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The State, Economic Growth,

and Development in IndiaRahul Mukherji aa South Asian Studies Programme, NationalUniversity of Singapore,

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To cite this article: Rahul Mukherji (2009): The State, Economic Growth, andDevelopment in India, India Review, 8:1, 81-106

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India Review , vol. 8, no. 1, JanuaryMarch, 2009, pp. 81106Copyright Taylor & Francis Group, LLCISSN 1473-6489 print; 1557-3036 onlineDOI:10.1080/14736480802665238

FIND1473-64891557-3036India Review, Vol. 8, No. 1, January 2009: pp. 118India ReviewThe State, Economic Growth,and Development in IndiaThe State, Economic Growth, and Development in IndiaIndia ReviewRAHUL MUKHERJI

Introduction: The State and Economic Development in IndiaThe Indian state has been more penetrated by social actors than many

East and Southeast Asian states. Unlike China, India could neitherabolish private enterprise nor could it embrace globalization with thesame speed and ferocity. Both complete state-driven nationalizationand state-driven globalization would demand a state, which wouldhave much greater command over interest groups like industrialists,farmers and trade unions. Policies favoring economic growth anddevelopment in India needed to evolve gradually after building asocial consensus on those policies. This is a model of development

driven by a relationship between the state and society, where thepower of the state, even in its commanding moments, was moderatedby the power of social actors.

Developmental ideas were debated within the state. Substantialeconomic policy change would require building upon a historical pathof gradual changes in ideas and policies, punctuated by economic crises.This paper demonstrates how this dynamic is critical for explainingthe politics of the green revolution and consequent self-sufficiency in

food grains, as well as for understanding the Indias globalizationbeyond 1991. It is a story of getting to higher rates of economicgrowth in a gradual and circuitous way after building a policy consen-sus among diverse stakeholders. Economic crises aided the arrival of anew consensus.

Indias growth rates began looking more like Chinas after 2003.Figure 1 gives us a visual feel of the trajectory of Indias growth.Between 1956 and 1974, Indias GDP grew between 3 and 4 percent

per annum, when it was a closed and highly regulated economy.

Rahul Mukherji is Associate Professor in the South Asian Studies Programme, NationalUniversity of Singapore.



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82 India Review

The same increased to over 5 percent between 1975 and 1990 whenIndias domestic private sector was given greater room for maneuver.This was not a period when Indias engagement with the global econ-

omy saw a significant rise (Figure 2). The paradigm shift in privatesector and trade orientation beyond 1991 has been associated withhigher rates of growth, over 6 percent between 1991 and 2004, andover 8.5 percent between 2003 and 2007. It is the latter figure that hasdrawn the attention of the world when India became one of the fastestgrowing economies in the world after China.

FIGURE 1INDIAS GDP GROWTH

Source: World Development Indicators (Washington, DC: World Bank, 2008).

FIGURE 2

MEASURING INDIAS GLOBALIZATIONMERCHANDISE TRADE/GDP (%)



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The State, Economic Growth, and Development in India 83

Indias democratic complexity and the chaotic nature of devel-opment policy are well known. The literature on the developmentstate driven by the East Asian experience had been largely pre-occupied with the importance of autonomy or the East Asianstates ability to maintain its independence from powerful socialactors.1 India, on the other hand, was caricatured as a countrywhose industrialization and growth were obstructed by politics andpatronage. Indias sustained growth beyond 1991 poses a puzzle forthis literature.

This paper will discuss the twists and turns in Indias economicdevelopment policy since the time of independence in 1947, which

gradually resulted in the high growth trajectory. It will deliberate onthe reasons why sectors like telecommunications and stock marketsbecame efficient, while others like the power sector lagged behind.What are the socioeconomic and political reasons for low levels of literacy in India, the decline of Indian agriculture, the persistence of poverty, and the rise of inequality in India?

The Political Economy of GrowthIndias business houses were regulated to a greater or lesser extentby the state depending on the amount of influence they couldwield within the state. The period from 1947 to 1968 were years of moderate regulation by the state. In comparison, the years between1969 and 1974 were characterized by stringent regulation of privateand foreign companies. The inability of the state to meet thedemands of an increasingly mobilized people in the context of lowlevels of growth and productivity led to a gradual process of liber-alization of the economy favoring the private sector between 1975and 1990. The substantial bias in favor of government ownershipand economic self-reliance that remained needed the balance of payments crisis of 1991 for spurring further economic liberaliza-tion. In 1991, a technocracy convinced about the importance of globalization and private initiative exploited Indias dependence onthe IMF to direct policy attention towards the competitiveness of

the Indian economy. Indias private sector was freed from signifi-cant state control during this period. The subsequent Indian pri-vate sector boom has been associated with high levels of economicgrowth in India.



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The Period of Slow Growth: 194774The Indian business class wielded substantial influence at the time of independence, having played an important role in the struggle forfreedom. In pre-colonial India, nationalist business had often takenpositions that lent support to the Congress even if this meant givingup profits in the short run. Mohandas Gandhi, the man who mobi-lized the Indian nation to resist British colonialism in his addressdelivered at the Fourth Annual Meeting of the Federation of IndianChambers of Commerce and Industry in 1931, commended the roleof nationalist business in the Indian freedom movement. The wealthywere encouraged to treat themselves as trustees of the wealth that

ultimately belonged to society as whole.2 Mohandas Gandhi wasassassinated in the house of G. D. Birla, one of Indias pioneeringindustrialists, in January 1948.

Sardar Vallabhbhai Patel, the powerful Deputy Prime Minister inNehrus cabinet, was very close to G. D. Birla.3 The Sardar4 was thefundraiser and the organizer within the Congress Party, credited withbringing over 500 princely states under one sovereign. Such was hispolitical prowess in the early years after independence that his candi-

date Purushottamdas Tandon was able to defeat Nehrus candidate forthe Presidency of the Congress Party. Tandons campaign was fundedand supported by Birla. The Sardar often used to stay at the BirlaHouse in New Delhi and used Birlas goodwill on matters rangingfrom industrial policy to negotiating with multilateral financialorganizations.5

The state and the business class in India reached a compromise inthe early years after independence. The Indian business class desired

limited state regulation and protection from international trade. Whilethere was agreement on trade protection between the state and busi-ness class, there were differences of opinion about the extent of stateregulation over the economy. The power of Indian business and itsclose links with the state produced a regulatory regime between 1947and 1955, which was far more considerate towards the interests of Indian business than the socialists within the Congress Party haddesired. The socialists had desired greater government control over

private assets. When they found that the Report of the EconomicProgramme Committee of the Congress Party (January 1948) wouldbe substantially watered down to favor private business, they left theCongress Party to form the Socialist Party in March 1948. The Industrial



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Policy Resolution of April 1948 reserved public ownership exclu-sively in just three sectors of the Indian economy.

Second, there were disputes over whether the Planning Com-mission would be a recommending or an implementing agency.The Ministries were able to maintain their implementation powersand the Planning Commission relegated to a largely advisory body.The private sector in India was relieved to maintain its distancefrom Soviet style planning. Last but not least, the IndustrialDevelopment and Control Bill initiated in 1949 was opposed andreformulated into the Industrial Development and Regulation Act(1951) to give considerable voice to Indian industry. This was

the birth of industrial controls and licensing that would only beabolished in 1991.6

Sardar Patels death in 1950 was a turning point. Nehrus desire forgreater state control over the economy could be realized. The statewould gain greater control over private activity, even though Nehrusaw a legitimate role for the private sector. It took Nehru a couple of years till 1955 to gain absolute command over the Congress Party.The Industrial Policy Resolution of 1956 was less generous towards

private capital than the one in 1948. The Second Five-Year Plan(195661) increased the proportion of government investment inrelation to private investment and pointed it towards heavy capitalintensive industrialization. The Nehru years witnessed a rise in thepower of the Planning Commission, which won it the epithet supercabinet.7

Nehru was not entirely averse to the private sector. Banks couldnot be nationalized. Foreign investment continued to enjoy a reason-

ably favorable environment. G. D. Birla remained an importantsource of election funds and helped mobilize Indian industry to theservice of the Congress Party during the election years of 1952 and1957. Birlas business performed reasonably well during this period.The Birlas were not given permission to build a steel plant, nor werethe Tatas allowed entry into the automobile industry. The Birlas hadbeen given permission to produce cars and the Tatas were permittedto produce steel. 8 Industrys prosperity depended on direction from

the state.Lal Bahadur Shastri became Prime Minister in 1964 after the death of

Jawaharlal Nehru. Quite unexpectedly, Shastri began systematicallyoverturning the Nehruvian legacy. The importance of the Planning



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Commission was diminished and the Prime Ministers Office wasmade more powerful. The National Development Council involv-ing state-level leaders was also made more powerful. G. D. Birlaand the Federation of Indian Chambers of Commerce and Industrydeveloped a close working relationship with the new Prime Minister.Industrial sectors such as steel and cement were decontrolled. Andthe decision to devalue the Rupee was taken during his premiership.Had the decision to devalue the Rupee been consistently pursued, itwould have increased the export orientation of the Indian economy.Medha Kudaisya has argued that had Shastri not died prematurelyin January 1966, the Indian economy might well have taken a pri-

vate sector and trade oriented route in the mid-1960s. This was thetrajectory followed by many East and Southeast Asian countries. 9The rest of this section will demonstrate that the promotion of trademay not have been easy for Shastri because of the views of themajority of Indian business, intellectuals, and political elite at thattime.

Mrs. Indira Gandhis unexpected rise to the Premiership afterLal Bahadur Shastris sudden demise in January 1966 was owed partly

to struggles within the Congress Party that could not easily beresolved. Indira Gandhi was known to be unassertive and shy in thosedays. She did not appear to pose a threat to senior Congress leaderslike Kamraj and Morarji Desai. Mrs. Gandhi would have to consoli-date her power within the party if she were to consolidate her positionover the longer term. 10

An economic crisis was looming large over the nations horizon.The droughts of 1964/65 and 1965/66 and the war with Pakistan in

1965 created a financial situation where India became dependent onshipments of US PL 480 wheat. Food price inflation is a major setbackfor any Indian political party. The government needed substantialexternal finance to fund the Fourth Five-Year Plan (196974).Between the Third (196166) and the Fourth Five-Year Plans, Indiasstrained resources drove the country to two years of plan holiday(1967 and 1968).

The food situation and the related financial situation forced India

to ask the US for subsidized wheat supplies and financial assistance.President Lyndon Johnsons policy of slow shipment of wheat andthe quid pro quo demanded by donors was a far cry from the liberalfinancial assistance that India had received during the Kennedy years.



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India liberalized its trade regime and devalued the Indian Rupee,bowing to external pressure. 11

The financial crisis of 1966 and the aborted liberalization of theeconomy demonstrate the consequences of external pressure in theabsence of an internal consensus about promoting Indias trade andcompetitiveness. Indian business was overtly supportive of thereforms but was largely opposed to the devaluation. Domesticallydriven import substituting industry needed cheap imports for themanufacture of goods for the Indian market. Industry was averseto the rise in import prices consequent upon the devaluation. Thesentiment within the intellectual community and the views within

the Indian Parliament were overwhelmingly opposed to the deval-uation of the Indian Rupee. Such was the political opposition tothe Rupee devaluation in the Indian Parliament that Mrs. Gandhidid not even inform President of the Congress Kamraj beforeFinance Minister Sachin Choudhury announced this measure in June 1966.12

The policy of trade promotion and private sector participation wasreversed by 1969. The government nationalized private sector assets in

areas such as insurance, banks, coal, wheat, and significant parts of the steel industry. Large industrialists in the private sector were con-trolled stringently in relation to the quantities and types of goods theycould produce through the Monopolies and Restrictive Trade Prac-tices Act (MRTP; 1969). Even G. D. Birla could not strike a relation-ship with Mrs. Gandhi, and J. R. D. Tata was quite disillusioned at thistime.13 The small scale industrial sector flourished at this time, withfewer regulatory bottlenecks, easy credit and certain key areas of busi-

ness reserved for it. The Foreign Exchange Regulatory Act (1974)reduced the power of multinational corporations by reducing the for-eign equity participation of foreign companies from 51 percent to 40percent. This meant that multinationals would have fewer powers incompany boards. This ultimately led to the departure of companieslike Shell, Coca Cola, IBM, and Caltex.14

What were the reasons for this offensive against big Indian and for-eign corporations? Industrial policy between 1969 and 1974 make the

Nehru, Shastri and early Indira Gandhi years look like a period of lib-eral economic policy. The state was ascendant and private capital wasin retreat to the greatest extent during this period. Mrs. Gandhi under-stood that she could consolidate her position as Prime Minister by



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undermining a group called the Syndicate within the Congress Party,which was more sympathetic towards the large Indian corporations.When the Congress Party decided to install N. S. Reddy as the candi-date for Indias presidency, she proposed the name of trade unionleader V. V. Giri instead. Indira Gandhi had feared that her Congressopponents would use Reddy to undermine her position. Giricontested and won the election against the Congress Partys officialcandidate with the support of the Communist Party of India. Themajority of the Congress votes had gone to Reddy and not to Giri.Thereafter Mrs. Gandhis allies within the Congress Forum for SocialistAction and the Communist Party of India reigned supreme till about

1974.Indira Gandhi was faced with a political situation that went

beyond her control after 1974. The growth rate did not pick up andthere was social unrest against both the personalization of politics andeconomic hardships. Mrs. Gandhi took the Congress Party in her handsand systematically undermined inner party democracy somethingthat was a heritage of the struggle for independence, which had beennurtured by her father Jawaharlal Nehru. A controversial appointment

of a Chief Justice, the Allahabad High Courts ruling on electoralmalpractices in her constituency, low rates of economic growth and afreeze in wages at a time when inflation could not be controlled, allmobilized the nation against her and the Congress Party. The laststraw was the proclamation of National Emergency or authoritarianrule in June 1975. These events galvanized all the non-communistopposition political forces into political solidarity the CongressParty lost its first elections to the Janata Party in 1977. The veteran

Congress socialist leader Jayaprakash Narayan, who had been a closeassociate of Nehru, provided charismatic leadership to the politicalmovement against Indira Gandhis regime. 15

The Moderate Growth Phase: 197590Indias accelerated economic growth, at a rate greater than 5 percent inthe period from 1975 to 1990, needs to be understood in the context of

steady private sector orientation beginning in the mid 1970s, whichaccelerated in the 1980s. Thoughts about private sector and trade ori-entation arose in the mid-1970s. In 1975 a special Cabinet Committeewas formed for export promotion. 16 A number of influential reports



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within the Government of India began arguing against the system of physical and financial controls, and the need for export promotion. 17The Department of Electronics set up within the Prime MinistersOffice foresaw the potential for Indias exports in software even in themid-1970s.18 In the early 1980s, Mrs. Gandhi was attentive to Chinastrade oriented growth and the inability of the Soviet system to meeteven its food requirements.19

The difference between India and China was that it was politicallytougher for Mrs. Gandhi (198084) and her successor and son Rajiv(198489) to undo the economic legacy built from the late 1960s thanit was for Deng to undo the legacy of Mao. Private sector oriented

liberalization entailed gradual dismantling of controls over privateenterprise. The corporate private sector was highly protectionist.Trade orientation and substantial tariff liberalization could not beachieved and Indias trade to GDP ratio remained constant between1980 and 1990 (Figure 2).

There was substantial opposition to economic deregulation. TheCongress Party was largely opposed to private sector orientation.Indian industry had become so accustomed to licensed production

within the protected home market that the auto industry evenopposed the automatic expansion of its manufacturing capacity whenthey came to know that they would need to compete with a jointventure between the Government of India and Suzuki Corporation. 20The Maruti Suzuki car would quickly overtake the sales of Indiasknown brands the Ambassador and the Fiat cars, which had notupgraded their technology for decades. 21 Indian industrialists hadtypically become past masters at briefcase politics which entailed

bribing the government in order to secure production, import, andexport licenses.22

The achievements of the 1980s were quite substantial in relation tothe legacy of the 1970s. First, some industrial deregulation favoringthe Indian private sector was achieved. The restrictions for large busi-nesses via the MRTP route were eased. It was now easier to expandcapacity or to manufacture a product similar to a licensed productwithout permission from the government. 23 Second, Rajiv Gandhi was

able to move the telecommunications sector in the direction of privatesector orientation. He was able to corporatize 24 parts of the Depart-ment of Telecommunications (DOT) into the government-ownedcorporate entity Mahanagar Telephone Nigam Limited (MTNL),



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despite vehement opposition from the managers and workers of theDOT. The Centre for the Development of Telematics (CDOT)funded by the government began producing telephone switches supe-rior to the ones being produced by a joint venture between thegovernment-owned Indian Telephone Industry and the French com-pany Alcatel. CDOT switches had to contend with politics within thegovernment in order to succeed, despite opposition from the IndianTelephone Industries. This technology was licensed for private pro-duction and continues to serve Indias rural areas. These efforts pro-duced impressive levels of industrial growth in the mid to late 1980sthat were surpassed only after 2003.25

Third, Rajiv Gandhi made a considerable effort to draw the moreprofessional and modern Association of Indian Engineering Industry(AIEI) closer to the government. As a consequence, the influentialindustrialists of the Federation of Indian Chambers of Commerce andIndustry (FICCI) who had become used to obtaining licenses by sup-plying the ruling party with funds a practice that was perfected inthe 1970s, were relegated to the background. Rajiv Gandhi consultedAIEI on important matters, provided it with access to government

policy, and persuaded a small association to transform itself into anorganization that would represent the interests of Indian industry. 26

Fourth, the period of domestic deregulation witnessed the emer-gence of the software sector as an export oriented sector. This wasaided by synergies between the Department of Electronics (DOE) andIndias natural comparative advantage, which lay in its cheap English-speaking technically competent workforce. The DOE, which washoused by technocrats with backgrounds similar to the new qualified

middle class entrepreneurs, slowly began to push the governmenttowards providing entrepreneurs with greater choice with respect toimports, and provided for easy finance for imports needed for exports.It also gave the push to government investment in software technol-ogy parks, which provided Indian firms with cheap connectivity,office space and infrastructure and was a major boost for Indias soft-ware exports.27

Last but not least, the most important legacy of the Rajiv Gandhi

government was the background research on economic liberalizationthat was carried out within the Prime Ministers Office, the Ministryof Commerce and Industry and the Ministry of Finance by people likeMontek Ahluwalia, Shankar Acharya, Rakesh Mohan, and Vijay



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Kelkar. This effort was spurred in part by Indias own policy failuresand in part by the rising growth rates in China and Southeast Asia.To give one example, Rajiv Gandhis successor V. P. Singh requestedhis Special Secretary, Montek Singh Ahluwalia, to write a memo aboutwhat India needed to do in order to grow like Malaysia. Singh andAhluwalia were just back from a trip to Malaysia and Prime MinisterSingh was deeply moved by the progress made by Malaysia. Ahluwaliasmemo of 1990, which was leaked to the press, was the blueprint of reforms that India carried out after 1991, when faced with its severestbalance of payments crisis.28

The High Growth Trajectory: 1991PresentIt is important to note that the trade, investment and infrastructurereforms of 1991, even though they constituted a break from the past,were largely path dependent. Without the experience of the 1970s andthe 1980s, the technocratic conviction required to break the politicaldeadlock in favor of the status quo bias in a moment of financial crisiswould not have arisen. India could have done in 1991 what it did in1966, which was retreat to reforms in a moment of crisis only to pur-sue state control and autarky in the long run. The reason why 1991was different from 1966 was that this time technocratic convictionwithin the executive branch made a virtue of dependence on the IMFat the time of the balance of payments crisis, and pursued reforms thatwere tough within the context of Indias political economy.

Finance Minister Manmohan Singh was a distinguished economistwhose doctoral dissertation submitted to Oxford University waspublished by Clarendon Press in the early 1960s. At a time when mostdistinguished development economists were talking about the virtuesof import substitution, it was Singh who has pointed out through adetailed empirical analysis that trade would be an important factor forthe development of a less developed country like India. ManmohanSingh had the support of an excellent technocratic team whoseresearch and policy experience during the 1980s generated a sophisti-cated blueprint for reforms. Singh stated in no uncertain terms in hisBudget speech in 1991 that the underlying problem was the unsustain-ability of government spending in the presence of low levels of productivity. The budget deficit had contributed to the balance of payments deficit and led to investor pessimism. Equally significantwas the fact that Prime Minister Rao was willing to stick his political



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neck out in favor of economic reforms. He trusted his Finance Ministerand understood that the end of the Cold War required a fundamentalrestructuring of Indias internal and external economic policies.

Why did Indian industry agree to tariff reductions, devaluationand easier entry of foreign direct investment when they had opposedthese in the past? Import substituting industry needed foreignexchange for imports of intermediate goods, and this finance couldonly be made available by the IMF, at a time when commercial banksand non-resident Indians had withdrawn their money from India.India had merely two weeks of foreign exchange and no alternativesources of funding when it went to the IMF in 1991. Indian industrys

acquiescence to economic reforms were articulated and promotedeffectively the Confederation of Indian Industry. Rajiv Gandhi hadearlier played a critical role in galvanizing the AIEI into the Confedera-tion of Indian Industry (CII).

The technocrats, who were largely in agreement with the IMF onthe three abovementioned issues, made a virtue of necessity andpushed for far-reaching reforms in trade, industrial, and foreigninvestment policies in the first three reform years (199193), when

India was accepting conditional funds from the IMF. The technocratsalso begged to differ with the IMF. The fiscal deficit was allowed togrow after the first year, as government spending could not be drasti-cally reduced in a poor country. Trade union laws could not bereformed. And market restructuring in areas such as telecommunica-tions, stock markets, and airlines were home-grown efforts unaidedby World Bank funds. 29 Dr. Manmohan Singh declared at the GabrielSilver lecture at Columbia University in 1995 that Indias tryst with

globalization had become irreversible no matter which governmentcame to power after the elections of 1996. This prophecy has cometrue.30

What are the drivers of Indias growth? Industrial de-licensingafter 1991 allowed Indian private companies to produce whatever theyliked in almost all areas, without the need for a license. To give oneexample, the Tatas, who were not allowed to make Indian cars duringthe regime of controls, took the initiative and produced one of Indias

most popular cars the Indica. Spurred by their success they havebought brands like Rover and Jaguar to consolidate their internationalbusiness. The Tatas have introduced the worlds cheapest car theNano.



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Second, the devaluation of the Indian Rupee automatically madeIndias software and other exports more competitive. To give just oneexample, India replaced Japan as Sri Lankas biggest trader in 1996after a period of 60 years. Geography, exchange rates, and improvedproducts made Indian goods such as watches, motor bicycles, cars,and trucks more competitive than their counterparts from Japan.Titan watches replaced their Japanese counterparts and the cheaperIndian Kawasaki Bajaj and Hero Honda bikes replaced the moreexpensive Kawasaki and Honda bikes from Japan.31

Third, Indias increasing competitiveness arose also as result of thecompetition from foreign markets. Even though Indias tariffs are high

by Association of Southeast Asian Nations standards, the weighted aver-age nominal tariff came down from 81.4 percent in 1991/92 to 32.9percent in 1995/96 to 18 percent in 2004/05. India abolished its quotasfor consumer goods in 2001. Third, tariff liberalization, which wasespecially successful in the intermediate goods sector, reduced theprices of Indian finished products. 32 Preferential trade agreementswith Singapore, Sri Lanka, and Thailand also pushed the governmentand Indian companies to increase their competitiveness.33

Fourth, the legacy of the Foreign Exchange Regulatory Act (1974)could only be overturned after 1991. Non-debt creating investmentsof multinational corporations were viewed favorably after 1991. Whilethe quantum of foreign investment increased quite rapidly in relationto the past, this was still insignificant when compared with China.A fundamental difference between the Indian and Chinese politicaleconomies is that while China could promote foreign investments inthe absence of a domestic private sector, in Indias case, foreign invest-

ment had to fight domestic corporations to win regulatory advan-tages. This was not easy. Of the US$48 billion that India receivedbetween 1992 and 2002, US$24 billion came via the portfolio routeand US$24 billion via the direct route.34 This entire amount could havegone to China in a single year. And foreign investment through theportfolio route that arrived in India via the stock markets wenttowards strengthening Indian companies. A business lobby thatsupports foreign investment in India is the domestic industrialist who

needs foreign capital to compete with the more cash rich Indiancompanies. It was the less well endowed companies like Bharti Telev-entures in Indias GSM cellular sector that supported the governmentover increasing the foreign equity limit from 51 percent to 74 percent



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in 2006, in order to compete with richer companies like Tata andReliance.35

Last but not least, the entrepreneurial instincts of Indian business,which could take advantage of deregulation, were critical for Indiasgrowth. A significant difference between India and China is that whilethe Chinese economy is still largely propelled by government-ownedcompanies, the Indian economy is driven to a much greater extent byits domestic private sector. A quick look at the list of top companies inIndian and Chinese stock markets reveals this pattern quite unambig-uously. Indian private sector business houses have offered successfulbusiness models that are being discussed in the leading business

schools of the world.36Sectors such as software services and business process outsourcing

have won India acclaim as the back-office of the world. People in theUS think of themselves as being Bangalored when their jobs get out-sourced to India. Indias manufacturing sector has also begun to shapeup after 2003. Pharmaceuticals, gems and jewelry, and automotiveparts have emerged as leading sectors. Even though Indian manufactur-ing lags behind China due to logistical and regulatory bottlenecks,

Indian companies are consolidating and multinationalizing their busi-ness operations, overcoming domestic bottlenecks and capturing theinternational market. The Tatas, for example have purchased the Tetleybrand for $432 million, which has made it the second largest producerof packaged tea after Unilevers Lipton. Tata consolidated the opera-tions of Tata Steel to win the title of the Best Steel Company in theWorld, which was accorded by World Steel Dynamics. Thereafter Tatawent on to acquire the Anglo Dutch Corus Steel for $11 billion in

2007, in the fourth largest deal in the history of the industry. TheCorus acquisition was preceded by smaller acquisitions in Singaporeand Thailand in 2004 and 2005, respectively. There have been substan-tial foreign acquisitions in sectors such as automotive parts, IT, theconsumer goods sector and in the pharmaceutical sector since 2004.37

Infrastructure ReformsIndia did a spectacular job of reforming its telecommunications sec-tor, airlines, stock markets, and banks. It has so far failed in reformingthe power sector and has had middling success in reforming its ports,airports, and highways. Indian Railways is becoming commerciallyoriented faced with competition from airlines and improved roads.



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What is interesting is that with the exception of the power sectorall the success stories were home grown and evolved in the context of messy democratic politics. The success stories were driven by pro-moting competition for the government-owned incumbents ratherthan by privatizing them. Crises were crucial for making the incum-bents accept competition.

Indias telecommunications revolution driven by GSM cellulartechnology is truly spectacular. India is adding more than 8 millionphones every month and its telecommunications services are amongthe most efficient in the world. India crossed the 300 million linesmark in March 2008 and its tele-density has grown rapidly to over

26 lines per 100 people.38 This remarkable success was achieved due tothe promotion of competition by getting private players to competewith the government-owned incumbents, rather than by privatizinggovernment assets. Indias telecommunications boom, however, wasfar more successful in urban than in rural areas.

The process was quite messy as the Department of Telecommuni-cations, housed within the Ministry of Communications, was averseto private sector competition. It was the Prime Ministers Office and

the Ministry of Finance that made the DOT bend a little. The promo-tion of competition, which was aided by the setting up of the TelecomRegulatory Authority of India in 1997 and its further consolidation(2000), was spurred by financial crises. Every time the rent-seekingbehavior of the DOT brought the private sector to its knees, thePrime Ministers Office moved quickly to improve the regulatoryframework favoring the private sector. During such times the PrimeMinister took over the Communications portfolio. 39

Indias stock markets were reformed via a similar dynamic. Thegovernment realized the need for a well regulated stock market in theaftermath of the balance of payments crisis of 1991. The stock marketwas viewed as an institution for attracting savings that could bediverted towards industrialization. There was an urgent need to curbthe opaque and rent-seeking propensities of Indian brokers thatdemanded computerization and reform of the settlement system. Thebrokers of the Bombay Stock Exchange (BSE) successfully resisted

both till the Ministry of Finance deployed its powers to set up a newNational Stock Exchange (NSE). The brokers had underestimated thepotential of the NSE. The success of the NSE led to reforms in theBSE. However, reforms in the settlement system had to wait till



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the stock market scam of 2001, as this reform was resisted even by theregulator. The health of Indian companies and its stock markets makeIndia a compelling destination for foreign institutional investors. 40

Indias power sector was a dismal failure, despite the governmentsbest efforts. Farmers considered electricity provision a right ratherthan something that needed to be paid for. And, there was rampanttheft of electricity even in the non-farm sector. To give one example,field work in Andhra Pradesh in December 2007 revealed that poorand middle-income farmers were in favor of subsidized quality elec-tricity rather than the poor quality free electricity being provided bythe Congress government of Dr Rajasekhar Reddy. They opined that

free power came at night and the distribution companies did notinvest in transformer replacement for burnt transformers or for insu-lating the wires. The result was that farmers and animals were beingelectrocuted at night. Why then would the Chief Minister make sucha political deal out of free electricity? This could be because richfarmers could hire laborers at night and afford the maintenance coststhat the state-owned distribution companies did not provide forfarmers who did not pay for electricity. The poor and middle-income

farmers also opined that the governments claim of having reducedtheft could be spurious because agricultural consumption had notbeen metered. Andhra Pradesh was reputed to have the best governedpower sector in India at the time when the interviews were conductedin 2007.41

Challenges for DevelopmentIndias robust growth needed to involve more people. Its agriculture

sector has been in decline since the mid-1990s. Its trade union lawsincrease the propensity of Indian industry to remain capital intensive,resulting in unemployment and increased employment in the unorga-nized sector. Manufacturing industry still faces major regulatory bot-tlenecks. Last but not least, human development in areas such asprimary education and health leave a lot to be desired. The result isthat even though there has been a decline in the number of peoplebelow the poverty line, a strategy of inclusive growth would have

achieved poverty alleviation more rapidly.India is faced with its second agrarian crisis. The first one in the

mid-1960s was due largely to the emphasis of the Second and theThird Five-Year plans on heavy capital intensive industrialization and



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the neglect of public investment in agriculture. India corrected thisbias after the late 1960s by giving agriculture its due importance andincreasing investment in agricultural technology, inputs, and prices.The middle-income and rich peasants in Western India produced thegreen revolution and made India self-sufficient in food grains.42

Indias agriculture sector, which houses more than 60 percent of the people, has grown at a rate of 1.65 percent between 1996/97 and2004/05. This is cause for concern as it may produce Indias secondagrarian crisis. Subsidies to the rich and middle-income farmers likefree power, price supports, free water, and free fertilizer have not beenreduced but public investment that uplifts all, has come down. To give

one example, the US$15 billion loan waiver for farmers announced inthe populist Union budget of 2008/09 will not affect the majority of the marginal farmers. Eighty percent of the marginal farmers do nothave access to formal loans. Drought proofing 60 million hectares of arable land with the same amount of money would have producedmore inclusive results.43 Democracies have a propensity to get cap-tured by powerful interest groups, which work to the detriment of larger developmental concerns.

The Industrial Disputes Act protects less than 10 percent of Indiasworkforce in a manner that makes it very difficult to retrench union-ized workers. Any industrial unit employing more than 100 workersneeds to seek the permission of the government before firing aworker. Such permission can be tough to obtain. The result is thatmost of the unionized workers are in the public sector, and privatecompanies try hard to keep workers out of the unions. Industryadjusts to regressive labor laws by subcontracting its commercial

operations to smaller units that escape labor laws and by increasingthe capital intensity of production. Even though some state govern-ments have been favoring employers in recent times aided by favor-able verdicts by the courts, a stable contract between a worker and anemployee that protects the worker in return for his service has yet toevolve. Inclusive growth demands labor intensive production, aidedby rational labor laws.44

India needed to promote a developmental, transparent, and invest-

ment friendly democracy. Industrial regulations in India make it moredifficult to make a success of manufacturing investment in India rela-tive to China, despite the progress made after 1991. Indian firms caninvest in any sector but need state and central government permission



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on a variety of issues ranging from land, labor, environment, electric-ity, water, taxation, and many more. These regulations often become asource of rent-seeking and patronage rather than a speedy and judi-cious clearance of an investment proposal based on its merits. India isnot an easy place to begin business in manufacturing, unless one findsa willing state government taking an initiative to make a success of theinvestment. Second, Indian industry is negatively served by poorports, roads, and airports and is crippled by power cuts. The processof clearing manufacturing investment needs to be made more trans-parent and less cumbersome.45

Indias industrialization is beginning to demand more and more

land. Industrial land acquisition needed to be based on the consent of the local people. Acquisition needed to be preceded by compensationand welfare measures that rendered the acquisition of land for indus-trial purposes a developmental endeavor. Fertile double cropped landneeded to be largely left for cultivation. The current laws give the gov-ernment substantial powers to acquire land. Forced land acquisitionby the government has led to violent unrest in some parts of India.Land acquisition has been successful in areas where developers have

worked with state governments and the local people for gaining con-sent by attempting to uplift their human condition. States like TamilNadu, Andhra Pradesh, Gujarat and Maharashtra have tried tostreamline some of these procedures at the sub-national level. Invest-ment friendly states are able to craft developmental bureaucracies thatwork more effectively for the local people and investors.46

The success of Indian entrepreneurship lay in the fact that it wasable to overcome these bottlenecks and grow. The software sector was

especially lucky because it needed roads, ports, airports, and power toa much lesser extent than Indian manufacturing. It was aidedby Indias success in creating efficient telecommunications, stock mar-kets, and the financial infrastructure.

Interstate inequalities have increased in the post 1991 period. Asthe central governments role in funding the state governmentsbecame less, the states needed to attract private investment for furtheringtheir development. Chief ministers like Chandra Babu Naidu of Andhra

Pradesh became reform icons who tried to improve governance intheir states in order to attract investment. They also successfullypleaded for funds from development banks like the World Bank andthe Asian Development Bank. Well governed states therefore attracted



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more funds while the laggards stayed behind. Figure 3 shows howinterstate inequality has grown since 1991. Heightened inequalities

will make some Indian states look like Singapore while others resem-ble sub-Saharan Africa.47India could not banish illiteracy, unlike many other Asian countries.

Myron Weiner was right to point out that the social elite governing theIndian state tolerated child labor, which served factories and householdsat the cost of depriving millions of children of a decent living. Literacyimproved in areas where the state and social actors worked together.The success in Kerala, Goa, and Mizoram owed it substantially to the

work of Christian missionaries.48

The recent success in Rajasthan bene-fited from the remarkable efforts of non-governmental organizationslike Sewa Mandir and the Social Work Research Centre. In AndhraPradesh, the MV Foundation has done commendable work in mobiliz-ing villagers and improving the condition of state-run schools. 49 Indiasliteracy rate at 61 percent according to the 2001 census is an improve-ment on the past but is still much lower than Chinas 91 percent. 50

Indias public health record presents a dismal picture during the

reform period. The infant mortality rate declined by 30 percent in the1980s but the same declined by only 12.5 percent in the 1990s. Indias(80/1000) infant mortality rate was lower than Bangladeshs (91/1000)in the 1990. In 1999, Indias infant mortality rate (71/1000) had

FIGURE 3TREND IN INTER-STATE INEQUALITY GINI COEFFICIENT

Source: Montek S. Ahluwalia, State-Level Performance under Economic Reforms in India, inAnne O. Krueger, ed., Economic Policy Reforms and the Indian Economy (New Delhi: OxfordUniversity Press, 2002), pp. 91121.



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overtaken Bangladeshs (61/1000).51 The latest Human DevelopmentReport shows that infant mortality of the poorest 20 percent in Indiais higher than countries like Bangladesh and Pakistan but the same forthe richest 20 percent of the population is much lower than thesecountries.52

Deaton and Dreze point out that the number of Indians livingat less than a dollar a day has come down, even though there is a sub-stantial debate about the extent of decline in the poverty rate. Accord-ing to one widely quoted estimate, between 1993/94 and 1999/2000 thenumber of Indians living at less than a dollar a day came down from36 percent to 26 percent.53 This means that India has about 270 million

absolutely poor people when the figure for China is about 110 million.Indias growth has produced more development for the rich and the

middle class than the poorest sections of society. Inequality levels inIndia measured by the Gini coefficient are lower than China, the US,Singapore, and Latin America but higher than Pakistan, Bangladesh,and Europe. 54 Indias growth has increased economic inequality, a factthat will be difficult to sustain within a democratic polity. It remainsto be seen whether India will go the way of Europe or the United

States in this respect.

In SumThe trajectory of economic policies favoring Indias growth was pathdependent. From 1947 to 1975 the policy consensus favored animportant role of the state within a relatively closed economy. Privateenterprise survived during this period but Indias trade declined.Changes in the policy consensus favoring economic deregulation

began to appear in the mid-1970s, which prepared the ground for thetectonic policy shifts beyond 1991. Path dependence ensured that newpolicy ideas building upon the lessons of the past took quite sometime to get embedded within politics and result in policy outcomes.This is a story of how powerful social actors who derive benefits froma certain set of policies oppose a change in the social equilibrium. Eco-nomic change is perhaps more difficult but more stable in India thanin China because it depends to a greater extent on the gradual evolu-

tion of a social and political consensus favoring the change.55The Indian state needed financial crises and technocratic convic-

tion to move policies in a substantially new direction. This was trueof the green revolution, and changes in trade, infrastructure, and



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industrial policies. Technocratic conviction was important. Indiapursued agriculture reforms after 1966, when faced with a balance of payments crisis at the time of a severe drought. India did not pursuereforms in industry and trade at that time because the political andtechnocratic conviction was in favor of import substitution. Acquies-cence to US advice in agriculture but not in industrial and trade poli-cies reflected the internal policy consensus in 1966. In 1991, on theother hand, economic research and the gradual implementation of growth oriented policy change during the 1980s, coupled with the riseof China and Southeast Asia and the decline of the Soviet system, con-vinced the policy elite that they too could become a part of the Asian

growth story by implementing substantial reforms in trade, industry,and infrastructure.

Financial crises were critical for the major policy shifts in India.They aided the convinced technocracy and the executive to overcomepolitical opposition to policy change. It became clear to the policyelite that the promotion of Indian agriculture and the private sectorwas critical in the context of hard budget constraints in 1966 and in1991, respectively. The financial crises of 1966 and 1991 are critical for

explaining Indias green revolution in the early 1970s and its tryst withglobalization in the 1990s.

Private sector promotion after 1991 succeeded by allowing privatecorporations to compete with Indias public sector companies ratherthan by privatizing the government-owned firms. Indian entrepre-neurship was quick to seize the private sector advantage. The govern-ment sector has adjusted to private sector competition in areas liketelecommunications and airlines, which had earlier been reserved for

the public sector.The major challenge for Indias development is inclusive growth.

Growth has unambiguously reduced poverty and improved thehuman condition in India. But the gains of the middle and richerclasses have been greater than those that went to the poorer sections of society. This is evident from the fact that reforms in areas such as tele-communications, banks, stock markets, airlines, trade and industrialpolicy have not been matched by agricultural and human develop-

ment. Indias industrialization continues to be capital and knowledgeintensive at a time when over 250 million people survive on less than adollar a day. If India grows in this way it will take a longer time toeradicate poverty, illiteracy, and malnutrition. Moreover, slow progress



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in human development in areas such as education and health will makeit tougher for India to grow in the long run.

Indias high growth trajectory, which is essential for development,has become reasonably stable. The debate is not about whether Indiawill grow at 6 percent or at 4 percent per annum. The debate is whetherIndia will grow at 10 percent or 8 percent or 6 percent. This is a sub-stantial achievement. It has been achieved in the context of democraticpolitics where changes in policy orientation have been slow because it isdifficult to produce new winners in the economy by not causing injuryto some social groups or classes. Rich farmers, unions, industrialists anda substantial section of government officials all favored the status quo

that supported a protected economy and the public sector. This coali-tion is gradually beginning to favor growth and competition as themiddle class learns that the competition game is a rewarding one.56

The challenge for Indias growth and development is to get a largerproportion of the Indian people into its middle class, which is wellserved by markets and competition. This enterprise demands an activerole of the Indian state and will demand support from its society.

NOTES

I Would like to thank Sunila Kale, Sumit Ganguly, and Bibek Debroy for comments.The errors, as usual, rest with the author.

1. For seminal work on state autonomy and state-led export oriented growth see, RobertWade, Governing the Market (Princeton, NJ: Princeton University Press, 1990); AliceAmsden, The State and Taiwans Economic Development, in Peter Evans, DietrichRueschmeyer, and Theda Skocpol, eds., Bringing the State Back In (New York:Cambridge University Press, 1985); Stephan Haggard, Pathways from the Periphery(Ithaca, NY: Cornell University Press, 1990); and Peter Evans, Embedded Autonomy

(Princeton, NJ: Princeton University Press, 1995).2. See H. Venkatsubbiah, Enterprise and Economic Change: 50 Years of FICCI (New Delhi:Vikas Publishing House, 1977), pp. 16972.

3. G. D. Birla was among the two leading industrialists in India at the time of independence,and one who had played an important role in connecting Indian business with theIndian national movement. G. D. Birlas relationship with different prime ministers is aconvenient way of evaluating the relationship between the state and business class inIndia.

4. Sardar means leader in Hindi and Vallabhbhai Patel was affectionately called Sardar Patel.5. On the relationship between Sardar Patel and G. D. Birla see Medha M. Kudaisya, The

Life and Times of G. D. Birla (New Delhi: Oxford University Press, 2003), chapter 11.6. On the stateprivate sector compromise that lasted till 1955 see Kudaisya, The Life and

Times of G. D. Birla, pp. 30413; Vivek Chibber, Locked in Place (Princeton, NJ: PrincetonUniversity Press, 2003), chapter 6.

7. On the rise of Nehru, the Planning Commission, and the state-driven regulatory frame-work of the time see Francine R. Frankel, Indias Political Economy (New Delhi:Oxford University Press, 2005), chapter 4; I. G. Patel, Glimpses of Indian Economic



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Policy (New Delhi: Oxford University Press, 2003), chapter 2; A. H. Hanson, TheProcess of Planning (London: Oxford University Press, 1966), chapter 4.

8. On Nehrus acceptance of the role of the private sector see, Kudaisya, Life and Times of G. D. Birla, pp. 31617 and chapter 14; Dwijendra Tripathi and Jyoti Jumani, The Concise

Oxford History of Indian Business (New Delhi: Oxford University Press, 2007), chapter 12.9. On the Shastri years, see Medha M. Kudaisya, Reforms by Stealth, South Asia Vol. 25,No. 2 (2002), pp. 20529; and Patel,Glimpses of Indian Economic Policy, chapter 4.

10. On accounts of Indira Gandhis image of being a quiet and shy person in 1966 whocould not share the news about devaluation with the Congress top brass see Frankel,Indias Political Economy, pp. 28892; David B. H. Denoon, Devaluation Under Pres-sure (Cambridge, MA: MIT Press, 1986), pp. 479; K. Sundaram, Political Response tothe 1966 Devaluation-2, Economic and Political Weekly, September 19, 1972, p. 1883.

11. On the financial crisis, the lack of alternative food supplies and Indias dependence onthe US, see Vijay Joshi and I. M. D. Little, India (New Delhi: Oxford University Press,1994), pp. 734; Frankel, Indias Political Economy, p. 286; Robert L. Paarlberg, Food Trade and Foreign Policy (Ithaca, NY: Cornell University Press, 1985), pp. 1589; and, James W. Bjorkman, Public Law 480 and the Policies of Self Help and Short Tether, inLloyd I. Rudolph and Susanne H. Rudolph, eds., The Regional Imperative (AtlanticHighlands, NJ: Humanities Press, 1980), pp. 2323.

12. On the political and ideological opposition to devaluation see Rahul Mukherji, IndiasAborted Liberalization 1966, Pacific Affairs Vol. 73, No. 3 (Fall 2000), pp. 38292.

13. On the impact of economic regulation during this period on the Tata group of industriessee, Tripathi and Jumani, The Concise Oxford History of Indian Business, pp. 1845. G.D. Birla could establish a relationship with Nehru but not with Indira Gandhi. SeeKudaisya, The Life and Times of G. D. Birla , chapter 16.

14. On the exit of multinational corporations see Tripathi and Jumani, The Concise Oxford History of Indian Business, pp. 199200.

15. For a detailed account of economic regulation under Indira Gandhi from the late 1970sand its political fallout see Frankel, Indias Political Economy, chapter 1013.

16. On the New Economic Programme 1975/76 and other liberalization measures see,Baldev R. Nayar, When Did the Hindu Rate of Growth End?, Economic and Political Weekly, May 13, 2006, p. 1886; Baldev R. Nayar,Indias Globalization (Washington:EastWest Centre Policy Studies Number 22, 2006), pp. 1013; Siddhartha Mukerji,State and Industrial Transformation in India, Unpublished M.Phil. Dissertation(New Delhi: Jawaharlal Nehru University, 2007), pp. 4953, Atul Kohli, Politics of Economic Growth in India, Economic and Political Weekly, April 1, 2006, pp. 12548.

17. The influential government reports included Vadilal Dagli (Chair), Report of theCommittee on Controls and Subsidies (New Delhi: Ministry of Finance, 1979); AbidHussain (Chair), Report of the Committee on Trade Policy (New Delhi: Ministry of

Commerce, 1984); Sukhamoy Chakravarty (Chair), Report of the Committee to Reviewthe Working of the Monetary System (New Delhi, Reserve Bank of India, 1985);M. Narasimhan (Chair), Report of the Committee to Examine Principles of a PossibleShift Physical to Financial Controls (New Delhi: Ministry of Finance, 1985). On thegeneral policy consensus emanating from these reports see P. N. Dhar, The IndianEconomy, in Robert E. B. Lucas and Gustave F. Papanek, eds., The Indian Economy(New Delhi: Oxford University Press, 1988), pp. 1314.

18. On the evolution of the Department of Electronics see Vibha Pngle, Rethinking theDevelopmental State (New Delhi: Oxford University Press, 2000), pp. 12738.

19. Indira Gandhi, Selected Speeches and Writings Volume 4, 1980/81 (New Delhi: Publi-cations Division of the Ministry of Information and Broadcasting, 1985), p. 236.

20. The Monopolies and Restrictive Trade Practices Act of 1969 had imposed variousrestrictions on large Indian companies, one of which was the need for permission toexpand capacity. Businesses generally opposed these restrictions and argued forgreater flexibility. However, when faced with the prospect of competition from a mul-tinational like Suzuki Motors, the Indian industry wished to hide behind productionquotas.



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21. On political opposition to Rajiv Gandhis reforms see Atul Kohli, Democracy and Discontent (New York: Cambridge University Press, 1991), pp. 31538.

22. See Stanley Kochanek, Liberalization and Business Lobbying in India, in RahulMukherji, ed., Indias Economic Transition (New Delhi: Oxford University Press,

2007), pp. 41719.23. Nayar, When Did the Hindu Rate of Growth End?, pp. 188788; Rajiv Kumar andAbhijit S. Gupta, Towards a Competitive manufacturing Sector, Working Paper Number 203 (New Delhi: Indian Council for Research on International EconomicRelations, 2008), p. 4.

24. Corporatization was a process by which the government created companies owned byit, which were to be run like a private company, free from political interference.

25. On progress made in the telecommunications sector during the Rajiv Gandhi era seeRahul Mukherji, Managing Competition, in Rahul Mukherji, ed., Indias Economic Transition (New Delhi: Oxford University Press, 2007), pp. 3024.

26. On the transformation of the Association of Indian Engineering Industry into theConfederation of Indian industry see Aseema Sinha, Understanding the Rise andTransformation of Business Collective Action in India, Business and Politics Vol. 7,No. 2 (2005), pp. 127; Kochanek, Liberalization and Business Lobbying in India, inMukherji, ed., Indias Economic Transition, pp. 4247; Jorgen D. Pederson, ExplainingEconomic Liberalization in India, World Development Vol. 28, No. 2 (2000), pp. 26871.

27. On the rise of Indias software sector during this period see, Vibha Pingle, Rethinking theDevelopment State: Indias Industry in Comparative Perspective (New Delhi: Oxford Uni-versity Press, 1999), pp. 13244; Devesh Kapur, The Causes and Consequences of IndiasIT Boom, India Review Vol. 1, No. 2 (2002), pp. 93102; AnnaLee Saxenian, Bangalore:The Silicon Valley of Asia, in Mukherji, ed., Indias Economic Transition, pp. 3624.

28. This view is based on interviews with Montek Ahluwalia, Shankar Acharya, RakeshMohan and Vijay Kelkar in DecemberJanuary 200506 in New Delhi and Mumbai.This research is documented in government documents such as the Union Budgets, andreports of the Bureau of Industrial Costs and Prices. See also Vanita Shastri, The PoliticalEconomy of Policy Reform in India, Unpublished PhD Dissertation (Ithaca, NY:Cornell University, 1995), pp. 22326.

29. For details about this story of 1991 see Rahul Mukherji, Economic Transition in aPlural Polity, in Mukherji, ed., Indias Economic Transition, pp. 11735; and, Joshi andLittle, India. , chapter 7.

30. See Baldev Raj Nayar, The Limits of Economic Nationalism in India: EconomicReforms under the BJP-led Government, in Mukherji, ed., Indias Economic Transi-tion, pp. 20227.

31. On the impact of liberalization on Indias trade with Sri Lanka see Saman Kelegama,The Indo-Sri Lanka Trade and Bilateral Free Trade Agreement, Asia Pacific Develop-

ment Journal Vol. 6, No. 2 (1999), pp. 95103.32. On tariff liberalization see, Suresh D. Tendulkar and T. A. Bhavani, UnderstandingReforms (New Delhi: Oxford University Press, 2007), pp. 11625.

33. On Indias preferential trade agreements see Vinod Aggarwal and Rahul Mukherji,Indias Shifting Trade Policy: South Asia and Beyond, in Vinod K. Aggarwal and MinGyo Koo, eds., Asias New Institutional Architecture (Heidelberg: Springer-Verlag,2008), pp. 23553.

34. Suresh D. Tendulkar and T. A. Bhavani, Understanding Reforms (New Delhi: OxfordUniversity Press, 2007), pp. 10616.

35. Rahul Mukherji, Promoting Foreign Investment in Indias TelecommunicationsSector, Journal of Development Studies Vol. 44, No. 10 (2008), pp. 142545.

36. Two examples would include the Nano car and Airtels telecommunications services.See Pete Engardio, CHINDIA: How China and India are Revolutionizing Global Business (New York: McGraw Hill, 2007), chapter 4.

37. The internationalization of the Tatas see, Andrea Goldstein, The Internationalizationof Indian Companies, CASI Working Paper Number 08-02 (Philadelphia: Universityof Pennsylvania, January 2008), pp. 812, 1825.



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38. These figures are for April 2008 taken from the website of the Telecom RegulatoryAuthority of India, http://www.trai.gov.in/Default.asp.

39. On the telecommunications revolution in India see, Rahul Mukherji, Promoting Compe-tition in Indias Telecom Sector, in Vikram Chand, ed., Reinventing Public Service Deliv-

ery in India (Washington, DC and New Delhi: World Bank and Sage, 2006), pp. 5890.40. On stock market reform see John Echeverri-Gent, Politics of Market Micro-Structure, in Rahul Mukherji, ed., Indias Economic Transition (New Delhi: OxfordUniversity Press, 2007), pp. 32858.

41. On Indias power sector reforms see, Rahul Tongia, The Political Economy of IndianPower Sector Reforms, in David G. Victor and Thomas C. Heller, eds., The Political Economy of Power Sector Reform (Cambridge: Cambridge University Press, 2007),pp. 10974; Navroz Dubash and Sudhir C. Rajan, Power Politics, Economic and Political Weekly, September 1 2001, pp. 336790; Mukherji, Managing Competition,pp. 31323. Andhra Pradesh has consistently been ranked among the top three states forpower sector governance by the credit rating agency Credit Rating Information Servicesof India Limited because of its efficient state-owned generating companies, and successin reducing transmission and distribution losses. See B. Saranga Pani, N. Sreekumar andM. Thimma Reddy, Power Sector Reforms in Andhra Pradesh, Governance and PolicyWorking Paper 11 (Hyderabad: Centre for Economic and Social Studies, 2007), p. 11;Tongia, The Political Economy of Indian Power Sector Reform, pp. 1478.

42. On the genesis of Indias green revolution see, Ashutosh Varshney, Democracy, Devel-opment and the Countryside (New York: Cambridge University Press, 1998), chapter 3;Frankel, Indias Political Economy, pp. 26892.

43. On the plight of Indian agriculture see, Ramesh Chand, S. S. Raju and L. M. Pandey,Growth Crisis in Indian Agriculture, Economic and Political Weekly, June 30, 2007,pp. 252833. On the loan guarantee scheme see Vijay Mahajan, Farmers Loan WiaverEndangers Financial Inclusion, in India in Transition (Philadelphia: Centre for theAdvanced Study of India University of Pennsylvania, March 24, 2008).

44. On Indias trade unions see, Supriya Roy Chowdhury, Public Sector Restructuringand Democracy, in Mukherji, ed., Indias Economic Transition, pp. 388408; andTendulkar and Bhavani, Understanding Reforms , pp. 13848.

45. On problems facing the manufacturing sector in India see, Forbes, Doing Business inIndia.

46. On land acquisition see Rahul Mukherji, Special Economic Zones in India, Instituteof South Asian Studies Working Paper 30 (Singapore: Institute of South Asian Studies, January 8, 2008), pp. 410.

47. On inter-state inequality see, Lloyd I. Rudolph and Susanne H. Rudolph, Iconizationand Chandra Babu, in Mukherji, ed., Indias Economic Transition, pp. 23150; andMontek S. Ahluwalia, State-Level Performance under Economic Reforms in India, in

Anne O. Krueger, ed., Economic Policy Reforms and the Indian Economy (New Delhi:Oxford University Press, 2002), pp. 91121.48. Myron Weiner, The Child and the State in India (Princeton, NJ: Princeton University

Press, 1991).49. On successful social action supplementing the efforts of the state see, Prema Clarke and

Jyotsna Jha, Rajasthans Experience in Improving Service Delivery in Education, inChand, ed., Reinventing Service Delivery in India , pp. 22559. My knowledge about theMV Foundation is based on fieldwork with MA methodology students of the Centre forPolitical Studies, Jawaharlal Nehru University in March 2005. We collected systematicquantitative and qualitative data from eight villages in the Ranga Regddy and Nalgondadistricts of Andhra Pradesh.

50. United Nations Development Programme, Human Development Report 20078: FightingClimate Change (New York: UNDP, 2007), pp. 23031.

51. Angus Deaton and Jean Dreze, Poverty and Inequality in India, in Baldev R. Nayar,ed., Globalization and Politics in India (New Delhi: Oxford University Press, 2007),pp. 40849.

52. Human Development Report 20078, p. 255.



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53. Angus Deaton and Jean Dreze, Poverty and Inequality in India, in Nayar, ed.,Globalization and Politics in India , pp. 45054.

54. This comparative picture emerges from the UNDPs inequality map available on theweb. See http://en.wikipedia.org.

55. There are similarities and differences between this story of Indias political economy andthe one presented by Pranab Bardhan in Indias Political Economy (New York: BasilBlackwell, 1984). While both acknowledge the power of social groups and the biastowards the status quo, my story spells out the logic for change in favor of growth anddevelopment.

56. This could be the way India will overcome the status quo bias in favor of low levels of growth and development so aptly described in Bardhan, Indias Political Economy.


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