Political economy of development the politics of rapid economic growth
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Political Economy of Development The Politics of Rapid Economic Growth. Gov 1255 Politics of India Prof Prerna Singh. Facts: From ‘Hindu rate of growth’ to economic boom Growth rate of approx 5-6% for past 25 years Conventional Explanation: Pro-Market

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Political economy of development the politics of rapid economic growth

Political Economy of Development The Politics of Rapid Economic Growth

Gov 1255

Politics of India

Prof Prerna Singh


Political economy of development the politics of rapid economic growth

  • Facts:

    From ‘Hindu rate of growth’ to economic boom

    Growth rate of approx 5-6% for past 25 years

  • Conventional Explanation:

    Pro-Market

    Economic liberalization circa 1991


Problems with conventional pro market interpretation

Problems with conventional pro-market interpretation

  • Economic growth started accelerating in 1980s - a full decade prior to liberalization of 1991.


Some basic growth data 1950 2004 all figures in percentage per annum

Some Basic Growth Data, 1950-2004(All figures in percentage per annum)


Problems with conventional pro market interpretation1

Problems with conventional pro-market interpretation

  • Economic growth started accelerating in 1980s - a full decade prior to liberalization of 1991.

  • Industrial production in India—a key object of reforms—did not accelerate (and in fact declined) following the liberalizing reforms.


Some basic growth data 1950 2004 all figures in percentage per annum1

Some Basic Growth Data, 1950-2004(All figures in percentage per annum)


Some basic growth data 1950 2004 all figures in percentage per annum2

Some Basic Growth Data, 1950-2004(All figures in percentage per annum)


Problems with conventional pro market interpretation2

Problems with conventional pro-market interpretation

  • Economic growth started accelerating in 1980s - a full decade prior to liberalization of 1991.

  • Industrial production in India—a key object of reforms—did not accelerate (and in fact declined) following the liberalizing reforms.

  • India’s record in a broader comparative context

    • “Modest” embrace of the global economy

    • For example, mixed record of other liberalized, developing countries (Latin America & Sub-saharan Africa)


Alternative explanation pro business

Alternative explanation: Pro-Business

Emphasizes the state’s changing role since 1980:

  • the abandonment of populism,

  • prioritizing of economic growth, and

  • a slow but steady embrace of Indian capital as the main ruling ally.


Political economy of development the politics of rapid economic growth

Pro-market

Pro-Business

Emphasizes quality and not degree of state intervention

State commitment to high economic growth by developing trade & industry with well-deigned and thoroughly implemented state intervention

Supports established producers

Developed via real-world experience, especially success of East Asian tigers.

  • Minimal State Intervention

  • Free play of markets will lead to efficient allocation of resources, as well as promote competitiveness, hence boosting production and growth (‘Washington Consensus’)

  • Supports new entrants and consumers

  • Derived from strands of neoclassical economics


Three phases in the political economy of development in india

Three phases in the Political Economy of Development in India

  • Pre-1980s-: Pro-redistribution

  • 1980s: Pro- growth/ Pro-business

  • 1991- Pro-business + Pro-market


Three phases in the political economy of development in india1

Three phases in the Political Economy of Development in India

  • Pre-1980s-: Pro-redistribution

  • 1980s: Pro- growth/ Pro-business

  • 1991- Pro-business + Pro-market


The pre emergency left leaning indira gandhi vs the post emergency right leaning indira gandhi

The Pre-Emergency, Left-leaningIndira Gandhi vs.The post-Emergency, Right-leaning Indira Gandhi


The post emergency right leaning indira gandhi

The post-Emergency, Right-leaning Indira Gandhi

  • Prioritizing of economic growth as a state goal.

  • Supporting big business to achieve this goal

  • Taming labor as a necessary aspect of this strategy


The post emergency right leaning indira gandhi1

The post-Emergency, Right-leaning Indira Gandhi

  • Prioritizing of economic growth as a state goal

    • New industrial policy statement

      Top priority: Maximization of production

    • Growth first development


The post emergency right leaning indira gandhi2

The post-Emergency, Right-leaning Indira Gandhi

  • Supporting big business to achieve this goal

  • Withdrawal of important constraints on expansion & encouragement to big business to enter areas that had hitherto been reserved for the public sector

  • Financing the expansion.

    • Liberalized credit

    • Tax relief

    • Altered the legal framework to encourage private sector to finance new investments by raising resources directly from the public


The post emergency right leaning indira gandhi3

The post-Emergency, Right-leaning Indira Gandhi

  • Taming labor as a necessary aspect of this strategy

  • Especially difficult for champion of poor & workers – Mrs Gandhi

  • But did curtail labor unrest, esp strikes


The post emergency right leaning indira gandhi4

The post-Emergency, Right-leaning Indira Gandhi

  • Prioritizing of economic growth as a state goal.

  • Supporting big business to achieve this goal

  • Taming labor as a necessary aspect of this strategy

  • Government restructured its own role:

  • Halted the growth of public sector industries

  • Demoted the significance of economic planning and the planning commission.


The post emergency right leaning indira gandhi5

The post-Emergency, Right-leaning Indira Gandhi

  • Prioritizing of economic growth as a state goal.

  • Supporting big business to achieve this goal

  • Taming labor as a necessary aspect of this strategy

  • Government restructured its own role

  • Changes in India’s economic relations with the world


Rajiv gandhi

Rajiv Gandhi

  • “Break from the past”

  • Government's commitment first and foremost to economic growth and only in abstract notions to openness or laissez faire.

  • Policy pattern much more pro-business, specially pro big Indian business, rather than anything else


Results of pro business growth strategy

Results of Pro-Business Growth Strategy

Positive:

High rates of investment + in efficiency of investment

  Growth rate, espin industry

Negative:

Political Problems

Political Economy problems


Economic crisis of 1991 neoliberal reforms

Economic “Crisis” of 1991 & Neoliberal Reforms

  • Growth rate of manufacturing industry not influenced all that greatly by the reforms.


Industrial growth in india 1950 2004

Industrial Growth in India(1950-2004)


Economic crisis of 1991 neoliberal reforms1

Economic “Crisis” of 1991 & Neoliberal Reforms

  • Growth rate of manufacturing industry not influenced

  • Rate of capital formation not significantly influenced


Patterns of capital formation in india by sector 1970 2002

Patterns of Capital Formation in India, by sector (1970-2002)


Economic crisis of 1991 neoliberal reforms2

Economic “Crisis” of 1991 & Neoliberal Reforms

  • Growth rate of manufacturing industry not influenced

  • Rate of capital formation not significantly influenced

  • Changing composition of investment


Reforms of the 1990s

Reforms of the 1990s

  • Delicensing

  • Tax concessions

  • Opening of yet newer areas hitherto reserved for the public sector

  • Taming labourunrest


Reforms of the 1990s1

Reforms of the 1990s

Continuation of reforms of the 1980s: Not surprising

  • Delicensing

  • Tax concessions

  • Opening of yet newer areas hitherto reserved for the public sector

  • Taming labourunrest


Reforms of the 1990s2

Reforms of the 1990s

Break from reforms of the 1980s: Surprising

  • Opening up of the economy

  • Import quotas were reduced

  • Tariffs came down slowly but surely

  • Currency was devalued

  • Foreign investment regime was liberalized

  • Restrictions on external financial transactions were eased.


Political economy of development the politics of rapid economic growth

Why did the same set of reforms that proved difficult to pursue during the 1980s become more likely in the early 1990s?


Political economy of development the politics of rapid economic growth

  • External factors:

  • Decline and the disintegration of the Soviet Union

    • Decline of a model of development

    • Loss of most important trading partner

    • Loss of most important political & military ally

  • Growing availability of investible sources in foreign exchange

  • WTO coming


Political economy of development the politics of rapid economic growth

  • Internal factors:

  • Softening of resistance of Indian business to opening of economy

  • Split of position of Indian business over opening of the economy in 1980s


Reforms

Reforms

  • Internal deregulation of Industry

    Gone the furthest

  • Attempts to tame budgetary deficit

    Least successful

  • External opening

    Controversial but slow & steady


Political economy of development the politics of rapid economic growth

  • Why distinguish Pro-market vs Pro-Business policies?

  • What is at stake?

  • Scholarly – Get Causal Arrows Right

  • Normative – What is Fair & Just


Most desirable form of organization of

Most desirable form of organization of:

Polity : Democracy

Economy: Capitalism

Debate about “varieties of capitalism”:

the neo-liberal model of Anglo-America

the social democratic model of Scandinavia

the statist model of Japan

Q for developing countries: Which model is best to emulate?


Most desirable form of organization of1

Most desirable form of organization of:

Polity : Democracy

Economy: Capitalism

Debate about “varieties of capitalism”:

the neo-liberal model of Anglo-America

the social democratic model of Scandinavia

the statist model of Japan

Q for developing countries: Which model is best to emulate?


Most desirable form of organization of2

Most desirable form of organization of:

Polity : Democracy

Economy: Capitalism

Debate about “varieties of capitalism”:

the neo-liberal model of Anglo-America 

the social democratic model of Scandinavia

the statist model of Japan

Q for developing countries: Which model is best to emulate?

How successful have

these policies been?


Booming india

Booming India

Neoliberals

Statist scholars

(AtulKohli)

All good things go together

Trade-offs of development


Difficult qs for india s model of development

Difficult Qs for India’s model of development

Why should the common people in a democracy accept a narrow ruling alliance at the helm?

Is ethnic mobilization a substitute for pro-poor politics?

Is India increasingly stuck with a two track democracy, in which common people are only needed at the time of elections, and then it is best that they all go home, forget politics, and let the “rational” elite quietly run a pro-business show?


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