Reform, Globalisation and the Growth Slowdown in India: A Political Economy View

The aim of the paper is to explore how institutional evolution of the economy In India has been both intentional (as the result of the 1992/93 policy reform) and unintentional and the ways in which it has shaped post-reform growth. Unintentional evolution explains the current political economy impasse and in part the growth slowdown as well. The combination of the slowdown and the political economy impasse suggests that unintentional evolution carries the potential of shaping future growth trajectories

The paper argues that the broad-based nature of the Indian freedom struggle in which peasants, adivasis (indigenous tribes), workers and elites participated meant that the Indian Constitution has both radical and conservative elements which have shaped the institutional evolution of the economy and the polity. It the result of these contradictory pulls that at the time of independence India’s elite chose to pursue democracy, economic growth and social justice simultaneously rather than privilege any one particular goal.  Given India’s experience of globalisation during the period of British colonial rule, to achieve the goals of economic growth and social justice India chose a public-investment (and public-sector) driven and autarkic development path within the context of a parliamentary democracy with universal suffrage. The participation of the peasantry in India’s freedom struggle meant that political considerations ensured that by and large they were not dispossessed. The politically more marginal adivasis faced continuing dispossession.

Therefore, in 1991 as a result of one of her periodic balance-of-payments crises, led to the Washington Consensus inspired structural adjustment model that completely inverted the growth paradigm by pursuing a strategy of liberalization and globalization. This new strategy underpinned by globalization and driven by high rates of private corporate investment has improved the growth performance of the economy, the current slowdown notwithstanding.  The new strategy also saw the Indian state, for the first time directly aid private accumulation by acquiring land for the private sector, entailing massive dispossession of the peasantry alongside that of adivasis and their subsequent resistance. Yet the slowdown reflects the unravelling of the post-reform growth model and its political economy underpinning, reflected in the inability to sustain the high rates of investment growth.

In addition, some of the institutional evolution of the Indian economy has been in directions unanticipated by the framers of the 1992/93 policy reforms. Three particular unanticipated institutional outcomes are worth noting: the Forest Rights Act which accorded use-rights to adivasis over forest produce; the new Land acquisition Act which diminished the ability of the state to acquire land to aid private accumulation; and finally the renaissance of the India’s public sector, particularly in manufacturing. Each of these has been forced on the economic agenda by movements from below and constrains the bourgeoisie's current accumulation model. In addition, these three elements carry the potential of playing an important role in determining a new accumulation model.

Keywords: india; growth-strategy; intended and unintended outcomes; post-reform-growth; growth slowdown; political economy; dispossession