Friday, August 12, 2011

Compiling Debate On Politics Of India Growth Surge of 1980s. The paper at this link explores a not so well debated/discussed part of the Economic History of India in the decade of 80s. While 1991 was a watershed moment in post independent economic history of India with the start of economic liberalization, it is hardly noted that the economic growth trend had convincingly moved up in the 80s itself, driven by a productivity surge. In fact, India productivity surge was among the best in the world. The paper argues that while liberalization and policies related helped indeed, something else already was underway which was subtle and more political and did a lot to lay the groundwork to boost productivity and growth. The paper starts by positioning the popular theme: " Until 1991, India’s policy-makers followed misguided policies that closed the economy to international trade, erected inefficient industries under state guidance, riddled the private sector with extraordinarily cumbersome and detailed regulations, and suffocated private economic activity with controls and bureaucratic impediments. Then, in 1991, the big breakthrough happened. Spurred by a balance of payments crisis, Indian policy-makers turned to technocrats such as Manmohan Singh, who promptly began the process of liberalizing the economy. Trade barriers were slashed; foreign investment was welcomed; the license raj was dismantled; and privatization began. The economy started to boom, with software exports and call centers leading the way". Then with presenting the data proving the surge of the 80s and examining various factors, the conclusion rests on Political System. The paper argues that Indian Govt was actively taking a pro-business business attitude in the 80s where Indira Gandhi aligned with big businesses post her accession to power after Janata Govt. Paper clearly differentiates between Pro-business and Pro-market policies. Former being favorable to existing businesses while latter being pro competition. Paper comments "But the attitudinal change was grounded primarily in political calculation, and not in a desire to enhance the efficiency of the economic regime. As Kohli (1989) notes, Indira’s main objective was to counter the perceived threat posed by the Janata party, which had trounced Congress in the Hindi heartland in the 1977 elections." Policies were quite partisan in the sense that states aligned to Congress saw better growth than the rest. Paper tests this hypothesis and comments "states that were allied with the national government experienced differentially higher growth rates in registered manufacturing." Have a look at the paper for more details. Interesting to see how small policy tilts can go a long way.
Although, from this conclusion, next debate could start that was this decade and this policy the start of Govt-big business nexus (remember that Govt was pro-business and not pro-market as discussed above) which has become chronic corruption problem today. Additionally, on these arguments, for a detailed discussion on Politics of India's economic growth in 1980-2005, see two articles by Princeton Prof Atul Kohli in Economic and Political weekly.