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Policy alone can’t determine India’s future, politics will play native role

EconomicReforms25YearsOfChange Updated: Jul 25, 2016 13:57 IST
Zia Haq
Economic reforms

With economic opportunities, politics changed gear from social assertion to individual aspiration.(Illustration: Pranab Saha)

If it was possible to travel back in time, a train journey across any two points on the Indian mainland would result in a dramatic reversal of fortunes.

The journey would lead to an uninspiring place. Run-down cities. Unlivable small towns. Unglamorous stores with very little to choose from. Dilapidated highways. Un-electrified India would be a ghostly world at night. Poverty in some regions was so bad that they could be sub-Saharan Africa.

If the period immediately after India’s independence was one of near-stagnation, the 1960s and 1970s were decades of want. India was an economy of shortages, defined by a lack of choices, amid the so-called Hindu rate of growth of 3% or so. Even milk was a scarce commodity.

Read: 25 years of the Open Era: Reviewing India’s post-liberalisation economy

In 1980, an average South Korean earned six times more than an average Indian: $1,710 compared to $276 at current prices. The future looked gloomy. Nobody took India seriously, least of all Indians themselves.

Prime Minister Jawaharlal Nehru’s focus on “import substitution industrialisation”, or creation of industry to cut costly dependence on imports, and central planning were the hallmarks of policy-making.

Yet, all India did was to create a becalmed public sector in the name of socialism. As economists Amartya Sen and Jean Drèze put it, India’s “allegedly ‘interventionist’ planning” did little to make the country literate, provide healthcare or end social inequalities.

Sometime in 1990s, Microsoft founder Bill Gates reportedly declared that south Indians were the smartest people after the Chinese. What changed?

Read: Exclusive: BJP’s anti-Congress mindset doesn’t go with reforms, says Manmohan

Analysts usually point to 24 July 1991, when the most far-reaching budget speech by then finance minister Manmohan Singh unleashed a wave of economic liberalisation. Economists like Deepak Nayyar -- who midwifed the reforms as chief economic adviser and finance secretary during 1989-1991 – argue that the structural break actually happened in the ’80s, when the first leap in growth rates were observed.

His current successor, Arvind Subramanian, believes this was because the government was beginning to be more “pro-business” if not “pro-competition”. Whatever else, India’s economic liberalisation gave rise to an influential middle-class flush with disposable incomes.

The reforms were no cakewalk. They were seen as anti-poor and, without a consensus around them, vulnerable to setback.

In the offing in 1997, however, was another budget that would carry the reforms only further. P Chidambaram, as finance minister of the United Front Alliance government, a 13-party formation, presented what came to be known as a “dream budget”.

Peak income-tax rate was cut to 30% from 40%, which still remains. Corporate tax was down. Import duties slashed. Along with an increase in the limit of foreign institutional investment and public-sector disinvestment, the first flush of capital flowed. Income-tax revenues surged from Rs 18,700 crore in 1997 to over Rs 2 lakh crore in 2013.

An ambitious highways programme of the Atal Bihari Vajpayee-led BJP government (1999-2003) got Indians an idea what it meant to experience Europe-like infrastructure. Growth followed.

Read: HMT, Gold Spot: India’s economic reforms wrote the epitaph for these 7 brands

By mid-1995, the first mobile phone call in India had been made, by a Luddite West Bengal chief minister Jyoti Basu to telecom minister Sukh Ram. The entry of private sector banks enabled instant consumer loans, triggering a wave of pent-up consumption.

“Above all, liberalisation brought convenience to a common man’s life,” says Jyoti Sinha, a PhD scholar at Delhi University.

If this is how lifestyles transformed, how did politics respond?

Caste-based discrimination meant voters historically were concerned with their place in society, rather than in the economy. Prior to the 1990s, politics spoke a language of representation, empowerment and participation. Social justice was the byword.

With economic opportunities, politics changed gear from social assertion to individual aspiration.

The Vajpayee government decided to play up a swankier side with its ‘India Shining’ campaign, ignoring significant poverty that still afflicted at least a third of Indians. Its defeat at the hands of the Congress showed development had yet to ‘trickle down’.

Crony capitalism and scams represent an uglier side of the reforms, as governments chose arbitrariness over transparency to grant business favours. But there was no going back on social mobility as the preferred political targeting.

Acche din (good times) of jobs and growth still won the day for Narendra Modi in 2014.

Recent research has shown how India’s rise as an economic power has battled a “tension” between democracy and development.

A landmark work, Democracy Against Development, looked at how lower-caste politics in Bihar increased “democratic participation” but “radically threatened the patronage state by systematically weakening its institutions and disrupting its development projects”. Its author Jeffrey Witsoe, a professor at Union College NY, shows democracy and development “as they truly are in India -- in tension”.

While the reforms proved to be a leap of faith for the middle-class, significant sections continue to reject their markets-led model, notably poor tribals, forest-dwellers and even farmers.

“India’s democratic trajectory has tended to oscillate between demands for development by a strong, centralised leadership and collective mobilisations,” Witsoe told HT.

The return to power of Lalu Yadav’s RJD in alliance with Nitish Kumar’s JD(U) in Bihar, the Jat protests in Haryana, Gujjar agitation in Rajasthan and Patidar agitation in Gujarat are, according to Witsoe, “reminders of the continuing potency of popular demands centred on collective identities”.

With complex social relations, policy alone can’t determine India’s future. Politics will play its native role. As World Bank chief economist Kaushik Basu notes, “But one must be aware that there are no panaceas in economic policy.”