Stuart Corbridge
India has been acclaimed in recent years as an information technology (IT) superpower and perhaps even as a major new player in the world economy. The Indian economy has been growing at around 5 or 6 percent per annum since 2003, adjusted for population growth, and there are good reasons to suppose that similar rates of growth of gross domestic product (GDP) per capita might be sustainable over the next 20 years. Savings rates are very high in India. Indeed, at just over 30 percent of GDP, gross domestic savings are approaching East Asian levels. The economy sits well inside its total factor productivity frontier, in large part because of low levels of human capital formation, and the country now has the chance to reap a demographic dividend. The ratio of dependants to workers is set to decline from just over 0.6 in 2000 to just under 0.5 in 2025.1 The launch in January 2008 of the Tata Nano seemed like icing on this cake of economic success. Much was made in the west about a car selling for $2,500, but in India the marketing of a car for Rs 1 lakh (100,000) spoke to the existence of a mass middle class. It also signaled the rise of a small group of Indian capitalists and entrepreneurs who could bestride the global stage. Four-lane highways packed with Nanos offered a vision of India far removed from one of pot-holed roads shared by bullock carts, scooters, and state-built Ambassador cars. In the words of Gurcharan Das, India had been unbound.2 It had escaped from a Kafkaesque world of bureaucratic red tape to take its place in the global information age.
There are clearly nuggets of truth in accounts of India’s political economy that hinge around 1991, as Das’s book largely does. Yet the notion that all was bad or sick before “the reforms,” or that all has been good or healthy since, fails to provide a nuanced picture of economic development in India since independence. Recent academic work points out that high rates of economic growth are now being achieved in India in part because of past legacies, some more intended than others, and not wholly in spite of them. Investments in higher education and basic industries are two cases in point.3 Recent work also points out that economic reform did not begin overnight in 1991, but was prefigured in important respects by the pro-business agendas pursued by Prime Ministers Indira Gandhi and Rajiv Gandhi in the 1980s. In any case, the real turning point in India’s trend rate of economic growth was 1980–81, not the early 1990s, although there are signs that the trend rate has improved again since 2003–04.4
We also need to acknowledge that post-reform growth in India has reduced absolute poverty less quickly than might have been expected, particularly through the 1990s. The incidence of absolute poverty is much less now than it was at the end of the 1970s, when something like 50 percent of Indians were poor, but a Tata Nano driven from Delhi to Kolkata still takes its riders through the epicenter of world poverty.The government of India (GOI) uses a particularly brutal measure of absolute poverty, one that is more basic even than the “one dollar a day” definition used by the leading multilateral institutions.5 Yet even on this measure some 260 million people in India are finding it hard to keep body and soul together— fewer than 100 million people less, in total numbers, than the figure of 350 million in 1980.
Social and spatial inequalities have also increased sharply since 1990. Rising inequality levels are inevitable in a country escaping a low-level equilibrium trap, a point made by Simon Kuznets many decades ago.6 We can refer to “good inequality” where it is based on higher rewards to talent and entrepreneurship. But there is also “bad inequality,” and this occurs when people are locked out of markets, or from the schools, roads and other routes that lead to the acquisition of human capital and other transferable skills, perhaps on the basis of gender or caste or ethnicity. What is worrying about recent developments in India is the abundance of bad inequality and unemployment. Governments continue to invest meagerly in the provision of public goods, particularly in the eastern part of the country. Naxalism is one index of pervasive government failure in a group of states running south from Bihar to Andhra Pradesh. For rural people in these states, as the World Bank has recently reminded us, living standards are about on a par with living standards in rural areas of sub-Saharan Africa.7 They are a long way removed from the living standards of India’s urban middle classes. In contrast, as the World Bank also points out, the richer parts of New Delhi, Mumbai,and Bangalore can reasonably be described as India’s “Latin Americas.”
These inequalities are holding back economic and social development in post-reform India. They led John Harriss and me to conclude that economic reform in India in the 1990s had taken the form of an “elite revolt” against those aspects of the dirigiste state that most constrained a loose coalition of business groups and the urban middle classes.8 That revolt has wrought some important and much needed changes in India’s economy. It has also helped to rework key political relations between the central state and the provinces and between the state and its citizens. But the reform process remains highly uneven, both in its mainsprings and in its consequences. I shall argue here that the term “elite revolt” still works well as a descriptor of the contradictory dynamics of political and economic change in India over the past two decades.
When the British quit India in 1947 they left behind an economy scarred by two centuries during which first preference was given to imperial interests. It is true that the British invested heavily in a railway system that linked most of the major towns and cities in South Asia. They also sank considerable sums of money into the canal colonies of Punjab and provided new systems of property rights and commercial law in both rural and urban areas. The British could even maintain in 1947 that they had built India into the world’s tenth largest industrial power. There were large textile industries in Ahmedabad and Bombay, and an iron and steel industry in Bihar and Orissa (thanks mainly to Jamsetji Tata). But what this rosy picture neglects is the involution of the countryside in Bengal that followed the Permanent Settlement of 1793—a settlement that promoted rack-renting landlordism rather than capitalist farming—and the undermining of many of India’s craft industries as imports flooded in from Lancashire and elsewhere.The grim truth of British misrule was apparent in a series of famines that hit India at the end of the nineteenth century, and which culminated in the deaths of three million people in the Bengal famine of 1943–44. Alan Heston has estimated that average living standards in the Indian countryside barely improved from 1900 to 1947.9 There were always significant regional variations within this general picture, but it is likely that as many as two in three Indians lived in absolute poverty at the mid-point of the twentieth century.
Against this backdrop, and given the loss in 1947 of the jute economy of East Bengal (now Bangladesh), as well as the loss of the major port city of Karachi, it is not surprising that India’s first plans for economic development took shape in an atmosphere of crisis.The first five-year plan (1951–56) was something of a damp squib and remained broadly neutral as between the agricultural and non-agricultural sectors. After the assassination of Mahatma Gandhi in January 1948, the remaining “tall men” of India’s nationalist elite were forced to occupy themselves mainly with nation building in a broader sense, with Sardar Patel working hard to ensure the de facto integration of India’s 565 princely states into the new republic, while B. R.Ambedkar and Jawaharlal Nehru oversaw work on the constitution. It was clear by 1950 that India would be a federal democratic republic in which universal suffrage would be coupled to the establishment of a central state with considerable executive and emergency powers and matching geographical reach. Ambedkar and Nehru agreed that the social and economic modernization of India would have to be secured by vigorous planned actions emanating from New Delhi. Conservative politicians sitting in the states would need to be disciplined by wiser and more far sighted men sitting in the country’s capital. Modernization was conceived as a diffusion process wherein great pulses of social and economic change— ultimately liberating and uplifting, if often disruptive of established ways of being in the short run—would push outwards from India’s major cities to its smallest towns before reaching into the countryside.10
Ambedkar would break with Nehru over the failure of his government to transfer surplus lands specifically to so-called untouchable (or dalit) families.Ambedkar had warned at the end of the Constituent Assembly debates that India was about “to enter a life of contradictions. In politics we will have equality and in social and economic life we will have inequality.” In his view, the failure to redistribute landed wealth in India would put “our democracy in peril.”11 It seems likely that Nehru shared this view, although he had more faith than Ambedkar in the economically empowering effects of political equality. In any case, by 1951 Nehru was unchallenged in his leadership of the Indian National Congress. His ascendancy followed the death of Patel in December 1950 and the defeat of Patel’s close supporter, Purushottam Das Tandon, in a struggle for the presidency of the Indian National Congress. But Nehru still had to secure consent for his project of social and economic modernization, and this meant that he had to deal with precisely those state Congress bosses who would conspire against his plans for land-to-the-tiller land reforms in the 1950s.12
In retrospect, we can see that Nehru sought to manage the modernization of India by pursuing a development model that was being widely touted by economists even as the second five-year plan was drafted. Early development economics took shape in the 1940s and 1950s around three key ideas. First, there was a critique of comparative advantage theory. Hans Singer and Raoul Prebisch took issue with the idea that latecomer countries could develop effectively as primary goods producers.13 There were both theoretical and empirical reasons to suppose that prices of non-primary goods rose faster over time than the prices of primary commodities. Developing countries had to build up local (infant) industries as a priority, even if this meant erecting tariff barriers to protect the domestic economy.14 Second, this commitment to import substitution industrialization (ISI) implied in the short term a run of balance of trade deficits. Developing countries first had to import the machine tools and other goods that would help them build up local manufacturing capacity. A foreign exchange constraint would become especially compelling in a country like India where ISI privileged the production of capital goods (iron and steel, chemicals, heavy engineering, etc). Flows of foreign direct investment were thin on the ground in the 1950s and 1960s, and probably would not have been very welcome in India. A surplus on the capital account would thus have to be achieved by large and continuing inflows of foreign aid. Nehru’s ability to position India at the head of the nonaligned movement helped in this respect. India was able to build a steel mill at Bokaro (Bihar) with assistance from the USSR and another at Rourkela (Orissa) with help from West Germany. Third, the very scarcity of foreign exchange in the 1950s and 1960s, coupled with poorly formed local stock markets and often weak private trading systems (some of which were coded as “oppressive” or exploitative), inclined the Government of India (GOI) to think of economic development as a project that had to be planned for and delivered by a beneficent state. Ronald Inden exaggerates only a little when he says that, in the Nehru-Mahalonobis universe, planning came to substitute for religion as the new godhead.15 Nehru’s faith in reason and modernity complemented a more general mid-century faith in technology and progress, both of which needed support from good (or at any rate strong) government.
Thus conceived, India’s model of development through most of the 1950s and 1960s made a virtue of deferred gratification. Nehru and Mahalanobis believed that high rates of economic growth would depend on high rates of personal and government savings (equivalent to present consumption foregone), and their efficient mobilization for purposes of large-scale industrialization. By definition, this first wave of capital goods-based production would not be labor intensive; it would not create large numbers of goods for the underemployed peasants who wished (or needed) to leave the countryside to find more productive jobs in the modern sector. This Lewisian transformation would have to await the second stage of India’s industrial revolution.16 Cheap steel, chemicals and power could then be plugged into a plethora of efficient Indian-run companies that would produce bikes, radios, two-wheel tractors and such like for the final consumer.
Put another way, the Nehru-Mahalanobis model presupposed that India would be governed by a developmental state, of the sort that would soon take shape in East or Southeast Asia. This would be a state that was relatively autonomous of privileged local classes, as Marxist theoreticians liked to put it. In India, it would be embodied in the planning commission and the five-year plans. The state would specify a social welfare function for the future (5, 10, 15 or 25 years away) and then devise the best economic and statistical instruments to match inputs to outputs. The model further supposed that the GOI could funnel resources from the agricultural sector to the non-agricultural sector without provoking a backlash among India’s rural population. Nehru believed that he could square this circle in two main ways: first, by making use of food aid from the US, and second, by means of land ceilings legislation that would break up unproductive estates and enfranchise efficient small farmers. India’s countryside would be bought off not with state funds, but with resources from abroad and by institutional reform at home. Agriculture was the “bargain basement” that would free up scarce resources for use elsewhere in the developing economy.17 Except it did not, or not as Nehru had hoped.
By the early 1960s it was apparent that increases in grain production were barely keeping pace with population growth. Food supply growth in the 1950s came mainly from increases in the area under cultivation, and now the land frontier was closing. By the mid-1960s many farmers were bemoaning their lot. The great jat farmers’ leader, Charan Singh, had opposed Nehru’s plans for cooperative farming in the 1950s. In 1967, he defected from the Congress, setting up the Bharatiya Kranti Dal in 1969. Charan Singh, in his extensive writings on agriculture and agricultural policy in India, anticipated Michael Lipton’s later claim that India was suffering from high levels of urban bias.18 Government spending decisions were denounced as inequitable, inefficient and unsustainable. In a country where more than 75 percent of the people still lived in the countryside—agriculture’s share of GDP was as high as 58 percent in 1950, and not much less than 50 percent in the mid-1960s— it made little sense to waste capital on inefficient urban and industrial projects.The need instead was to fund new irrigation systems and off-farm employment growth in the countryside.
This view gained currency at the end of the 1960s, following the failures of the 1965 and 1966 monsoons and in the wake of new data showing that the incidence of absolute poverty in the Indian countryside had increased between 1961 and 1969.19 Nehru died before the crisis of India’s agriculture was fully exposed and before the suspension of planning in 1966–69. But his death also came after a disastrous war with China in 1962, and these events taken in the round would continue to infect the poisonous political and economic atmospheres in which first Lal Bahadur Shastri (1964–66) and then Indira Gandhi had to make their way as prime ministers.
Indira Gandhi has many times been compared unfavorably with her father (Nehru), and very often for good reason. She deserves to be condemned above all for the disastrous way that she fought religious fire with fire in Punjab in the early 1980s, when she covertly supported Sant Jarnail Singh Bhindranwale, and for her government’s suspension of democratic rule in India during the Emergency (1975–77). But what is sometimes forgotten in these comparisons is that Mrs Gandhi came to power at a time when India’s democracy was deepening, when the dominance of the Congress system was for the first time being challenged in New Delhi and the states, and when state–society relations more generally, in the words of Lloyd and Susanne Rudolph, had moved from a pattern of “command politics” to one of “demand politics.”20 The new political landscape of the 1970s and 1980s saw not only the deinstitutionalization of Congress and the rise of credible opposition parties; it also marked a period in India’s political economy when a prospectively developmental state imploded.21 That state had always been an uneasy construct in India, as Partha Chatterjee and Sudipta Kaviraj have several times reminded us.22 Nehru mobilized large sections of the English-speaking “progressive” elite in support of his modernizing agenda. But this elite was fated to see its ambitions translated at local level by power brokers who rarely shared its commitments to the “greater good” or the “long run.” Local worlds were more often vernacular worlds, or worlds where commitments were most often forged at the level of a household, kin group or caste community. As Kaviraj so memorably puts it, India’s high modernist state “had feet of vernacular clay.”23
Worse, the developmental state model presupposes an executive state that is autonomous from a country’s dominant proprietary elites. Such was the case, for example, in Taiwan, where the ruling elite after 1949 was transplanted from mainland China and was later funded as much by the US as by rental incomes from land. “Land-to-the-tiller” land reform worked in Taiwan, just as it did in South Korea in the 1950s. Regime changes ensured that a developmental state was not confronted by entrenched powers elsewhere in the land. In India, in contrast, as scholars as diverse as Francine Frankel, Pranab Bardhan, and Jagdish Bhagwati have all shown, the developmental state was captured by three interlocking groups: India’s richer farmers (who blocked agrarian reform), its industrial bourgeoisie (business houses that took advantage of state-induced scarcities and blocked competition and innovation), and the country’s leading bureaucrats (many of whom earned large rental incomes from the “permit-license-quota Raj” built up around ISI, and almost all of whom enforced unproductive rent-seeking behavior on smaller businesses and ordinary citizens).24
Lobbying, of course, is endemic to all political systems, and what is called lobbying in Washington or London is all too routinely described as corruption in New Delhi or Dhaka. Corruption also comes in many forms, and when it takes the form of speed money payments it can grease the wheels of an economic system that otherwise tends to atrophy or entropy. And it is at this systemic level, as economic reformers like Bhagwati and Srinivasan have consistently pointed out, that the bigger picture lies.25 The failure of the Congress party in the 1950s and 1960s to support an executive/developmental state left India’s economy between two stools. On the one hand, the state was not strong enough to force the commanding heights of the economy to be lean and mean, let alone to dispense with the subsidies and protectionist barriers that were meant to provide them with temporary support. Neither management nor organized labor believed that governments in the 1970s or 1980s had the guts to get tough with them. On the other hand, the central role occupied by the state in India’s productive economy— from steel to cars to banking—was so great that it suffocated innovation and new startups in the organized private sector. Even into the mid-1980s, India’s leading industrial houses were happy to connive in the reproduction of this world of the second or third best. For that to change, or so this argument goes, the contradictions of dirigiste development in India would necessarily come to a head, as they did with the fiscal and balance of payments crises of the early 1990s. Only then would politicians and leading businesspeople in India be forced to reform the economy and the systems of politics that had supported economic mismanagement on a grand scale.
As ever, it is not difficult to recognize the truth of some of these claims. But what this narrative of rise, decline and recovery cannot account for is the upturn in India’s rate of economic growth post-1980. The fact is that per capita incomes in India grew on average at 3.8 percent in the 1980s, or at more or less the same rate as they grew in the 1990s.There are three main reasons why this was so.To begin with, as Atul Kohli has argued, the governments of Indira Gandhi and Rajiv Gandhi (1980–89) began to tilt economic policy more clearly in the direction of big business.26 The courting of foreign direct investment was still not a priority through the 1980s, although a few joint ventures were brokered in the autos sector. Nevertheless, the strongly anti-capital (especially, anti-foreign capital) rhetoric that Indira Gandhi had deployed in the 1970s was toned down. New initiatives were introduced that favored established Indian producers. In place of garibi hatao (an end to poverty), the political platform on which Indira Gandhi made her name in the early 1970s, the Congress governments of the 1980s retired those parts of the Monopolies and Trade Practices Act that made it hard for big business to expand in core sectors like chemicals and cement. Some efforts were also made to liberalize credit for large companies. Perhaps most importantly, both Indira and Rajiv Gandhi took steps to tame labor activism in the organized sector, and to encourage private sector investments with limited tax concessions.
Poor people in the countryside generally escape from poverty by migrating to towns or cities, or by winning more work in the countryside at higher real wage rates. There is some evidence that labor markets tightened in the 1980s in several states, including West Bengal, Andhra Pradesh, and Karnataka. By 1989–90, the percentage of people in India living in absolute income poverty had reduced to just under 39 percent from 51 percent in 1977–78.The GOI in the early 2000s liked to claim that the rate of poverty reduction accelerated after the reforms of 1991. Most scholars, however, have discounted the suggestion of the 55th round of the National Sample Survey (NSS) that just 26 percent of people were absolutely poor in 1999–2000—an astonishing decline of 10 percent from six years earlier.The 55th round of the NSS broke with the long-established convention of estimating household spending on a uniform reporting period basis. Under this system, respondents recall their spending on all items over a period of 30 days. The 55th round instead introduced a mixed reporting period of weeks, months, and years. This made sense for all sorts of reasons (greater accuracy of recall, most notably), but it undermined the GOI’s efforts to track poverty trends on a consistent basis. Adjustments made to the 55th round data by Angus Deaton and Jean Drèze suggest that the rate of poverty reduction in the 1990s was probably no greater than the rate of poverty reduction in the 1980s.27 Others, notably Abhijit Sen and Himanshu, have argued that the 1990s was a lost decade for poverty reduction.28
Why then, “economic reform”? The usual answer is that the economic growth that led to poverty reduction in the 1980s was unsustainable. Huge subsidies into and out of the agricultural system (cheap fertilizer, water and power in – cheap food out via the public distribution system) ensured that India’s growth spurt in the 1980s would push the country into the linked fiscal and balance of payments crises that erupted in 1991. Limited tax concessions to big business in the 1980s, combined with pervasive tax evasion, also forced both Congress party and National Front (1980–91) governments to raise revenues by deficit financing and by borrowing more at home and abroad.Worse, the underlying structures of the Indian economy remained as sclerotic and irrational as ever. India had some of the highest rates of effective protection anywhere in the world. These barriers encouraged Indian business to provide goods and services that were increasingly unwelcome at home and that no one else in the world would buy. Early proponents of reform wondered aloud why Indians at home were condemned to poor service and poor jobs at the hands of the permit-license-quota Raj while Indians abroad were acclaimed for their hard work and innovation.
By circa 1990 it was clear that some elements within India’s business communities, led by the Confederation of Indian Industry (CII), as well as significant parts of the urban middle class, were fed up with forms of economic mismanagement that discouraged innovation and which limited choice in the shops. They objected to the pro-farming agendas of the National Front government, and they resented Prime Minister V. P. Singh’s attempts to reward his mainly rural, mainly “Backward Classes” support base by extending systems of reservation (for government and public sector jobs and places in educational institutions) upwards from the Scheduled Castes and Tribes to those designated as Other Backward Classes. By this time, too, the battles won by the likes of Margaret Thatcher in the UK and Ronald Reagan in the US were changing the landscapes of international economic thinking.The disintegration of the Soviet Union in 1991 also had profound effects in India. These were felt first in terms of a loss of export markets and foreign assistance. Later on they helped push India closer to the US and the World Trade Organisation.29 In the early 1990s the economist John Williamson felt able to describe a new Washington Consensus on “sensible” macroeconomic management. Development economics was already out of fashion by then.30 Deepak Lal had charged in 1983 that it was precisely a first generation of planners and development economists who had done the most damage in the “third world.”31 These were the “guilty men” who had stalled economic progress in India by 20 years or more.Washington, for its part, used the debt crisis in Latin America to launch a broader assault on dirigiste forms of economic management. Developing countries needed to return to basics: to sound monetary and fiscal policies and to open trade and capital accounts. The elite revolt that led to Finance Minister Manmohan Singh’s famous budget of 1991, and to the devaluation of the rupee that year by 18–20 percent against leading currencies, was as much an echo of this thinking as it was a practical response to the balance of payments crisis that so damaged India’s reputation for economic competency.
By the early summer of 1991 India’s fiscal deficit stood at nearly nine percent of GDP and the country had sufficient foreign currency reserves to finance only two weeks’ worth of imports. Moody’s and Standard & Poor had downgraded India’s international credit rating. Finance Minister Manmohan Singh’s budget was designed first and foremost to stabilize this situation. Cuts in defense spending and in subsidies for exports, sugar, and fertilizers were meant to bring the fiscal deficit down to 6.5 percent of GDP in the 1991–92 tax year.32 Thereafter, the government of Narasimha Rao moved steadily—but not at any great pace—to “adjust” the deeper structures of the economy. Efforts were made to liberalize India’s trading regime, but even as late as 2000, despite considerable progress, tariffs in India still averaged close to 30 percent and the ratio of international trade to GDP remained under 25 percent (low by global standards). More progress was made with industrial policy. The system of industrial licensing that had taken shape since the 1950s was “dismantled in all but 18 designated industries (including drugs and pharmaceuticals, cars, and sugar), and for all locations save for 23 cities with populations above one million people where licenses were still required for new ventures or project expansion.”33 Perhaps most significantly of all, “the reforms,” as they soon became known, opened the door to greater foreign direct investment in India’s economy. Inward investment by western multinationals became a major part of the new “Shining India” that was trumpeted by the Bharatiya Janata Party-led (BJP) National Democratic Alliance ahead of the Lok Sabha elections in 2004. McDonald’s in Delhi and Mumbai, along with IBM and Infosys in Bangalore, signaled India’s connections to the new landscapes of globalization that had gathered pace in the 1990s, and which were strongly registered in the telecommunications revolution that swept through middle-class India.
No one now expects India to return to the dirigiste models that it pioneered more than half a century ago. Significantly, Congress used the rise of the BJP in the 1980s, and the destruction of the Babri Masjid in Ayodhya in December 1992, as a foil for its economic agenda. Leftist parties were warned that strong opposition to that agenda would cause the Rao government to fall, and that this in turn would bring the Hindu nationalists to power in New Delhi.34 As things worked out, the BJP did come to power in India in 1998 and ruled the country until 2004. By then, however, the BJP had made its peace with globalization and reform. It gently retired its rhetoric of “swadeshi liberalization” and its support for “microchips but not potato chips.” By 2000 it was an enthusiastic advocate for a continuing process of economic liberalization that offered clear advantages to some of its supporters in the urban middle class.
The killings at Nandigram have taken on a significance that few in the Left Front government could have anticipated when contracts were signed. On the one hand, and most immediately, they advertised the willingness of the state in West Bengal to embrace what Marxists call “accumulation by dispossession.”35 In doing so, they dramatized the violence of the accumulation process in other parts of India —along the Narmada river valley, for example, where resistance to large dams continues, or wherever poor people are “tidied out” of street environments marked for improvement and upgrading (as they have been in many of India’s leading cities, including through the grotesquely named “Operation Sunshine” in Kolkata).36 Development is never easy or painless, whatever the platitudes offered to the contrary by politicians or real estate developers.
On the other hand, Nandigram provides insight into changing geographies of power in India. Nehru found to his cost in the 1950s that he could not enforce land-to-the-tiller reforms in the countryside, where power resided mainly with richer farmers. (Agricultural policy was handed to the states in the Constitution of India, adopted in 1950.) Nevertheless, the federal settlement that was worked out between 1946 and 1949 placed India’s states in a dependent relationship with the Center.37 President’s Rule can be imposed on states under Article 356 of the constitution, and the inelasticity of major state revenues often forced them to seek extra funding from New Delhi in the form of grants-in-aid under Article 275.
In the 1990s, in contrast, and more so in the 2000s, many of India’s states have been able to improve their bargaining position against the center. Rob Jenkins has argued that the reform process has empowered states to behave as “competition states.”38 Instead of competing with one another to draw down funds from New Delhi, states like Maharashtra, Karnataka, Tamil Nadu, or West Bengal now fight with one another to host foreign direct investment or the funds of non-resident Indians (NRIs). In Jenkins’ view, the real momentum of economic reform in India now lies in the states.A process of “provincial Darwinism” has taken hold, he argues, that compels states to compete with one another for the foreign funds that will reduce their fiscal deficits and dependence on New Delhi. Forcible evictions of peasants and harsher labor laws are just two instruments deployed by business-oriented state elites to attract capital to their states. In some cases, too—and Nandigram illustrates this very well—states are being encouraged to free up extensive parcels of land as de facto fiefdoms of private capital: this, in effect, is the remit and purpose of the roughly 300 Special Economic Zones that were formed between 2005 and 2007 under the act of that name.
The privatization of space is a necessary complement to the way the ongoing process of economic reform in India is being negotiated. To date, that process has been focused on the non-agricultural economy, and in towns and cities.There are sound political reasons for this, and it is widely agreed that successive governments in India since 1991 have managed the reform process with levels of determination and skill that evaded policymakers in the 1960s and 1970s.This in turn is causing observers of India to rethink their understandings of state–society relations. It is not simply that power is being leached from New Delhi to state capitals, important though this is. It is also becoming clear that a modernizing elite in India, pushed on no doubt by big business and the international community, but ably fronted by a band of far sighted technocrats, first used the politics of crisis and now uses the politics of success to create a climate for ongoing reform that is nonetheless at odds with market fundamentalism or the Washington Consensus. This is the real and considerable achievement of the CII and men like Manmohan Singh, Montek Singh Ahluwalia, and Palaniappan Chidambaram. If the reform agenda in India can be criticized for its partiality and unevenness, even for its slow speed, it can also be hailed as a success story that has avoided the pitfalls of the big bang approach to liberalization.39 A lot of progress has been made by stealth, and this has involved all manner of deals between different members of India’s business and political elites. But the reform process in India has also been advanced by the careful building of coalitions, and by the bringing on side of politicians as well as “rent-seeking” elites in the states, many of whom had benefited from the permit-license-quota Raj and who might have been expected to slow down changes to it. Significantly, too, the ongoing process of economic reform in India has led to a sharpening of the technical competency of some leading departments of government. Arguably, that competency was not there in the 1950s or 1960s to support the Nehru-Mahalanobis model of development.
The net effect of the reforms has been to widen the gulf between rich and poor people in India, and between rich and poor regions, but that was always going to be the case. The strongest arguments in the pro-reform locker are these: (a) that rates of average per capita income growth in India have been rising since 2003–04 beyond the 3.5–4.0 percent levels recorded in the 1980s and 1990s; and (b) that such rates of growth would not have been recorded without economic reform. Put another way, low levels of economic growth are no friend of the poor, neither are forms of economic management based on populist politics and deficit financing. In the short run, this argument has it, economic growth must promote higher levels of income inequality— not that Indian levels are yet on a par with those of Brazil or China. Richer people will pull ahead as the economy rewards talent and scarce skills, as for example in the IT sector.
Meanwhile, the gap between the western and eastern states in India is opening up not because the latter are getting poorer, but because the former are getting richer. Again, we are seeing talent, or good economic policies, being rewarded. By the same token, poor people in Bihar are the victims of more than two decades of economic mismanagement. Lalu Prasad Yadav built a political coalition that rewarded Yadavs and Kurmis with dignity (izzat), and Muslims with protection, no mean feats both, but what he did not promote was a politics of development aimed at tightening labor markets (thus raising real wages) or attracting inward investment. Per capita net state domestic product at constant 1993–94 prices actually fell in Bihar from Rs 4,474 in 1990–91 to Rs 3,396 in 2003–04 (in part because of the loss of Jharkhand), while the residents of Uttar Pradesh, including the richer western parts of that state (but not Uttaranchal), saw their real incomes rise from Rs 5,342 in 1990–91 to a meager Rs 5,975 in 2003–04. In the western state of Maharashtra, meanwhile, the corresponding figures show more than a 60 percent increase in real terms over 13 years, from Rs 10,159 and Rs 16,765. In Gujarat, the rate of economic expansion was even greater, with a per capita net state domestic product of Rs 8,788 nearly doubling in 2004–05 to Rs 16,878.40
What is now evident in India, even more so than previously, is the yawning gulf between the country’s haves and have-nots. For the former, India is shining brightly. It is a land of Tata Nanos and shopping malls. It is a country that seems to be leapfrogging the industrial revolution to land talented people directly in those jobs—in IT, information processing, and finance—that connect India to the globalizing world outside. This is precisely the land of SEZs, the Golden Quadrilateral, Gurgaon, the Bandra Kurla complex in Mumbai, and various technopoles in Bangalore, Chennai, and Hyderabad. Henri Lefebvre reminds us that capitalism advances “by occupying space, by producing [abstract] space,” or by sweeping away those legal, cultural or political forces which conspire to slow down the circulation time of capital.41 This is what we are beginning to see in India: the building of new urban and regional geographies that trumpet the country’s modernity. Boosters of reform argue, furthermore, that the benefits of higher average rates of growth must in time trickle down to the poor. After a decade (the 1990s) when the rate of poverty reduction in India seemed to slow down, there are signs now that economic growth is again driving considerable reductions in the headcount incidence of absolute poverty. Even in Bihar, changes appear to be underway, with Chief Minister Nitish Kumar advertising a business-friendly climate at some remove from the policies of his predecessor, Lalu Yadav. More tellingly, perhaps, the mushrooming growth of private, English-language schools in Bihar suggests an appetite on the part of some parents there to see their offspring join the circuits of economic growth and enrichment that are on offer elsewhere in India.
But here too is the rub. The anti-growth policies that have held back large parts of Bihar and Uttar Pradesh have more to do with state-level politics than with deliberate neglect on the part of New Delhi. If Rob Jenkins is right, pressures will grow even in these two states, particularly among the middle classes, for their ruling elites to embrace the reform agenda (as the CPM is doing in West Bengal). But there are also significant path dependencies at work here, a point sometimes lost on those urging Bihar to be more like Maharashtra. Aseema Sinha makes this point very well in her book on the regional roots of development politics in India.42 We need to recognize that India’s recent experiments with high-tech growth depend in part on earlier (Nehruvian) rounds of investment in tertiary education (notably the institutes of technology and management) and other forms of colonial and postcolonial support for private sector capitalist development in western India. In parts of eastern India, in contrast, slow growth may have been caused in large part by bad governance. But the governance systems in place there also reflect the continuing legacies of the permanent settlement and the more recent consequences of a Freight Equalization Act that worked strongly to the disadvantage of states in India’s resource triangle by reducing the cost of coal, iron, and steel in non-producing regions of India. Tim Besley and his colleagues note that the poverty-reducing effects of a given unit of GDP per capita growth in India are much less than in East Asia, where the distribution of landed wealth since circa 1950 has been much more even. Poverty elasticities in East Asia and the Pacific are greater than –1 (that is, 1 percent growth produces more than a 1 percent reduction in poverty), whereas in South Asia they are close to –0.6. But Besley and his collaborators also note that poverty elasticities in India vary from a high of –1.23 in Kerala to a low of –0.30 in Bihar.43 Even if economic growth does come to Bihar, their research suggests, the unevenness of land holdings, together with poor levels of existing infrastructure and primary education, will conspire to limit such poverty-reducing effects as it might and should have.
And here is a second difficulty. While it may be true that New Delhi has not set out to hold back Bihar since circa 1980 or 1991, the particular way in which India’s urban and industrial elites have pushed forward the agenda of economic reform has done few favors for the eastern part of the country. To begin with, there is the matter of the agricultural economy.What is needed in Bihar, still, is agrarian reform, but this is not on the mainstream agenda.What we observe instead, as across India, is a crisis of profitability in agriculture. Young people are leaving the countryside in droves, driven out by poor rates of return on farming and pulled to the cities by the prospect of less onerous work. Close to 60 percent of Indians still find some employment in agriculture and allied sectors, but the share of the agricultural economy in India’s GDP is now below 20 percent. It will move down further over the coming decades.The countryside is also becoming the preserve of women, as more young men earn the major part of their livelihoods in the urban economy. More so than in the 1950s and 1960s, the cities of India really do represent the “modern” and there is every reason to suppose that an increase in education supply in the countryside will push young men (and some young women) even faster to those places where they can wear western clothes and hanker after office jobs.44
Whether decent jobs for high school or college graduates will be on offer is another matter.45 There are worries that India’s reform trajectory is bringing with it jobless growth and the urbanization of poverty. It is sometimes forgotten that the IT sector accounts for only 2 percent of total services in India and only 1 percent of GDP (although it contributes around 5 percent of export earnings).46 That said, the manufacturing sector has been doing better than many critics have recognized, and there has been enormous growth in employment since circa 1990 in the household industry sector.What is clear looking ahead is that the mass movement of people from rural to urban India has only just begun.We will see much more of it over the next 20 or 30 years, as the agricultural sector continues to shrink as a supplier of employment and as a contributor to GDP. When the GOI does finally turn its reforming spotlight on the countryside it will reduce the remaining subsidies that agriculture enjoys. It will also encourage the consolidation of larger farms, a process that is already under way in northwest India.
Finally, there is the matter of public goods provision, broadly defined. The most serious impediment to continued high rates of economic growth in India is the undersupply of infrastructure, from schools and hospitals to roads, railways and ports. The World Bank estimates that “India must invest around 3–4 percent more of GDP on infrastructure to sustain growth of around 8 percent, address existing gaps and meet policy-driven coverage goals.”47 This is a considerable sum of money to find in a country that is still returning significant fiscal deficits at both central and state levels (albeit that considerable progress has been made since circa 2004), and which still tolerates high levels of tax evasion.48 It is also not clear there is the political will yet in India to finance improvements in public sector health care and education provision. The preference is for people to pay for such goods in the private sector, an elite-driven policy choice that is hugely damaging to poorer families.
Much less widely recognized outside India, although it has been referred to with some regularity by Prime Minister Manmohan Singh, is the worsening security situation in large swathes of eastern India, particularly in the so-called tribal belt. The retreat of functioning local government in parts of more than 150 of India’s 602 Districts has opened the door to a Naxalite movement that does on occasions seek to provide both security and basic goods for disadvantaged local people. It is unlikely that the Indian state will lose control of these territories in the same manner that the government of Nepal lost almost all of the hill areas outside Kathmandu in the years from 1996 to 2006. But any attempt to win back these blocks and districts will take time, and might be bloody. In the meantime, they are no-go areas for economic development. Private investment will not flow to regions lacking clear property rights or an established rule of law. For better or worse, these red zones promise to be a significant brake on the production of abstract space—that is, functioning spaces for capital and modernization—in large parts of Bihar, Orissa, Jharkhand, Chhattisgarh, and Andhra Pradesh, not to mention in some of the northeastern states.
The transformation of the Indian economy since 1980 has surprised most observers and deserves a positive press.The Indian economy will be the third largest economy in the world sometime in the mid-2030s (trailing only the US and China). It is already in third place once adjustments are made for purchasing power parities (PPPs). Nominal average per capita incomes in India were just over $1,050 in 2007, rising to $4,550 in PPP terms: still placing India in the World Bank’s band of low income countries, but edging it closer to middle income status. Moving forwards, Rodrik and Subramanian note that: “Over a 40-year period, a 5.3 percent [per capita] growth rate would increase the income of the average person nearly eight-fold.”49 There are reasons to believe that India is now hitting a target rate of growth of GDP of 7 percent, and that such growth rates can be continued at least up to 2025 (if not to 2040 or 2045, by which time some decline in the rate of growth is to be expected, as capital–output ratios increase). The incidence of absolute poverty, measured by income, should fall sharply in the wake of high growth and will likely induce improvements in other measures of poverty and deprivation, including in respect of sanitation, child health, and gender equality.These are all areas where India is behind its millennium development goal (MDG) targets.
But nothing is guaranteed. India is still less dependent on world market conditions than many other emergent developing countries, but that dependence is set to grow. India is not immune to global crises, whether stock market crashes, rising energy prices or adverse climate change. Internally, the GOI has major political issues to negotiate in future, not just with regard to forms of cultural nationalism, including a possible backlash against “westernization,” but also in regard to gender issues (the role of women in the workforce, most notably) and the management of urban poverty or the containment of urban unrest. As things stand, all leading political parties in India support the agenda of economic reform.There is a growing sense that India’s reform agenda is being driven by a culture of success, rather than by the politics of fear or even necessity. The fruits of that initial success have gone overwhelmingly to India’s elites and its urban middle classes, and upper castes, as was always bound to be the case. The challenge now, however, is for India to move on from a reform agenda inspired by elites in revolt against the permit-license-quota Raj. Opportunities need to be provided for poor and excluded people to participate in the new circuits of growth, not least if they are to be deterred in some regions from the paths of unrest, rebellion and/or secession.
The political enfranchisement of India’s poorest groups might still be the country’s long-term salvation, much as Nehru once imagined. It is equally possible, however, that the politics of exclusionary growth will be reinforced.As yet, rapid economic growth does not seem to be binding rich and poor Indians closer together. The privatization of space in India’s cities surely hints at another future as well: that of the Latin America city, with all its glitz, crime, segregation, and violence. Whichever way it goes, the future for economic development and social change in India is intimately bound up with its cities, and with the politics of urban management. Of that we can be certain.
1 Dani Rodrik and Arvind Subramanian, “Why India Can Grow at 7 Percent a Year or More: Projections and Reflections,” IMF Working Paper, 04/118 (2004), p. 6.
2 Gurcharan Das, India Unbound: The Social and Economic Revolution from Independence to the Global Information Age (New York: Anchor, 2002).
3 Kalpana Kochar et al., “India’s Pattern of Development:What Happened,What Follows,” International Monetary Fund, Working Paper WP/06.02, www.imf.org/external/pubs/ft/wp/2006/wp0622.pdf (2006); see also Abhijit Banerjee, “The Paradox of Indian Growth: A Comment on Kochar et al.” (Mimeo: MIT, available at www.mit.edu/faculty/download_pdf.php?id+1340, 2006).
4 After writing a first draft of this essay I was able to read Arvind Panagariya’s spirited and upbeat account of India: The Emerging Giant (Oxford: University Press, 2008). Panagariya accepts that India’s growth rate stepped up in the 1980s (to 4.8 percent per annum 1981–88), but further argues that the growth rate stepped up again— to 6.3 percent—from 1988. Given that the run of annual GDP growth rates from 1987–88 to 1993–94 are 3.8 percent, 10.5 percent, 6.7 percent, 5.6 percent, 1.3 percent, 5.1 percent, and 5.9 percent, I find the cutoff date of 1988 (or 1988–89: the year of 10.5 percent growth) unconvincing, if not indeed rather arbitrary.
5 Work for the World Bank’s 1990 World Development Report proposed an international poverty line of $1 per day at 1985 PPPs (purchasing power parities). At that time, India used an official poverty line of $0.75 per day. In 2008 the World Bank proposed a new international poverty line of $1.25 per day, using 2005 data on PPPs. India’s official poverty lines for 2004–5 were Rs. 17.71 in urban areas and Rs. 11.71 in rural areas, which translate to just £1.03 against 2005 PPPs. For discussion, see Chen and Ravallion 2008.
6 Simon Kuznets, Modern Economic Growth: Rate, Structure and Speed (New Haven, CT: Yale University Press, 1966).
7 World Bank, India: Inclusive Growth and Service Delivery—Building on India’s Success (Development Policy Review, Report No. 34580-IN) (Washington, DC: World Bank 2006), Figure 1.12 and text.
8 Stuart Corbridge and John Harriss, Reinventing India: Liberalization, Hindu Nationalism and Popular Democracy (Cambridge: Polity Press, 2000).
9 Alan Heston, “National Income,” in Dharma Kumar and Meghnad Desai (eds), Cambridge Economic History of India, vol. II (Cambridge: University Press, 1982), pp. 376–462.
10 André Béteille, Caste, Class and Power: Changing Patterns of Stratification in a Tanjore Village (Berkeley, CA: University of California Press, 1965).
11 Quoted in Sunil Khilnani, The Idea of India (London: Hamish Hamilton, 1997), p. 35.
12 See the chapter by Jan Breman in this volume.
13 Hans Singer,“The Distribution of Gains Between Investing and Borrowing Countries,” American Economic Review, 40 (1950), pp. 478–96; and Raúl Prebisch, The Economic Development of Latin America and Its Principal Problems (Lake Success, NY: United Nations, 1950).
14 Dadabhai Naoroji anticipated this argument in his Poverty and Un-British Rule in India (London: Swan Sonnenschein, 1901).
15 Ronald Inden, “Embodying God: From Imperial Progresses to National Progress in India,” Economy and Society, 24 (1995), pp. 245–78.
16 William Arthur Lewis, “Economic Development with Unlimited Supplies of Labour,” The Manchester School, 22 (1954), pp. 139–91.
17 John Harriss, “Does the ‘Depressor’ still work? Agrarian Structure and Development in India: A Review of Evidence and Argument,” Journal of Peasant Studies, 19 (1992), pp. 189–227.
18 Michael Lipton, Why Poor People Stay Poor: A Study of Urban Bias in World Development (London:Temple Smith, 1977). Charan Singh’s views permeate much of his writings, but see esp. India’s Economic Policy: The Gandhian Blueprint (New Delhi: Vikas, 1978), ch. v; and Economic Nightmare of India: Its Cause and Cure (New Delhi: National 1981), chs vi–viii.
19 V. M. Dandekar and Nilkanth Rath, “Poverty in India: Dimensions and Trends,” Economic and Political Weekly [EPW],Vol. 6, No. 1 (2 January, 1971), pp. 25–48, 106–46.
20 Lloyd Rudolph and Susanne Hoeber Rudolph, In Pursuit of Lakshmi:The Political Economy of the Indian State (Chicago, IL: University of Chicago Press, 1987).
21 Atul Kohli. Democracy and Discontent: India’s Growing Crisis of Governability (Cambridge: University Press, 1990).
22 Partha Chatterjee, A Possible World: Essays in Political Criticism (New Delhi: Oxford University Press 1977); also his The Politics of the Governed: Reflections on Popular Politics in Most of the World (New York: Columbia University Press, 2004). Sudipta Kaviraj,“On the Crisis of Political Institutions in India,” Contributions to Indian Sociology, 18 (1984), pp. 223–43; also his “On State, Society and Discourse in India,” in James Manor (ed.), Rethinking Third World Politics (Harlow: Longman, 1991), pp. 72–89.
23 Kaviraj,“Crisis of Political Institutions,” p. 227.
24 Francine Frankel, India’s Political Economy, 1947–1977: The Gradual Revolution (Princeton, NJ: University Press, 1978); Pranab Bardhan, The Political Economy of Development in India (Oxford: Blackwell, 1984); Jagdish Bhagwati, India in Transition: Freeing the Economy (Oxford: Clarendon, 1993).
25 Bhagwati, India; Thirukodikaval Nilakanta Srinivasan, “Reform of Industrial and Trade Policies,” EPW, Vol. 26, No. 37 (14 September, 1991), pp. 2,143–45.
26 Atul Kohli, “Politics of Economic Growth in India, 1980–2005, Parts I and II,” EPW, Vol. 41, No. 13 (1 April, 2006), pp. 1,251–59 and 14 (8 April, 2006), pp. 1,361–70.
27 Angus Deaton, and Jean Drèze, “Poverty and Inequality in India: A Re-examination,” EPW, Vol. 37, No. 36 (7 September, 2002), pp. 3,729–48.
28 Abhijit Sen and Himanshu, “Poverty and Inequality in India-I,” EPW, Vol 39, No. 38 (18 September, 2004), pp. 4,247–63 and “Poverty and Inequality in India-II,” 39, pp. 4,361–75.
29 Kohli,“Politics of Economic Growth,” p. 1,362.
30 John Williamson, “Democracy and the ‘Washington Consensus,’” World Development, 21 (1993), pp. 1,329–36.
31 Deepak Lal, The Poverty of ‘Development Economics’ (London: Institute of Economic Affairs, 1993).
32 Drawing on Corbridge and Harriss, Reinventing India, p. 152.
33 Corbridge and Harriss, Reinventing India, p. 153.
34 See Ashutosh Varshney, “Mass Politics or Elite Politics? India’s Economic Reforms in Comparative Perspective,” in Jeffrey Sachs et al. (eds), India in the Era of Economic Reforms (New Delhi: Oxford University Press, 1999), pp. 222–60.
35 David Harvey, The New Imperialism (Oxford: Clarendon Press, 2003).
36 On Narmada, see Amita Baviskar, In the Belly of the River:Tribal Conflicts Over Development in the Narmada Valley (New Delhi: Oxford University Press, 1995). On Operation Sunshine, see Chatterjee, Politics of the Governed, p. 61.
37 See Paul R. Brass, The Politics of India Since Independence, 1st edn (Cambridge: University Press, 1990).
38 Robert Jenkins. “The Developmental Implications of Federal Political Institutions in India,” in Mark Robinson and Gordon White (eds), The Democratic Developmental State (Oxford: University Press, 1998), pp. 187–214. See also Lawrence Sáez, Federalism Without a Centre:The Impact of Political and Economic Reforms on India’s Federal System (Thousand Oaks, CA: Sage, 2002).
39 See Bradford De Long, “India since Independence: An Analytical Growth Narrative,” in Dani Rodrik (ed.), In Search of Prosperity:Analytic Narratives on Economic Growth (Princeton, NJ: University Press, 2003), pp. 184–204. See also Rob Jenkins, Democratic Politics and Economic Reform in India (Cambridge: University Press, 1999).
40 Government of India, Economic Survey, 2006–7 (New Delhi: GOI, Ministry of Finance, 2007), Table 10.4.
41 Henri Lefebvre, The Survival of Capitalism (New York: St. Martin’s Press, 1976), cited in David Harvey, Spaces of Capital (Edinburgh: University Press, 2001), p. 376.
42 Aseema Sinha, The Regional Roots of Development Politics in India: A Divided Leviathan (Bloomington, IN: Indiana University Press, 2005).
43 Tim Besley et al., Operationalising Pro-Poor Growth: A Country Case Study on India (Mimeo: Working Paper of Department of Economics, London School of Economics, www.lse.ac.uk/collections/LSEIndia/pdf/propoorgrowth.pdf, 2004), p. 13.
44 An important word of caution here. The feminization of the countryside in states like Haryana and Punjab is taking place in a context where child sex ratios indicate there are now fewer than 850 girls for every 1,000 boys aged 0–6.Amartya Sen has argued that there are more than 100 million missing from the world today. Perhaps as many as 30 million of these women are missing from India; Amartya Kumar Sen, “More Than 100 Million Women Are Missing,” New York Review of Books, 20 December, 1990.
45 See Craig Jeffrey et al., Degrees Without Freedom? Education, Masculinities and Unemployment in North India (Stanford, CA: University Press, 2008).
46 Jim Gordon and Poonam Gupta,“Understanding India’s Services Revolution,” paper prepared for IMF-NCAER Conference, New Delhi, November 2003 www.imf.org/external/np/apd/seminars/2003/newdelhi/gordon.pdf.
47 World Bank, India, p.15.
48 See Barbara Harriss-White, India Working: Essays on Society and Economy (Cambridge: University Press, 2003).
49 Rodrik and Subramanian, Why India Can Grow, p. 6 .