Indian Polity and Economy | Indian National Congress | Agriculture

DRAFT

India’s Economic Development Strategy and Economic Reforms:
A Political Economy Perspective
1


T.N. Srinivasan
Yale University, Stanford Center for International Development, Stanford University

Jessica Wallack, Director
Centre for Development Finance, Institute for Financial Management and Research,
Chennai, India

I. Introduction

India became a dominion independent from British Colonial Rule on August 15,
1947, continuing on as a member of the Commonwealth. It formally became a Federal
Republic after adopting a constitution on January 26, 1950 that wove together the
territories defined by British administrative divisions, princely states, and other existing
regional identities. In keeping with the dominant economic thought at the time, the
founding leaders embarked on a strategy of state-led industrialization and a Planning
Commission to engineer this process was set up in March of the same year. It has since
formulated and implemented ten Five Year and Annual Development Plans and the
eleventh is under implementation.
The evolution of the policy formulation and implementation since then has often
been described as “gradual” or denigrated as “stuck” in terms of pace and “broken” or
“ineffective” in terms of achieving the outcomes that policymakers ostensibly intended.
On average, these may be reasonable characterizations. India’s efforts to direct
development through an extensive and elaborate set of controls and fiscal incentives
did last years longer than many of its counterparts’ similar experiments – the country’s
basic development strategy remained essentially unchanged until the mid-1980s
although the relative emphasis on different sectors of the economy such as agriculture,
industry, foreign trade and finance was modified periodically in response to various

1
We thank Revati Dhoble for excellent research assistance.

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economic and political shocks. In the mid-1980s a series of hesitant and piecemeal
reforms of some of the elements of the basic development strategy, mostly in the form
of changes in the policy instruments used in implementing the Five Year Plans were
introduced. A systemic policy reform agenda covering interrelated sectors was initiated
in 1991, but the implementation of the agenda remains incomplete as of 2009. Reforms
restructuring the state to serve in a supporting role for markets and social development
(arguably the dominant view of the role of the state for the last decade or so) and not in
substituting or supplanting the markets is yet to be initiated..
This “on average” view, however, is much too simplistic and obscures a more
complex and varied dynamic process shaped by the interactions of citizens,
policymakers, and bureaucrats in an evolving institutional and economic context. It fails
to explain the variation in the pace and scope of change over time and across policy
areas and states.
The change in economic policy following the 1991 macroeconomic crisis, for
example, was a crucial turning point in economic policy history. After more than three
decades of planning and state intervention, India switched tactics from fiscal prudence
toward fiscal expansionism financed by borrowing at home and abroad and gradual
liberalization as a means to accelerate growth in the mid 1980s. Growth accelerated,
but at the end of the decade fiscal deficits and external debt from high cost, short-term
commercial sources had grown enormously threatening the sustainability of the entire
deficit-debt expansion process. The outbreak of the first Gulf War meant a spurt in
imported oil prices, fall in remittances from Indian workers in the Gulf States (as well as
the cost of their repatriation), as well as a fall in other export earnings, which put such a
severe pressure on balance of payments that gold and foreign exchange reserves had
fallen to ten day’s worth of imports by early 1991. Faced with the prospect of default on
its external debt, India was forced to approach the IMF in January 1991 for an
emergency loan of $1.8 billion. This did not prevent a further fall in reserves which
forced India to go back to the IMF and also the World Bank. As is to be expected, the
Bank and Fund insisted on India’s commitment to a reform programme of liberalization
that included devaluation of the Rupee as a condition for their assistance. India
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accepted, and the 1990s are widely seen as the “reform decade” that unleashed today’s
relatively rapid growth.
2

But why did these changes not take place before 1991? The 1991 crisis echoed
a similar event twenty-five years earlier in 1966: faced with an adverse balance of
payments crisis India had to approach the Bank and the Fund which insisted on similar
conditions on reforms. With no other options, the then government of Prime Minister
Mrs. Indira Gandhi accepted the conditions and devalued the rupee and liberalized the
economy only to abandon the liberalization within two years and not only return to pre-
crisis controls but intensify them. The justification was that the World Bank had reneged
on its promised non-project assistance of nearly $700 million to ease the adjustment to
liberalization, but this can only partly explain the difference between the two periods,
which has much to do with internal political circumstances and their interaction with
external events.
And why did other less dramatic opportunities for significant and transformative
change ultimately lead to little developmental impact? The introduction of high yield
variety seeds and accompanying agricultural techniques in the wake of two successive
droughts and the U.S.’s delay in exports of food to India under PL 480 in an attempt to
soften India’s opposition the Vietnam war, for example, raised the output of cereals. But
why did the introduction of new technology did not unleash transformation of the
agricultural sector as a whole?
There is no denying that changes in the organization of agricultural production
following the introduction of the Green Revolution Technology (GRT) in the late sixties
did not result in a major transformation of agriculture as a whole, let alone induce
changes in other sectors of the economy through forward and backward linkages. The
historical example of how improvements in agricultural technology in Great Britain and
the rise in labour productivity preceded the industrial revolution and later led to the shift
of labour from agriculture and rural areas to higher productivity employment in industry
had no Indian counterpart after the green revolution. There was no shift in the trend rate
of growth of agricultural output as a whole in India and the incentives for the adoption of
GRT in the form of subsidies of various kinds, prior interventions, and also for

2
(add cites on timing debate)
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investment in irrigation (public and private) became entrenched and expanded even
after the GRT had been successfully adopted. There are, of course, many non-PE
reasons for this. First, that the GRT was primarily of cereal production under conditions
of assured water supply and the copious use of chemical fertilizers and pesticides which
limited its applicability to particular crops and geographical areas and as such it shifted
the resources of land and water to the cultivation of High Yielding Varieties of Rice and
Wheat and raised their rate of growth but not that of agriculture as a whole. Second,
following from the first that with only a modest rise in overall labour productivity in
agriculture as a whole there was no large surplus of labour from agriculture for use in
employment of higher productivity elsewhere in the economy. Besides the heavy
distortions such as land market and in the creation of labour-intensive manufacturing
employment contributed to the observed outcomes in India. But why did these
distortions persist?
Finally, why does transformation in some areas of policy and some areas of the
country move faster than others? For example, in infrastructure liberalization,
telecommunications access and service has changed far more than has electricity or
transport infrastructure. Both telecommunications and electricity policy have undergone
significant change through comprehensive new legislation as well as formation of new
regulators and evolution of regulatory practice. Yet, in terms of changes in outcomes
and social/economic impact, these are quite different. Even within transport, outcomes
(and pace of policy change) have also varied substantially: national highways have
progressed faster than rural roads, for example, and the structure of the civil aviation
industry and the public incumbent have evolved more than rail transport and Indian
Railways. What explains this variation? The spatial variation in policy strategy is also
interesting – all states in principle operate in a common federal framework (tempered by
political circumstance, of course), but these have chosen quite different tactics for
governance. Regional variation in civil society – social movements, caste and religious
composition, economic differences can explain only a part of the variation.
This paper and the larger project it is part of seek to explain these and other
aspects of Indian post-independence economic policymaking by taking a closer look at
the punctuated equilibria that have been blurred into a quick characterization as
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“gradual,” or, for pessimists “intractable.” In particular, we try to understand how shocks
and ideas propogate through the complex web of formal and informal institutions that
exist in the backdrop of history.
We are hardly alone in this endeavor. Much of the literature on the political
economy of India, as well as the public debate about reforms (or lack thereof) has
focused on three sets of explanations: interest groups, individuals reformer-heroes, and
exogenous shocks provoked by crises. Institutions and institutional processes have
been relatively neglected.
3

One part of the interest group literature presumes that policy in a democratic
polity such as India’s responds roughly to the numbers and explains outcomes in terms
of the interests of broad categories of society: landowners, the poor, the rural, various
caste blocks, among other ways of dividing up the population into groups relevant for
any particular electoral arena. Another part focuses on the elite interests and their
influence – often seen as antithetical to the “common man.” Some see the state and
institutions as no more than the reflection of these underlying divisions, others, in the
developmental states tradition see it as an independent entity with some agency that
operates more or less effectively (generally less) to achieve development in an interest
group – laden context.
The social science version of the “heroes” literature focuses its attention on the
changing ideology of the technocratic elite, while the popular and pundit version lauds
the individuals who have shepherded particular policies through the institutional maze.
The Indian view of “reform heroes” is telling: in contrast to the Latin American view of a
reform leader as one who can effectively communicate with voters to secure social
agreement about possibly radical policy reforms that may impose adjustment costs, but
sure to deliver improvements, Indian reform heroes are typically individuals who try to
work, rather than reform the system to deliver improvements. [Harberger] India’s
“heroes” also often start with more reputation than experience – either no experience in
politics before being thrust into leadership in a dynastic succession, or riding into politics
on the basis of their reputation or popularity and success in a career elsewhere
(cinema, industry,etc).

3
Kapur and Mehta (2006) is a recent exception.
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The crisis/shock view of the introduction reforms tends to focus on their being the
response (often the only feasible response) to the impact of a few sets of major shocks:
the collapse of Russian planning, the shift in Chinese strategy, and the macroeconomic
crisis of 1991 and its fallout. The state of the domestic political system and
circumstances that mediated the policy response to these shocks is often overlooked.
Unfortunately, these categories of explanations for these changes are not
particularly appealing normatively or satisfying as a complete positive political
explanation. The influence of any particular social group depends on the institutional
access that they have as well as the (institutional) rules of the negotiations between
their representatives. Relying on skilled strategic leaders and/or ‘political will’ (whatever,
if anything, the phrase means) implies that reforms are simply a matter of luck unless
there is some way to systematically ensure that skilled, willing leaders come to power.
The effect of a shock on a political system depends on the nature of the system and the
circumstances at the time of the shock. There are also internal contradictions within the
explanations: some note that changes happen because of interest groups or pressures
from the dominant among the masses, the other implies that they happen in spite of
interest groups or response to mass appeals. Finally, these lines of thought are also
limited as positive explanations for change because they offer few pointers on how to
change the institutional circumstances that shape reform possibilities.
Our eventual goal is to characterize a dynamic “policy production” system in
which economic policy outcomes are endogenous emerging from the interaction of
individuals, groups of individuals [economic, political (e.g.parties, lobbies etc), social
(e.g.caste, religion, region) ], and institutions including regimes in power at the centre
and states in a dynamic context. Our paper is similar to Osmani (2008) in its focus on
policies and institutions that could explain the step-up in South Asian growth after
independence over its colonial era record and more specifically the distinction between
pre- and post-globalization periods. Neither paper provides a formal model of causation,
but ours reaches further back in history to trace the policies and institutions (and their
dynamics) to their historical antecedents and socioeconomic-political foundations.

A Roadmap
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The following section provides an essentially chronological account of economic
performance (primarily of India as a whole and in terms of broad aggregates and in
comparison with China where appropriate), political regimes, and important and
consequential economic policy initiatives with the associated legislation inclusive of
important amendments to the constitution as well as of judicial initiatives and
pronouncements. This chronology is a-theoretical; it is not organized to test any
particular hypothesis or illustrate any narrative. We included it to remind the reader a
sense of the longer-term evolution in economic policy and political circumstance that we
intend to in some way understand. While contemporary policy challenges and perceived
political failures have captured the popular conversation about “political economy,” the
issues surrounding the political economy of the transition from public to private
economic activity and provision of infrastructure and services as well as the political
economy of ensuring that this infrastructure and services improve rapidly are particular
to the post 1990s. Similarly, the current context of coalition government dominates
discussions of politics and political economy, but is relatively unusual in post-
independence history. Appendix 1 lists a series of key pieces of legislation.
The remaining sections attempt to sketch out key aspects of the Indian context
that should be “in the model,” as part of a systematic characterization of Indian political
economy and its dynamics. Section 3 is devoted to setting India’s post-independence
economic, political and social developments in their historical contexts or antecedents,
not from the grand perspective of a civilizational history of five millennia, but primarily in
the history of the colonial era starting from 1858 when the British Crown assumed direct
rule until independence. We argue that this history and its denouement in the partition
of undivided India into post-independence India and Pakistan cast a long shadow on
post-independence economic and political developments and we outline the contours of
this shadow.
Section 4 is a highly incomplete preview of the heart of our project. It lays out a
metaphor and some building blocks for our synthesis as a first step toward synthesizing
the snapshots into a more coherent view of the dynamic process of Indian policymaking
in the institutional context of the 1950 Federal Constitution. It is an analytical exploration
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of the extant literature that will be a foundation for a new project on Indian political
economic history.
Section 5 concludes the paper.

II. Economics, Politics, and Policy After Independence

We begin with quantitative indicators of economic performance. Tables 2.1-2.6 show
that there was indeed an acceleration in growth in the periods following 1980 and the growth
rate peaked in 2007-08 and had begun to slow down just prior to the onset of global financial
crisis and recession (Table 1). The poverty ratio fluctuated around 50 percent of the population
or higher prior to 1980 when growth acceleration began and thereafter began to decline and
reached 27.5 percent in 2004-05 (Table 2). China’s growth and poverty performance shows a
similar trend but at a considerably faster rate (Table 3). Both India and China have financed
their growing investment from domestic savings with little reliance on foreign capital, again with
China saving and investing much higher proportion of GDP than India (Table 4). The structure
of India’s output shows that the share of manufacturing is not only low but has been stagnating
for a decade or more. (Table 5) Table 6 India’s share of world merchandise exports, after
declining steadily to a low of 0.5 percent in mid eighties has slowly risen to 1.1 percent in 2007,
whereas China’s share has risen faster and to much higher levels.
In the periodization in our chronology of economic performance above we tried to be as
factual as possible without imposing or implying any specific causal connection with political
economy. Of course, any periodization of history is ultimately arbitrary. A purely chronological
account, besides being boring could ignore leads and lags in events as well as the complex
interactions among them. Purely regime-based histories of successive dynasties and empires
(or successive presidencies or prime ministerships) though more interesting to read if they
include details of palace intrigues and idiosyncrasies of rulers, more often than not are not
sufficiently analytical. In what follows, we try to be eclectic in order to highlight distinct periods
of relative policy continuity along with the processes and exogenous events that were involved
in the transitions between these periods.
We will be chronological by dividing the time span of the era of planning from the
initiation of the first five-year plan in 1950-51 to 2009-10, half-way through the Eleventh Five
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Year Plan (2007-2012) currently under implementation into sub-periods. In our accounts of
political developments, however, we will be hewing closer to a regime-based chronology.
Fortunately, for us there is a substantial overlap between the resulting chronology of the two
accounts.
We segment the economic history into three periods. The first is the highly
interventionist period from 1950-51 to the mid-1980s in which the policies of state control,
insulation of the economy from world markets, restriction of domestic competition, imposition
of controls and taxes on the private sector and markets, and extensive subsidies to induce the
private sector to conform to the production and investment targets set in the five-year plans.
Some analysts, especially those writing in the tradition of the developmental states literature,
partition this further into a “planning period” from the 1950s to the mid 1960s and a “state
populism” period from the late 1960s to the 1980s, punctuated by brief and temporary
commitments to liberalization in after the 1966 crisis. We acknowledge the change in the
tactics of intervention, but the basic point is that both sub-periods were characterized by a
common intention to use policy to supplant market incentives. The second period, from the
mid-1980s to the macro-economic crisis year of 1991 included some hesitant and piecemeal
liberalization including reduction of some of the particularly dysfunctional controls. At the
same time, however, the state was borrowing extensively and unsustainably at home and
abroad to finance its continued developmental and political aims.
The last phase is that of the systemic reforms of 1991 and thereafter. Again, this later
phase includes some variation in the pace and scope of reforms and analysts have frequently
further subdivided it into initial reforms, plateauing of changes (and growth), and a second
round of liberalization later in the 1990s. The general commitment to retracting the role of the
state in the economy, however, is continuous over the period. These periods are relatively
similar to the periodization that would result from focusing purely on outcomes. Osmani
(2008), for example, identifies a relatively strong phase I of Indian growth in the early decades
(1950-51 to 1967) after independence, a particularly weak phase II (1967-68 and 1980-81)
which includes what he calls the dismal decade of the seventies, and again a strong (the
strongest) phase III (1981-82 to 2004-05) which could be extended to 2007-08, just before the
global financial crisis.
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There were multiple political regimes, or periods with distinct leadership, within
each of these policy phases. The first state control phase includes three political
regimes. The first political regime is the single party Congress rule during the Prime
Ministerships of Nehru (1947-1964) and the early years under his daughter Indira
Gandhi (1966 – 1975). The second political regime during the state control period
consists of the Emergency (25 June 1975 – 21 March 1977) and the events leading up
to this break in India’s democracy. There is a third political regime within the state
control period consisting of a brief period of coalition government under the Janata Dal
before returning to single party Congress government again under Ms. Gandhi from
1980 to 1984. This regime continued into the hesitant reform phased under Indira’s son,
Rajiv Gandhi (1984-1989) to be followed by a period of unstable government. Prior to
the general elections of May, 1991, there were three changes of Prime Ministers within
a year starting with the resignation of Rajiv Gandhi, who was succeeded by V.P. Singh
and Chandrasekhar for short periods. There were four political regimes during the
systemic reform phase: a return to single party reign (although with a minority in
Parliament) of Prime Minister Narasimha Rao of Indian National Congress (1991-1996),
the period of unstable coalition governments from 1996-1999 culminating in the
emergence of a stable coalition of the National Democratic Alliance with the BJP as the
dominant party (1999-2004) under the Prime Ministership of Atal Behari Vajpayee, and
lastly two Congress led coalitions with Dr. Manmohan Singh as Prime Minister. We see
the 2004-2009 period as as a distinct political regime from the 2009 on because of the
change in the composition of the coalition and the replacement of “outside support from
the left” with a majority coalition.

Evolution of Economic Policy

Indian leaders developed an elaborate system of controls including tax incentives
and disincentives, tariffs and quantitative restrictions on imports and exports, restrictions
on foreign investment, licensing requirements for production and investment as well as
reservation of certain activities for private, public, and micro industries in order to ensure
that private sector producers and investors produced and invested in conformity with
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targets of the five year plans, Other instruments of controls of the 1950s such as the
rationing of essential commodities (which ballooned into the Public Distribution System)
and the controls on imports, exports, and private investment originated during the
exigencies of the Second World War, and only later were integrated into what came to
be called the License-Permit-Raj.
At its most expansive and inclusive, the system involved the following: industrial
licensing under which the scale, technology, and location of any investment project
other than relatively small ones were regulated, and permission from the government
was needed to expand, relocate, and change the output or input mixes of operating
plants; the exchange control system which required exporters to surrender their foreign
exchange earnings to the Reserve Bank of India at the official exchange rate and
allocated the exchange earning to users through import licensing; and capital issues
control under which access to domestic equity markets and debt finance was controlled.
The regime also included price controls (complete or partial) on some vital
consumption goods (for example, foodgrains, sugar, vegetable oils) and critical inputs
(for example, fertilizer, irrigation water, fuel); made-to-measure protection from import
competition granted to domestic producers in many ‘priority’ industries, including in
particular the equipment producers. The agricultural sector was insulated from world
markets, subjected to land ceiling and tenancy legislation, and forced to sell part of the
output at fixed prices, but it was also provided subsidies on irrigation, fertilizer, and
electricity. Large commercial banks, which were nationalized in 1969, were subject to
directed and selective credit controls, controls on deposit and lending rates, and in
effect had to lend more than half of their loanable funds to government through the
operation of reserve requirements of various kinds.
The net effect of the system of controls was far more restrictive than each control
individually. Furthermore, the exercise of controls was discretionary and not rule-based
and automatic, in part because of the state’s inability to internally track and monitor their
application. Controls were also anticipatory, meant ex ante to prevent departures from
prescribed activities taking place, rather than curative in the sense of ex post
punishment of departures once they occurred. In any case, it was virtually impossible to
design rules for the whole set of regulations that were mutually consistent and in
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consonance with multiple goals of policy; the incentives/disincentives created by the
system were chaotic, unleashed rapacious rent seeking, administrative and political
corruption that became progressively worse over time.
The Planners on the other hand believed that controls would not be distortionary
but create the appropriate incentives and an essential means of efficient allocation of
scarce resources. The First Five Year Plan (1951-56) argued that
“control and regulation of exports and imports, and in the case of select
commodities state trading, are necessary not only from the point of view of
utilizing to the best advantage the limited foreign exchange resources available
but also for securing an allocation of the productive resources of the country in
line with targets defined in the Plan – fiscal, monetary and commercial policy can
influence the allocation of resources, but physical controls are also necessary.
Viewed in the proper perspective, controls are but another aspect of the problem
of incentives, for to the extent that controls limit the freedom of action on the part
of certain classes, they also provide an incentive to certain others and the
practical problem is always to balance the loss of satisfaction in one case against
the gain in the other. For one to ask for fuller employment and more rapid
development and at the same time to object to controls is obviously to support two
contradictory objectives.” (Planning Commission 1951, pp. 42-43, emphasis
added).

Although the Planning Commission’s actions after 1991 suggest a new
perspective on economic policymaking, there is no conclusive evidence that the
Planning Commission has formally abandoned the perspective.
The control system had been introduced with good intentions, namely, to
complement national objectives articulated in the Five Year Plans approved by the
National Development council and discussed in the Parliament, It nonetheless had
unintended deleterious consequences. Some of these could be attributed to a failure to
recognize a fundamental feature of human behavior: individuals, households, groups
(political, social, regional and national) would strive to achieve whatever they think is in
their interest, using whatever means that they believe to be effective, be they economic
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(e.g., expressing their preferences in the market, formation of labour unions, engaging
in strikes), political (forming lobbies, making campaign contributions, and directly
participating in elections as voters) and social (e.g., formation of caste-based, region-
based lobbies and groups); not all of these need necessarily be non-violent, legal,
peaceful and transparent.
In particular, they would attempt to evade or avoid controls, laws and regulations
that are against their interests and lobby to retain those that are. This feature should
have been anticipated in designing the control system but was either not anticipated or
willfully ignored when that anticipated actions would favor those in charge of the control
mechanism. The fact that allocation of licenses to import in the context of excess
demand for imports would create rents to groups favored with licenses, for example,
could have been foreseen. Discretionary allocation of these licenses seems designed to
benefit those with discretion. Lastly, while some of the controls may have had a
rationale in the post independence context, these were kept long after the economic,
political and social environment had changed and controls were no longer needed.
The following paragraphs discuss some of the major sectoral policy interventions
that have influenced India’s varying rate of growth. Appendix 1 goes into more detail
and includes discussion of relevant legislation. The chronology shows an intensification
of controls during the 1970s and early 1980s of the Indira Gandhi regime.
Foreign Trade: Policy Interventions covered the entire spectrum: import and
export licensing, state trading, tariffs, subsidies, quantitative restrictions including
outright bans, multiple exchange rates, reservation of some exportable so small-scale
industries, etc. Most of these except tariffs and reservations for small-scale industries
have been abolished, and tariffs have been considerably reduced while the list of
reservations for small-scale industries has been pruned.
Agriculture: The Seventh Schedule of the Constitution assigns the legislative
powers regarding agriculture, agricultural research and education, rights in land, land
tenures, taxes on agricultural income, land revenue, including assessment and
collection of revenue, estate duties on agricultural land, maintenance of land records,
record of rights and irrigation other than regulation of interstate rivers and valleys, and
relief of agricultural indebtedness exclusively to the states.
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The states exercised these powers massively and frequently. Although the
central government did not have legislative authority to intervene directly in agriculture,
it also intervened massively and indirectly on agriculture through its exclusive powers on
monetary matters, exchange rate policy, tariff and non-tariff barriers, price controls, etc.
The sheer extent of the central and state interventions did not make them effective in
achieving their avowed objectives and has also been socially costly in a significant part
because of their being piecemeal, not mutually consistent and reinforcing, and not being
put together with a framework through which a coherent set of objectives and a
coordinated set of policies to achieve them could have been formulated. Interventions
were numerous and extensive and varied over time in numbers and their severity in an
unanticipated and unpredictable fashion thus making the decision making environment
for cultivators, traders and users of agricultural products highly uncertain and risky.
States also intervened often on the same policy issues along with the central
government. For example, states supplemented the subsidies offered by central
governments besides offering their own.
Interventions could be classified into four broad categories relating to agrarian
structure, market structure, prices paid or received by farmers on their inputs and
outputs and public investment. Interventions in agrarian structure included land reforms
relating to abolition of intermediaries between the government and actual tillers of the
land, size of land, ownership and land tenancy reforms that affected access to land
through share-cropping, cash-rent and fixed rent tenancies. The abolition of
intermediaries called Zamindars was completed, albeit slowly against resistance, but
largely successfully in eliminating the social and economic powers of the intermediaries.
Fortunately, the National Planning Committee’s recommendation that the “cooperative
principle should be applied to the exploitation of land by developing collective and
cooperative forms” was fortunately abandoned after independence after a brief try -
collective farming proved to be disastrous in China and the Soviet Union. In effect from
the mid-fifties almost all land was privately owned and cultivated.
The attempts to reduce the concentration of ownership of land, through
enactment of laws setting ceilings on land ownership in all states were largely evaded
because of political resistance to their enforcement. Even after four decades or more of
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their enactment, not much has changed in the distribution of land ownership except for
a predictable decline in the average area owned per household due to the demographic
pressure from rising numbers of landowning households. The Gini coefficient of the
distribution of land ownership has remained in the narrow range of 0.71 to 0.74 and the
proportion of landless households has ranged between 10 percent and 12 percent of
rural households. The distribution of operational holding that depicts the outcomes on
the distribution of access to land through various forms of land tenancy does not show
much change either, except for a reduction in the average size of holding again due to
demographic pressure. The Gini coefficient however did rise modestly after 1972,
perhaps reflecting the incentives by the scale neutral Green revolution technology, to
about 0.63 from about 0.58 during 1961-1972.
Market interventions included regulation of markets, restrictions on futures
markets, restrictions of movements of agricultural commodities on private account
between and within states, restrictions on foreign trade, state trading and restrictions on
private trade. Interventions in market prices included subsidies on transportation,
fertilizers, irrigation water, electricity and fuel, and credit, price supports and purchases
for the public distribution system. Public investment in irrigation and infrastructure and
the subsidized provision of the water and infrastructural services generated by public
investment were the other major interventions. Very little reform has been undertaken in
agricultural interventions since the 1990s.
Industrial Policy Interventions: These include reservation of development of
particular industries for exclusive development by the public sector, private sector and
the two sectors jointly, capacity licensing, licensing of imports of industrial raw materials,
price controls on output, allocation of credit and long term finance, limits on foreign
investment and ownership, restrictions on technology choice and licensing/imports of
foreign technology, reservation of specific products for production exclusively by small
scale industries, and restriction on industrial concentration through Monopolies and
Restrictive Trade Practices Act (MRTR). This list is not meant to be exhaustive. The
reforms eliminated capacity and import licensing, liberalized MRTP, expanded access to
finance from external sources through FDI and portfolio investment.
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Labour: Labour laws restricting the freedom to hire or retrench workers by firms
employing 100 or more workers continue with no reform. We now turn to a brief-
chronology of policies and changes in them in the major sectors as well as the related
legislations. These show a distinct intensification of controls along with the enactment of
associated legislation in the 1970s and early 1980s of the Indira Gandhi regime as
mentioned earlier.

III. Long Shadow of the Colonial Heritage, Politics, Institutions and the Economy

In 1858 after what the British call the “Sepoy Mutiny” and Indian Nationalists call
“the first war of independence,” the British Crown assumed direct control over what is
usually called British India, and indirect control or suzerainty over the area called
Princely States ruled by Maharajahs, Nawabs, Sultans and others. At the time of
independence in 1947 and partition into India and Pakistan, the areas and population of
British India and Princely States on the one hand and India and Pakistan on the other
are shown in Table 3.1.

Table 3.1


This section outlines some of the key features of the pre-Independence period that
we feel continue to influence and shape Indian politics today in various ways. First, as
alluded to in the introduction, the British left various institutional imprints on the modern
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17
Indian polity. We also note that the particular configuration of leadership at the time of
independence, namely the all-encompassing Congress Party with no domestic political
competition after the Muslim League acquired its own country may have led to gaps in
the formal rules for negotiating and coordinating action between states, between central
and state governments, and between parties. These gaps had been filled by intra-party
norms and common purpose among leaders at the time of Independence, but were not
filled later as the norms eroded and the common purpose was achieved . These
political maneuverings before independence influenced some of the geographic borders
that continue to define what policy discussions and negotiations are “national” and
“international” and have led to a set of international relations issues that spill over into
domestic political debates as distractions, as policies to criticize, as challenges to unite
around. The process of partition also set a precedent for the legitimacy of division of
territory on the principle of homogeneity of inhabitants (by religion or language) that
continues to plague federal relations today. Third, the events surrounding independence
left a particular political tradition of public protest by fast that continues to have symbolic
value today, perhaps distracting from more direct dialogue over issues. The educational
system initiatedand developed to serve the interest of the British has also left important
cultural and, perhaps inadvertently an economic legacy related to prevalence and
growth of the use of English language in admistration, businesses and media. Finally,
much of the planning Ideology and the contours of an unfeasible economic policy
blueprint without much attention to implementation were formed during the pre-
independence period. The final part of this section lists a number of policy proposals
articulated by the pre-independence National Planning Committee that are striking in
both their echoes in post-independence economic policy and the extent to which these
remain unmet development priorities today.

Institutions and Their Precursors

Many of the defining features of India’s institutional environment were borrowed
from the British. The Indian Civil Service, a merit-based centrally recruited and trained
government bureaucracy assigned to states along the lines of the colonial
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18
administrative structure (itself grafted onto the earlier Mauryan and Mughal traditions)
continued on as the Indian Administrative Service.
The court system continued nearly uninterrupted from the practices that the
British had built in India, though with the obvious relocation of the highest judicial
authority from the Privy Council in London to the Supreme Court in India. The Court
System, encompassing district, provincial, and then possibility of appeals of decisions of
domestic courts to the Privy Council in London, introduced the principle of the rule of
law in dispute resolution. The colonial courts had incomplete separation of the executive
and judiciary – in some cases the District Magistrates served both as judicial officers as
well as administrators in the sense of being in charge of the prosecution – but the
expansion over time of courts, law colleges to educate lawyers, the bar associations
bequeathed a sound base to build on after independence. Needless to say, with
economic development not central to the colonial government’s policies, the system
was inadequate to serve the needs of development. This is not to say, of course, that
there were no corporate laws or commercial litigation, but whatever existed and their
interpretation were based on the laws and practice in Britain, but not so much on Indian
realities.
Similarly, the new republic adopted a Parliamentary form of government with
formal rules nearly identical to the British System. (Wallack, 2007) These institutions
have been the backdrop for decades of policy formation and implementation across the
two, then three tiers of constitutionally recognized government.
4
We do not explore the
reasons for Indian leaders’ choice to continue with many British-imposed institutions
and emulate others such as the Parliamentary form of government and even its specific
rules of procedure as they formed the post-independence institutions here, although this
is a fascinating question for research. In particular the fact that the day-to-day
functioning of the British Parliament relied on rules as well as conventions and norms
including many unwritten as well as quaint customs(e.g. the black rod)ones raises the
issue that the easily transferable and transferred rules may not function effectively
without the conventions and normsthat were not or could not be transferred.

4
In what follows, we take this institutional backdrop as given. It would be interesting and appropriate to
study the beliefs and intentions of the Constituent Assembly as India’s post-independence political
framework was put into place but that is beyond the scope of this paper.
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19
Politics during the colonial era have had equally important though more subtle
effects. The British introduced representative forms of government at various levels
through a series of legislation including the Indian Council Act of 1861, Minto-Morley
Reforms of 1909, Montague-Chelmsford Reforms of 1919, the Government of India Act
of 1935, and the Cabinet Mission Plan of 1946. This representation was limited,
however: early elections to some of the representative institutions were based on limited
franchise restricted to property holders and while the franchise was broadened
somewhat the first election open to all adults 21 or older was not until after the
Constitution was adopted in 1950. The jurisdiction of these entities was also obviously
circumscribed under colonial rule. British oversight also divided the electorate along
religious lines, reserving provincial seats with separate electorates for Muslims in
proportion to their share of population.
5

Nevertheless, these early representative institutions and their evolution
contributed to the foundations for post-independence political economy. After the
Government of India
Act of 1935, major political parties participated formed governments at the provincial
level. The Act ended the “dyarchy” at the provincial level created in the Montague-
Chelmsford Reform of 1919 of the earlier act of 1909 with certain areas in the hands of
ministers responsible to the legislature and others in the hands of bureaucrats
appointed by the Governor, though it still retained the power of the Provincial Governor
appointed by the central government headed by the Viceroy and Governor General
representing the British Crown to take over by the elected provincial governments in
the event of a “political breakdown.”
These institutions took on a life of their own. At the start of the Second World
War in 1939 the provincial governments formed after the 1937 election by Indian
National Congress resigned to protest against India being made to join the war without
any consultation of its elected representatives. The experience of administering and
being accountable to the provincial legislature also proved very helpful for the central
and state governments in the early post-independence period, in large part because the

5
The constitution of 1950 ended this practice after a struggle including a protest fast by Gandhi.
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20
cabinets in these governments consisted of a significant number who were also in the
post-1937 election provincial governments.
The Federal part of the 1935 Act relating to the Central (Union) government
never did go into effect, however, since the requirement that half the states
(appropriately weighted) or more agree to federate never happened and was indefinitely
postponed after the outbreak of the Second World War. However, the long shadow of
the Act can be seen in several articles of the post-independence constitution. Article
356, for example echoes the political “escape clause” of allowing for dissolution of duly
elected legislatures in case of “breakdown of order” as judged by appointed overseers.
In the case of the Government of India Act, this power was given to representatives of
the British Crown as described above. In the modern constitution, this power was
formally given to the President of India acting on the recommendation of the State
Governor appointed by the President.
Since the President of India is not a constitutional monarch with no political
affiliation but one who is indirectly elected, he or she could have and act on his/her
political aspirations. Beside the President’s action, the appointment of State Governors,
and the dismissal of elected State Governments are based on the advice and
recommendation of the Central Cabinet, it is no surprise the exercise of both powers
has been very political. The dismissals of elected State governments began with Nehru
government’s dismissal in 1959 of the Government of Kerala formed by the largest
Singh party in the Kerala legislature, the Communist Party of India. The sad saga of
Article 356 continues to this day. Currently the State of Jharkhand is under President’s
rule with the resignation of its Chief Minister belonging to Jharkhand Mukti Morcha
(JMM), after his defeat in a bye-election and other parties’ inability to form a government
to replace his JMM government.

Borders, Their Antecedents and Their Aftermath

Political Antecedents of Borders

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21
The emergence of the Muslim League with Mohammad Ali Jinnah as its supreme
leader from these pre-independence politics was another colonial era development that
cast a long shadow including most obviously partition and the international relations
dynamics that this has created. In the early years Congress and Muslim League were
not antagonistic to each other, although the League was dominated by property holders
and clergy while Congress under Gandhi was to become a mass-based organization.
Senior leaders like Jinnah held important positions in both in the 1920s without any
sense of contradiction. The Muslim League’s claim to be the only political party that
represent the interests of Muslims and its steadfast denial of other parties’ (particularly
Indian National Congress’s) claims represent the interests of all Indians irrespective of
their religious, caste, or language affiliations were late developments in the first half of
the twentieth century.
Jinnah’s metamorphosis from strong supporter of an independent unified India
with a constitutional and secular democracy offering people the freedom of religion and
non-discrimination based on caste, ethnicity or the mother tongue to Muslim chauvinism
happened over decades. He was a member of the Congress Party and left it only after
Gandhi, who had become its leader, made it into a mass-based party that mobilized and
involved the masses in agitations and protests against British rule. One of the first
disagreements came after Gandhi moved a resolution at the Nagpur session of the
Congress in 1920 on initiating a Movement of Non-Cooperation against British rule and
promising independence within a year of its start in 1921. Jinnah rose to speak against
the resolution on the grounds that it was a de facto declaration of independence and
though he was in favor of independence, “it is not a right step to take this moment . . .
you are committing the Indian National Congress to a programme you will not be able to
carry out.” [Cited by M.J.Akbar, September 23, 2009]. It turned out that Gandhi was
forced to withdraw the resolution in 1922 after violent Hindu-Muslim riots in Kerala and
another violent incident in Chauri Chaura in Bihar occurred. Jinnah and Gandhi also
disagreed about the efficacy of non-violent protest against the British. Jinnah’s view that
non-violence was futile was wrong in this case. Gandhi’s use of religious symbols in
mobilizing the masses also appalled the quintessential constitutionalist in Jinnah.
Ironically, the fact that Gandhi supported the Khilafat movement (1919-1924) of Indian
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22
Muslims to ensure that the British’ promises to the Ottoman Emperor, who wished to
remain the Caliph of all Muslims, at the Versaille Peace Conference in 1919, was a
particular point of contention. While the strains in the relationship grew from these
disagreements, Jinnah’s conversion to the cause of partition and Pakistan came only in
the 1940s.
The Muslim League had split in 1930 and became inactive. The few senior
leaders who could have revived it all died in 1931 and Jinnah decided to give up politics
The Muslim masses did not support the Muslim League at first. They decisively rejected
it in the 1937 elections. It won only 108 out of 485 seats reserved for choice by the
Muslim electorate. In the United Provinces, where the hard-core of the League was
based, it won only 29 of the 66 Muslim seats. After these elections, however, Jinnah
emerged as a distinctly Muslim leader, explicitly seeking protection for Muslims and
apparently less emphatic in his rejection of the “two nation theory” that held that Hindus
and Muslims were two separate nations with incompatible faiths and cultures and so
cannot live together as one nation.
A particular event associated with the formation of provincial governments after
the 1937 elections had a major impact according to some analysts and may have
contributed to the League’s growth in popularity
6
and Jinnah’s and the League’s
demand for partition after the 1940s. The Congress Party won a majority of the 228
seats in the provincial legislature while the Muslim League won only 29 in the 1937
elections in the United Provinces. Yet, Jinnah, very anxious for the League to be in the
government, asked Congress to form a coalition government with it. The Congress
rejected Jinnah’s demand because of his insistence that the Congress not appoint any
Muslims to the Cabinet. Analysts believe that this rejection made Jinnah very fearful of
Muslims being fairly treated in an India led largely by the Congress and eventually to
demand partition of India into separate countries, one in which Muslims will be a
majority of the population.
This brief narrative of the history of the Hindu-Muslim relations in the first half of
the twentieth century is very relevant for several post-independence socioeconomic-

6
The only election the League won the support of the majority of Muslim electorate was in 1946 on the
eve of partition. Even this support came only after an apparent rejection by the Congress party.
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23
political developments including its impact on Hindu-Muslim relations and periodic
eruptions of communal riots with their tragic outcomes; the disarray in BJP with its
senior leaders blaming each other for its defeat in the 2009 elections; and the still
unfolding events following its expulsion of its senior leader and former Foreign Minister,
Jaswant Singh after the publication of his book praising Jinnah.
However, we will not do a counterfactual analysis of what the post-independence
developments would have been had the pre-independence history been different for two
simple reasons. First, unlike a counterfactual analysis of the future yet to unfold, the
past is past and cannot be changed. Second, neither of us being historians, we are not
well-equipped to delve deeply into alternative descriptions and interpretations of the
past and formulate realistic counterfactual alternatives to them.
It could be argued that the colonial government contributed by design or
otherwise to sowing the seeds of partition and perhaps actively nourishing the
differences between the two communities, perhaps in order to delay the grant of
independence until after the Second World War. There were many clear instances of
actions that seem to fit this framing. In 1905, the Viceroy, Lord Curzon, partitioned
Bengal to create Muslim-majority and Hindu-majority sections. Both Hindus and
Muslims protested Curzon’s decision vehemently as it was being mooted and before it
was formally announced, Curzon won Muslim support by announcing in a speech in
Dhaka on 18 February 1904 that he would help them create a centre of Muslim power in
Dhaka “which would invest the Mohammedans in Eastern Bengal with a unity which
they have not enjoyed since the days of the old Mussalman viceroys on kings” (cited in
M.J. Akbar (2003)). King George V at the Delhi Durbar of 1911 canceled Curzon’s
partition. Clearly Curzon’s decision and its cancellation fomented the separatist
sentiments rather than squelched them.
Whether or not partition could have been avoided altogether or would have taken
a different form had different counsels prevailed and Jinnah had not become alienated
from his earlier strong nationalism are again counterfactuals about the past that are
fruitless to pursue here. But there is no denying that the pre-partition political history,
and importantly the personalities, egos and beliefs of the aging (and sick, in the case of
Jinnah) leaders of the era are continuing to impact the post-partition socio-economic-
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24
political developments in India and Pakistan as well as Bangladesh after its separation
from Pakistan following the 1971 war between India and Pakistan. Prior to the 1971
war, India and Pakistan went to war in 1948 and 1965 on Kashmir and have came close
to it several times since.
Muslims, who were largely the poor, poorly educated and socially disadvantaged
in the pre-independence era have remained so and regressed further in the post-
independence India despite all the constitutional guarantees. A recent report by an
official high-level committee appointed by Prime Minister Manmohan Singh and chaired
by Justice Rajinder Sachar in 2006 has documented the sad facts and has come up
with its recommendation to remedy them. Unfortunately, the report has been criticized
as “distorted, politically motivated and dangerous” by the BJP (the main opposition
party, allied with Hindu fundamentalist groups) and others for various reasons. Not
much by way of implementation of its recommendations has happened. Social divides
continue.
The communal riots of the pre-partition era, mainly those involving Hindus and
Muslims, and their tragic casualties continue. A Muslim mob’s torching of a coach of the
Sabarmati Express at Godhra station, which burnt alive 59 mostly Hindu women,
children and seniors returning from the holy city of Ayodhya in 2002 is the recent and
most horrifying example. This violence, a response to Hindu mobs’ destruction of the
Ayodhya mosque, allegedly built on a site that had a temple for the Hindu god Rama,
then resulted in a third round of riots and massacres in Ahmedabad and elsewhere in
Gujarat by Hindus that killed 790 Muslims and 254 Hindus, with 233 missing and
injuring 2,548. The subsequent enquiries and litigation relating to the culpability of the
then and current Chief Minister Narendra Modi and his party, the BJP, the police and
the judiciary in both the original destruction of the mosque and later Hindu-Muslim riots
still drag on. The role of prominent national leaders in the events is also under public
scrutiny at least. The analytics and empirics of communal riots have received and
continue to receive scholarly attention (e.g., Vaishney ( ) and others). Hindu-Muslim
divides continue to be exploited by political entrepreneurs.
The second dubious “gift” of the colonial government that subsequently
influenced India’s borders was its hands-off attitude towards the rulers of the princely
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25
states. The indefinitely postponed federal sections of the Government of India Act of
1935 had given these states a separate voice in addition to the voices of the provinces
of British India. Moreover, the Government of India Act of 1947 that partitioned India
relinquished the suzerainty of the colonial government over the princely states and left
their rulers free to decide whether or not to remain independent or accede to one of the
new states of India and Pakistan on their creation on August 15 and 19, 1947. Since
partition was based on the religion of the majority of population (without them actually
having a say in the decision), the expectation was that the rulers of Hindu majority
states would accede to India and of Muslim majority states would accede to Pakistan.
Only three rulers defied this expectation: the the Muslim ruler (the Nizam) of the
Hindu majority state of Hyderabad ruled by chose to remain independent (in which
decision he was actively encouraged by his British adviser, Sir Walter Moncton); the
Muslim Nawab of the Hindu-majority Junagadh acceded to Pakistan in spite of being
surrounded by areas that acceded to India; and the Hindu Maharajah of the Muslim
majority state of Jammu and Kashmir (J & K) with its minority Hindu and Buddhist
population concentrated in its Jammu and Ladakh regions, respectively, chose to
remain independent.
India annexed Hyderabad and Junagadh through what it called “police action” to
restore order and stability. Since there was no significant popular dissent in either and
there were no further consequences, other than the general challenges such as the
treatment of the erstwhile rulers of the princely states and integration of their
administrative and judicial system with that of British India that prevailed in India.
The problem of J &K was different. Although the ruler was a Hindu, his rule was
protested by Hindus and Muslims alike through the party National Conference (NC)
headed by Sheikh Mohammad Abdullah. The Sheikh and the NC were closely affiliated
with the Indian National Congress and did not support the Muslim League, Jinnah, or
the demand for partition. By all accounts Sheikh’s NC rather than the rival Muslim
Conference supported by the Muslim League had mass support.
Pakistan made the first overt move to challenge Hindu ruler’s decision to remain
independent with an invasion by “tribals” supported by the Pakistan Army in 1948. The
ruler appealed to India to send the Indian Army to repel the invaders, which the Indian
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26
Government accepted with the support of Sheikh Abdullah and the NC under the
conditions that the ruler accede to India, give up his absolute rule and replace it by
popular rule, which he accepted. India also promised to hold a referendum to let the
population to confirm or reject the accession after the invaders had been repelled from
the state of J & K as a whole. But after repelling the invaders from most, but not all of
J& K (a part remains under the control of Pakistan even now) India complained against
Pakistan at the UN Security Council. The Council passed a resolution under which a
cease-fire was agreed to by both India and Pakistan. The agreement also postponed
the referendum or plebiscite. The resolution, like other UN Security Council resolutions
relating to Israel-Arab wars, was not implemented in large part because the veto
powers, the US and the Soviet Union supported one or the other of the parties to the
conflict.
The Indian Army is still in Jammu & Kashmir and India and Pakistan fought over
Kashmir again in 1965 and were close to it in the Kargil conflict after Pakistani
incursions in 1999 into the Siachen Glacier outposts of India near the line of control
(cease-fire line) where Pakistan also maintains an outpost. Though both countries have
fought intermittently since 1984 in this area over 6,000m (21,000 feet) high, both should
rationally prefer to abandon these costly permanent outposts at such a height. India
abandoned its plans to do so after the Pakistani incursion.
Sheikh Abdullah rose to Chief Ministership of J&K after India formally integrated
Jammu and Kashmir under a special article of the Indian Constitution which permitted
J&K to have its own separate constitution. Nehru, who had been his friend, became
disillusioned with him, however, suspecting him of aspiring to make J&K independent.
Sheikh Abdullah was dismissed and put under house arrest on 8 August 1953, though it
is claimed by Nehru’s biographer, S. Gopal, that Nehru’s consent was neither sought
nor given for the arrest. His release and rehabilitation as well as the sad saga of rigged
elections in J&K, corruption of its administration and the emergence of separatist
movements armed and supported by terrorist groups from Pakistan with the active
support of the Pakistani Army and the Inter-Service Agency, etc., need not be
elaborated here. Suffice it to say that the long shadow of the British indifference to the
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27
actions of the princely rulers and its contribution to the continuing conflict, not only in
J&K, but also actions by Pakistani terrorists and the Indian terrorists is absolutely clear.

Other Borders and their Aftermath

The McMahon line separating Tibet and India and the Durand line separating
Afghanistan and India also had their international relations legacies for modern India.
Both India and Pakistan accepted these rather uncritically. India naively expected the
post-revolution Chinese government to abide by the McMahon line and not make any
claims on the territories under Indian control. The naivete was exposed when China’
built, without India’s knowledge, let alone acceptance, a road across a corner of J&K.
When this became known in 1962 Nehru ordered the Army to expel the Chinese
“occupiers”. China easily repelled the Indian army, which was not equipped to fight at
high altitudes, and made further inroads only to stop voluntarily. The defeat in the 1962
conflict with China still rankles and casts a long shadow. Although both countries now
want to emphasize and promote their economic and cultural interactions, the border
dispute, though on the back burner, has not been settled. China has not abandoned its
claim over the Indian state of Arunachal Pradesh and India also has not abandoned its
claim over the area occupied by China in J and K.
The Durand line divided the Pashtun tribal population between Afghanistan and
Northwestern Frontier Province (NFP) of India and now Pakistan. The pre-
independence Pashtun Leader of NFP, the legendary Khan Abdul Gaffer Khan, was a
follower of Gandhi and his non-violence and was known as the Frontier Gandhi. At the
time of Partition, his party was not in favor of NFP being included in Pakistan and he
lost in a referendum on the issue. However, India’s historic and continuing interest in
Afghanistan was influenced not only by the Indian leaders’ admiration for Ghaffar Khan
and sympathy for Pashtuns, but also from the fact that Afghanistan was the base from
which Indian culture spread to Central Asia. Again, the history of NFP in Pakistan and
Afghanistan since Pakistan became independent, the role of Ghaffar Khan and
especially his brother (affectionately known as Dr. Khan Sahib in Pakistani politics), the
Soviet invasion of Afghanistan and the the rise of Mujahadin to expel the Soviets with
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28
the support (and later abandonment) of US and Pakistan’s Inter-services Intelligence
(ISI) Agency of Pakistan Army is well documented. The subsequent rise of Taliban, its
capture of Afghanistan and its overthrow after the 9/11 attack orchestrated by Al Qaeda
(whose leader, Osama Bin Laden was then and still is believed to be somewhere in
areas adjoining Afghanistan and Pakistan) can all be traced back to the borders
negotiated by the colonial powers.
Two events in the long shadow of colonialism, the ongoing Afghan War of the US
and its NATO allies and the re-emergence of the Taliban are especially worrisome for
India. The first is that Taliban in Pakistan and Al Qaeda and Pakistan’s ISI train the
terrorists who have attacked India and support the separatists in J&K. The second is
that the Taliban in Afghanistan have mounted two terrorist attacks on the Indian
embassy in Kashmir with the active support and perhaps planning by Pakistani ISI. Our
point is not to wade into the murky world of cross-border covert action but to highlight
another way in which the colonial era casts a long shadow over the present.

The Independence Movement and Its Political Legacy

The particular nature of India’s struggle for independence also left a political
legacy to add to those left by British decisions. The enormous influence of Gandhi in
mobilizing the masses as well as the elite behind the struggle against British Colonial
rule (and its offshoots, the struggles against autocratic rulers in princely states) not only
gave it its overwhelmingly peaceful character but also gave concrete shape to
“Satygraha”
7
or the concept of civil disobedience that Gandhi borrowed from Henry
David Thoreau for his movement.

7
Gandhi himself explains the origins of his naming of his non-violent movement in South Africa as
“Satygraha” as follows in Gandhi (1926)”None of us knew what name to give to our movement. I then
used the term “passive resistance” in describing it. …As the struggle advanced, the phrase “passive
resistance” gave rise to confusion and it appeared shameful to permit this great struggle to be known only
by an English name. Again, that foreign phrase could hardly pass as current coin among the community.
A small prize was therefore announced in Indian Opinion to be awarded to the reader who invented the
best designation for our struggle. We thus received a number of suggestions. … Shri Maganlal Gandhi
was one of the competitors and he suggested the word sadagraha, meaning “firmness in a good cause.” I
liked the word, but it did not fully represent the whole idea I wished it to connote. I therefore corrected it to
“satyagraha.” Truth (satya) implies love, and firmness (agraha) engenders and therefore serves as a
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29
The news documentaries of the period and their later dramatization in cinema,
such as in Attenborough’s Gandhi, vividly depict scores of unarmed individuals
disobeying what they deemed unjust colonial laws against making salt from sea water
and suffering, unflinchingly, the physical punishment as well as incarceration imposed
on them by police and prosecutors enforcing the law became a powerful testimony of
Satygraha in practice. Gandhi also undertook several fasts, some of them announced
as “unto death,” if those, be they the colonial authorities or fellow Indians, against
whose actions his fast was a protest, did not credibly commit to changing their actions.
His fast in Calcutta after violent Hindu-Muslim riots in the city during the immediate
prepartiton clashes is one among many examples.
The morality of the use of fast unto death and self-immolation as means of
protest has been controversial and remains a deep and fascinating issue of moral
philosophy and of individual rights. For us, the issue of interest is partly the echoes of
independence struggle as a protest by Indians against alien rulers in post-independence
protests against legitimately elected governments and the use of force by such elected
governments on ostensibly peaceful protesters. Tactics developed in a context of
colonial rule were carried into an entirely different setting of representative democracy.
The legitimacy of the use of “Satygraha” in post-independence democratic India
was debated even before independence. But in fact, post-independence fasters and
protest movements more often than not invoked it, whether or not they in fact engaged
in non-violent protests. One of the earliest examples is the fast unto death in 1952 by
Potti Sriramulu for the breakup of the then multilingual State of Madras and the creation
of a Telugu speaking state. Although the Indian National Congress had committed to
the creation of local language-based states after independence by its resolution at one
of its pre-independence sessions and had long decentralized its organization along
linguistic lines, it failed to act on its resolution during the final decade after
independence. Sriramulu in effect used his fast unto death as a means of forcing a
democratically elected government of the Congress to keep its promise. After
Sriramulu’s death, there were violent riots in Telugu speaking arenas and the police

synonym for force. I thus began to call the Indian movement Satyagraha, that is to say, the Force which is
born of Truth and Love or non-violence…”
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30
responded to the riots as in the colonial era using violent means including the use of
firearms.
The incident highlights a second political legacy of the Independence struggle:
the imprint of the Congress Party and the fact of its pre-eminence on post-
independence institutions. The eventual formal arrangements for states mirrored the
Congress Party’s internal arrangements. The Government responded by appointing a
high-level States Reorganization Commission on whose recommendations the state
boundaries were redrawn to correspond to contiguous areas with populations speaking
the same language. As is to be expected the boundaries drawn were contested, often
violently, starting with protests on the proposed creation of the City of Bombay with a
majority of speakers of the Marathi language as a separate entity not to be included in
the proposed state of Marathi speaking Maharashtra. This proposal was eventually
abandoned and Bombay, now Mumbai, became the capital of Maharashtra.
The move down the path of linguistic states continues to threaten the unity of
India as a nation with common citizenship rules and freedom of its citizens to move
anywhere within India temporarily or permanently for economic and social reasons. For
example, linguistic nationalism, if not chauvinism and parochialism in some states has
led violent attacks on migrant workers from other states into Mumbai, in particular, as
well as Bangalore and other cities with growing demand for all types of labour and also
capital. A new political party, Maharashtra Nirman Sena, an offshoot of Shiv Sena a
regional party, has mounted attacks on migrants from North India, primarily Bihar and
Uttar Pradesh. A similar party in Karnataka has long targeted migrants from the
neighboring state of Tamil Nadu. In the days when India was not self-sufficient in
foodgrains and vegetable oil was scarce, the states that had a surplus of these
commodities imposed restrictions and even banned their movement out of their states.
In drought years where the country as a whole was in deficit and as market prices
soared, thus they deliberately segmented the Indian market for these commodities.
More generally, the ability of Congress to be an “umbrella party” bringing diverse
groups under its cover at Independence may have hampered the pressure to create
formal institutions for dispute resolution across states, between levels of government,
and even among competing groups in society. Unfortunately, the constitutional
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31
(particularly judicial) and political mechanisms (such as the National Development
Council and Interstate Council) have not been effective in solving interstate disputes (for
example, over the sharing of the waters of interstate rivers) and in containing violent
expressions of linguistic nationalism.
Dissidence and dissident movements that are separatist have also grown since
independence. The response of the authorities to those has been to use armed forces
rather than the police. The earliest post-independence serious separatist agitation was
in Tamil Nadu in the early 60s protesting against the designation of Hindi as the only
National Language replacing English that had been serving that role until then.
Fortunately, this was imaginatively handled by Prime Minister Shastri who announced
that as long as Non-Hindi speakers wished it to continue, English will continue it role as
a link or common national language.
Unfortunately, the agitation to create a separate Punjab speaking state out of the
then Punjab state where both Hindi and Punjab were spoken was allowed to develop
into a violent separatist movement for Khalistan, a country of the Punjab speaking
followers of Sikhism, a religion whose scriptures were in Punjabi. The violent saga of
this and other separatist conflicts in India and elsewhere is well known. Among the
victims were the Prime Minister Indira Gandhi to Sikh assassins’ bullets.
The growing number of armed attacks by the extreme left group called Naxalites
in large parts of India (in 195 of India’s 604 districts and spread over 16 states) from the
Telangana Region of the Southern State of Andhrapradesh through to Orissa and West
Bengal in the East, Chattisgarh, Jharkand and Madhya Pradesh in Central India, Bihar
in the North and Maharashtra in the West is another serious domestic threat. It is clear
that the military response to the Maoist attacks is yet to gain a decisive upper hand. But
what is not clear is whether a determined political effort backed by all major political
parties to negotiate a cease-fire with the Maoists and to bring them into the political
mainstream would succeed, as it appears to have succeeded in neighboring Nepal,
mainly because it has not been tried.
The continuing dissidence in J&K and Indian Army’s presence there as well as in
the Northeast of India, particularly in the state of Assam and the rising number of Maoist
attacks in large parts of India are worrying. Again, it is tempting to ask the following
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counterfactual question: Had the Indian Constitution been much more federal (as Jinnah
wanted India to be) than unitary with the federating units having considerable autonomy,
the Constitution included more effective consultative mechanisms for addressing
interstate issues including disputes, and the state boundaries been drawn based on
more rational criteria while merely as a way of avoiding resentments based on
language, religion, etc would the post independence history have been different?

Education and English

The colonial legacies were not entirely negative. The educational system began
with the infamous note of Lord Macaulay in 1835 urging the British to “break” India’s old
and ancient education system and replace it with an education focused on British values
as the only means of conquering people of “such high moral values.” Ignoring his racial
prejudices against Sanskrit and Indian languages and Arabic and rather ignorant
comparison of the literature in them to that of English, his recommendation that limited
public funds be used to form a class who may be interpreters between the British rulers
and millions of Indians whom they govern stands out as a significant influence on
history. This class was to be “Indian in blood and colour, but English in taste, in
opinions, in morals and in intellect,” achieved by giving encouragement to the Hindu
College in Calcutta and establishing schools for the English language and thought in the
principal cities.” The recommendation had profound and long-lasting effects by
eventually creating an English-educated elite of lawyers, politicians and scholars.
In spite of its somewhat distasteful origins, the note eventually led to the
establishment of universities at the Presidency capitals, Bombay, Calcutta and Madras
in the middle of the nineteenth century and later in other cities. The influence of
education in English, and the emergence of English speaking population and the
influence of the English-educated elite trained in India and abroad in the economic,
political and social development of India have been phenomenal and continue to this
day. Unfortunately, the misguided census takers ceased collecting information on the
number in the population who can speak the English language from the first post-
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independence decennial population census of 1951. Clearly, they now form a
substantial proportion though far from being a majority.

Economic Legacy

Turning to the pre-independence economic ideas and policy proposals that in
many ways determined the actual policies adopted in the post-independence era, we
begin with the articulation of the overarching objective or goal of economic development
of India: the eradication of mass poverty by the remarkable Indian, Dadabhai Naoroji
who was elected to the British House of Commons in 1892.
8
His note on Indian poverty
to the House Select Committee on Indian Finance, which subsequently influenced
policy targets in post-independence India originated in his paper “Poverty of India” read
before the Bombay Branch of the East India Association in 1876. The Committee’s
chairman understandably did not include it in the published proceedings of the
Committee given Naoroji’s strong critique of British Rule in India, but it was eventually
published in 1901 under the title Poverty and un-British Rule in India read by
generations since.
Naoroji was the first to define a poverty line for India by valuing a poverty bundle
of goods (primarily based on nutritional considerations) at appropriate prices. He then
estimated the total output of India was not adequate to provide incomes sufficient to
keep the population above this version of poverty (Srinivasan (2007) for details). Ever
since Naoroji’s classic work there has been consensus across the political spectrum
that eradication of mass poverty has to be the overarching objective of Indian economic
development. Moreover all pre-independence development plans (see below)
proposed their own poverty lines as a way of articulating goals – a choice that has had
ramifications since for intergovernmental transfers, oversight of development programs,
and much of the rhetoric of “development” in India and beyond.

8
He was a son of Zoroastrian (Parsi) priests, the first Indian to hold an academic position as an Assistant
Professor at the age of 25 at Elphinstone College in Bombay and was also Prime Minister of the Princely
state of Baroda. He founded the East Indian Association in a 1867, one of the predecessors to Indian
National Congress (of which he was elected President twice, first in 1886 and again in 1906). He was a
mentor of India’s political leaders of the late 19th and early twentieth century such as Gokhale, Gandhi
and Jinnah. Jinnah who was then in Britain assisted him in his campaign and duties as a member of
parliament.
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A consensus on the overarching objective need not necessarily imply a
consensus on the means for achieving the objective, but as it happened there was a
consensus on central planning as the means for articulating and implementing the
economic development strategies for achieving the objective. The consensus on the
means again did not necessarily imply either that they were the only, let alone the best,
among feasible means nor that they were actually feasible means given the institutional
capacity available. Unfortunately, development strategies that the post-independence
Planning Commission formulated in the name of poverty eradication largely ignored
implementability considerations with delivering it. In particular, there was no recognition
of the instrumentallity of rapid and well distributed growth for redirecting poverty as
stressed by the National Planning Committee.
The consensus on planning can be seen in the fact that individuals and groups
across the political spectrum agreed on planning and offered their own plans for
development with significant overlaps. These included A Planned Economy of India by
the engineer statesman, Sir. M. Visveswaraya, published in 1934; the appointment in
1938 by Subhash Chandra Bose, President of Indian National Congress, of the National
Planning Committee (NPC) under the chairmanship of Jawaharlal Nehru, the Bombay
Plan for India’s Economic Development by a group of Businessmen of Bombay and
published in 1944 (Tata et al, 1944) and Peoples’ Plan for Economic development of
India, by the Indian Federation of Labour published in 1944 (Banerjee et al, 1944).
All the plans emphasized industrialization through import substitution and
development of heavy industry objectives that came to dominate post-independence
Five year Plans. Visveswaraya (1934, pp 351-53) asserted that “India cannot prosper
except through industrialization [which] has to be organized, planned and worked for…
India may be an industrially developed country or may be a market for manufactured
goods from the outside and not both.” Nehru, then the Chairman of NPC was also
explicit on industrialization: “The problems of poverty and unemployment, of national
defense and of economic regeneration in general cannot be solved without
industrialization. …The three fundamental requirements of India, if she is to develop
industrially and otherwise, are: a heavy engineering and machine-making industry,
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35
scientific research institutes, and electric power. These must be the foundations of all
planning.” (Nehru 1946, pp 401-416)
There was also a consensus in limiting the role of international trade. Agreeing
with Visverwaraya cite above, Nehru (1946, p 403) said that “The objective for the
country as a whole was the attainment, as far as possible, of national self-sufficiency.
International trade was certainly not excluded, but we were anxious to avoid being
drawn into the whirlpool of economic imperialism. The first charge on the country's
produce should be to meet the domestic needs of food, raw materials, and
manufactured goods. Surplus production would not be dumped abroad but be used for
exchange of such commodities as we might require. To base our national economy on
export markets might lead to conflicts with other nations and to sudden upsets when
those markets were closed to us.” The authors of the Peoples’ Plan “wanted post-
independence India 'to exercise a monopolistic position in respect of foreign trade as
well as financial transactions with foreign countries. “(Banerjee et at. 1944, pp. 3-8).
Bombay Businessman expressed similar views (Tata, et al, pp 31-2, 58) ”We consider
it essential for the success of our economic plan that the basic industries, on which
ultimately the whole economic development of the country depends, should be
developed as rapidly as possible . . . it should be our .aim simultaneously to develop
consumption goods industries so as to meet at least our essential requirements.”
In concluding this section we lay out some of the policies advocated by the
National Planning Committee. Although the NPC was created in 1938, the onset of the
second World War in 1938 and the arrest of some of its members including its chairman
during the “Quit India” movement of the Congress in 1941 interrupted its proceedings. It
held in all five decisions, starting with the first on December1938 and fifth on September
1940. The sixth met after the war in September 1945 and its final session was held on
26 March 1949 two years after independence. All the reports of the Sub-Committees
and that the report of the NPC itself were sent in 1949 to the then President of the
Congress.(IIAPR, 1988) But most of its work had been completed by its fifth session.
The facts that, first, it was a committee of the Indian National Congress that
governed India from Independence in 1947 till 1996 by itself and has been governing
since 2004 in coalition with others; second it was chaired by Nehru who was the first
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post-independence Prime Minister (1947-1964); third, that there is a significant overlap
between them and post-independence policies makes them particularly relevant. The
post-independence obsession with industrialization and insulation from foreign trade are
clearly foreseen. This was an ambitious agenda for the newly independent state, one
which has influenced the direction of effort, but has clearly not been completed.
Our discussion of its approach and recommendations draws mainly on chairman
Nehru’s notes to the committee and to its sub-committees and a resolution of the
various sessions of the Congress on economic matters prior to the formation of the NPC
and on the reports of various subcommittees. The following extracts cite the more
important ones.
On Fundamental rights and Duties: “Every citizen is free to move throughout
India and to stay and settle in any part thereof, to acquire property and to follow
any trade or calling, and to be treated equally with regard to legal prosecution or
protection in all parts of India.” (p 32). This was implemented in the 1950
Constitution. Nevertheless, social barriers to migration remain, and migrant
workers often find it difficult to access public services due to the tangle of
paperwork and eligibility and other requirements necessary for making these
claims in areas other than one’s birthplace.
On labour: “The State shall safeguard the interests of industrial workers and
shall secure for them, by suitable legislation and in other ways, a living wage,
healthy conditions of work, limited hours of labour, suitable machinery for the
settlement of disputes between employers and workmen, and protection against
the economic consequences of old age, sickness and unemployment. Labour to
be freed from serfdom and conditions bordering on serfdom. Protection of
women workers, and, especially, adequate provision for leave during maternity
period. Children of school-going age shall not be employed in mines and
factories. Peasants and workers shall have the right to form unions to protect
their interest.” (p 32) The long-lasting labour laws (often cited as a “priority reform
area” in post independence India reflect these intentions.
On Economic and Social Programme: “The State shall protect indigenous cloth;
and for this purpose pursue the policy of exclusion of foreign cloth and foreign
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37
yarn from the country and adopt such other measures as may be found
necessary. The State shall also protect other indigenous industries, when
necessary, against foreign competition.” This intent is clearly reflected in the
implementation of reservations for small scale industries and protection for
cottage industries. The ideas that “Currency and Exchange shall be regulated in
the national interest,” and “The State shall own or control key industries and
services, mineral resources, railways, waterways, shipping and other means of
public transport.” have clearly been guiding principles. Relief of agricultural
indebtedness and control of usury direct and indirect.” (p 33) has come back to
show up in recent years, albeit ineffectively as a mass forgiveness of loans from
formal sector creditors that excluded some of the more significant debts to
moneylenders.
On Agrarian Reform: “…the most important and urgent problem of the country is
the appalling poverty, unemployment and indebtedness of the peasantry
fundamentally due to antiquated and repressive land tenure and revenue
systems and intensified in recent years by the great slump in prices of
agricultural produce.” (p 35) was implemented to some extent, although the
crucial land reforms were not undertaken.

Chairman Nehru’s own note on Congress Policy, often citing several resolutions
and also noting that Congress was in power in several provinces after the 1937
elections, and noting the strong bias of congress towards development of cottage
industries, specially of hand spinning and hand-weaving and its disapproval of any
policy coming in the way of their development, argued that “But there appears to be
nothing in the Congress resolutions against the starting or encouragement of large
scale industries, provided this does not conflict with the natural development of village
industries.” (p 41). The note concludes with the categorical statement “It is clear
therefore that not only is it open to this Committee and to the Planning commission to
consider the whole question of large-scale industries in India, in all its aspects but that
the Committee will be failing in its duty if it did not do so. There can be no Planning if
such Planning does not include big industries. But in making our plans we have to
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remember the basic Congress policy of encouraging cottage industries.” (p 43)
foreshadowed the dual strategy of industrial planning and protection for a few.
The note for the Guidance of Sub-committees, prepared by the Honorary
Secretary Professor K.T. Shah amplifying the chairman’s memorandum to the
Committee is very clear on many aspects of policy making and of policy. To cite:
On Planning “Planning under a democratic system may be defined as the
technical co-ordination, by disinterested experts, of consumption, production,
investment, trade and income distribution in accordance with social objectives set
by bodies representative of the nation. Such planning is not only to be
considered from the point of view of economics and the raising of the standard of
living, but must include cultural and spiritual values and the human side of life.” (p
51). This saw a qualified implementation – stronger in principle than practice, but
neverless, a focus of substantial policy effort and resources.

Recognition of agreement, with some vital differences ,on social objectives:
“There is a large measure of agreement in the country about our social objectives
and yet there are vital differences also. It is possible that many of the differences
might be resolved as a result of this enquiry.” (p 51)

Fundamental Goal: “The fundamental aim to be kept in view is to ensure an
adequate standard of living for the masses. An adequate standard of living
implies a certain irreducible minimum plus a progressive scale of comforts and
amenities.” (p 53). This has been a mantra for campaigns over the decades.

The Instrumentality of rapid and well distributed growth for achieving the goal:
“Estimates of economists in different parts of India put down this irreducible
minimum at figures varying from Rs. 15 to Rs 25 per capita per month in the
present value of the rupee. The expression in terms of money is only used for
the sake of convenience, the real measure being in terms of goods and
services.” (p 53). “An approximate estimate put the average annual income per
capita at Rs. 65. This includes the rich and the poor, the town-dweller and the
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villager. The average of the villager is estimated to be somewhere between Rs.
25 and Rs. 30 per annum per capita. This implies not only a considerable deficit
in food supply, but also in other essential requirements of human existence.” (p
53-54). “The national income must, therefore, be increased greatly during the
next ten years to ensure an irreducible minimum standard for everybody. In
order to secure this minimum standard, not only will it be necessary to increase
production but also to bring about a more equitable distribution of wealth. A
really progressive standard of life will necessitate he increase of the national
wealth five or six times. But for the present the minimum standard which can and
should be reached is an increase of national wealth of between two and three
times within the next ten years. It is with this object in view that we should plan
now.

On the need for scientific and technical research: “It is essential that much
greater attention should be paid to making scientific and technical research as an
integral part of planned economy. Universities and research institutions should
be organized to permit of fundamental and basic applied research on the widest
possible basis being undertaken in the country. Further, industrial research
should be comprehensively planned and linked with the development of
industries, and industrial research organizations created, best suited to the needs
of individual industries.” (p 61)

The NPC appointed in all 29 sub-committees covering the broad areas of
Agriculture, Industry, Demography (labour and population), Commerce and Finance,
Transport, Public welfare, Education and ahead of its time, on Women’s Role in
Planned Economy. Not all sub-committees (and there own sub-committees) compiled
their and submitted their reports. Before turning to the recommendation of some of the
sub-committees, it is worth quoting from Chairman’s opening remarks at the third
session of the Committee recapitulating the basic and fundamental policies that must
govern planning, without an understanding of which plans would be ineffective and
planning would be vain.
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“We are aiming at a free and democratic State, which has full political and
economic freedom. In this State the fundamental rights of the individual
and the group - political, economic, social and cultural - will be guaranteed, and
the corresponding duties and obligations laid down. The State will be progressive
and will utilise all scientific and other knowledge for the advancement of the
people as a whole, and for the promotion of their happiness and material as well
as cultural and' spiritual well-being. The State will not permit the exploitation of
the community by individuals or groups to the disadvantage of the former and to
the injury of the nation as a whole. To realise the social objectives, the State has
to plan through its representatives for the nation (whenever possible, in co-
operation with other nations) and to co-ordinate the various activities of the
nation so as to avoid waste and conflict and attain the .maximum results. This
Planning will deal with production, distribution, consumption, investment, trade,
income, social services, and the many other forms of national activity which act
and react on each other. Briefly put, Planning aims at the raising of the material
and cultural standard of living of the people as a whole. In India our standards
are so terribly low and poverty is so appalling, that this question of raising
standards is of the most· vital importance. The National Planning Committee has
suggested that national wealth should be increased between two and three times
within the next ten years; and this should be so planned as to raise the general
standard at least in a like measure.” (p 129)

“The principle of State ownership or control of Key Industries and services,
mineral resources, railways, waterways, shipping and other means of public
transport has also been accepted. This principle was laid down first by the
congress at Karachi in 1931.” (p 130).

“Further, it has been decided that Defense industries should be owned and
controlled by the State; and that Public Utilities and all Key Industries should be
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41
owned or controlled by the State. A strong body of opinion in the National
Planning Committee was in favour of the State always owning Public Utilities.
The principle of State ownership or control legitimately applies to other
large-scale industries or enterprises which are likely to be monopolistic in
character, or even to other large-scale enterprises. The National Planning
Committee has also declared that cottage industries, in conformity with the
national policy, should be protected and encouraged.” (p 130).

The sub-committee on manufacturing recommended “that no unit should be so
large as to be outside the reach of competition by smaller economic units. Units smaller
than the economic units should not ordinarily be allowed to be started, except for
experimental or pioneer purposes. The size of the economic unit will be decided in the
case of each industry by qualified authority.” (p 145).
The sub-committee on population agreed “the size of the Indian population is a
basic issue in national economic planning, in so far as its unrestricted increase, out of
proportion to means of subsistence, affects adversely the stand of living; and tends to
defeat many social and ameliorative measures. The problem has been fundamentally
caused by the lack of all around, coordinated economic development” (p 153) and
recommended “In the interests of social economy, family happiness and national
planning, family planning and limitation of children are essential; and the State should
adopt a policy to encourage these.” (p 154). In keeping with the times it made what
would now be viewed as abhorrent recommendations: “An eugenic programme should
include the sterilization of persons suffering from transmissible diseases of a serious
nature, such as insanity or epilepsy. For the blind, deaf, mute, infirm, feeble-minded,
and other socially inadequate persons, we recommend that there should be more
adequate and more appropriate institutional care and vocational training through
hospitals, special schools, colonies and homes, in order that they may prove useful and
not an excessive burden to society.” (p 155)
9
.

9
The Eugenicists of the times included the great statistician Sir R.A. Fisher and the economist Irving
Fisher just to mention two among many.
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The labour sub-committee recommended “Regulation as regards living and
working conditions of the employees, including hours of work, employment of children,
provisions for safety and sanitation, social insurance and such other matters, should
apply…” (p 159)
On foreign trade, the sub-committee on Currency and Banking insisted that “All
import and export trade must be done under a system of licenses, which should be
freely given; but which would be so designed as to enable the State to have the fullest
information regarding the direction of the trade, and to facilitate control and regulation
as they are found necessary” (p 165)
The sub-committee on rural marketing and finance recommended “ The practice
of gambling in “futures” markets is objectionable and injurious, and should be put an
end to” (p 169).
The Public Finance Committee was explicit on keeping public investment
expenditure distinct from public consumption expenditure “capital investment in utilities,
services, or agricultural, industrial or commercial enterprise, must be kept apart from
those of recurrent expenditure.” (p 192) and in recommending for servicing the debt
incurred for investment purposes “Against capital investment made out of borrowed
funds, adequate provision must be made from the start for a complete liquidation of the
obligation incurred, including interest, and the replacement or renewal, without incurring
fresh obligations on that account, of the plant, machinery, stock or buildings requiring
such investment, within a definite period.” (p192-193). It explicitly prohibited the use of
borrowing for meeting public consumption expenditure “ No interference should be
allowed with the provision made under the preceding head, and no transfer or borrowing
permitted from this account to meet current losses or deficit in the ordinary budget.” (p
193). This stricture was broadly observed until the 1980s but then was flouted
thereafter.
The Education sub-committee considered it desirable to introduce optional pre-
basic education for two years for children under fie. But basic education for ages 7-14
was to be “free, compulsory and universal for every child between the ages of seven
and fourteen.” (p 209). Religious instruction was to be excluded from state education.
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On land policy, the relevant sub-committee was of the view in its interim report
that “The co-operative principle should be applied to the exploitation of land by
developing collective and co-operative farms in order that agriculture may be conducted
more scientifically and efficiently, waste avoided, and production increased, and at the
same time the habit of mutual co-operation for the benefit of the community developed
in place of the individual profit motive. Collective or co-operative farms should be
developed to begin with on ‘culturable waste’ land which should be acquired, where
necessary, by the state immediately. Each such unit should be linked to other like
units.” (p 215). In a further note, it amplified it “Cultivation of land should be organized
in complete collectives, wherever feasible, e.g. on culturable wastelands, and other
lands acquired by the State. Other forms of co-operative farming should be encouraged
elsewhere.” (p 228). One member was of the view that “compulsory collectives should
be the only ideal laid down.” (p 230).
In its final meeting on 17 September 1945 after the end of the World War, the
NPC rightly emphasized that India’s interests should govern the use huge balances in
VK pound sterling in payment for India’s supply of goods and services to support the
war effort. In particular the balances should not be scaled down and India should have
greater freedom in the use of the balances that had been locked up in the Empire Dollar
pool. Its recommendations on foreign capital investment in India are very interesting.
After noting that “ a stage has now arrive in the economic evolution of India when the
investment of foreign capital in Indian Enterprise should receive urgent consideration
with reference to its bearing on the future political as well as economic development of
the country.” (p 242) it added the caveat that “the investment of foreign capital in Indian
enterprise should not ordinarily be permitted hereafter in a form which would entitle it to
ownership and management in respect of industries of national importance.” (p 242)
though “in the case of key industries, involving the use of secret processes which would
not otherwise be available to the country, foreign participation in ownership and
management may be permitted.” (p 242). In any case, it preferred borrowing from
abroad to letting in foreign investment “It is possible in view of India’s vast capital
requirements in the coming years, that she may need capital from other countries. It is
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44
not, however, in her interest to accept it, if it is required for essential industries, except
in the shape of loans, or credits, raised by or through the State.” (p 243).
The recommendations of the NPC and its sub-committees have played a
significant role in the formulation and adoption of the policies described in Section 2.
The Planning Commission and their successors in the post-independence Planning
Commissions implicitly assumed that an incorruptible bureaucracy and politicians in
power would be motivated by a common and agreed National goal of poverty
eradication and development and their policies would be accepted by the population
and those whose actions they were intended to channel so that they would not try to
deviate from, evade or avoid the policies of planners. This assumption was largely met
during the pre-independence era both with respect to bureaucracy and the politicians
engaged in the struggle for independence under Gandhi’s leadership. It became
abundantly clear that after independence the assumptions of incorruptibility of
bureaucracy and the motivations of politicians would no longer hold.
In large part, this deterioration was to be expected – the administrators of the
immediate post-independence period were almost universally incorruptible having been
driven by their involvement in or sympathy towards the independence struggle led by
Mahatma Gandhi, with moral and ethical foundations, and most of them were old at the
time of independence. As this generation died off and with independence achieved,
there was no longer the moral and ethical compass of the struggle. Another contributing
factor to increasing corruption was the increasing pull of regional and local interests
relative to national interest once the common and shared national goal of independence
had been achieved.

IV. A Closer look at India’s “Gradualism”

Observers have various ways of characterizing both Indian economic policy
outcomes and the explaining the logic of the process that created them. This is
understandable given the complexity of the economic policy history of an activist,
idealistic, federal post-independence state and the variety of lenses through which
“political economies” can be viewed. This section seeks to summarize and synthesize
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the variety of views of both outcomes and processes of the post-independence era
(1947-2009), keeping in mind the shadow of the colonial period 1858-1947 in which
many of the institutions and laws that affected post independence outcomes
significantly were formed and enacted.
India’s political economy appears to be difficult any way one looks at it: it is not
only a democracy, but also a plural and poor democracy in a society with many
languages, several religions, income inequality, and other potential dividing lines.
Policymakers and policy implementers face a growing and diverse collection of interest
groups – and many observers would consider civil servants and politicians to be an
interest group themselves when it comes to reforms that affect the way that the state
works. India’s institutions also present a difficult terrain: the country is a federation but
with a strong unitary core so that states and local governments are often herded along
by a parliament led by increasingly fragmented coalitions. States are frequently strong
enough to resist this herding. Policy formation is only half of the game: implementation
depends on how well policymakers can influence the “iron frame” of the bureaucracy at
all levels. The changes that do happen are often treated as the anomalies to be
explained – the surprises that defy all political logic.
Without a systematic framework, however, it is impossible to understand the
larger importance and likely ramifications of any particular policy change. Need to
understand what are breakthroughs and what are not, what are posturing changes,
what are real changes, what changes will unleash further dynamics, what will not, what
is implementable and likely to change outcomes, what is not. A systematic framework is
also essential for policy strategy, for understanding and identifying opportunities to
effect change. We need to understand the intricacies of gradualism to work with it, to
accelerate it, to not mistake movement for progress or stasis for stagnation.
We also aim for a systematic framework in order to understand the normative
implications of India’s (in general) gradual policy change. Is it a hallmark of stability (a
sign of a political process the builds consensus) or an anathema to stability (a sign of
gridlock with frustration building up behind it)? Ahluwalia (2002)’s characterization of the
system as seeing policy changes due to opportunistic technocratic pushes when there
were political openings in the otherwise immovable polity suggests the latter. Ahluwalia
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46
(2002) speculates: “It is difficult to say whether [a more thorough debate … on the
extent of change needed] would have indeed yielded better results, or whether it would
have created gridlock in India’s highly pluralist democracy.” This punctuated process of
change could do more harm than good: rapid reforms along the lines prescribed by
technocrats can de-legitimate the institutions if they bypass them, doing longer-term
harm to the country’s ability to come to social consensus. (Bresser Periera, Maravall,
Prezworski, eds., 1993).
The inevitable coordination process also has implications for policy quality – how
and when is the process of coordination a productive filter for policies?

Existing Characterizations

The following is our schema for organizing the existing literature:

What explains the differences between policies that are enacted and those that aren’t?

• Variation depends on policy area and issue characteristics.
• Variation depends on the context: institutional setting, political circumstance, and
nature of interest groups.
• Variation depends on the interaction between policy characteristics and context,
perhaps mediated by the agency of an individual or individuals. This is the most
complex type of explanation, so has to focus inquiry along some other dimension
(case selection, time period).

What explains the gap between intention and outcomes?
Work on India as a failed developmental state: Chibber, Herring, etc. This work
generally explains the political dynamics of continued failure in terms of interest group
competition, with some allusions to the managerial and informational difficulties of
planning.
A second cluster of literature on implementation failure focuses more narrowly on
managerial incentives within the bureaucracy. (e.g. Lant Pritchett, “Flailing State” and a
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47
long line of other work on public services failure @ the teacher/doctor level) This body
of work tends to be more focused on bureaucratic/managerial tactics than on the
question of how these patterns become stable. The politically neutral solution is
“capacity building.” But this is a meaningless exercise unless the dynamics of the failure
are understood and the solution changes these dynamics. What are the incentives for
public organizations to build, maintain, and exercise capacity in the public good? This is
the question and it is about political process.
A third cluster of work focuses on the high-level question of how a democracy
can persistently fail to deliver. These argue that politics is actually about identity or party
affiliations rather than performance. Pritchett (2009), for example, posits that the lack of
attention to provision of public goods as issues in electoral politics is because politics
has become a forum for competing notions of identity play out, that the political game is
meaningless because the only form of accountability that citizens expect is to and from
their own caste groups, so they seek to place people of their own groups in positions
that enable them to deliver benefits. A related view (Kanchan Chandra, etc) is that
political entrepreneurs actively exploit nascent divisions to support systemic changes
that they want. Chhibber (1999) shows how party strategies have helped to politicize
social differences. Chandra (2004) argues that India is a “patronage democracy,” a
system that perpetuates identity-based clientelism as the main form of voter-politician
interaction. Kohli (1990) – Democracy and Discontent – state has become an arena for
party, identity based politics. Similar echoes in Pritchett (2009) discussion of the
interaction of India’s democracy with “administrative modernism” But these don’t explain
how this equilibrium can persist, why some political entrepreneurs don’t or won’t move
to a performance-based campaign. It also does not explain the recent (post 2004)
posturing about “performance” and the success of people like Modi, etc.

Individuals or Systems?
Rob Jenkins, all of the work about key individuals including Mahatma Gandhi,
Nehrus (father and son) Jinnah, Patel, all leaders of the colonial era and Nehru (son)
Ms. Indira Gandhi(daughter of Nehru), Rajiv Gandhi (grand son), Sonia Gandhi ( grand-
daughter-in-law of Nehru) and the Nehru dynasty; Dynasties in Indian politics
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48
Pop political economy seems to be very individual-focused. The current focus on
criminals in Parliament rather than the deficiencies of the institution of Parliament is an
example of this focus on individuals rather than system and the ways in which it can be
misleading or shallow.
One has to ask what are the systemic incentives create the openings for
particular individuals, or enable particular types of individuals to come into power and
wield power. The possibility of “fixers” implies that there are vulnerabilities that
individuals can exploit, possibly only exploit for particular causes. Another question is
what about the system encourages the popular attention to individuals and heroes?
Third, if individuals are under such scrutiny and accorded such agency over their
outcomes, how can bad politician survive? What about the system protects them?
(Pratap Bhanu Mehta – The Burden of Democracy)

Voters as the Problem or the Panacea?

The problem: Electoral politics creates politicians who are like investors with
alternating timelines – getting more short term over time. These views characterize
Indian politics as straightforward short-term populism, with larger changes (that might
be riskier) constrained by constant elections.
But why does India’s electoral politics seem to do this more than other democracies?
But power to the people is also seen as a driver for change: Nandan Nilekani’s Imaging
India implicitly sees people as the drivers of change, though they drive change in the
way in which they interact with the system to demand the services and infrastructure
and rights that are due to them. Unlike the simplistic accounts of policies as the
preference of the median voter, Nilekani also discusses the internal processes of the
state including delegation from politician to bureaucrats, administrative processes.
However, the exact process of interaction between citizens and states is not specified in
detail so the overall effect is in the tradition of “popular will governs policy.”

Challenges in building a framework for political economy in India

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49
Many veto players
























The figure above summarizes the challenge. The electorate and interest groups
discussed above just provide the inputs. Once these inputs are expressed to the “state”
there is a long institutional process that these need to go through to be translated into
policies. The tangled boxes and lines below the electorate summarize the institutional
terrain: the policymakers, policy implementers, and the delegation and coordination
relationship between these. Each solid line in the figure above represents delegation:
ILICTORATI
Stute Legislutive
Assembly
Lok
Subhu
Boreuocrucy:
Plunning Commission,
Iinunce Commission
IAS[IPS[IIS
IAS[IPS[IIS
Cudres
Prime Minister
Nutionul Cubinet
ChieI Minister
Sobnutionul Cubinet
Indiu
President
Rujyu
Subhu
Governors
High Coorts
Sopreme Coort
Stute Legislutive
Cooncil
Stute Civil
Service
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50
one group cedes some responsibility to another in the hope that it will act on its behalf.
The Parliament (like all parliamentary governments) delegates power to a Prime
Minister and a Cabinet of Ministers. These leaders, in turn, delegate responsibility for
implementing to bureaucrats. The delegation inevitably involves some degree of
slippage between the aims of the original group and their agents; exactly how much
depends on the terms of the delegation.
The dotted lines denote some kind of policy coordination or joint decision-making
arrangement; anything from informal consultation to strict requirements for mutual
agreement. These coordination requirements always mean an extra step and/or an
extra voice in policy decisions. The chart actually under-represents India’s political
complexity and the number of points at which policies can be vetoed. The difficult of
policy change does not necessarily increase linearly with the number of veto players – it
also depends on whether these potential nay-sayers’ interests are aligned or not – but it
does generally increase.
10

The figure simplifies the complexity in some ways. The bureaucracy, for
example, is just one box instead of the 49 Ministries and 2 independent agencies that
India has – more than any other Parliamentary Democracy save New Zealand. The
number has expanded over the years to accommodate the increased demands coming
from more coalition partners. The box also glosses over the proliferation of inter-
ministerial committees. With so many ministries, some of which (like Finance) have an
explicit mandate to oversee others, jurisdictions cannot help but overlap, necessitating
another layer of committees. These committees often become bottlenecks for key
decisions simply because so many decisions end up being passed up to the higher
levels for coordination in the absence of other inter-ministerial means for cooperation.
11

The “Government” may also be less unitary than implied by the solid box – coalitions
have become a common feature of modern politics.
12
As a snapshot, the chart also
overlooks contingent veto points. Coalition politics has strengthened the President’s role

10
See Tsebelis on veto players theory, Henisz (xx) for an empirical application.
11
Jalan (2007), p. 16.
12
It is beyond the scope of this review to explain the reasons for India’s pattern of few large parties and
many small ones. The rules about defection may be one reason: representatives lose their seats if they
vote against party leaders unless it is a genuine “party split” in which at least 1/3 (1/2?) of the members
vote differently. This, plus the advantages of being a potential coalition partner has driven a proliferation
of small parties in India.
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51
in policymaking and ability to create an additional veto point. When no party has a
majority, then the President gets to referee the game of government formation, and
decides whether to grant request for government dissolution.
It also simplifies the federation as only one state is shown and local governments
are also not on the chart. These are independently elected, but their financial powers
and resources are effectively controlled by state governments. State and central
government policy jurisdictions are intertwined in the constitutional division of policy
responsibilities into union, state, and concurrent lists.
13

The center-state balance of power is ambiguous and contingent. Constitutional
provisions are clearly in favor of the central government, as are fiscal powers. The
constitution says that law made by Parliament, before or after the state law, prevails and
that any conflicting part of the other law is void. If the state makes a law about one of
the concurrent list subjects that is repugnant to an earlier Parliament law or an existing
law, this law can prevail in the state only if President gives assent, and Parliament does
not enact another law on the same matter, including adding to/amending/varying or
repealing the state law. Article 356 also gives the central government the power to
intervene and dismiss state governments if there has been a “failure of the constitutional
machinery” in that state.
Coalition politics, and the bargaining power that comes from being able to
“pocket veto,” on the other hand, are in favor of the states. Central government
policymakers frequently have to negotiate with their state-level counterparts to ensure
that the set of decisions required to complete a policy objective will be taken. Fiscal
transfers, usually seen as possible levers for enforcing state compliance with central
policies are fragmented. With grants and loans from the Finance Commission, the
Planning Commission, and Ministries for sector-specific programs that are collectively
overseen by both the Finance Ministry and the Planning Commission, it is difficult for
central government policymakers to credibly rein in the states with the power of the
purse. State government parties also have increasing political leverage in coalition
governments.

13
These lists are constitutionally stated, but are not fixed in stone. Education was shifted from the state
list to the concurrent list, for example, by the 42nd Amendment Act of 1976.

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52
India’s institutions also allow little room for constructive center-state dialogue.
Formal mechanisms for center-state consultations such as the Inter State Council have
no power to do anything other than suggest compromises. The Rajya Sabha, the upper
house of Parliament would be a logical institution for representing state interests in the
federal government. Its members are elected by the state legislators for six year terms.
It has limited power in practice, however: it is half the size of the lower house and so is
dominated by the Lok Sabha in any joint sitting.
14
It can neither introduce nor refuse to
agree to money bills. It has no pocket veto either: any money bill pending before the
Rajya Sabha is considered passed if no action is taken within two weeks.
The bureaucratic channels for managing center-state relations are also blurred.
The National Development Council (NDC) is the de jure forum for state-center
coordination on economic planning and its more modern version: public expenditure
management. The discussion between state chief ministers, central government
ministers, and the Planning Commission, however, is perfunctory and largely an
approval of decisions that have been worked out through bilateral negotiations between
the Planning Commission and states. Ad hoc forums such as the Empowered
Committee of State Finance Ministers and meetings of State Finance Secretaries and
the Reserve Bank of India provide some opportunity for further discussion, but there is
no institutional basis for seeing these decisions holistically.

Interrelated decisions are hard to capture in stylized models

The stylized model represents “reform” as a single decision, or perhaps two, to
be made by some group of policymakers, by some aggregation rule, in some order. The
stylized view of reform as a single decision is helpful for pointing out some of the
determinants of change or priorities for institutional reforms, but not all. Creating a
single independent regulator, for example, requires a single act of Parliament that
awards an independent budget, provides for some security of tenure, and so on. The
standard view of the reform obstacles, mainly getting a group of potential nay-sayers

14
Joint sittings occur when the two houses disagree on a particular policy. They vote together on a final
version, so that the numerical superiority means that Lok Sabha version always wins.
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53
with vested interests, to agree to tie their hands, provides good insights into the
likelihood of change. These theories are less applicable when the desired outcome
requires lots of separate decisions across time or institutions. The outcomes can be
more or less than the sum of the parts. Kapur and Mehta (2005)’s volume notes this,
and the collection of studies tries to assess how the institutions “assist, thwart,
manipulate, and subvert each other.” One of their conclusions from the overview of
institutions is that “interlocking relations among institutions means that the whole may
be considerably less than the sum of its parts.” (15)

Implications of the interrelated decisions:

Bottlenecks: outcome only as good as the weakest link. This dulls any incentive for
reform: an individual decisionmaker can look ahead, see that the outcome will not
happen because a decisionmaker farther down in the sequence will not make the right
decision. Police are often criticized as being ineffective, for example, but if they were
effective, then this would be frustrating unless the criminal justice system could
prosecute them fast enough. CAG produces reports, but Parliament doesn’t really read
them. (Kapur and Mehta (2002)
15


Group rewards for individual decisions damages accountability. Gains from the reform
depend on everybody adopting the reform. This means that individual adopters have
little incentive to do so unless they can be assured that enough others will join. The
collective reward also makes it hard to claim credit for delivering any benefit. This leads
to two situations:
all or nothing: collective action problem.
increasing returns depending on the number of other joiners: populism
trap.
To break these impasses: need commitments to de-politicize are credible enough so
that any individual trusts that others will abide. Needs to be a collective decision.

15
Kapur and Mehta (2002). “India’s Parliament as an Institution of Accountability,” report prepared for
IPU, Geneva.
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54

Some pieces of a coherent framework.

Organizing Metaphor
Our organizing metaphor – not a simile or literal model – is of a system of
equations. The major actors and systemic features interact, react, and evolve to interact
again. Some reactions take place with a long lag; others have shorter responses.
Endogenous variables: economic policy, institutional changes, policymaker
ideology, influential individuals (endogenous to institutions as selection mechanism also
endogenous to institutions in the sense that individuals can only be powerful if they find
situations institutions don’t specify.) economic performance in terms of aggregate
growth (national and state level), distribution (poverty, inequality among households,
social groups and across states)
Exogenous: international events such as China’s reforms and rapid growth,
collapse of the Soviet Union.
Our intent is to build an analytic narrative, placing institutions at the centre of
political stability but showing how “the order they provide emerges endogenously.”
(Levi, Rosenthal, Weingast, 5).

Relatively Fixed Institutions

We face the usual tensions between tractability and realism in specifying the
institutional context for this study. On one end of the spectrum, we could follow the
Buchanan tradition of simply confining political economy to the formulation and adoption
of the constitution and assume that once adopted, all other subsequent organizations,
processes, and policies stem from its provisions. We reject this simplistic view that all
political economy debates end with the adoption of the constitution, however. The
Indian constitution is far from a static document: it has been amended 80 times in its 60
year history. Moreover the architects of the constitution had a forward looking
perspective beyond responding to the immediate context of the trauma of partition and
the movement of millions as refugees, the Second World war and the integration of
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55
what was left of British India and the princely states into the union and the inherent
“fissiparous” tendencies within India.
It is an open question whether they anticipated that the Supreme Court they
created could and would in future rewrite the Constitution through judicial interpretation
as in the Kesavananda Bharati case where they held that the basic structure of the
constitution cannot be changed without being explicit about the basic structure, the
Public Interest Petitions in the eighties and thereafter and many more.
16
We do not go
into an expansive discussion of judicial activism and overreach because of their
complexity. Suffices it to say that knowing the constitutional rules is not enough to
identify the dynamics nor the outcomes of policy in India – other institutions, including
some whose influence extends beyond what could be inferred from their constitutional
underpinnings, shape the outcomes. The other end of the spectrum would be to include
not only the constitution and formal political organizations and processes but also the
social norms embedded in India’s historic and cultural context that undoubtedly
influence individuals’ decisions and interactions. This end of the spectrum becomes
intractable.
We choose a middle point and specify the relatively fixed institutional context for
post independence Indian political economy as:

• the constitution that lays out the spheres of exclusive responsibility of the central
(Union) and state legislatures and governments as well as concurrent or joint
responsibilities of both; central government’s power to dismiss the elected state
governments for reasons of “failure of constitutional machinery” in the states.
• the implementing institutions for fiscal federalism including the required Finance
Commissions every five years and their review of revenue transfers to states as
well as the Planning Commission and specific purpose transfers;
• the parliamentary system of government and its associated electoral rules for
center and state political representatives;

16
In particular it is not clear that in borrowing from the U.S. Constitution they took into account that it has
no article to confer the authority to the Supreme Court to be the ultimate arbiter of the constitutionality of
the actions of the other branches of government through constitutional interpretation, but that the Court
essentially assumed it in Marbury v. Madison.
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56
• the formal administrative rules including the all-India and state services (that
were designed essential for revenue extraction rather than management of social
services, and we can see this disjunct today in the contestation between local
government and district administration); and
• the judiciary.
• The power to appoint judges, senior bureaucrats, governors of states, and to
transfer them across jurisdictions

We also include other bodies that are not constitutionally mandated but
nonetheless have important influence on policy making such as the Planning
Commissions at the Center and State level, the National Development Council, Inter-
State Council and ad hoc groups (e.g. Empowered Committee of State Finance
Ministers).
We see many features of Indian political economy, including parties, as
intermediate products of the basic struggle for voice, accountability, and power in India’s
institutional setting.
Each of these institutions has distinct implications for the incentives that
policymakers and citizens face. The federal constitution, for example, establishes
checks and balances between regional and national preferences and institutionalizes
scope for variety in some policy spheres. The fact that implementing institutions for
fiscal federalism includes negotiated as well as rule-based transfers and specific-
purpose funds as well as general, creates a focal point for centre-state bargaining and a
softening of boundaries constitutionally defined policy domains. The parliamentary
system of government, for example, creates incentives for party-centered rather than
candidate-centered political competition, in turn affecting the extent to which citizens
can express their preferences in election and the responsiveness of their
representatives to these views. The parallel and federated administrative structure
affects horizontal accountability between policy makers and implementers at each level
of government.
The harder part is fitting these pieces together to analyze Indian political
economy in a more integrated way as a “policy production” system in which individual
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57
citizens, policymakers, and bureaucrats interact in this context to enact policy.
17
The
context created by these institutions is more than the sum of its parts and most
observers of Indian political economy highlight the way in which various features of the
institutional context interact and reinforce each other.

More Fluid Institutions

Social groupings based on religion, caste, and/or class are important parts of
the Indian social context and have become part of the setting for policymaking.
However, our larger project argues that the politics of religion, caste, and class are a
reaction to the institutional context and largely product of political entrepreneurs rather
than a necessary aspect of policymaking. The caste system also cannot be ignored.
Questions to be considered are why the British did not do much about it and pre-
independence social reform movement left a lasting impact on the politics of, for
example, Tamil Nadu(the current DMK, AIDMK etc all go back to the social movements
of late nineteenth and twentieth century) and the South more generally and not as much
in the North. Hindu-Muslim relations also cannot be ignored—after all partition and the
trauma of it still affect contemporary politics e.g. brouhaha in BJP over Singh’s book on
Jinnah.
Similarly, political parties play an important role in nearly all aspects of Indian
policymaking from centre-state negotiations to shaping parliamentary debate. However,
we view the parties, their organization, and their internal rules as an outgrowth of the
parliamentary and federal system of government. Both of these are grey areas for
drawing the line between “context” and “reaction,” since both are shaped by pre-
independence history as well as modern political strategies played out in the institutional
context. We argue that the ways in which cleavages and parties reflect the struggles on
the playing field defined by other institutions is more relevant than the fact that either
existed pre-independence.

17
As we discuss below, “enacting” policy is the sum of policy formulation and implementation.

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58
Case study/example: party dynamics. Dravidian parties of the South, the
spawning of many political parties steeped with “Congress culture” to varying degrees
as the umbrella national character of pre-independence congress changed, and the
evolution of BJP from the pre-independence Hindu Mahasabha, Jan Sangh with the
RSS being the ideological anchor for all has to be brought in.
While we see the formal structures of public administration – the existence of
the all-India services, the presence of a very competitive entry exam, the rules for
assignment of officers to postings and transfer from postings, the formal lines of
delegation between politicians and bureaucrats – as relatively fixed, we see the culture
of public service as something that evolves faster. Norms are important: the formal
rules do not fully specify the tasks and reactions of street level bureaucrats, so the
ethos of showing up, performing, responding often determines the outcomes. (cites on
“street level bureaucracy”).

Examples when norms are important supplements to formal rules.
Showing up and the social pressures to do so or not. Anecdotal evidence from
police in Bihar. Empirical from Banerjee, Duflo, Glennerster (2007) on health
services in Rajasthan and the ineffectiveness of monetary incentives and
oversight to get health workers to show up.
Das and Hammer (2006) on competence vs effort among doctors. Competence
can be tested up front, but effort is harder to observe so it has to come from
some intrinsic motivation.

Ideology

We see ideology as a hidden (genotype) characteristic of individuals, expressed
(phenotype) to the extent that institutions allow. Government ideology can evolve, either
by individuals changing their mind or new individuals replacing an old one.
The economic policies of the post independence era were heavily influenced by
the pre-independence political consensus on planning and the overarching goal of
eradication of poverty, the role of the state, and achievement of self reliance. The
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59
unraveling of this consensus over time presents interesting questions for analysis: some
features lasted much longer than others.
We try to explain this variation in durability as a function of
political entrepreneurship: ideologies that elites found convenient to nurture given
the institutional context lasted longer than others.
information shocks: ideologies that history and evidence from other countries did
not challenge lasted longer

Nilekani (2009), for example, has some interesting examples of the unraveling and re-
creation of social consensus on English, in which the economic value of English
increased before the political value did, but the unraveling of the citizen consensus
drove political/policy changes. English was largely viewed as a “foreign language” at
independence and the question on the ability to speak the language was eliminated
from the population census of 1951, but there now seems to be a new consensus on
English as the language of economic, political, and social value as evidenced in the
scramble for admissions to English medium private schools and the introduction of
English into public schools.

Glimpses of the dynamics that matter
This section outlines a set of “moving parts” that have to be considered in linking the
dynamics of policy reform to institutions, ideology, and individuals.

1. Citizen to state – this interaction links policy outcomes and economic
environment to political change, ideology change, institutional change.
a. horizontal citizen pressure on service and infrastructure providers
replacing vertical oversight from elected representatives. But this pressure
has limits if there is nothing to critique or react to. It is hard to see how this
creates an agenda and plan of action rather than comments/adjusts one
that is formed by a competent state.
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60
b. Citizen coping - replacing state provision of services (and, along the way,
incentives to press for state action change as one invests in alternative
solutions – case of urban water.)

2. Intra-government political games: within parties, state-centre, executive-
legislative-judicial, political-bureacratic – these interactions tie together evolution
of fast and slow changing institutions.

a. Parties and succession dynamics
b. States and center over control of public programs and funds
c. Executive - Legislative – Judicial on control of public programs and funds
d. Political-bureaucratic – something is broken in the “long chain of
accountability”
i. How the failure of the bureaucracy to deliver systematically or in
any way inspire hope of systematic delivery could reinforce
populism. What options does a policymaker have other than
constituency service if he/she can’t even begin to make the
bureaucracy more effective. Link to literature on how delegation
changes when bureaucracies are incompetent. (Huber and
McCarty, 2004, APSR)
ii. Why does politicization of IAS occur and persist?
iii. Why are the CAG and other formal watchdogs like PAC in
Parliament ignored and either handicapped or not strengthened?

3. Bringing 1 and 2 together: intra government political games in front of an
audience. (Groseclose, etc) – the interaction in 2 is affected because of pressure
from 1.

Organizing the Dependent Variable: A Typology of Policy Changes?

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61
Positive dynamics: Policy changes that create positive reform dynamics – continuous
change to improve infrastructure.

Examples/explanation
• Creates interest groups that propel the policy along, keeping up pressure for
performance (for example: telecoms reform creating consumer pressure for
service).
• One adopter means that the next adopters are more likely to adopt because the
incremental benefits are increasing as more join in.
• There is a demonstration effect, and this demonstration effect is exploited.
• The reform harnesses some other pro-reform force, like competition. Jenkins
(1999) argues that reformers in the central government were able to change
states’ incentives so that they competed for FDI & private investment.

Negative dynamics: Policies that create interest groups that hamper the next step.
Examples:
• Create mistrust – for example, poor handling of privatization creating opposition
to it later.
• The political bargain for the first step creates a vested interest that then opposes
the next step, or diminishes a pro-reform group. For example: obtaining land for
highways by selling development rights along the highway to developers. This
prevents widening. The captive power clause in Electricity Act may be an
example as well – if the ability to build captive power plants decreases industrial
pressure to improve the grid. India is still dealing with the aftermath of deals
made in the past.
• Lack of reform diminishes pressure for reform. For example: middle class opting-
out of public services to buy their own generators, sink their own tubewells. This
diminishes the pressure for a better public solution.

Implies change for change’s sake is not always great in the long run.
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62
Incentives for immediate results can create these. May be a byproduct of limited terms
in office.
Technology can create negative dynamics by creating an outside option for people who
would otherwise pressure the state. This is not a matter of political strategy, but it is
something that policymakers need to be aware of.

Glass ceiling: the change affects one small part of the policy or one small part of the
country, with limited prospects for any kind of dynamic effect.
• State-level policies that are unlikely to have a relevant demonstration effect for
other states, given other political configurations.
• Local government reform perspectives.

Jenkins (1999) emphasizes the flip side: that this glass ceiling can also create
reform opportunities by “quarantining” opposition (5). The fact that states had different
gains and losses from any particular policy also created a natural way to divide and
conquer opposition.

Keystone: An area in which one several separate decisions need to happen to have any
effect at all. One can stack stones, but not build an arch without a keystone.

Examples:
• State distribution sector reforms. Hard to see the benefit of these in terms of
better service unless the whole power sector gets more solvent, so then attracts
more capacity investment. [That is, unless some kind of arrangement is made to
allocate power on the basis of distribution sector reforms to create a link between
reform costs and gains.]
• Police are ineffective, but if they were effective, then this would be frustrating
unless the criminal justice system could prosecute them fast enough. CAG
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63
produces reports, but Parliament doesn’t really read them. (Kapur and Mehta
(2002)
18


This creates a collective action problem because the gains from reform depend
on everybody adopting the reform. This means that individual adopters have little
incentive to do so unless they can be assured that enough others will join. An individual
decisionmaker can look ahead, see that the reward will not happen because a
decisionmaker farther down in the sequence will not make the right decision. The
collective reward also makes it hard to claim credit for delivering any benefit. This is a
function of the division of the policy jurisdiction across authorities.

To break these impasses: need commitments to de-politicize are credible enough so
that any individual trusts that others will abide. Needs to be a collective decision. The
question is: what institutions seem to change these?

Incremental change: the kind of gradual reform that adds up linearly.

Posturing changes: These are changes that happen expressly because people are quite
confident that nothing more will come of it. They are weighing the benefits from looking
like they made some progress, or meeting some benchmark for conditional funding, with
the expected costs of the change actually going further to impact their interests
negatively. These changes are less than they appear. They are hollow steps, and can’t
be expected to cumulate except when the benefits of posturing are VERY high (so the
probability of future costs can also be high but still the change is expected to be
positive) or when the opposition miscalculates.
The categories are not so neatly separable. Some positive dynamics reforms
have perverse incentives much later, for part of the challenge. (phones and spectrum
management/interconnection.) Or they might create dynamics for some aspects of
policy, but not social benefits – example of competition for FDI and whether it spills over

18
Kapur and Mehta (2002). “India’s Parliament as an Institution of Accountability,” report prepared for
IPU, Geneva.
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64
into better policy for the “common man.” Some incremental reforms are not quite linear,
but not quite keystone (Transport reforms – the benefit depends on having something to
connect to, but most additional kilometers help in some ways.)

V. Conclusions & Agenda Going Forward

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65
Appendix 1: Chronology of Policies & Related Legislation

Foreign Trade Policies: Policies of the period 1950-70 are usefully using the five
phase characterization adopted in the series of studies of the research project on
Foreign Trade Regimes and Economic development directed by Jagdish Bhagwati and
Anne Krueger and as adopted for India by Bhagwati and Srinivasan (1975). The
phases are characterized by their specific policies and changes as follows:
Phase I: During this period, quantitative restrictions on international transactions are imposed
and then intensified. They generally are initiated in response to an unsustainable payments deficit
and then, for a period, are intensified. During the period when reliance upon quantitative restrictions
as a means of controlling the balance of payments is increasing, the country is said to be in Phase
I.
Phase II: During this phase, quantitative restrictions are still intense, but various price measures
are taken to offset some of the undesired results of the system. Heightened tariffs, surcharges on
imports, rebates for exports, special tourist exchange rates, and other price interventions are used
in this phase. However, primary reliance continues to be placed on quantitative restrictions.

Phase III: This phase is characterized by an attempt to systematize the changes which take
place during Phase II. It generally starts with a formal exchange-rate change and may be
accompanied by removal of some of the surcharges, etc., imposed during Phase II and by reduced
reliance upon quantitative restrictions. Phase III may be little more than a tidying-up operation (in
which case the likelihood is that the country will re-enter Phase II), or it may signal the beginning
of withdrawal from reliance upon quantitative restrictions.

Phase IV: If the changes in Phase III result in adjustments within the country, so that
liberalization can continue, the country is said to enter Phase IV. The necessary adjustments
generally include increased foreign-exchange earnings and gradual relaxation of quantitative
restrictions. The latter relaxation may take the form of changes in the nature of quantitative
restrictions or of increased foreign-exchange allocations, and thus reduced premiums, under the
same administrative system.

Phase V: This is a period during which an exchange regime is fully liberalized. There is full
convertibility on current account, and quantitative restrictions are not employed as a means of
regulating the ex ante balance of payments.

The period 1950-56 corresponding roughly to the period of the First Five Year
Plan (FYP) can be described as Phase IV. During this period Indian exports fell as a
percentage of world exports, remaining relatively stagnant in absolute value after the
Korean War peak, and import demand balanced this off to result in a roughly
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66
equilibrated exchange rate which put little pressure on the QR-framework that had been
inherited from the Second World War. The foreign exchange reserve position thus
remained comfortable and official reserves remained close to $1.9 million through this
period. There was no evidence of high import premia, systematic allocations of imports
and industrial licenses and associated economic policies of the kind that were to spring
up in the next period.
In a predominant sense, therefore, we can characterize this period as
corresponding to Phase IV of the Bhagwati-Krueger schema. The convertibility was not
total, the QR-regime was not fully absent and so Phase V, as denned, was not really
present. On the other hand, the QRs were not systematically designed to adjust the
international accounts and their scope was severely limited: they were, almost literally,
left over from the Second World War and the machinery for administering them had not
been dismantled.
The period 1956-62 (roughly the period of the second FYP) falls under Phase I.
It was characterized by the imposition, of a QR-regime in the strong sense, provoked by
a severe balance of payments crisis in early 1957. This was also a period of a shift in
the investment pattern to manufacturing industry and to heavy industry as well,
imposition of strict industrial licensing, accrual of significant aid flows, a rise in the
domestic rate of saving, a sever reduction in foreign exchange reserves and a
continuing stagnation in export performance (implying a falling ratio of exports both to
GNP and to world exports).
Clearly, the period is somewhat easily characterized as Phase I, in terms of
extensive and intensive emergence of the QR-regime as a method of adjusting the
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67
international accounts. At the same time, it should be noted that, coincident with the
balance of payments rationale, the introduction of industrial licensing and industrial
targeting simultaneously implied a rationale for the QR-regime which rested rather on
the objective of selective industrialization, buttressed by QR-regime-generated,
automatic protection—as we shall shortly discuss in Part III.
The period 1962-66, the situation of Phase I in the earlier period continued
except for that export subsidization was begun in earnest around 1962 and intensified
through the period on a whole range of exports.
Reserve position continued to be "thin" - aid flows were stabilized up to nearly
1964-65; QRs remained severe (the premia on imports, however, rose to
unprecedented levels around late 1965 and early 1966 with the suspension of aid
following the Indo-Pakistan War in late 1965); and export performance registered a
significant improvement (until 1965 when a major drought affected the traditional
exports adversely). Industrial licensing also continued to be severe but, toward the end
of the period, efforts were made to loosen it up. Toward the end, the government also
steadily deployed import duties to mop up the import premia.
This period can be broadly characterized as one involving "partial liberalization"
in view of the export subsidization and growing resort to import duties (both of these
policies involving therefore a growing, de facto devaluation); we should also note the
halting moves toward more liberal industrial licensing procedures. These moves were to
culminate in our "Liberalization Episode": the June 1966 devaluation and the
accompanying import liberalization. We will thus characterize this period as Phase II.
The next period, 1966-68 falls under Phase III With the 1966 devaluation and
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import liberalization (based on enlarged aid flows), we can identify the beginning of a
third phase. The devaluation was also accompanied by an elimination of export
subsidies and reduction of import duties. As it turned out, this period was afflicted by a
second disastrous harvest, resulting in price increases and an adverse impact on
traditional exports, and subsequently by an industrial recession. This liberalization
episode, in consequence, was ill-starred for economic reasons. These difficulties were
further compounded by the acute political pressure brought by aid donors for this
change of policies. Thus for several reasons explored in Part IV in depth, Phase III did
not lead to a Phase IV of yet further loosening up of the QR-regime and its attendant
effects, but rather to a relapse, by 1968-69, into Phase II.
Bhagwati and Srinivasan (1975) periodization of 1950-70 ends with 1968-70 as
Phase II. By 1969-70, the liberalization appeared to have been largely reversed. The
import premium was back to 30 to 50 percent on the average, export subsidies had
been reinstated and were up to high levels, industrial de-licensing had amounted to little
(especially because of continuing QRs), automatic protection with QRs was still the
order of the day, and the picture looked very similar to (though marginally better than)
that obtaining during 1962-65. The system had not really moved into Phase IV
effectively but had rather relapsed into Phase II. In this sense, the liberalization episode
had failed; it had also failed politically for the reason that exogenous developments
(e.g., price rises due to drought) plus foreign pressures had (erroneously) dis¬credited,
in the political and public eye, such a liberalizing package and hence diminished the
likelihood of its being tried again.
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69
In the period 1980-86, Phase II continued followed by Phase III in 1986-1991.
The post 1991 period could be described as transition between Phase IV and Phase V
but with full convertibility of rupee that would be the hall mark of Phase V yet to be
attained.
The major legislations, of the pre-reform era relating to Foreign Trade other than
tariff changes and policies on foreign capital inflows and outflows in the annual Finance
Bill implementing budget proposal include:
(1) FERA (Foreign Exchange Regulation Act) 1973 and its amendment in 1993.
This, as introduced in 1973 was meant to consolidate and amend the law
regulating certain payments, dealings in foreign exchange and securities,
transactions indirectly affecting foreign exchange and the import and export
of currency, for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the economic
development of the country.
(2) COFEPOSA (The Conservation Of Foreign Exchange And Prevention Of
Smuggling Activities Act, 1974).
(3) SAFEMA (Smugglers And Foreign Exchange Manipulations Act)1976
(4) SAFEMFOPA [Smugglers And Foreign Exchange Manipulators (Forfeiture Of
Property) Act], 1976. An Act to provide for the forfeiture of illegally acquired
properties of smugglers and foreign exchange manipulators and for matters
connected therewith or incidental thereto; The post-reform legislation include:
(5) FEMA (Foreign Exchange Management Act), 1999. to consolidate and
amend the law relating to foreign exchange with the objective of facilitating
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70
external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India.
The Prevention of Money Laundering Bill, 1999: A Bill to prevent money-
laundering and to provide for confiscation of property derived from, or involved in,
money-laundering and for matters connected therewith or incidental thereto.
The major legislations relating to agriculture were primarily those relating to
reforms of agrarian structure such as abolition of intermediaries, imposition of ceilings
on land ownership and tenancy reform. Since agriculture was a state subject most were
enacted by individual states and are too many to list. Other interventions relating to
pries, price subsidies, foreign trad restrictions and public investment, credit controls,
loan write-offs, etc. were instituted by both Central and state governments. Many of
these did not require specific legislation but were part of the annual budgets (state and
Central) and were included in other legislation. Once again we do not list them here
individually. Since in our judgment reforms did not cover agriculture sector to any
significant extent our omission of a discussion of legislation does not materially affect
our discussions in Section 2.
The policy resolutions of the Central government and the legislations with their
amendments relating to industry are numerous. We highlight the major ones, starting
with the Industrial Policy resolution of 1948. This emphasized the importance to the
economy of securing a continuous increase in production and ensuring its equitable
distribution; the adoption of the constitution in 1950 with its social goals of the articles
on directive Principles of State Policy and the establishment of the Planning commission
entrusted with the task of preparing Five Year Plans for national development lead to a
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71
comprehensive revisions of the resolution of 1948 and here incorporated in the
Industrial Policy resolution 1956 which emphasized the acceleration of the rate of
economic growth and the speeding up of industrialization as a means of achieving a
socialist pattern of society and gave primacy to the role of the State to assume a
predominant and direct responsibility for industrial development.
Subsequent changes in the period before reforms include:
The Industrial Policy statement of 1973 which Identified high-priority industries
where investment from large industrial houses and foreign companies would be
permitted, the Industrial Policy Statement of 1977 which placed emphasis on
decentralization and on the role of small-scale, tiny and cottage industries, the Industrial
Policy Statement of 1980 which focused attention on the need for promoting competition
in the domestic market, technological upgrading and modernization.
The major legislation of this era was Monopolies And Restrictive Trade Practices
Act (MRTP Act). The principal objectives that the MRTP Act sought to achieve were:
the prevention of concentration of economic power to the common detriment, control of
monopolies, and prohibition of monopolistic and restrictive and unfair trade practices.
As noted earlier, the Industrial Policy Statement of 1973 implemented this legislation in
part.
The hesitant reforms of the mid-eighties introduced by Prime Minister Rajiv
Gandhi in 1985 and 1986 included procedural changes aimed at increasing productivity,
reducing costs and improving quality. The accent was on opening the domestic market
to increased competition and readying our industry to stand on its own in the face of
international competition. The public sector was freed from a number of constraints and
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72
given a larger measure of autonomy. The technological and managerial modernization
of industry was pursued as the key instrument for increasing productivity and improving
our competitiveness in the world.
The systemic reforms of 1991 as incorporated in the Statement of Industrial
Policy of July 24, 1991, as mentioned earlier, abolished industrial (capacity) licensing,
liberalized considerably the rules of Foreign Investment and Technology Agreements as
well as the regours of the MRTP Act. Public Sector policy, particularly on state
ownership was relaxed. A separate package of reforms for small and tiny sectors was
also announced separately.
Labour Laws: The major legislation in the Industrial Disputes Act of 1948 and its
as many as 34 subsequent amendments until now. It was enacted to lay out
procedures for the investigation and settlement of industrial disputes and for providing
safeguards to the workers. Basically, the disputes that are covered under the Act cover:
illegal strikes and lock outs, lay-offs and retrenchments, discharge or dismissal of
workers, interpretation of standing orders, wages, bonus, conditions of work and
rationalization. Perhaps the most consequential among the 34 amendments were
those made in 1971, 1972, 1976 and 1982. In particular the amendment of 1976
introduced a new chapter VB regarding special provisions relating to lay-off,
retrenchment and closure in certain establishments. It reduced the threshold size of
employment above which prior government provision was required before lay-offs,
retrenchment and closure from 1000 to 300. The 1982 amendment reduced it further to
100. Moreover chapter V-B made the government to become a third party even if the
employee is satisfied with the severance package offered by the employer. Further a
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73
return of the chapter made any dispute between an employer and an individual
employee into an industrial dispute, notwithstanding that no other employee, nor union
of employees is a party to the dispute.
The other labour laws included the Trade Unions Act of 1926 as amended
thereafter including one in 2006, the Plantation Labour Act of 1951 and the December
1983 notification of a Scheme for Participation of Workers in Management.
The National Planning Committee’s recommendation that the “cooperative principle
should be applied to the exploitation of land by developing collective and cooperative
forms” was abandoned after independence. Fortunately, collective farming which
proved disastrous in China and the Soviet Union was never attempted. The idea of
cooperative farming was briefly tried and given up. In effect from the mid-fifties almost
all land was privately owned and cultivated.

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