paradigm shift” are frequently used to capture the scope of the changes represented by the NEP [see, for example, World Bank 1996: 31]. 2 The term ‘Washington Consensus’ was coined by its advocates to describe the “common core of wisdom shared by all serious economists” on good economic policy in developing countries [William-son 1993: 1334, as cited in Gore 2000: 790]. Reforming governments were advised to (a) control inflation and reduce fiscal deficits; (b) promote trade and capital account liberalisation; and (c) liberalise domestic product and factor markets through privatisation and deregulation. This model of economic reform, whose main aim was to reverse the influence of statist economic strategies in developing countries, was aggres-sively promoted by the IMF and the World Bank through the 1980s and 1990s. 3 The concept of “learning” or “social learning” has its origins in the public policy/public choice literature. “The most important influence in this ‘process of social learning’,” as Paul Sacks putsit, is the “previous policy itself” [Sacks 1980: 356]. 4 Thus, for Nayar, the definitive shift in mindset occur-red during Indira Gandhi’s Emergency regime in the mid-1970s, while for others, the mid-1980s (under Rajiv Gandhi) are the most crucial in this respect [Panagariya 2004; Shastri 1997; Kohli 1989]. 5Former chief economic advisor (ministry of finance) Shankar Acharya is a key proponents of this view. He argues that both design and staying power of Rao’s economic reforms owe vitally to a team of “officials” with “similar views on the paradigm and priorities of Indian economic policy”, that first came into view in the 1980s; that consolidated its power in the 1990s, and that has not been displaced ever since. Acharya lists the “key players” as Montek Singh Ahluwalia (hailed as “first among equals”), C Rangarajan, Bimal Jalan, N K Singh and, of course, Acharya himself.Moreorless
SPECIAL ARTICLEmay 24, 2008 EPW Economic & Political Weekly42the same people are listed by the others who have written on the subject. 6 Paradoxically, similar “phases” or “episodes” are also identified by proponents of the learning argument [Joshi and Little 2001; Mukherji 2000; Denoon 1998]. Here, such periodisation is used to show how policy elites, after much trial and error, came to accept the intellectual merits of neolib-eral market reform. 7 For a discussion of the Nehru-Mahalanobis model and the political debates that preceded its adoption, see Bhagwati and Chakravarty 1969. 8 In addition to these three sources, my analysis of contestation over reform alternatives in the 1960s is shaped by interviews with former high-ranking civil servants in the central government, includ-ing one on August 14, 2002 with the late K B Lall, who served as Indira Gandhi’s commerce secre-tary in the late 1960s. 9 Krishnamachari reported the details of the matter to his friend, Communist Party of India (CPI) member Bhupesh Gupta, who later recounted these in Parliament [Sundaram 1972: 1889]. 10 Lewis says that Johnson’s actions were backed by the US department of agriculture, and were at odds with USAID’s priorities, thus reflecting an internal rift within the US government over how to leverage influence in India. 11 My analysis of debates over reform alternatives in the 1980s is shaped primarily by interviews with high-ranking policy officials from that time. Many have asked that their names be withheld from publication. 12 Three committees on trade policy reform, finan-cial sector reform and public sector reform were headed up by Abid Hussain, M Narasimham and Arjun Sengupta respectively. In my interview with Abid Hussain (August 13, 2002), he stressed: “The very fact that Indira Gandhi said I was to be chairman was an indication that she wanted a certain kind of [pro-liberalisation] report”.13 Among others, Arjun Sengupta and Gopi Arora (both high-ranking economic advisors in the Indira Gandhi government). Arora was interviewed on August 12, 2001; Sengupta on July 5, 2003. 14 Interview with Mani Shankar Aiyar, July 22, 2003. “The market liberals did not win over Rajiv Gandhi”, Aiyar said, “There was always a tussle for Rajiv’s mind”. 15 Arvind Virmani, for example, was an advisor in the Planning Commission; Rakesh Mohan in industry; Shankar Acharya in finance; Jairam Ramesh also in the Planning Commission. The group was gradually enlarged by the induction of World Bank officials such as Jayanto Roy into further advisory posts in apex economic minis-tries (Roy took a leave of absence from the Bank to serve as an advisor in the ministry of commerce). Within the formal hierarchy of the government, however, all such “market radicals”, with the excep-tion of M S Ahluwalia, were marginal players. 16 Examples here are Deepak Nayyar (chiefeconomic advisor, ministry of finance), S P Shukla (commerce secretary) and Naresh Chandra (cabinet secretary). Interviews with two senior finance ministry officials from this period (names withheld on request). 17 The floundering of liberalisation in the 1980s is often attributed to weak personal commitment (especially in relation to Indira Gandhi) and weak political will (especially in relation to Rajiv Gandhi). Were it not for these unfortunate personal failings, it is implied, “paradigm shift” would have arrived earlier. For a particularly unkind appraisal of Rajiv Gandhi’s abilities, see Manor 1987.18 For example, the Indian government’s decision to return the third instalment of the 1981 IMF loan in 1984 was heralded as a matter of national pride by the media [see, for example, Varma 1983]. The conditions of the loan that the Indian government did cede to, furthermore, were widely seen as “home-grown”, and sufficiently different from those otherwise urged by the IMF (interview with Gopi Arora, August 12, 2001; also see Chaudhry et al 2004).19 Thus, Corbridge and Harriss (2000: 47) point out: “Although there was a body of opinion in the 1980s that was critical of India’s planned develop-ment – we think of the Economist newspaper as much as academics like Jagdish Bhagwati and T N Srinivasan – the contemporary literature on the Indian economy in the 1980s was more bullish than pessimistic”. 20 Pranab Mukherjee, quoted inBusiness India, New Delhi, January 15-28, 1996, p 280. 21 There was “public recognition”, Nayar says, that “hard-headed decisions needed to be taken by the leadership” (1998: 346). 22 Opponents of radical market reform interpreted the crisis as a temporary problem that had developed out of a wave of profligate spending in the late 1980s. 23 One important step was the creation of a special “steering committee” on economic reforms headed by principal secretary A N Varma. 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