POLITICAL SCIENCE

DEEPTI AGARWAL
SYBA 3268
ARTICLE REVIEW: Politics of Economic Growth in India,
1980-2005 (Part II: The 1990s and Beyond) by Atul Kohli.

A series of economic policies that were impossible to implement in the 1980s

became more possible in the early 1990s.  A simple answer would point to the
1991 economic crisis. However, like Atul Kohli said, the “crisis” primarily
provided an opportunity for policy reform whereas the true causes of the
liberalisation were much broader. The article very well emphasized on these
underlying factors. Atul Kohli rhetorically phrased “Is India increasingly stuck
with a two track democracy, in which common people are only needed at the
time of elections, and then it is best that they all go home, forget politics, and let
the “rational” elite quietly run a pro-business show?” In the article, he argues
that the recent economic growth in India was more a function of the pro-
business tilt of the Indian state and less a result of the post-1991 economic
liberalisation.
Like Kohli said, I truly agree that India's growth acceleration is followed by
inequalities and increasing capital intensity in the economy, the concentration of
ownership in private business, and almost stagnant growth in jobs in
manufacturing sectors. This is the best evidence of the opinion that the growth
model followed in India since about 1980 is a pro-business model based on
an alliance of the political and economic elites. Even today, the notorious tie
between the largest company, Reliance and the ruling party, BJP is no secret.
The major reason why the demonetisation of 2016 was somewhat a failure, was
because it was merely a facade by the ruling political and economical elites to
turn their black money into white. At the moment, it is almost impossible to
deny India's gradual but definitive transition from a socialist political economy
to one that places a strong emphasis on business interests.
The other underlying factors of the liberalisation were that change became more
appropriate in the 1990s as the environment in which India existed shifted and
split politically, with a large faction at least ready to experiment with a more
liberal economy. The most important external transition was the collapse and
disintegration of the Soviet Union. Break down of USSR had far-reaching
consequences for India. The Soviet Union was a significant trading partner as
India-Soviet Union trade was equivalent to $ 6 billion at the end of the 1980s,
providing India with oil, armaments, and defence supplies in exchange for a
range of commodities. Many of this trade did not require the use of foreign
currency. With a rapid fall in Russian exports, the problem of strengthening
defence forces became linked to the supply of foreign currency. Improving
export earnings and maximising other outlets of foreign exchange thereby
became national security concerns.
The disintegration of the Soviet Union meant the fall of a military and political
partner, putting more pressure to improve relations with the US. As most
developing-country, India realised that improved political ties with the
US involves economic benefits, especially the opening of an economy to
American trade. A second significant global shift that emerged in the 1980s was
the increased supply of investible resources including foreign exchange in the
form of portfolio investments. These gave India a strong urge to liberalise its
economy.
However, the major reasons of the liberalisation was because the Indian
business community's reluctance to open up to the outside world eased. Kohli
addresses how Indian industry's output increased steadily in the 1980s. As a
result, some Indian business groups were potentially better prepared to cope
with international competition in the 1990s than they were in the 1980s. The
evolving habits of how Indian capital organised itself politically and the
demands it made on the government during this time provide compelling
evidence for his argument. Subsidy cuts were met with opposition from
politically influential sectors such as farmers and exporters, and more cuts in
social spending were likely to cost widespread electoral support. Hence, a new
development strategy was made, India’s adoption of market reforms. However,
Kohli suggests that the initial signs of the shift in India’s development strategy
were already noticeable in the 1980s.
It was also obvious to Indian decision-makers that the WTO was inevitable (it
was formed in 1994) and that India would be a signatory to the WTO
agreement. With the WTO's conditions, it would have been clear that import
quotas would be removed and tariffs would be reduced within a specific period
of time.
There is no question that the transition to a liberal economy developed
significant economic growth. But the change in relationship between the
government and businesses is one field that has changed dramatically since
1991. Kohli seeks to comprehend the evolution of business-government
relations in India during the period of economic liberalisation, as well as the
resulting effect on the economy. There is no doubt that there was major
corporate influence in these policy spheres and it exists even today. I strongly
believe that India’s pro-business growth model have troubling implications for
the quality of India's democracy. The reason why the, “Rich get richer while
poor get poorer,” is the reason of pro-business growth and influence of
businesses in forming major economic policies.