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Book Review

GBS Assignment

RESET:

Regaining India’s Economic Legacy

Submitted to: Submitted by: Group- 8

Dr. Rashmi Ahuja Rajesh Jha-179/2019, Chapter: 1
Aishwarya Tiwari- 173/2019, Chapter: 2
Shreshth Sharma- 178/2019, Chapter: 4
Divyansh Jain- 177/2019, Chapter: 5
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Chapter 1
Imperialism Uproots Agriculture

• The chapter deals with issues regarding pre modern Indian economy. It tells us that India was
one of the wealthiest nations off pre industrial world. India’s share of world income was 25%
up until 1700. After the Britain drained India through continuous means of plundering,
stopping innovation and local entrepreneurship of 71 trillion USD, India share of world
income came at just 4%.
• A system of loot was developed in British India through rigged trade system, the Zamindari
revenue extraction mandate, and collection from taxes. The modus operandi of East India
Company was to collect tax and use shrewdly a portion of those revenues to fund purchase of
Indian Goods. It was a theft on a grand scale.
• To add to this the British were able to sell stolen goods to other countries at far higher prices.
After the British Raj took over, Indian producers could export their goods directly to other
countries, but Britain made sure the payments for those goods happened in London. This
meant Deficit in Indian National accounts because the real income was appropriated by
entirety of Britain.
• During the 200-year history of British Rule, there was almost no increase in per capita
income, the average life expectancy dropped, tens of millions died needlessly due to 17 policy
Induced famines.
• 1857 onwards, British imperialist outlook towards Indian peasantry was of distrust because of
their support in supplying soldiers and funds to Rani Jhansi and Maratha Revolt. Hence
British Launched a systematic assault on Indian farmers. In order to strengthen their political
control on India, Keeping the pressure on the peasants through an oppressive land revenue
system.
• Since this government of foreigners needed a comprador local elite to govern securely, they
encouraged the growth of an Intermediary class Zamindars, who drew their authority from
their English masters and received protection in return and amassed wealth without
contributing to productivity.
• High land tax by itself does not obstruct agricultural development. This happened because of
naturally limited and negative role the British saw for themselves in the development of India.
• The drain of Indian resources and wealth out of the country to England is amplified by a
comparison to China. Both countries suffered at the hands of imperialism, but the difference
was China was never administratively controlled by foreigners.
• The contrast comes clearly in the agricultural development of two countries. This contrast
also raises questions of technological as well as Institutional issues. Clearly the central reason
was due to different of the government in the two countries.
• By 1950 when India and China founded their new republics, china had a comfortable food
surplus which enabled it to finance rapid industrial growth. India had suffered a 2-century
long decline in food grain yield, had no such cushion. Therefore, the unthinking imposition of
soviet’s model led to near famine conditions.
• Hence India was compelled to slow down it’s industrialisation programe in 1960’s to provide
resources for improvement in agriculture after the realisation dawned on free India’s planners
the sector could not be squeezed anymore without serious consequences for the economy as a
whole .
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Chapter 2
Industrialization: One Step Forward, Two Steps Forward

Subramaniam Swamy with his fiery words and upfront view of the government’s economic
policies: be it his rival political party or his own- NDA, have been a great critique of Indian
Model of growth. The fact that is has been modeled on erstwhile USSR’s mechanism, greatly
irks Mr. Swamy.

In the chapter- Industrialization: Missed Opportunities and Unfulfilled Promises, he

compares and contrasts India and China’s journey towards growth, with emphasis on
industrialization. This comparison seems valid on the ground that both the neighbors were
tormented with imperialism and the systematic wreckage it left the countries with, also both
the nations faced similar problems despite the similarities, China is a gigantic superpower in
terms of manufacturing and turnover and India all but skipped the second step on the ladder of
growth- Manufacturing. It directly leaped from agriculture to the service sector.

The advent of railways played a decisive role in the early years, since it meant greater
connectivity for the British who wanted to export cotton and opium, the railway lines were laid.
Although as a positive externality, India benefitted from it: the famine that wrecked
China in 1959-61 caused by severe drought, didn’t cause any deaths in India, in China it
caused around 32 million. This finding coincides with Nobel Laureate Prof Amartya Sen’s,
that famines are not so much due to lack of food, but due to lack of access to food.

This externality came with a price- the British who were under pressure to find foreign
channels for their domestic savings found one in the Indian market, the government paid £15
million to cover the deficit in the rate of return (about 1.25 per cent). The British used railways
as a tool of exploitation, outrageously parasitic, for instance the freight rates were designed to
make internal trade less profitable than export. Moreover, the railways in China didn’t promote
economic growth because of its scale- small as compared to India. Huge incentives to cotton
exports and the easy import of textiles into the Indian markets ensured that the railways
demolished the Indian handicraft textile industry, rendering a large number of people
unemployed.

One of the two major political events that coaxed the British government into agreeing for the
railways was-
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• the uprising of 1857, which they thought could have been suppressed better had there
been railways in place;
• and the fear of an imminent Russian invasion.

One interesting thing to note about the whole episode of railways was, Chinese were against
the construction of railways, whereas Indians welcomed this move of the British.

Although the reasons for the failure in terms of growth rate in China was due to the repeated
payments in form of indemnity(insurance) for 110 times to foreign powers, whereas in India
was the systematic oppression of handicraft workers, industrialists who weren’t allowed to
flourish in the homeland in order to feed the British on the expense of Indians. Jamshedji Tata
was blocked from launching the steel enterprise for a long period of time.

Post-Independence ethos posed different problems altogether:

• India’s emphasis on “to govern, to stabilize, and to administer” while omitting “to
transform” put the country on a position of disadvantage
• All the major industrialists like Tatas and leaders like Gandhi has different vision and
approaches

Swamy disapproves of the way Indian Government spent 40 percent of the total gross
expenditure on Defence alone. It amounted to roughly 3 percent of the national income
because the government feared both internal as well as external uprisings. The government of
India paid both in cash and kind for the war which was not her own: cash -for the British
officers and their expenditure, kind- by sending their own men in form of soldiers.

Hurdles in India Hurdles in China

Partition: Political Instability:

• Burma Rice Bowl was separated • Disorder, war and rebellion
from India in 1937 • Repeated payments in form of
• India retained 82 percent of the indemnity
population, received only 69 per
cent of the irrigated area, 65 percent
of the wheat area and 68 per cent of
the rice area
• Increasing refugees
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India had a slightly better infrastructure than China was relatively much better positioned
China. for industrialization in 1952 than India
because its agriculture was not as annihilated
as India’s in 1947.

• Lack on Education in technological Not able to utilize western technology for

subjects economic advancement
• Lack of native entrepreneurship,
insufficient size of markets

Socialist model stunted the growth for India Socialism+ Communism proved to be a
and didn’t prove to be a good strategy better economic strategy for China if not
political.

The conclusion that emerges from a comparative analysis of these two Asian giants is that it is

the absence of good leadership in the area where it would have been the most effective—in the

government—that appears to explain the failure by the two countries to industrialize.

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Chapter 4

Roar of The ‘Caged’ Tiger

• This chapter essentially talks about how Soviet-inspired kind of command economy
unsuccessful in India from 1950-1990. This kind of command economy was favoured
by Jawaharlal Nehru. the explanation for its failure was the country’s national
attribute, that was based on individualism. the right policy is one that's mostly
supported the use of the market mechanism, with the govt control the demand and
supply forces and guiding economic process to equilibrium by incentive whenever
distortions turn up. Such an incentive-based market system is additionally in
consonance with the Indian cultural values of individualism and collective harmony.

• The GDP rate was below 4% for four decades since 1951. This was because Indian
people’s rate of saving rose from 5% of GDP in 1951 to 22nd in 1980. The other
Asian countries like Japan, Taiwan that utilised this investment resource had a rate of
over 10%. the main downside of 4-dimensional GDP growth rate is that the nation’s
main issues like unemployment and poverty can't be solved below 10% growth rate.
The command economy failed and for the economy to actually prosper, a clean break
from the previous strategy was essential.

• During Rajiv Gandhi’s tenure as the Prime Minister, there was a rapid climb in the
GDP but the cost of achieving this growth was terribly high. These costs were in
terms of destabilized macroeconomic balances, fiscal and balance of payment deficits.
India became the third most indebted nation of the world. India became a high-cost
economy and internationally non competitive.

• In this chapter, the author additionally suggests 5 ways to boost the economy. First is
to adopt a brand new model which is in line with national priorities and objectives.
Second is to develop and modernize the agriculture sector. Third is to encourage its
industry to become cost-conscious to be internationally competitive. Fourth is to
allocate the resources more efficiently so that India achieves higher rate of growth,
with existing level of national savings. Fifth is to carry out fiscal reforms to mobilize
resources from new and untapped areas, and cut back the tax burden on the individual.
These fiscal reforms can steer the country away from the 2 debt traps (internal and
external), fiscal and foreign exchange that lay close ahead.
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Chapter-5
“A TRYST WITH DESTINY THAT NEVER MATERIALIZED”
It all started with a vision and hope of totally wiping out poverty and unemployment from our
country within just one decade i.e. 1990-1999. This definitely required a GDP growth of at
least 10% per annum.
India was facing a lot of debt default in those initial years. Debt repayment became a tedious
task for Indian government. They strategically did the deed, offered to help US as a gesture
by helping them refuel their air force planes during the Vietnam war, in return the IMF
offered India a $2 billion loan which further helped in debt repayment.
New reforms were thus made to finally uplift the Indian economy and therefore, the then
cabinet of ministers sat, and Foreign exchange rate was adjusted to help exports and imports.
The ulterior motive of all the reforms was to:
• Regain external confidence
• Control the fiscal deficit
• Restore growth and productivity.
Following steps were taken:
• Deregulation of foreign and individual trade sectors, so that the industrialists and
entrepreneurs could take their own decisions on what and how to produce. Although
some minor restrictions were still kept keeping in mind the environmental conditions
and societal benefits.
• All the reforms then made surely resulted in the increase in the growth rate of the
GDP till 2000, but then the rate declined very sharply. There was a steady growth in
the GDP from 1992-1997 of approximately 7.2% which was well above all previous
years.
• All these years, the contribution of service sector never actually declined though, it
went up to 50%.

What went wrong:

• Internal conflict of opinions and ideas inside the government.
• The congress split into two different parties; one was led by Tiwari.
• The reforms made in the early years were now not being followed.
• Most of the reforms were delayed and diluted by the Vajpayee led government.
All these years the share of agriculture in the GDP kept on declining at a sharp pace whereas
on the other hand, industry and service sector improved by a lot.
Following were few reasons of decline of agricultural share in GDP:
• Decline in Public and private investments on agriculture.
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• Limited infusion of new technologies.

• Difficulty in getting loans from financial institutions.
• These all also somehow affected the industrial sector and therefore led to its
deceleration along with agriculture industry. The investment in Industries also had a
major hit.