A Discursive Dominance Theory of Economic Reform Sustainability: The Case of India

Abstract

Click to increase image sizeClick to decrease image size Acknowledgments I am grateful to Anthony Cerulli and the anonymous referees for their insightful comments. I am indebted to my supervisors Balveer Arora and P. D. Sharma for their invaluable guidance and discussions. I express my deepest gratitude to Robin Boadway, James T. McHugh, Charles Hankala, Kailash K. K., and Leela Yadava for helpful feedback and suggestions. Notes 1. Jagdhish Bhagwati, “India's Economic Reforms and Development,” in Isher Judge Ahluwalia and I. M. D. Little, eds., India's Economic Reforms and Development (New Delhi: Oxford University Press, 1998), p. 35. 2. Mahendra Prasad Singh, “India's National Front and United Front Coalition Governments: A Phase in Federalized Governance,” Asian Survey Vol. 41, No. 2 (2001), p. 350. 3. Barbara Stallings, “International Influence on Economic Policy: Debt, Stabilization, and Structural Reform,” in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (New Jersey: Princeton University Press, 1992), pp. 41–88; Stephan Haggard and Sylvia Maxfield, “The Political Economy of Financial Internationalization in the Developing World,” in Robert O. Keohane and Helen V. Milner, eds., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996); and Joan M. Nelson, Economic Crisis and Policy Change (Princeton University Press: Princeton, 1990). 4. See Roy W. Bahl, “Implementation Rules for Fiscal Decentralization,” in M. Govinda Rao, ed., Development, Poverty and Fiscal Policy: Decentralisation of Institutions (New Delhi: Oxford University Press, 2002), p. 276. In fact, the “linear model” of the policy process, commonly followed by the major development agencies, believes that once a policy decision was made, execution should follow, and that lack of success should be blamed on “lack of political will.” For a criticism of this model, see J.W. Thomas and M.S. Grindle, “After the Decision: Implementing Policy Reforms in Developing Countries,” World Development Vol. 18, No. 8 (1990), p. 1163–81. 5. Rahul Mukherji, “India's Aborted Liberalization-1966,” Pacific Affairs Vol. 73, No. 3 (2000), pp. 375–92. 6. David B. H. Denoon, “Cycles in Indian Economic Liberalization 1966–1996,” Comparative Politics Vol. 31, No. 1 (1998), pp. 46, 48–54. 7. Rob Jenkins, Democratic Politics and Economic reforms in India (Cambridge: Cambridge University Press, 1999), pp. 172–207; Dalip S. Swami, The Political Economy of Industrialization: From Self-reliance to Globalization (New Delhi: Sage, 1994); Amit Bhaduri and Deepak Nayyar, The Intelligent Person's Guide to Liberalization (New Delhi: Penguin Books, 1996); and Public Interest Research Group (PIRG), Structural Adjustment: Who Really Pays? (Delhi: PIRG, 1992), p. 44. 8. A dominant social discourse is one that survives the widest range of criticisms by the proponents of the alternative discourse in various forums and media. A complete consensus is not necessary, not even desirable because, a discursive democracy in a pluralistic society embraces difference and dissent. Thus, a winning discursive formation or discourse is all that is required. See John S. Dryzek, Deliberative Democracy and Beyond: Liberals, Critics, Contestations (Oxford: Oxford University Press, 2000), p. 175; and Frank Fischer, Reframing Public Policy: Discursive Politics and Deliberative Practices (Oxford: Oxford University Press, 2003), pp. 182–86. 9. Rahul Mukherji asserts, “In 1991, the pro-liberal executive opened India up to trade and investment aided by a BOP crisis; in 1966, a foreign exchange crisis did not lead to sustained liberalization when executive orientation was just the opposite.” Rahul Mukherji, “India's Aborted Liberalization-1966,” p. 376. 10. Classical pluralists, like Arthur Bentley, regarded the state as just a “weathervane.” Policy change was fully explained by the pressures on it (The Process of Government, Chicago: University of Chicago Press, 1908). Thus, governmental action is influenced by public pressures. See Jean Dreze and Amartya Sen, India: Economic Development and Social Opportunity (New Delhi: Oxford University Press, 1995). 11. According to Rahul Mukherji, Indira Gandhi drove into devaluation because of “financial need rather than a pro-trade orientation” and drove out of it because she was not a “convinced liberalizer” (Mukherji, “India's Aborted Liberalization-1966,” p. 379, 381). David Denoon, in sharp contrast, argues that the liberalization was an outcome of the implicit acknowledgement on the part of the executive, in that its micromanagement was inhibiting economic performance. See David B. H. Denoon, “Cycles in Indian Economic Liberalization 1966–1996,” p. 46. 12. It may be noted that the empirical material presented in Mukherji's article has nothing to do with proving Indira Gandhi's convictions. The empirical content is all about public pressure (Mukherji, “India's Aborted Liberalization-1966,”pp. 382–84). Thus, Mukherji's article itself does not support the author's assertion of the primacy of the executive's conviction/orientation as a key variable that determines public policy making. This variable is subordinated to “public pressure.” The author uses two definitions of executive orientation: executive orientation as executive conviction (p. 376, 381, 391) and executive orientation as “executive's preference … with an incentive to increase its tenure in office” (p. 381). While the first definition is contradicted by the “public pressure” based analysis of the executive's actions in 1966, the second definition cannot explain the executive's action in 1991. 13. Between 1964 and 1967, power within the ruling Congress Party was held by a collection of state leaders, commonly called the Syndicate. See Michael Brecher, Nehru's Mantle: The Politics of Succession in India (New York: Frederick A. Praeger, 1966); Stanley A. Kochanek, The Congress Party of India: The Dynamics of One-Party Democracy (Princeton: Princeton University Press, 1968); Lloyd I. Rudolph and Susanne Hoeber Rudolph, In Pursuit of Lakshmi: The Political Economy of the Indian State (Chicago: The Chicago University Press, 1987); and Francine R. Frankel, India's Political Economy: 1947–2004 (New Delhi: Oxford University Press, 2005). PM Gandhi won her struggle for power against the Syndicate by successfully painting herself as progressive and the Syndicate as reactionaries (on this, see Frankel, India's Political Economy). 14. Rudolph and Rudolph, In Pursuit of Lakshmi (see note 13 above). 15. Rob Jenkins, Democratic Politics and Economic reforms in India (Cambridge: Cambridge University Press, 1999), pp. 172–207. 16. Douglass C. North, Institutions, Institutional Challenge and Economic Performance (Cambridge: Cambridge University Press, 1990); and Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Bantam Press, 2000). 17. See Ian A. Clark, Legitimacy in International Society (New York: Oxford University Press, 2005), p. 193. 18. Edward Said summarizes Foucault's notion of “discursive formation” with the example that “what enables a doctor to practice medicine or a historian to write history is not mainly a set of individual gifts but an ability to follow rules that are taken for granted as an unconscious a priori by all professionals” Reflections on Exile and Other Essays(Cambridge, Mass: Harvard University Press, 2000), p. 196. 19. Pramit Chaudhuri, “Economic Planning in India,” in T. V. Sathyamurthy, ed., Industry and Agriculture in India since Independence (New Delhi: Oxford University Press, 1995) pp. 94–115. 20. Sunita A. Parikh and Barry R. Weingast, “Partisan Politics and the Structure and Stability of Federalism, Indian Style,” Working Paper (SCID, Stanford University, 2003). 21. Even Great Britain, the United States, Germany, and France, all developed their industrial sector through a phase of heavy government intervention, of which the United States was the motherland of infant industry protection. See Mehdi Shafaeddin, How Did Developed Countries Industrialize? The History of Trade and Industrial Policy: the case of Great Britain and the USA (UNCTAD: Geneva, 1998). 22. See interview with Manmohan Singh in V. N. Balasubramanyam, Conversations with Indian Economists (Basingstoke and London: Palgrave, 2001), p. 91; also see Pranab Bardhan, The Political Economy of Development in India (New Delhi: Oxford University Press, 1998), p. 279. 23. See Pulapre Balakrishnan, “Recovery of India: Economic Growth in the Nehru Era,” Economic and Political Weekly Vol. 42, No. 45 (2007), pp. 52–66. Studies indicate that targeted patronage distribution was negligible during the Nehru era, when compared to extensive and targeted patronage distribution during Indira Gandhi's era. See Vadilal Dagli, A Profile of Indian Industry (Bombay: Vora, 1970); and S. N. T. Sudhanshu, Industrial Licensing Policy and Growth of Industries in India (New Delhi: Deep and Deep, 1986). It has been estimated that the cost of rent seeking in 1960–61 was 7.3 percent of GNP, see Anne O. Krueger, “The Political Economy of the Rent-seeking Society,” American Economic Review Vol. 64, No. 3 (1974), pp. 291–303; whereas the cost of rent seeking in 1980–81 was 45 percent of GNP. See Sharif Mohammad and John Whalley, “Rent Seeking in India: Its Cost and Policy Significance,” Kyklos Vol. 37 No. 2 (1984), pp. 387–413. 24. The economic philosophy of India evolved under elite supervision. However, it is misleading to think that elites can rally public opinion behind “any” doctrine or idea. A political party's or a leader's worldview prevails only when “it is identified with an epoch and when its doctrine, ideas, methods, its style so to speak, coincide with those of the epoch. … domination is a question of influence rather than strength.” See Maurice Duverger, Political Parties: Their Organization and Activity in the Modern State (New York: John Wiley, 1963), p. 308. Thus, the elites meet with unprecedented success only when their ideas match the dominant discursive formations in the society. 25. For contentions on planning, see Frankel, India's Political Economy, pp. 70–77; Medha M. Kudaisya, The Life and Times of G. D. Birla (New Delhi: Oxford University Press, 2003), pp. 305–16; and Medha M. Kudaisya, “A Mighty Adventure: Institutionalizing the Idea of Planning in Post –colonial India,” Modern Asian Studies Vol. 43, No. 4 (2009), pp. 939–78. 26. Sudipta Kaviraj, “Indira Gandhi and Indian Politics,” Economic and Political Weekly Vol. 21 No. 38-39 (1986), p. 1698. 27. Jawaharlal Nehru mooted the idea of planning in his presidential address to the Indian National Congress in 1936. The Great Bengal Famine of 1940 substantiated the need for developmental planning; the war experience further intensified faith in governmental intervention in economic life. Last, but not least, Labour's 1945 victory in Britain, the passing of the Employment Acts in the UK and the United States, and the 1945 Beveridge Report on Full Employment in a Free Society, reinforced the idea that state intervention was imperative for economic reconstruction. See Kudaisya, “A Mighty Adventure,” pp. 940–41). Earlier on, the capitalist class of India, as a whole, had demonstrated their strong and serious commitment to planning in the final years of colonialism. See Rajat Ray, Industrialization in India: Growth and Conflict in the Private Corporate Sector, 1900–1947 (New Delhi: Oxford University Press, 1982), p. 334. 28. Arvind Panagariya, India: The Emerging Giant (New Delhi: Oxford University Press, 2008). 29. Baldev Raj Nayar, cited in Paul. R. Brass, The Politics of India since Independence (New York: Cambridge University Press, 1994). 30. Samuel P. Huntington, Political Order in Changing Societies (Yale: Yale University Press, 1968), p. 22 and 83. 31. The term “party penetration of society” implies that there are party ties to other organizations that enable parties to influence mass opinion and behavior in a variety of ways. See Alan Ware, Citizens, Parties and the State: A Reappraisal (Cambridge: Polity Press, 1987), p. 196. 32. Bhiku Parekh, “Nehru and the National Philosophy of India,” Economic and Political Weekly Vol. 26 No. 1-2 (1991), pp. 35–48. 33. Hilton L. Root, Small Countries, Big Lessons: Governance and the Rise of East Asia (London: Oxford University Press, 1996) p. 117. 34. Lloyd I. Rudolph and Susanne Hoeber Rudolph, In Pursuit of Lakshmi; Paul. R. Brass, The Politics of India since Independence; and Frankel, India's Political Economy. 35. Deepak Lal, The Hindu Equilibrium: India c. 1500 B.C.–2000 A.D (New Delhi: Oxford University Press, 2005), p. 259. 36. C. H. Philips, The Evolution of India & Pakistan 1858–1947 - Select Documents on the History of India & Pakistan 1858–1947 (London: Oxford University Press, 1964), p. 697. 37. Frankel, India's Political Economy, p. 13. 38. Everett E. Hagen, The Economic of Development, (Homewood, IL:Richard D. Irwin Inc., 1975), p. 194–215. 39. Karl Polanyi, The Great Transformation: Political and Economic Origins of Our Time (Boston: Beacon, 1944). 40. Karl Mannheim, Man and Society in an Age of Reconstruction (London: Routledge & Kegan Paul, 1940); J. A. Schumpeter, Capitalism, Socialism and Democracy (London: Allen and Unwin, 1943). 41. Gunnar Myrdal, Asian Drama: An Inquiry into the Poverty of Nations (New York: Pantheon, 1968); Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, Mass: Harvard University Press, 1962); Huntington, Political Order in Changing Societies. 42. Raúl Prebisch, The Economic Development of Latin America and Its Principal Problems (New York: United Nations, 1950). 43. John Ruggie, “International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization Vol. 36 No. 2 (1982), pp. 379–415; and Jonathan Kirshner, “Keynes, Capital Mobility and the Crisis of Embedded Liberalism,” Review of International Political Economy Vol. 6, No. 3 (1999), pp. 313–37. 44. Kenneth W. Dam, The GATT: Law and International Economic Organization (Chicago: University of Chicago Press, 1970), p. 227. 45. Anne 0. Krueger, Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences (Cambridge, MA: Ballinger, 1978), p.15. 46. Krueger, Foreign Trade Regimes and Economic Development, p.16. 47. Frankel, India's Political Economy, p.148. 48. John P Lewis, QuietCrisis in India: Economic Development and American Policy, (Brooking Institution: Washington DC, 1962), pp. 208–09. 49. Robert L. Hardgrave and Stanley A. Kochanek, India: Government and Politics in a Developing Nation. pp. 418–20. 50. Bhiku Parekh, “Nehru and the National Philosophy of India,” pp. 35–48. 51. Nehru's visit to China in October 1954 and Soviet Union in February 1955, as well as an upsurge in international academic support to planning for economic development, served as a turning point. From then on, he began to stress socialism once again. On his return from China, he turned down G. D. Birla's pig iron and steel projects, which he had promised to consider just before the visit. Nehru's reasons for stressing planning and the public sector are detailed in the several volumes of his speeches (New Delhi: Publications Division, 1958 onwards). In March 1955, the Imperial Bank of India was nationalized, followed by the nationalization of life insurance companies. The Industrial Policy Resolution (IPR) of 1956 widened the scope for the public sector expansion, which formed the basis of the Second Five Year Plan (1956–61). The Draft Plan Frame was prepared by Professor P.C. Mahalanobis, Nehru's personal economic adviser. 52. Arthur M. Jr. A Schlesinger, A Thousand Days: John F Kennedy in the White House (Boston: Houghton Mifflin, 1965), pp. 437–40. 53. George Rosen, Western Economists and Eastern Societies: Agents of Change in South Asia, 1950–1970 (Baltimore MD: John Hopkins Press, 1985). 54. Peter Bauer, “B.R. Shenoy: Stature and Impact,” Cato Journal Vol. 18, No. 1(1998), p. 6. 55. Some scholars have argued that the death of Patel in 1950 was the turning point that allowed Nehru to change his approach in 1955. See for example, Rahul Mukherji, “The State, Economic Growth, and Development in India,” India Review Vol. 8 No.1 (2009), p. 84. This contention however, trivializes the dynamics of transitions in public policy making. In fact, the evidence gathered in the present article suggests that Nehru's support for the liberal view prior to 1955 and his emphasis on socialism after that was determined by distinct historical occurrences and their socio-economic and political dynamics. 56. The Indian business class supported the struggle for independence during its last phase, probably anticipating the long term gains of supporting the Indian National Congress, even if it meant giving up profits in the short run. See Mukherji, “The State, Economic Growth, and Development in India,” p. 84. 57. Parekh, “Nehru and the National Philosophy of India.” 58. Sarvepalli Gopal, Jawaharlal Nehru 1947–1956 Volume-II (New Delhi: Oxford University Press, 1979). 59. See Constituent Assembly (Legislative) Debates, February 17, 1948. 60. Vivek Chibber, Locked in Place: State Building and Late Industrialization in India (Princeton: Princeton University Press, 2003), Ch. 6. 61. Sarvepalli Gopal, Jawaharlal Nehru 1947–1956 Volume-II; and William Brian Reddaway, The Development of the Indian Economy (London: George Allen and Unwin, 1962). 62. Sarvepalli Gopal, Jawaharlal Nehru 1947–1956 Volume-II, pp. 373–4. 63. Note that Nehru's ambivalence eventually irked socialists and liberals, causing both groups to leave Congress. The socialists formed the “Praja Socialist Party” in March 1948, when Nehru stopped emphasizing socialism. The liberals formed the “Swatrantra Party” in August 1959, after Nehru re-embraced socialism and adopted the import substitution industrialization strategy during the 1957 crisis. Nehru comes across as a thinker who consistently contradicted himself. For instance, he famously said “profit is a dirty word,” see Gurcharan Das, India Unbound (New York: Knopf, 2001), p. 171, but also stated, “I therefore suggest that we should give them (private enterprise) a fair chance and ask them to make a fair profit.” Mohammad Shabbir Khan, Jawaharlal Nehru, The Founder of Modern India: The Architect of Indian Planning for Political, Economic, and Social Structure (New Delhi: Ashish Pub. House, 1989), p. 76. 64. Michael Edwardes, Nehru, A Political Biography (London: Penguin Books, 1971), p. 260. 65. Shashi Tharoor, Nehru: The invention of India (New Delhi: Penguin, 2003), p. 179. 66. Nehru's choice of the strange term “socialistic,” rather than “socialist,” was intriguing and perhaps intended not to frighten his right-wing critics. See Parekh, “Nehru and the National Philosophy of India,” p. 48. 67. Brecher, Nehru's Mantle: The Politics of Succession in India, p. 300. 68. G. Balachandran, The Reserve Bank of India: 1951–1967 (New Delhi: Oxford University Press, 1998), Chapter 7, p. 658. 69. Public Interest Research Group (PIRG), The World Bank and India (New Delhi: PIRG, 1995). 70. The huge trade deficit of Rs 632 crores in 1957 was converted into a surplus of Rs 16.07 crores in 1958. See, S. K. Taneja, India and International Monetary Management, (Sterling: New Delhi, 1976). The budgetary deficit of Rs 458 crores was turned into a surplus of Rs 177 crores in 1960-61. See M.L. Shastry and G. R. Reddy, Centre State Financial Relations (New Delhi: Concept, 1988), p. 376. 71. see Morarji Deasi's 1961 budget speech at : http://www.saraltaxoffice.com/resources/budget-speeches.php 72. David B. H. Denoon, “Cycles in Indian Economic Liberalization 1966–1996,” p. 45. 73. K. C. Suri, Parties under Pressure: Political Parties in India since Independence (CSDS: New Delhi, 2005), p. 31. 74. Before Mrs. Indira Gandhi, Shastri began the process of economic liberalization and was keen on devaluation without the stimulus of a crisis. See I. G. Patel, Glimpses of Indian Economic Policy (New Delhi: Oxford University Press, 2003); and Medha M. Kudaisya, “Reforms by Stealth,” South Asia Vol. 25, No. 2 (2002), pp. 205–29. However, as Rahul Mukherji demonstrates, “the promotion of trade may not have been easy for Shastri because of the views of the majority of Indian businesses, intellectuals, and political elite at that time.” See Mukherji, “The State, Economic Growth, and Development in India,” p. 86. 75. Frankel, India's Political Economy, Chap. 8. 76. M.L. Shastry and G. R. Reddy, Centre State Financial Relations, pp. 376–77. 77. Lewis, Quiet Crisis in India, pp. 48–53, 151. 78. Girilal Jain, “Freezing the Status Quo: Consequences of the Nehru Model,” Times of India, March 7, 1974, p. 8. 79. D. Rondinelli, Development Projects as Policy Experiments (New York: Routledge, 1993). 80. Frankel, India's Political Economy, p. 256. 81. Robert L. Hardgrave and Stanley A. Kochanek, India: Government and Politics in a Developing Nation, p. 373. 82. David B. H. Denoon, “Cycles in Indian Economic Liberalization 1966–1996,” pp. 45–53. 83. Robert W. 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For further details see Michelguglielmo Torri, “Factional Politics and Economic Policy: The Case of India's Bank Nationalization.” 107. I. G. Patel, then secretary of the finance ministry, describes the event as follows: “Without any fanfare, she asked me whether banking was under my charge. On telling her it was, she simply said: ‘For political reasons, it has been decided to nationalize the banks. You have to prepare within 24 hours the bill, a note for the Cabinet and a speech for me to the nation on the radio tomorrow evening. Can you do it and make sure there is no leak?’ There was no pretence that this was not a political decision, and the message was clear that no argument from me was required” (Patel, Glimpses of Indian Economic Policy, p.135). 108. Frank Moraes described Delhi in the period after bank nationalization as resounding “with stories of small shopkeepers and taxi-drivers informing their more affluent patrons that with easy credit available for banks their indigence would be a thing of yesterday.” Frank Moraes, Witness to an Era: India 1920 to the Present Day (London: Weidenfeld & Nicolson, 1973), p. 259. 109. Though G. D. Birla likened the MRTP Act to “Damocles sword” (see Kudaisya, The Life and Times of G. D. Birla, p. 20), a government commission found that, despite the ostensible objective to curb the growth of large houses through MRTP Act, the assets of the large houses increased quite substantially after 1969. See Ministry of Law and Company Affairs, Report of the High-Powered Expert Committee on Companies and MRTP Acts (New Delhi: Government of India Press, 1979), p. 249. The top five houses, or groups, in order of size were Tata, Birla, Mafatlal, Singhania, and Thapar. See Stanley A. 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Jagdish Bhagwati and Padma Desai, India: Planning for Industrialization: Industrialization and Trade Policies since 1951 (London: Oxford University Press, 1970); Jagdish Bhagwati and Anne Kruege, eds., Foreign Trade Regimes and Economic Development: A Special Conference Series on Foreign Trade Regimes and Economic Development (New York: Cambridge University Press, 1974); Jagdish Bhagwati and T.N. Srinivasan, Foreign Trade Regimes and Economic Development: India. 118. During the early 1960s, the East Asian economies that were relatively poor began to grow miraculously from 1965 onward. Ironically, the pioneers of the development economies writing in the 1960s failed to take note of East Asian ascendancy. Hence, they did not include them as part of their list of economies most likely to succeed. It was only in the mid-1970s that it became clear to the development economics profession that these economies were on an ascendant path. See G. 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Manmohan Singh's 1962 Doctor of Philosophy thesis at Oxford, under the supervision of I.M.D. Little, had been among the first studies to criticize India's inward-oriented export policy (see Manmohan Singh, India's Export Trends and Prospects for Self-Sustained Growth, Oxford: Clarendon Press, 1964). 122. Arvind Panagariya, “India's Trade Reform,” in India Policy Forum Vol. 1 (Washington, DC: Brookings Institution Press, 2004), p. 5. 123. Reserve Bank of India [RBI], Report on Currency and Finance 1975-76. Vol. 1 (Bombay: RBI, 1976), pp.198-201; P. N. Dhar, “A Decade of Reforms,” Economic and Political Weekly Vol. 36, No. 5 (2001), pp. 23–24; Nayar, India's Globaliza