POLITICAL SCIENCE II

Dr. Yinghong Huang

Hyinghong@jgu.edu.in
Outline
1. Nayyar, Deepak (1998) “Economic Development and
Political Democracy: Interaction of Economics and Politics
in Independent India” ；
2. Nayyar, Deepak (2017) “Economic Liberalization in
India: Then and Now”
3. Appendix
Deepak Nayyar
◦ Was Chief Economic Adviser to the Government of India and Secretary
in the Ministry of Finance;
◦ Professor of Economics at Jawaharlal Nehru University;
◦ Chairperson of Centre for the Study of Developing Societies;
◦ taught at the University of Oxford;
◦ the University of Sussex;
◦ the Indian Institute of Management Calcutta (IIM-C)
◦ the New School for Social Research, New York City;
1.1 Democracy and markets: Let’s discuss…

as different principles
Democracy
◦ Tyranny of majority
◦ Based on one-person-one-vote
Markets
◦ Tyranny of the minority
◦ Based on purchasing power
◦ Exclusion to the poor or the weak

Economic exclusion may not eradicate social exclusion,

but accentuates the latter.
Not all cases, exclusion is bad, and inclusion is good.
A glimpse of Indian politics through her
PMs
◦ https://www.youtube.com/watch?v=V2osDxmnzBc
◦ 
◦ (English) NEHRU TO MODI - Prime Ministers of India and their Important
Work for the Country
◦ 
◦ https://www.youtube.com/watch?v=QV59Lk5CSBo
◦ 
◦ (English) NEHRU TO MODI - Prime Ministers of India & their Important
Work for the Country - Part 2
 Appendix II India in key data
GDP growth in India
12

10 Source: world
bank
8

4 GDP 增长
率

2 Polynomi
al (GDP
增长率 )
0
9 60 962 964 966 968 970 972 974 976 978 980 982 984 986 988 990 992 994 996 998 000 002 004 006 008 010 012 014 016
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2
-2

-4

-6

-8
 Deepak’s periodization is based
mostly on the economy rather than
politics;

the decline of Congress has been

accompanied with the rise of the
BJP.
1.2 Nationalism and development 1947-66

◦ The political democracy in India was unique, p3123

◦ In this construct, the state was the essential mediator, in
Reconciling the conflicts between PD & ED;
Mediating economic development and social needs;
oNecessary for the state to ensure inclusion of the poor
people in economic sphere...
Economic strategy/consensus
◦ State capitalism
More autonomous development;
Industrialization;
Public investment;
Industrial Raj for private sector;
Import substitution
The development strategy
of Import substitution is
prevailing in the second
half of 20th century in
most developing countries
until the 1970s/1980s.
Political consensus
◦ Emphasized on unity in diversity;
◦ Congress party represented a composite coalition of interests;
◦ Conflict solutions as:
The accommodation among the rulers, the rural oligarch and
the industrial bourgeoisie through trade-off;
The accommodation of the ruled, the poor, more on words,
short on substance ;
India as a model and its illusion
◦ A vision of combining political democracy with economic
democracy;
◦ Alternative to revolutions or even capitalist path to
development, like to Chinese communism;
◦ Caste might wither away, religious identities would dispense,
linguistic differences reduced due to the modernization…
◦ What was the reality?
1.3 development and democracy 1967-
90
◦ Why 1967?
The economic crisis on the mid-1960s;
Import of food from US, devaluation of RBs in 1966;
The decline of Congress in the 1967 election;
The rise of the rich peasantry
Naxalite, Dalit’s movement

His periodization is based on the interaction of E-P,

rather than on P or E respectively!
1.3.1 co-option and mediation:1967-80
◦ Economic policy adjustment
Emphasis on agriculture: Green revolution, subside to
agri., procurement policy;
Poverty alleviation policy: Employment Guarantee
scheme, Food for wok program, etc.;
Addressed the food supply problem, support growth and
industrialization, but did not last for long;
Mostly emerged from 1970s onwards
Political responses:
◦ Co-opt peasantry into Congress;
◦ Congress’ Divide and rule the regional parties;
◦ Populist rhetoric, like garibi hatao (remove poverty )
slogan to woo people; went so further to the
nationalization of banks and abolition of privy purse;
The effects
◦ Not sustainable;
◦ Economic crisis came again;
◦ Emergence;
◦ The instabilities of Janta Party;
◦ Indira came back;

◦ Consensus eroded, the new one has not emerged

1.3.2 populism and patronage: 1980-90
◦ Economic policies:
Subsides in all fronts;
Rapid increase in public expenditure
Massive expansion of poverty alleviation programs, like
national rural employment Program, the Rural landless
employment Guarantee program;
Features of NREP
• preference was given to landless labour and amongst the latter,
preference was given to SC's/ST's.
• it was not permitted to engage contractors.
• Wages were paid partly in cash and partly in food grain 1-2
kg/day/head
• NREP was a centrally sponsored programme with equal sharing of
the expenditure by the centre and the status.
Rural Landless Employment
Guarantee Programme
◦ launched on 15 August 1983 ;
◦ financed by Central Government.
◦ limited only to the landless, with guaranteed employment of 100
days.
◦ earmarking of funds specifically for certain activities- 25 per cent
for social forestry, 10 per cent for works benefitting only
the Scheduled Castes / Scheduled Tribes and 20 per cent for
housing under Indira Awaas Yojana.
◦ Later this Programme was merged with Jawahar Rozgar Yojana in
1989.
Political changes
◦ All parties and political leader tried to woo the people with
sops;
◦ The state resorted more to a politics of patronage, due to
the constrains of the market and globalization;
effects
◦ Rapid growth;
◦ Significant decline in poverty;
◦ The seed of fiscal crisis and debt crisis;
◦ Centralization of the central power;
Interaction between economy and
politics
◦ The emergence of money power;
◦ From co-option to patronage state;
1.4 liberalization and empowerment:
1991-98
Economic
◦ The sudden coming of the neoliberalization induced by the
debit crisis of 1991;
◦ From state-capitalism to market-driven capitalism;
Politics: empowering people
◦ With the rise of castes, religions and regionalism issues;
◦ Short-termism
Accentuation of conflictions
◦ Economically
◦ Politically, and
◦ Interaction between politics and economics

“the rich dominate economy now more than before, but the
poor have a strong voice in politics now more than earlier”,
p3129
Effects
◦ Mismatched, or on different direction;
◦ State is abdicating its role in reconciling economic and political
democracy…
In sum
◦ Nationalism 1947-66;
◦ Co-option to populism
(&patronage), 1967-90;
◦ Neoliberalization and
empowerment, 1990-98;
◦ Consensus
◦ Erosion of consensus and the
rise of populism/patronage;
◦ Economics and politics go on
the opposite side;

The need of the state to mediate economic

and inter-groups conflicts;
The instructor’s comments
Contribution:
◦ Dedicated efforts to explore the connections between
politics and economy/economic polities;
◦ The assumption of the necessity of state to reconcile
diverse interest and moderate politics and economy;
◦ Highlighting the characters of interaction between the two
spheres;
◦ Many details with grand macro analysis;
 However, it deserves more serious discussion in issues like:

◦ Assumption that market is exclusive, and is inclined to exclude

the poor and the weak in the society, might be too biased;
◦ The politics and economy have their own laws of motion, either
one of which has not necessarily to be caused by the other;
◦ More empirical studies need to be done to make the argument in
the paper, like the effects of the policies such as the poverty
reduction, etc.;
2. Economic liberalization in India: then
and now
2.1 the story of 1991
Liberalization begun from late 1970s, but the paradigmatic changes
occurred only in 1991; NOT by Manmohan Singh, p43;
PM Rao play a decisive role, even he did not have a majority in LS;
International context was also important;
 A paradigmatic shift
◦ Macroeconomic stabilities
Balance of payment; sustainable growth;
◦ Structure reforms
Non-traded sector to traded sector;
Government/public sector to private sector;
Openness of the economy;
Less role of government, more on market;
 The focus of reforms
◦ Industrial policy; cancellation of license-permit Raj;
◦ Trade policy: abolished import-licensing system; reduced import
tariffs, and eliminated export subsides;
◦ Foreign investment and foreign technology; enhance capital inflows
and international competitiveness;
◦ Public sector reform; reduce its activities, close un-productive units;
◦ Financial sector; improve commercial bank’s profits, and the
function of the domestic capital market, etc.
Neglects and problems
◦ Ignorance of agriculture;
◦ Jobless growth;
◦ Persistent poverty;
◦ Rising inequality;
Jobless growth
◦  
◦ The Employment elasticity () dropped significantly;
1972-73
1983, 0.6;
1993-94: 0.41;
2004-05: 0.17;
2011-12, 0.04.
Persistent poverty
◦ 25-30% of population (1.2 billion) under absolute poverty line;
◦ 75% if basic needs included;
◦ 1/3 of the world’s poor population;
Rising inequalities
◦ Gini coefficient of consumption inequalities rose from 29.6
to 36.8 from 1990 to 2010 (NSSO);
◦ Atkinson estimates: 50 for the GC of income inequalities
in 2010;
◦ The share of top rich: top 1% rich amounts to 5% in 1980
to 12% in 2000;
Crises:
◦ Agriculture;
◦ Infrastructure;
◦ Industrialization;
◦ Education;
Conclusion:
◦ Need a development for the people rather than only for the
government’s economic concern;
◦ Need state to act and intervene more actively.
Appendix I: the theories of market and government;

Market as economic and social institution

liberalism Marxism
◦ A form of freedom, e.g. the ◦ Based on property right,
right to exchange and reach a which is exclusive;
fair contract (Locke); ◦ For the good of rich, like
◦ Mutual beneficial (Adam industrialists through
Smith); extraction of the surplus
◦ Improvement for every value;
individual and the society, as ◦ Results in cyclical economic
invisible hand crisis;
Two forms of failure
Market failure Government failure

◦ Cyclical crisis ◦ Corruption, over-regulation, red-

◦ Inequality tap;
◦ Inadequate in supplying public ◦ Inefficiency;
goods ◦ Growing scale of public
◦ Externalities expenditure;
◦ Information asymmetry ◦ Leading to the road of slavery
(Hayek)
More: market and state as the two
instruments for development/social justice…
Market State
◦ Private goods ◦ Public goods/quasi-public goods
◦ Secondary distribution/redistribution
◦ Primary distribution for social justice
◦ Visible hand
◦ Setting up institutions to protect
◦ Invisible hand
market, regulate to internalize the
external effects, to achieve social
goals, etc..
 Appendix II India in key data
GDP growth in India
12

10 Source: world
bank
8

4 GDP 增长
率

2 Polynomi
al (GDP
增长率 )
0
9 60 962 964 966 968 970 972 974 976 978 980 982 984 986 988 990 992 994 996 998 000 002 004 006 008 010 012 014 016
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2
-2

-4

-6

-8
 200
400
600
800

0
1000
1200
1400
1600
1800
1960 2000
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
0
10
20
30
40
50
60

2006
GDP per capita of India (constant 2010 US$)

1983 2008
1984 2010
1985 2012
1986 2014
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
bank
Poverty headcount ratio in India

2003
2004
at $1.90 a day (2011 PPP) (% of population)

2005
2006
Source: world

2007
2008
2009
2010
2011
 the HDI of India
0.7 The HDI increase
0.6 steadily since 1991
0.5

0.4

0.3
Source: HDI index;
0.2

0.1

0
1990 2000 2010 2011 2012 2013 2014 2015
the decline of Congress has been
accompanied with the rise of the
BJP.
 Jobless
growth?

Except
2017-18,
unemploy
ment rate
has not
changed
much.

Source: NSSO report, http://www.mospi.gov.in/

 Only a react to the crisis?
Debit crisis and
400bil lions
India's Reserve
160
imbalance vanish
350bil lions 140
with the profound
300bil lions 120 growth of the
250bil lions 100
reserve;
200bil lions 80

150bil lions 60

100bil lions 40
Why 1991
performed as a
50billions 20

billions 0

watershed?
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Total reserves minus gold (current US$) Total reserves (% of total external debt)
Source: world bank
 FDI and International Trade
50Billions 60
45Billions
40Billions 50
More
35Billions
40
engagement
30Billions
25Billions
30
with the world
20Billions
15Billions 20
economy
10Billions
5Bi llions 10
Billions
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
-5Billions 0

Foreign direct investment, net inflows (BoP, current US$)

Trade (% of GDP)

Source: world bank

 share of Public Sector GDP
30%

25%

20%

15%

10%

5%

0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Privatization:
The decline of Public
Source: https://data.gov.in/; Singh, J& Chittedi, sector against the GDP
2011, p17;
The effect of de-
investment in
public sector

Two junctures
emerged, but only
after 2003-4, the
situation really
changed;
 Why the turning point of Asia start
earlier than the West?

Kuznets curve, 1955

Enlarging
inequalities?
Oshitma, 1992
 GINI Index
The bigger Gini represents more
inequalities.

G=A/(A+B)
 GINI India GINI
36
35.5
35
34.5
34
33.5
33
32.5 Source: world bank
32
31.5
0 500 1000 1500 2000 $

India has not reached its turning point now, the inequalities will be rising until she becomes a industrial
economy.
 China Gini
46

44

42

40

38

36

34

32

30
0 1000 2000 3000 4000 5000 6000 7000

The turning point for China is $ 4200 GDP pc

Source: world bank

 Karl Polanyi
“The Great Transformation”, 1944;
◦ Double movements:
◦ Movement of Laissez faire;
◦ To protect the society;

Polanyi,
2001, P116;
Polanyi, 2001, P171
What govt should do?
◦ To strengthen education, particularly the primary
education;
◦ To stimulate labor-intensive industries;
◦ To consolidate social infrastructures, like providing
healthcare security net;
◦ To improve the public delivery system, by introducing IT
and feedback system;
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Thanks!