A theory of reform consolidation in India: From crisis-induced reforms to strategic internationalization

ABSTRACT

I use the policy feedback literature to present an argument regarding the new politics of reform consolidation in India. India’s reform trajectory can be understood in terms of three distinct phases of reforms interspersed by periods of slowdown. In this narrative that goes beyond 1991, an analysis of struggles, opponents, and reversals become important, revealing a more contested pathway. In the 2000s India has moved beyond the initial, crisis-driven phase to a deeper external integration with the global economy and structural reform within. I call this phase an era of strategic internationalization. Reforms of 1985, 1991, and 1998–2000, in different ways, have begun to create new constituencies of support across India, which underlies the consolidation phase of reforms. During this long trajectory, the opponents of reforms could delay reforms but failed to reverse the direction of economic reforms. The purpose of this article is to provide a temporal framework that pays attention to mechanisms underlying different phases of reforms and how new supporters and opponents of reforms were created across different phases of the reform trajectory. Policies, the social bases of the Indian economy, and classes have been re-configured as a result.

Acknowledgments

Detailed comments from two reviewers and editors of India Review were valuable. I also thank Rahul Mukherji and Jiva Schottli for conversations regarding this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Niccolo Machiavelli, The Prince, introduced by George Bull, 2003 ed. (London, UK: Penguin Classics, 1961), 21. Another translation talks not of the constitution but of a new order of things: “And it should be considered that nothing is more difficult to handle, more doubtful of success, nor more dangerous to manage, than to put oneself at the head of introducing new orders….” [Niccolo Machiavelli, The Prince, translated with an introduction by Harvey Mansfield, 2nd ed. (Chicago, IL: University of Chicago Press, 1998)].

2. Georg W.F. Hegel, Philosophy of Right, 1820, translated by S.W. Dyde (London, UK: George Bell, 1896), 12. Berthold-Bond interprets the meaning of this quote in the following way: “Absolute knowledge is possible only at the close of a historical progression, when dusk is falling on the life of spirit, since only then does that history appear as a whole, a completed circle, open for the first time to a recollective comprehension of its meaning” Daniel Berthold-Bond, Hegel’s Grand Synthesis: A Study of Being, Thought, and History (New York, NY: State University of New York Press, 1989), 110.

3. Vanita Shastri, “The Political Economy of Policy Formation in India: The Case of Industrial Policy, 1948–1994” (PhD dissertation, Cornell University, 1995); Atul Kohli, “Politics of Economic Liberalization in India,” World Development 17, no. 3 (1989): 305–28.

4. Georg W.F. Hegel, Philosophy of Right. See the second quote above.

5. Vivek Chibber, Locked in Place: State-Building and Late Industrialization in India (Princeton, NJ: Princeton University Press, 2003).

6. Paul Pierson, Dismantling the Welfare State?: Reagan, Thatcher and the Politics of Retrenchment (Cambridge, UK: Cambridge University Press, 1994), 1–2.

7. Henry Farrell and Abraham Newman, “The New Interdependence Approach: Theoretical Development and Empirical Demonstration, “Review of International Political Economy 23, no. 5 (2016): 713–36.

8. Indra Nooyi, “Interview,” India Abroad XXXVII, no. 38 (June 20, 2008): 1, cited in Aseema Sinha, Globalizing India: How Global Rules and Markets Are Shaping India’s Rise to Power (Cambridge, UK: Cambridge University Press, 2016).

9. Interview with Mr. V. Elangovan, CEO of Tirupur based SNQS International, in “‘Garment Units with 1000 Machines will become Common in Tirupur by Next Two Years” Express Textile (Fortnightly Magazine), 16–30 April 2005.

10. There is debate regarding whether the reforms created inequalities or inclusive growth. See Jagdish Bhagwati and Arvind Panagariya, eds. India’s Reforms: How They Produced Inclusive Growth (Oxford, UK: Oxford University Press, 2012); Jean Dreze and Amartya Sen, An Uncertain Glory: India and its Contradictions (Princeton, NJ: Princeton University Press, 2013). Also, see a review of the debate in a newspaper: Pramit Bhattacharaya, “Everything you wanted to know about the Sen-Bhagwati Debate,” Live Mint, July 20, 2013, http://goo.gl/gp5tQs (accessed February 23, 2019).

11. World Bank, World Development Indicators Database (Washington, DC: World Bank, 2016).

12. Atul Kohli, “Politics of Economic Growth in India, 1980–2005, Part I: The 1980s,” Economic and Political Weekly 41, no. 3 (April 1–7, 2006): 1251–59.

13. Hacker and Pierson discuss the various contributions of this approach. See, Jacob Hacker and Paul Pierson, “After the “Master Theory”: Downs, Schattschneider, and the Rebirth of Policy-Focused Analysis, Perspectives on Politics 12, no. 3 (2014): 643–62.

14. Pierson, Dismantling the Welfare State?; Other scholars who have made contributions to the idea that policies shape the nature of politics are: E. Schattschneider, Politics, Pressures and the Tariff (New York, NY: Prentice-Hall, 1935); Theda Skocpol, Protecting Soldiers and Mothers: the Political Origins of Social Policy in the United States (Cambridge, MA: Belknap Press of Harvard University Press, 1992), among others.

15. Peter A. Hall, 2015. “Social Policy-Making for the Long Term,” PS: Political Science and Politics 48, no. 2 (April 2015): 289–91; 289.

16. Step function describes a movement that stabilizes into a plateau followed by a step-up or down.

17. Jon Elster, “A Plea for Mechanisms,” in Social Mechanisms; An Analytical Approach to Social Theory, ed. Peter Hedstrom and Richard Swedberg (Cambridge, UK: Cambridge University Press, 1998).

18. Rob Jenkins, Democratic Politics and Economic Reform in India (New York, NY: Cambridge University Press, 1999); and Montek Ahluwalia 2002, “Economic Reforms in India Since 1991: Has Gradualism Worked?” Journal of Economic Perspectives 16, no. 3 (2002): 67–88.

19. Baldev Nayar, 2003. “Globalization and India’s National Autonomy,” Journal of Commonwealth and Comparative Politics 41, no. 2 (2003): 1–34.

20. Ahluwalia, “Economic Reforms in India Since 1991.”

21. Shastri, “The Political Economy of Policy Formation.”

22. Rahul Mukherji, 2013. “Ideas, Interests, and the Tipping Point: Economic Change in India,” Review of International Political Economy 20, no. 2, (2013): 363–89. Also see Rahul Mukherji, Globalization and Deregulation: Ideas, Interests, and Institutional Change in India (New Delhi: Oxford University, 2014).

23. Dani Rodrik, and Arvind Subramanian, “From ‘Hindu Growth’ to Productivity Surge: The Mystery of the Indian Growth Transition” (IMF Working Paper, WP/04/77, IMF, Washington, DC, 2004); J. Bradford DeLong, “India Since Independence: An Analytic Growth Narrative,” in In Search of Prosperity: Analytic Narratives of Economic Growth, ed. Dani Rodrik (Princeton, NJ: Princeton University Press, 2003); Atul Kohli, “Politics of Economic Growth.”

24. Arvind Panagariya, “India in the 1980s and 1990s: A Triumph of Reforms”(IMF Working Paper No. WP/04/43, IMF, Washington, DC, 2004); Sadiq Ahmed and Ashutosh Varshney 2012. “Battles Half Won: Political Economy of India’s Growth and Economic Policy Since Independence,” in Oxford Handbook of the Indian Economy, edited by Chetan Ghate (Oxford, UK: Oxford University Press, 2012).

25. Montek Ahluwalia, “Understanding India’s Reform Trajectory: Past Trends and Future Challenges,” India Review 3, no. 4 (2004): 269–77; 272–73.

26. Rob Jenkins, “Labor Policy and the Second Generation of Economic Reform in India,” India Review 3, no. 4 (2004): 333–63.

27. Schattschneider, Politics, Pressures and the Tariff, 288.

28. Skocpol, Protecting Soldiers and Mothers, 58.

29. Paul Pierson, Dismantling the Welfare State?

30. This is a paraphrase of Pierson’s claim: “Welfare states have created their own constituencies” Pierson, Dismantling the Welfare State?, 2.

31. I make this argument in Sinha, Globalizing India.

32. Atul Kohli, “Politics of Economic Liberalization,” 321.

33. Kohli, “Politics of Economic Liberalization,” 316.

34. One aspect of the creation of new groups is the cultural frames through which they view their own prospects. Here, Leela Fernanades’s work on meaning-making especially among the middle classes may be relevant. See Leela Fernandes, India’s New Middle Class (New Delhi, India: Oxford University Press, 2006).

35. Ashok Desai, “India After Reforms,” The Telegraph, goo.gl/sWPdwb (accessed May 24, 2016).

36. Shastri, “The Political Economy of Policy Formation;” Kohli, “Politics of Economic Liberalization.”

37. Kohli, “Politics of Economic Liberalization.”

38. Shastri, “The Political Economy of Policy Formation.”

39. Shastri, “The Political Economy of Policy Formation.”

40. Rahul Mukherji, “Managing Competition: Politics and the Building of Independent Regulatory Institutions,” India Review 3, no. 4 (2004): 278–305.

41. John Harriss, “The State in Retreat: Why has India Experienced Such Half Hearted Liberalization in the 1980s?” IDS Bulletin 18, no. 4 (1987): 31–38.

42. Montek Singh Ahluwalia, “India’s Economic Reforms,” in India: The Future of Economic Reform, edited by Robert Cassen and Vijay Joshi (Delhi, India: Oxford University Press, 1995).

43. Petia Topalova and Amit Khandelwal, “Trade Liberalization and Firm Productivity: The Case of India,” The Review of Economics and Statistics 93, no. 3 (2011): 995–1009.

44. Paranjoy Guha Thakurta, “The Permit Raj Must Go,” India Today, June 15, 1990.

45. This section is drawn from Sinha, Globalizing India.

46. Sanjeev Mishra, India’s Textile Sector: A Policy Analysis (New Delhi, India: Sage, 1993).

47. Tirthankar Roy, “Economic Reforms and the Textile Industry in India,” Economic and Political Weekly 33, no. 40 (1998): 2563–65.

48. Jessica Wallack, “Structural Breaks in Indian Macroeconomic Data,” Economic and Political Weekly 38, no. 41 (2003): 4312–15; 4315.

49. Chelliah, Raja. J. 1996 [1999]. Towards Sustainable Growth, 2nd ed. (New Delhi, India: Oxford University Press, 1999), 97.

50. Valerie Cerra and Sweta Sexena, “What Caused the 1991 Currency Crisis in India? (IMF Working Paper, WP/00/157, IMF, Washington, DC, 2000), 4.

51. Chandra Shekhar Singh was the Prime Minister until June 1991 although he lost his majority in March 1991 and stayed on as a caretaker PM until June, when the new government could take power.

52. Rahul Mukherji, “Interests, Wireless Technology and Institutional Change: From Government Monopoly to Regulated Competition in Indian Telecommunications,” Journal of Asian Studies 68, no. 2 (2009): 491–517.

53. S.P. Shukla and Deepak Nayyar were in the Finance Ministry. Singh met with Montek Ahluwalia, his close friend and confidante, who was the Commerce Secretary at that time, and Rakesh Mohan the Economic Advisor in the Finance Ministry. S.P. Shukla and Deepak Nayyar were critical of the reforms. Nayyar’s view can be found in Amit Bhaduri and Deepak Nayyar, The Intelligent Person’s Guide to Liberalization (New Delhi, India: Penguin, 2000).

54. Elections were held for 511 seats in 1991 but polling was postponed for a few seats. Two were nominated seats and not used to calculate the majority needed.

55. V.N. Balasubramanyam, “India’s Trade Policy Review,” in The World Economy: Global Trade Policy, 1995, edited by Sven Arndt and Chris Miler (Oxford, UK: Blackwell Publishers, 1995), 82–83.

56. Balasubramanyam, “India’s Trade Policy Review.”

57. Two recent books argue that more credit should be attributed to P.V. Narasimha Rao. See, Vinay Sitapati, Half-Lion: How P.V. Narasimha Rao Transformed India (Haryana, India: Penguin, 2016) and Sanjaya Baru, 1991: How P.V. Narasimha Rao Made History (New Delhi, India: Aleph Book Company, 2016).

58. Shaji Vikraman, “25 Years on, Manmohan Singh Has a Regret: In Crisis, We Act. When Its Over, Back to Status Qou,” The Indian Express, goo.gl/rQHigd (accessed July 1, 2016).

59. Ahmed and Varshney,”Battles Half Won,” 85.

60. Mukherji, Globalization and Deregulation, 84–85.

61. This description was used by Harriss, “The State in Retreat.”

62. Jairam Ramesh, To the Brink and Back: India’s 1991 Story (New Delhi, India: Rupa, 2015).

63. Panagariya, “India in the 1980s and 1990s,” 22.

64. Balasubramanyam, “India’s Trade Policy Review,” 90.

65. Ashok Desai, “The Economics and Politics of Transition to an Open Market Economy: India,” 1999; Baldev Nayar, “The Political Economy of Reform Under the UPA, 2004–2014: The Tension Between Accumulation and Legitimacy,” India Review 14, no. 2 (2015): 175–202.

66. Kirit Parikh, “Economy,” in India Briefing: A Transformative Fifty Years, edited by Marshall Bouton and Philip Oldenburgh (Armonk, NY: M.E. Sharpe, 1999), 69.

67. Shaji Vikraman, “25 Years on.”

68. Manmohan Singh noted in a recent interview: “The National Stock Exchange was strongly opposed by Bombay stockbrokers and captains of industry. I thought some competition is good. The exchange has given a very good account of itself,” Shaji Vikraman, “25 Years on,” FN 57.

69. B.K. Modi’s quote can be found in Bhupesh Bhandari, “Guarding the Turf,” Business Standard, April 9, 2016. http://goo.gl/RJtsw5 (accessed April 9, 2016).

70. Times of India, August 1991, cited in Baldev Nayar, “Business and India’s Economic Policy Reforms,” Economic and Political Weekly, 33, no. 38 (1998): 2453–68.

71. S.K. Birla, FICCI President, wrote to Ramesh on October 1, 2015 reacting to the account in his book. This account can be found in Bhandari, “Guarding the Turf,” Business Standard, April 9, 2016.

72. Bhandari, “Guarding Their Turf.”

73. Bhandari, “Guarding Their Turf.”

74. Bhupesh Bhandari, “Once there was the Bombay Club,” Business Standard, July 8, 2011. http://goo.gl/ibNCgE (accessed February 23, 2019)

75. Bhandari, “Once there was the Bombay Club.”

76. Bhandari, “Guarding Their Turf.”

77. A.K. Bhattacharya, “The Bombay Club is Active,” Rediff: India Abroad, November 8, 2006. http://goo.gl/Ngjb6q (accessed February 23, 2019).

78. Bhandari, “Once there was the Bombay Club.”

79. Bhandari, “Once there was the Bombay Club.”

80. Bhandari, “Once there was the Bombay Club.”

81. Ashok Parikh, “Introduction,” in Trade Liberalization: Impact on Growth and Trade in Developing Countries, edited by Ashok Parikh (Singapore: World Scientific Publishing Co. Ptc Ltd, 2007), 11.

82. Sinha, Globalizing India. The distinction between mass and elite politics is from Ashutosh Varshney, “Mass Politics or Elite Politics?: India’s Economic Reforms in Comparative Perspective,” in India in the Era of Economic Reform, edited by Jeffrey Sachs, A. Varshney, and Bajpai (New Delhi, India: Oxford University Press, 1999).

83. Baldev Nayar, “The Limits of Economic Nationalism in India: Economic Reforms Under the BJP-Led Government, 1998–1999,” Asian Survey 40, no. 5 (2000): 792–815.

84. Ashish Gupta, 2001. “Life Without QRs: QRS to Go,” Business Today, April 6, 2001.

85. BJP’s Manifesto in 1998, cited in Nayar, “The Limits of Economic Nationalism.”

86. Nayar, “The Limits of Economic Nationalism.”

87. Vajpayee speech cited in Arvind Panagariya, “A Leader of Substance,” The Times of India, December 25, 2012, http://goo.gl/NvVo3f (accessed February 23, 2019).

88. Panagariya, “A Leader of Substance.”

89. Gupta, “Life Without QRs.”

90. Nayar, “The Limits of Economic Nationalism,” 800.

91. “Interview with Yashwant Sinha,” Business Today, March 17, 2002. Mr. Sinha listed the Fiscal Responsibility Act, a new Bankruptcy Act, a competition law, key banking sector reforms, opening up the telecom and insurance sectors and a review and revamp of the labour laws in this new road map.

92. Nayar, “The Limits of Economic Nationalism.” The government’s initiatives in the field of education are also noteworthy although I do not discuss them here. Vajpayee government expanded a literacy program called Sarva Sikhsa Abhiyan.

93. Sinha, Globalizing India.

94. Nayar, “The Limits of Economic Nationalism,” 810.

95. Arvind Panagariya, “Indian Economy: Retrospect and Prospect,” cited in Nayar, “The Political Economy of Reform Under the UPA.”

96. Special Correspondent,” Vajpayee Swears by Reforms,” The Hindu, http://goo.gl/cdMPRk (accessed May 19, 2001).

97. Between 1998 and 2000, the Foreign Minister, Jashwant Singh met with Strobe Talbot 14 times in 10 locations and in seven countries to “to harmonize US-India relations,” Strobe Talbot, Engaging India: Diplomacy, Democracy and the Bomb, 2nd ed. (Washington, DC: Brookings Institution Press, 2006).

98. Sinha, Globalizing India.

99. Anil Jacob, “Steering the State: The Politics of Institutional Change in the Pharmaceutical and Telecom sectors in Post-reform India” (PhD. dissertation, Rutgers University, 2010); Sinha, Globalizing India.

100. Gupta, “Life Without QRs.”

101. For more details, see, Sinha, Globalizing India.

102. For the notion of re-regulation see Richard Snyder, “After Neoliberalism: The Politics of Re-Regulation in Mexico,” World Politics 51 (Jan 1999): 173–204; Hector Schamis, Re-Forming the State: the Politics of Privatization in Latin America and Europe (Ann Arbor, MI: University of Michigan Press, 2002).

103. Rob Jenkins, Democratic Politics and Economic Reform in India; Aseema Sinha, “The Changing Political Economy of Federalism in India: A Historical Institutionalist Approach,” India Review 3, no. 1 (January 2004): 25–63.

104. K.C. Suri, “Democracy, Economic Reforms and Election Results in India,” Economic and Political Weekly 39, no. 51 (December 18–24, 2004): 5404–11; 5410; E. Sridharan, “The Growth and Sectoral Composition of India’s Middle classes: Its Impact on the Politics of Economic Liberalization,” India Review 3, no. 4 (2004): 405–28 also argues in a similar vein.

105. Nayar, “The Limits of Economic Nationalism.”

106. Jenkins, Democratic Politics and Economic Reforms makes a similar argument.

107. Rob Jenkins, Loraine Kennedy, and Partha Mukhopadhya, eds. Power, Policy and Protest: The Politics of India’s Special Economic Zones (New Delhi, India: Oxford University Press, 2014).

108. I elaborate this logic in Aseema Sinha, “Why has ‘Development’ become a Political Issue in Indian Politics,” Brown Journal of World Affairs XXIII, no. 1 (Fall-Winter 2016): 189–203.

109. Rob Jenkins, “Labor Policy and Second Generation of Economic Reform in India,” India Review 3, no. 4 (2004): 333–63.

110. Anne O. Kruger, “The Political Economy of the Rent-Seeking Society,” American Economic Review 64, no. 3 (1974): 291–303.

111. John Gerring, Peter Kingstone, Mathew Lange, and Aseema Sinha, 2011. “Democracy, History, and Economic Performance: A Case-Study Approach,” World Development 39, no. 10 (October 2011): 1735–48.

112. Tricia Olsen and Aseema Sinha. “Linkage Politics and the Persistence of National Policy Autonomy in Emerging Powers: Patents, Profits, and Patients in the Context of TRIPS Compliance,” Business and Politics 15, no. 3 (2013): 323–56.

113. A similar argument is made by Mitu Sengupta, “Making the State Change its Mind – The IMF, World Bank and the Politics of India’s Market Reforms,” New Political Economy 14, no. 2 (June 2009): 181–210.

114. Sinha, Globalizing India.

115. Farrell and Newman “The New Interdependence Approach;” Sinha, Globalizing India.

116. Hacker and Pierson, “After the Master Theory.”