political economy of development the politics of rapid economic growth
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Political Economy of Development The Politics of Rapid Economic Growth. Gov 1255 Politics of India Prof Prerna Singh. Facts: From ‘Hindu rate of growth’ to economic boom Growth rate of approx 5-6% for past 25 years Conventional Explanation: Pro-Market - PowerPoint PPT PresentationTRANSCRIPT
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POLITICAL ECONOMY OF DEVELOPMENT THE POLITICS OF RAPID ECONOMIC GROWTH
Gov 1255Politics of IndiaProf Prerna Singh
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Facts:From ‘Hindu rate of growth’ to economic boomGrowth rate of approx 5-6% for past 25 years
Conventional Explanation:Pro-Market Economic liberalization circa 1991
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PROBLEMS WITH CONVENTIONAL PRO-MARKET INTERPRETATION Economic growth started accelerating in 1980s - a
full decade prior to liberalization of 1991.
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Economic Performance in India, 1960-2004
02000400060008000
100001200014000
1950
-51
1960
-61
1970
-71
1980
-81
1990
-91
2000
-200
1
2003
-200
4Years
Per C
apita
Net
Nat
iona
l Pr
oduc
t in
Rup
ees
Per Capita Netnational product in Rupees
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SOME BASIC GROWTH DATA, 1950-2004(ALL FIGURES IN PERCENTAGE PER ANNUM)
1950-1964
1965-1979
1980-
1990
1991-
2004
1980-
2004GDP Growth
3.7 2.9 5.8 5.6 5.7
Industrial Growth
7.4 3.8 6.5 5.8 6.1
Agricultural Growth
3.1 2.3 3.9 3.0 3.4
Gross Investment/GDP
13 18 22.8 22.3 22.5
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PROBLEMS WITH CONVENTIONAL PRO-MARKET INTERPRETATION Economic growth started accelerating in 1980s - a
full decade prior to liberalization of 1991. Industrial production in India—a key object of
reforms—did not accelerate (and in fact declined) following the liberalizing reforms.
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SOME BASIC GROWTH DATA, 1950-2004(ALL FIGURES IN PERCENTAGE PER ANNUM)
1950-
1964
1965-
1979
1980-
1990
1991-
2004
1980-2004
GDP Growth
3.7 2.9 5.8 5.6 5.7
Industrial Growth
7.4 3.8 6.5 5.8 6.1
Agricultural Growth
3.1 2.3 3.9 3.0 3.4
Gross Investment/GDP
13 18 22.8 22.3 22.5
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PROBLEMS WITH CONVENTIONAL PRO-MARKET INTERPRETATION Economic growth started accelerating in 1980s - a
full decade prior to liberalization of 1991. Industrial production in India—a key object of
reforms—did not accelerate (and in fact declined) following the liberalizing reforms.
India’s record in a broader comparative context “Modest” embrace of the global economy For example, mixed record of other liberalized,
developing countries (Latin America & Sub-saharan Africa)
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ALTERNATIVE EXPLANATION: PRO-BUSINESS Emphasizes the state’s changing role since
1980: the abandonment of populism, prioritizing of economic growth, and a slow but steady embrace of Indian capital
as the main ruling ally.
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Minimal State Intervention
Free play of markets will lead to efficient allocation of resources, as well as promote competitiveness, hence boosting production and growth (‘Washington Consensus’)
Supports new entrants and consumers
Derived from strands of neoclassical economics
Emphasizes quality and not degree of state intervention
State commitment to high economic growth by developing trade & industry with well-deigned and thoroughly implemented state intervention
Supports established producers
Developed via real-world experience, especially success of East Asian tigers.
Pro-market Pro-Business
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THREE PHASES IN THE POLITICAL ECONOMY OF DEVELOPMENT IN INDIA
Pre-1980s-: Pro-redistribution 1980s: Pro- growth/ Pro-business
1991- Pro-business + Pro-market
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THREE PHASES IN THE POLITICAL ECONOMY OF DEVELOPMENT IN INDIA
Pre-1980s-: Pro-redistribution 1980s: Pro- growth/ Pro-business
1991- Pro-business + Pro-market
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THE PRE-EMERGENCY, LEFT-LEANING INDIRA GANDHI VS.THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
Prioritizing of economic growth as a state goal.
Supporting big business to achieve this goal
Taming labor as a necessary aspect of this strategy
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
Prioritizing of economic growth as a state goalNew industrial policy statement Top priority: Maximization of
productionGrowth first development
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI Supporting big business to achieve this
goal Withdrawal of important constraints on
expansion & encouragement to big business to enter areas that had hitherto been reserved for the public sector
Financing the expansion.Liberalized creditTax relief Altered the legal framework to
encourage private sector to finance new investments by raising resources directly from the public
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
Taming labor as a necessary aspect of this strategy
Especially difficult for champion of poor & workers – Mrs Gandhi
But did curtail labor unrest, esp strikes
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
Prioritizing of economic growth as a state goal.
Supporting big business to achieve this goal
Taming labor as a necessary aspect of this strategy
Government restructured its own role: Halted the growth of public sector industries Demoted the significance of economic planning and the
planning commission.
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THE POST-EMERGENCY, RIGHT-LEANING INDIRA GANDHI
Prioritizing of economic growth as a state goal.
Supporting big business to achieve this goal
Taming labor as a necessary aspect of this strategy
Government restructured its own role
Changes in India’s economic relations with the world
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RAJIV GANDHI “Break from the past” Government's commitment first and
foremost to economic growth and only in abstract notions to openness or laissez faire.
Policy pattern much more pro-business, specially pro big Indian business, rather than anything else
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RESULTS OF PRO-BUSINESS GROWTH STRATEGY Positive:High rates of investment + in efficiency of
investment Growth rate, esp in industry
Negative:Political ProblemsPolitical Economy problems
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ECONOMIC “CRISIS” OF 1991 & NEOLIBERAL REFORMS Growth rate of manufacturing industry not
influenced all that greatly by the reforms.
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INDUSTRIAL GROWTH IN INDIA (1950-2004)
012345678
1950-1964
1965-1979
1980-1990
1991-2004
1980-2004
Rate of Industrial Growth (in percentage per annum)
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ECONOMIC “CRISIS” OF 1991 & NEOLIBERAL REFORMS Growth rate of manufacturing industry not
influenced Rate of capital formation not significantly
influenced
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PATTERNS OF CAPITAL FORMATION IN INDIA, BY SECTOR (1970-2002)
0
5
10
15
20
25
30
1970-1975
1975-1980
1980-1985
1985-1990
1990-1995
1995-2000
2000-2002
Total Gross CapitalFormationPrivate CorporateSectorPublic Sector
Household Sector
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ECONOMIC “CRISIS” OF 1991 & NEOLIBERAL REFORMS Growth rate of manufacturing industry not
influenced Rate of capital formation not significantly
influenced Changing composition of investment
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REFORMS OF THE 1990S Delicensing Tax concessions Opening of yet newer areas hitherto reserved for
the public sector Taming labour unrest
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REFORMS OF THE 1990SContinuation of reforms of the 1980s: Not surprising Delicensing Tax concessions Opening of yet newer areas hitherto reserved for
the public sector Taming labour unrest
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REFORMS OF THE 1990SBreak from reforms of the 1980s: Surprising Opening up of the economy Import quotas were reduced Tariffs came down slowly but surely Currency was devalued Foreign investment regime was liberalized Restrictions on external financial transactions
were eased.
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WHY DID THE SAME SET OF REFORMS THAT PROVED DIFFICULT TO PURSUE DURING THE 1980S BECOME MORE LIKELY IN THE EARLY 1990S?
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External factors: Decline and the disintegration of the Soviet Union
Decline of a model of development Loss of most important trading partner Loss of most important political & military ally
Growing availability of investible sources in foreign exchange
WTO coming
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Internal factors: Softening of resistance of Indian business to
opening of economy Split of position of Indian business over
opening of the economy in 1980s
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REFORMS Internal deregulation of IndustryGone the furthest
Attempts to tame budgetary deficitLeast successful
External openingControversial but slow & steady
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Why distinguish Pro-market vs Pro-Business policies?
What is at stake? Scholarly – Get Causal Arrows Right Normative – What is Fair & Just
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MOST DESIRABLE FORM OF ORGANIZATION OF:Polity : Democracy
Economy: Capitalism
Debate about “varieties of capitalism”:the neo-liberal model of Anglo-America
the social democratic model of Scandinaviathe statist model of Japan
Q for developing countries: Which model is best to emulate?
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MOST DESIRABLE FORM OF ORGANIZATION OF:Polity : Democracy
Economy: Capitalism
Debate about “varieties of capitalism”:the neo-liberal model of Anglo-America the social democratic model of Scandinavia
the statist model of Japan
Q for developing countries: Which model is best to emulate?
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MOST DESIRABLE FORM OF ORGANIZATION OF:
Polity : DemocracyEconomy: Capitalism
Debate about “varieties of capitalism”:the neo-liberal model of Anglo-America
the social democratic model of Scandinavia
the statist model of Japan
Q for developing countries: Which model is best to emulate?
How successful have these policies been?
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BOOMING INDIA
Neoliberals Statist scholars(Atul Kohli)
All good things go together
Trade-offs of development
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DIFFICULT QS FOR INDIA’S MODEL OF DEVELOPMENT
Why should the common people in a democracy accept a narrow ruling alliance at the helm?
Is ethnic mobilization a substitute for pro-poor politics?
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?
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-1
0
1
2
3
4
5
6
7
1950s 1960s 1970s 1980s 1990s 2000s
Net Domestic Product
Per Worker NetDomestic ProductTotal Factor Productivity
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Economic Growth Rates in India 1950-2004
0
1
2
3
4
5
6
7
1950-1965 1965-80 1980-1992 1992-2004
NDPPer Capita NDP
Per Worker NDP
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Capital Formation in India (1950-2004)
0
5
10
15
20
25
30
1950-51 1960-61 1970-71 1980-81 1990-91 1999-00 2000-01 2001-02 2002-03 2003-04
Gross DomesticCapital Formation(as percentage ofGDP)
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Gross Fixed Capital Formation in India 1950-2004 (as percentage of GDP)
05
1015202530
1950-5
1
1956-5
7
1962-6
3
1968-6
9
1974-7
5
1980-8
1
1986-8
7
1992-9
3
1998-9
9
Public sector Private sector Total
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012345678
1950-1965 1965-1980 1980-2005
Industrial Growth in India (1950-2005)
Rate of Industrial Growth(in percentage perannum)