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The Political Economy of Industrial Growth in India

Published online by Cambridge University Press:  13 June 2011

Myron Weiner
Myron Weiner
Affiliation:
University of Arizona
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Abstract

The deceleration of industrial growth in India since the mid-sixties has opened up a debate over industrial policy as the new government of Rajiv Gandhi has attempted to replace many bureaucratic controls by market processes. A central issue is whether the deceleration is due primarily to inadequate investment in key sectors of the economy (a point on which there is considerable agreement) or whether resources have also been inefficiently employed. State controls put in place by antibureaucratic and anticapitalist socialists created interests within the bureaucracy, the governing Congress Party, and the business community, which sustain an industrial structure that the present government, its new orientation notwithstanding, will find difficult to dismantle.

Type
Review Article
Information
World Politics , Volume 38 , Issue 4 , July 1986 , pp. 596 - 610
Copyright
Copyright © Trustees of Princeton University 1986

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References

1 Chakravarty, , “Aspects of India's Development Strategy for the 1980s,” Economic and Political Weekly 19 (May 19–26, 1984), 845–52Google Scholar. Professor Chakravarty chaired an economic advisory panel to Indira Gandhi. The demand constraint position is advocated by K. N. Raj, P. Patnaik, D. Nayyar, and, among American economists, Lance Taylor.

2 Bhagwati, Jagdish N. and Srinivasan, T. N., “Indian Development Strategy: Some Comments,” Economic and Political Weekly 19 (November 24, 1984), 2006–08Google Scholar. See also Bhagwati, Jagdish N. and Desai, Padma, India: Planning for Industrialization (London: Oxford University Press, 1970)Google Scholar; Bhagwati, Jagdish N. and Srinivasan, T. N., Foreign Trade Regime and Economic Development: India (New York: Columbia University Press, 1975Google Scholar); and Bhagwati, Jagdish N., “Is India's Economic Miracle at Hand?” New York Times, June 9, 1985Google Scholar.

3 For a report on the S.S.R.C. conference, see Varshney, Ashutosh, “Political Economy of Slow Industrial Growth in India,” Economic and Political Weekly 19 (September 1, 1984), 1511–17Google Scholar.

4 The existence of a large, unreported black economy means, of course, that much of the country's increased industrial production is not included in the growth rate. The deceleration thesis would be partially undermined if there had been an acceleration of growth in the black economy during the past 15 years, but there is no evidence one way or another. It would be only partially undermined, that is, since the evidence on the poor performance of the public sector and the worsening of the capital output ratio is not disputed. If India's national income is significantly higher than the official estimate, however, the savings rate as a proportion of national income (estimated at 22%) may be overestimated.

5 The major legislative milestones in industrialization policy in India were: (1) the Industries (Development and Regulation) Act of 1951, with provisions for industrial licensing for producing any new product (the act has been amended frequently to increase the regulatory authority of the government); (2) the Industrial Policy Resolution approved by Parliament in 1956, categorizing industrial sectors reserved for the state, those in which the private sector would also be permitted, and the remainder that would be left to the private sector; (3) the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969, enabling the government to place restrictions on new licenses for larger industrial houses; and (4) the Foreign Exchange Regulation Act (FERA), passed in 1973 to further regulate foreign investment. For a useful history of industrial policy, see Marathe, S. S., Industrial Policy in India — Retrospect and Prospect (New Delhi: Centre for Policy Research, 1984)Google Scholar.

6 Remarkably little has been written about the impact of the bureaucracy on the formation of industrial or agricultural policies. A partial exception is Frankel, Francine R., India's Political Economy,1947–1977 (Princeton: Princeton University Press, 1978)Google Scholar. Among the important members of the civil service who influenced industrial policy under Prime Ministers Nehru and Indira Gandhi were S. Bhoothalingam in finance and steel; C. D. Deshmukh in planning; H.V.R. Iyenger in commerce, industry, and the reserve bank; S. (agannathan in economic affairs; L. K. Jha (currently an advisor to Prime Minister Rajiv Gandhi), also in economic affairs; S. S. Khere in steel and mines; K. B. Lai in trade; P. C. Mahalanobis in planning; B. K. Nehru in economic affairs; I. G. Patel in finance; and Vishnu Sahay and Tarlok Singh in planning.

7 Rajiv Gandhi may also be influenced by the evident impact of liberalization in increasing industrial growth during the last two years in which Indira Gandhi was prime minister. When, for example, the government partially decontrolled the cement industry in 1982— previously it was required to sell its output to the government at an administered price— production increased by 21% within a year. For an account of the liberalization policies during the last years of Mrs. Gandhi's government, and of the initial changes proposed by Rajiv Gandhi, see Sillitoe, Paul, “Rajiv's Reformation,” Far Eastern Economic Review, January 17, 1985, pp. 50–51Google Scholar, and Mathai, P. G., “Towards Liberalization,” India Today, November 15, 1984, pp. 88–89Google Scholar.

8 Nehru, Jawaharlal, The Discovery of India (New Delhi: Oxford University Press, 1983 ed.), 501Google Scholar. Nehru went on to write that the “Indian outlook ... has never approved of the spirit of acquisitiveness” (p. 523), thereby expressing not an “Indian” view, but a Brahminical one.