Rethinking Indian Political Institutions
262
Rethinking Indian Political Institutions
262Hardcover(First Edition, First ed.)
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Overview
Product Details
| ISBN-13: | 9781843310792 |
|---|---|
| Publisher: | Anthem Press |
| Publication date: | 09/01/2005 |
| Series: | Anthem South Asian Studies |
| Edition description: | First Edition, First ed. |
| Pages: | 262 |
| Product dimensions: | 6.10(w) x 9.20(h) x 1.00(d) |
About the Author
Subho Basu is presently an Assistant Professor at Syracuse University, where he teaches Indian History in general and nationalist politics in the late nineteenth and early twentieth century in particular.
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CHAPTER 1
STAGES IN THE SUCCESS AND FAILURE OF ECONOMIC REFORM IN INDIA: A REVIEW OF THE LITERATURE
Jos Mooji
1. Introduction
In the past 15 years, several political scientists have tried to understand and explore 'liberalisation' reforms in India: first, the efforts in the 1980s and why they failed, and later, the apparent success of the reforms in the 1990s. This chapter reviews the literature that focuses on the latter – and still ongoing – reform process. It does not discuss the impact of economic reform as such, instead concentrating on political explanations for the reforms: the success or failure of both stages of reforms and the relative absence of opposition to them. The terms 'reform' or 'reforms' are used here rather loosely. I do not refer to specific monetary or financial measures, but rather to the whole process of change from a more state-regulated economy to a more market-oriented economy.
The real beginning of the economic reform process in India is widely viewed as having been in 1991. There had been earlier episodes of economic liberalisation: first, during the post-Emergency rule of Indira Gandhi (1980–4) and later during Rajiv Gandhi's regime (1984–9), but the pursuit of liberalisation policies during the 1990s was much more significant. In 1991, a new government, headed by PV Narasimha Rao and with Manmohan Singh as Finance Minister, announced its first reform measures almost immediately after taking office in June 1991, and continued to introduce new reform measures in various key economic sectors during its term. The first measures aimed at stabilisation and included a substantial currency devaluation and deflationary measures. They were followed by structural adjustment reforms, including the removal of controls on private industrial investment, a reduction of price controls, reforms of the banking system and the opening-up of the economy to foreign trade and investment. In some other economic areas (such as labour laws, agriculture and public enterprises), however, reforms have so far been either less radical or entirely absent.
The desire to reform did not end in 1996 when the Congress (I) government was replaced by a coalition headed by the Janata Dal, or in 1998, when a coalition led by the Bharatiya Janata Party (BJP) took over. These governments, as well as the subsequent BJP-led governments, continued to direct the Indian economy away from regulation and central planning, and towards a more open market economy. The reforms seem to be fairly well consolidated, and although a policy reversal back to a more planned economy cannot be ruled out altogether, there is no indication that this is likely to happen in the near future.
The immediate trigger for reform in 1991 was an acute balance of payments crisis. When the new government took charge, it was faced with an immediate liquidity crisis: foreign exchange reserves barely sufficed to cover two weeks of imports. The rupee was devalued almost immediately, and various loans from the International Monetary Fund helped to resolve the immediate problems. Other measures related to industrial policy and trade were introduced shortly afterwards.
The acute crisis and the feeling of urgency that accompanied the reform process may explain its some drastic steps were taken immediately, but they cannot explain its continuation and consolidation. Other factors have to be taken into account to understand the success of these reforms: how they survived and indeed increased, and why there was so little opposition towards them. As with all policy changes, some groups stood to win while others faced losses – and some of the latter are well organised and capable of mounting considerable resistance to unpopular legislation.
Three principal characteristics of the consolidation of the 1990s reforms makes them particularly intriguing. First is their success compared to the reforms introduced earlier in the 1980s, especially by Rajiv Gandhi. Early in 1986 Rajiv Gandhi announced a 'judicious combination of deregulation, import liberalisation and easier access to foreign technology'. Soon, however, this liberalisation ran into problems, the pace of change slowed and eventually almost stopped. So why should something that failed in the 1980s succeed in the 1990s, especially since, at first sight, the conditions in the 1980s were so much more favourable? Rajiv Gandhi had come to power on an enormous wave of sympathy after the assassination of his mother, Indira Gandhi. He headed a large majority (415 out of 545 seats) in the Indian lower house, the Lok Sabha, while the reforming Congress (I) party of Narasimha Rao had just over 40 per cent of the Lok Sabha seats.
A second characteristic of the reforms of the 1990s is the apparent lack of organised opposition. India is a democratic country in which interest groups are allowed to participate. As a result, opposition to the reforms could easily have become influential and could have resulted in a policy reversal. As Jenkins states:
Governments in democratic political systems have generally been thought to face greater obstacles in bringing about economic reform, mainly because their hold on power relies on electoral consent. In genuinely liberal democracies, anti-reform interests have more political space and resources to influence electorates motivated largely by narrowly defined short-term economic considerations.
Yet this principle seems not to have applied in the Indian case. Thirdly, some of the chief politicians in the old regime had a number of relevant interests. Narasimha Rao was a senior member of the Congress (I) party and had been in the ministries of both Indira Gandhi and her son. Manmohan Singh had held various posts in the Indian bureaucracy before he joined the government in 1991, and was known, again according to Shastri, 'to be part of the earlier mode of India's economy bureaucracy. His associates describe him as a regulator'. The Narasimha Rao government was a Congress (I) government, which meant that it had no one to blame but its own predecessors for the rigidity and economic stagnation that the reformers aimed to change. Historically, the Congress (I) party itself bore the brunt of blame for this situation. Moreover, there was no 'honeymoon' period, during which new governments are given the benefit of the doubt and have opportunities to introduce radical new policies. Despite these obstacles, the new government pursued its reforms with some consistency, although perhaps not as quickly as some of the reformers would have preferred, and certainly not to the same extent in each sector and every region of the country. But on the whole, there is no disagreement about the fact that the economic orientation of India in the early 21st century is distinctly different from that of 10–15 years earlier.
I now turn briefly to the abortive reform programme of the 1980s, and then examine in detail the various interpretations of the later reforms, highlighting four different kinds of explanation for the successful consolidation of these reforms. Finally, I make some general observations with regard to the relation between the reform process on the one hand and some of India's political institutions on the other.
2. The Failed Reform Process in the 1980s
The heyday of the Nehruvian paradigm was already over in the mid-1980s when Rajiv Gandhi announced the initiation of a reform programme. Faith in the socialist path of development had gradually eroded: industrial growth had slowed down after the 1960s and almost everyone agreed that the main redistributive measures, such as land reform, had failed. Anti-poverty policies had been unsuccessful, and there was a growing consensus as to the inefficiences of the public sector. The international context, too, had undergone major changes. With the emergence of the newly industrialising countries (NICs), India was left behind. Moreover, from the end of the 1970s onwards China was turning into a market economy; it was followed, to a limited extent, by the Soviet Union in the 1980s. An increasing number of Indian economists and bureaucrats were educated in American universities and became influenced both by neoclassical economics and the American way of life. Generally, the force of anti-colonial and nationalist sentiments had declined. As a result of all this, many of India's leaders in the 1980s were, according to Kohli, 'more willing to open the economy to and learn from the West than the leaders of the post-independence generation'.
In this seemingly fertile ground, Rajiv Gandhi's early reforms nonetheless failed. There are a number of different interpretations that explain both the reforms and their failure. Patnaik emphasises the interests of metropolitan capital in the economic reform process. The devaluation of the local currency, which often accompanies liberalisation 'helps to keep raw material export prices from the third world low'. Moreover such "liberalisation" 'opens up avenues of profitable investment for metropolitan capital in a period of crisis'. Aside from external pressures, Patnaik emphasised the role of internal pressure as 'perhaps even more decisive'. He analysed the push for liberalisation as the response of big business to the stagnation in public investment, which itself should be seen as a result of the fiscal crisis. Investment opportunities for private enterprise were limited, certainly in comparison to the expansion of the command over capital. Businesses were in search of growth opportunities, and therefore supported domestic decontrol, delicensing and deregulation.
Another class-based explanation with a slightly different emphasis was developed by Harriss and Rubin. These authors argued that the reforms could be seen as an attempt to change the relationship between the Indian state and the main economic classes, and aimed thereby to remove some of the obstacles to growth. The reforms were an attempt to move the state away from patronage politics and towards a more developmental role, albeit an openly elitist one. The reforms, according to Harriss, failed as a result of the compromised nature of class power and the weakness of the state as an organisation.
Kohli has emphasised the role of interest groups more than classes. He argued that when Rajiv Gandhi came to power, there was an 'illusion of autonomy' after a massive electoral victory. This victory freed Rajiv Gandhi – if only momentarily and artificially – from coalitional entanglements and interest-group pressures. This freedom was curtailed when mass support for Rajiv Gandhi's government faltered. Congress was defeated in several states and Rajiv himself was increasingly perceived as 'pro-rich'. Opposition developed from almost all sides, in particular from the Congress rank and file, from the left-wing opposition and from rural interest groups.
Another argument which has been made for the failure of the reforms highlights their poor management, and the lack of political skills of those implementing them. Manor refers to Rajiv Gandhi's lack of political expertise and his lack of awareness over the 'need to build support for this major change in policy. He shared his mother's central misconception that India could be governed by mere assertion from the apex of the political system'. Other observers have argued that the reforms were too piecemeal and left too much of the system intact, and that the phasing of the reforms was ill thought through.
Most contemporary contributors to the debate about the failed reform of the 1980s were pessimistic about the possibility of subsequent major policy shifts. Harriss suggested that 'a real attempt to liberalise the economy probably would require the establishment of a more authoritarian regime, able to ride over the powerful interests represented in the dominant coalition'. Kohli, too, concluded with a note of scepticism regarding the possibility of introducing reforms in a democratic setting:
It would ... be absurd to deny that powerful leaders like Indira Gandhi or Rajiv Gandhi can initiate some policy changes that they and their advisors deem necessary. There are, however, fairly sharp limits on how far and how fast a liberalisation program can be implemented in a democracy ... The need to build broad coalitions pulls these fragile democratic governments in policy directions other than those that may best promote an efficient and competitive economy.
This widespread scepticism proved to be misplaced. In the early 1990s a new drive towards economic liberalisation was introduced, and this time with more success.
3. Economic Reform After 1991
Compared to the 1980s, the reforms in the 1990s have attracted more attention and debate. Most of the contributions to the debate have tried to explain the success of the present reform process and the relative absence of opposition, and in particular have attempted to trace the political factors that made a transition from a planned to a market economy possible. A few contributions stress the fact that this transition is not yet complete and that there have been reforms in some sectors, but not in others. The variation between the various states and the role of state governments has also been debated.
Four different kinds of approaches can be discerned in the explanations of the reforms. The first is a state-centred approach, focusing on the political process, the management of the reforms and the importance and the strength of the ideas behind them. The second approach emphasises contingent factors, in particular the importance of identity politics, which have diverted public attention from economic policies. The third is a society-centred approach, focusing on the changing class composition in the dominant coalition, which may have facilitated economic reforms. The fourth stresses external influences, in particular those exercised by the World Bank and the International Monetary Fund (see table 1 for an overview of these four approaches and the principle authors associated with them).
State-centred Explanations
Most authors writing about the economic reforms of the 1990s utilise 'state-centred' explanations. One of the fullest accounts is Jenkins' detailed investigation of the political mechanisms that have made the reform process possible. Jenkins describes these mechanisms under three different headings: incentives, institutions and skills. With regard to incentives, he argues that the political elite is willing to take risks (i.e. introduce reforms), because it is confident that the reforms will not fundamentally alter the political arena or its privileged position. Most Indian politicians are 'survivors': they have been able to adjust to different circumstances and have even changed party loyalty if necessary. They know the rules of the game and expect that even amidst or after reforms they will be able to continue to collect illegal income and strengthen their networks of patronage. This, in Jenkins' account, is the first incentive. The second is that the political elite, fully aware of both the flexibility and malleability of interest groups, is confident that these groups will adjust to altered circumstances and find new ways for coalition-building, when forced to do so. The reforms may even provide new opportunities for earning illegal incomes, strengthening support bases, and carrying on 'Politics as usual'.
In the second category, 'institutions', Jenkins describes the formal (mainly federal) and informal (mainly party networks) institutions. The way these institutions work helps the political elite to implement the reforms with surprising efficiency. The influence of the federal system means that nationwide opposition to reforms is less likely to emerge. The impact of reforms varies from state to state. There are winners and losers; some will resist but others won't. The result is competition among states rather than a joined effort to reverse national policies. Second, the federal structure fragments interest groups which otherwise might organise at a national level. Lastly, the fact that state governments, headed by parties that are in opposition at the central level, sometimes cooperate with central government policies lessens the likelihood of opposition parties mounting an effective opposition to these policies at the national level. Moreover, the federalist structure provides for multiple reform experiments and learning processes, which may help to absorb the shocks of reform.
(Continues…)
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