The basics of India's economic success

In the world's largest democracy, the marriage of economics and politics is a permanent, enduring institution. With no way out of the partnership, they must learn to live with and manage each other. India's economic history reads parallel to the roster of long-term leaders in New Delhi: the much-maligned Nehruvian socialist model, perpetuated by successive Indian National Congress premiers till Indira Gandhi's death in 1984, the Rajiv Gandhi period of incipient relaxation of restrictions and trigger-happy defence spending, followed by the seminal liberalisation reforms of P V Narasimha Rao, the swadeshi reforms of Vajpayee, and now punctuated by the iconic period of strong GDP growth and exchange rate figures under Manmohan Singh. Other players in the "marriage" include the sharing of power between the Centre and the states, social diversity, political structure and the chasm between the masses and the elite, the intractable trade union politics, the powerful business/industrialist lobby, and the relationship between India and the World Bank/ IMF combine.

Fortunately, the book aims to help the reader navigate the complicated sprawl of politicoeconomic thinking and opinion. This reader is the third in the "Critical Issues in Indian Politics" series. It is a collection of well-researched essays on the development and metamorphosis of the political economy of India from Independence via the watershed of 1991 liberalisation reforms to the new gilded IT and consumerist age.

Till 1984, the progress of the Indian software industry was checked by strict, swadeshi-protectionist regulations that inhibited trade, expansion, acquisition of capital and specialised training. That was to change when Rajiv Gandhi became Prime Minister. He rolled out new, business-friendly policies and recognised software as an industry, thus allowing for optimisation of government support, subsidies and concessions. One of Atal Bihari Vajpayee's first goals as Prime Minister was to make India a "global IT superpower". Since then, the Indian IT industry has made huge strides in growth and prominence. Yet, it would be illogical to liken Bangalore to Silicon Valley as AnnaLee Saxenian argues; there are vast differences in the numbers as well as how policy has shaped this industry. India's software revenues in the 1998 bubble were a staggering $4 billion, but this pales in relation to the $300-500 billion world software export market. The Indian IT sector lost out on cost savings by not investing in its hardware sub-sectors, and thus having to rely on expensive imports of inputs and technology skills in a highly capital-intensive industry. Still, the contribution of political strategy to economic success is undeniable.

According to Lloyd Rudolph and Susan Hoeber Rudolph, the success story of Andhra Pradesh, and Hyderabad, is a result of not only efficient systems of state-level governance and economic strategy, but also of policy overhaul. In 1991, as part of the Narasimha Rao liberalisation agenda, the centrally planned, licence-raj economy was replaced by the federal market economy, whereupon states were now chiefly responsible for running their own administration and money matters. This snipping off of the umbilical cord between the state and the Centre, and the resulting autonomy and greatly decreased financial support, have spelt doom for poorly-governed, regressive states (read BIMARU) but worked wonders in states whose leaders worked with a vision of tomorrow's progress, which is where the reference to "iconic" former chief minister N Chandrababu Naidu comes in.

There are several other equally enlightening theses on the transformation and growth of the political economy in India. The opening essay, by Jagdish Bhagwati, is a comprehensive, theoretical analysis of the Indian economic history and provides the foundation to the rest of the book. The minus points are few and insignificant: the occasional typo, a somewhat confusing organisation and categorisation of chapters, and the heavy academic accent of a couple of essays. Because of the valuable insights gained from this meeting of economic experts, this book should be made required reading for every Indian student of management or economics.

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INDIA'S ECONOMIC TRANSITION
THE POLITICS OF REFORMS

Rahul Mukherji (ed)
Oxford University Press
Rs 650, 430 pages