Why did India liberalize trade policy in 1991? The big reason (mastyanyaya) which swallows up all small reasons is that V.P Singh had implemented the Mandal Commission recommendations and granted affirmative action to 'Backward Castes'. This put Congress and the BJP (which had 'Forward caste' leadership) on the backfoot. The BJP could play the Hindutva card. Congress, under an Italian Christian, had to promise expanding opportunities in the private sector to absorb angry 'Forward Caste' youth.
Obviously, if you are going to lift tariffs, the time and the place to do it is during multilateral negotiations so as to get the biggest possible reciprocal benefit. Where the thing is done unilaterally, chances are the thing is a political gamble by an ambitious politician in a weak position.
One could add some ideographic details here and there. The fact is Narasimha Rao was heading a minority Government. He might as well face a vote of no confidence on a substantive matter rather than wait to be toppled for some bungling of his own. The one thing one can't say is that economists had anything to do with Rao's subversion of Nehruvian ideology. If they had, they'd have said- 'pick your moment. Do reform as part of trade negotiations'.
Still, one could say that some people trained in economics did play a role in 1991. Subramaniyam Swamy was given a Cabinet level post- but he was already a notorious intriguer so nobody could be sure what exactly this meant. Manmohan Singh- being a Sikh at a time of Khalistani insurgency- was useful to Rao who brought him in to do a job few suspected he had any relish for. The assumption was that he was a Lefty of some unassuming sort. Rao presented this lamb as a lion to distract attention from his own perfidy to the Gandhi-Nehru ideology. This did not save him from Sonia's ire later on.
The truth about 1991 is well known to all save academic economists. One such, Shruti Rajagopalan, writes in 'the 1991 project'
Since 2011, there has been a decline in secular growth rates.
What changed in 2011? Anna Hazare, a 'Gandhian' village leader, started a hunger strike on April 4 2011. His aim was to check corruption by creating a Lok Pal or ombudsman with wide ranging powers. The media jumped on this bandwagon with great eagerness. Why? They were aware that Sonia had saddled Manmohan with tainted officials and Ministerial colleagues. The blood was already in the water and so the sharks were circling. Policy paralysis set in. Meanwhile, as Kaushik Basu reports, the 'activists' on Sonia's 'National Advisory Council' got the upper hand. This meant the Government started granting 'rights' to all sorts of things without having the means to provide the resources to make those rights meaningful.
A further problem had to do with the way that many business houses had borrowed money from Nationalized Banks and the L.I.C etc. Much of the 'boom' was artificial. A shakeout was bound to happen. The same was true of the real estate bubble. Furthermore, Foreign Direct Investment faltered because it turned out that the Indian partner, more often than not, was a lying, cheating, incompetent scumbag. Then, to add salt to the wound, Manmohan Singh passed a retrospective tax act in 2012. The foreign investor felt this was daylight robbery. It remains to be seen whether Vodafone and Cairn energy will be able to seize Government assets abroad to force it to pay back the money it extorted.
Private firms have lost confidence in the market and ordinary Indians have lost faith in a system that is rampant with high-level corruption.
That reached a peak during the Anna Hazare movement. Modi broke the back of the anti-corruption campaign through demonetization. It also helped that Anna Hazare's fellow campaigners fell out with each other. Arvind Kejriwal emerged as the winner and became Chief Minister of Delhi. The remainder now cut a sorry figure.
Thanks to the twin disasters of demonetization and GST (Goods and Services Tax reform), growth rates have dropped to below 5 percent. Indians once again face an economic crisis, exacerbated by the pandemic and lockdowns.
The difference this time round is that it has become obvious to the voter that it is the State Government, not the Central Government, which must take the lead. The Bihari or UP voter can see that some states have a per capita income five times that of their own state. Because of COVID, many migrant laborers have had to return home. All eyes are on Yogi Adityanath. If he can generate jobs in India's largest state (while locking up or killing criminal/politicians) then India will have turned a corner.
The implementation of GST may not have been great but it was vital that India get rid of inter-state trade barriers.
As economic outcomes look bleak, everyone is looking to Prime Minister Modi to announce the next big set of reforms to liberalize factor markets and privatize state-owned enterprises.
Modi did push through a Land ordinance and now has brought in a Farm Bill. Shruti remains silent on the opposition to this Bill. Nobody in their right mind wants him to do any more 'reform'. Otherwise you are going to have nothing but super-spreader mass agitations besieging the Capital. Shruti can't say 'the farmers are wrong' because she will be attacked ferociously on Twitter, if not physically harmed, if she speaks out on that type of craziness. We sympathize. But we think she is a fool to say 'everyone is looking to Modi' to trigger yet more crazy agitations.
In Modi, India has a leader with the popularity and political clout to get the job done. But crisis and clout are not enough. Good policy formulation also requires ideas and institutions.
No. India's experience, post 1991, is that States which embrace reform and which create a secure environment for enterprise, surge ahead. Those where criminals run amok stagnate. Ideas don't matter. Institutions are too weak to make any difference. Only the State Government, not the Central Government, can alter the destiny of its people by beating and killing troublemakers and gangsters.
Modi does not lack the boldness or a willingness to act and use his political capital, as was evident during demonetization, or his toilets-for-all campaign. What is lacking is a basic understanding of economics.
It is certainly true that Indian economists have no 'basic understanding of economics'. But that is irrelevant because economics is horse-shit. Everybody knows that for enterprise to thrive both the gangsters and corrupt officials have to be severely dealt with. However, for India, there is a larger problem which Shruti does not address- because it would get her into trouble. India's 'activist/public intellectual' class finds it profitable to block development. Edwin Lim, of the World Bank, helped China rise in the Eighties. When he came to India, he thought his job had suddenly become much easier because his Indian counterparts shared his language and ideas. Then the NGOs, backed by the Ford Foundation and Soros and so forth, prevented Lim from achieving anything. The Judiciary- whom Shruti does castigate- fostered a cult of 'public interest litigation' which compounded the problem.
The problem was, and remained, that it was more profitable and reputationally beneficial to fuck up India than to enable it to prosper. Indira Gandhi, on returning to power in 1980, had taken a big stick to the Gandhian nutters who had helped her enemies. She got Buta Singh to accuse them of being CIA agents and cut off their funding. Manmohan Singh tried to do the same thing to various foreign funded NGOs. But, as Basu records, he and his fellow economists were sidelined by Sonia's 'activist' Advisory Panel. This was great news for Narendra Modi. Why? Even the English speaking elite had come to loathe the very sight of Amartya Sen and his various holier-than-thou clones. Modi had the right ideas and could communicate them in a language that actually means something to us- viz. Hindi. In English, we merely virtue signal. In Hindi, we talk turkey.
The consequence of using political clout in the face of crisis without a long process of sound ideas informing policy results in disasters like demonetization or protectionism by increasing import tariffs, or the clarion call to “Make in India.”
This is sheer nonsense. India is running a big deficit with China. It also has the chance to take supply chains from them. It makes sense for India to erect barriers against China- whose trade policy is unfair and which is being aggressive towards India- so as to signal that India will have a big domestic market so that gaining economies by 'making in India' is a riskless bet (provided State Governments fuck up criminals/corrupt officials and beat and lock up agitators and activists- 'andolanjivis' as Modi calls them.) Interestingly, Paul Krugman recently told Ashoka students that India must get ready to accept that rights and freedoms of labor must be sacrificed up to the point where “labor is not getting killed”. This means beating Nodeep Kaur type activists with vim and vigor the way the Haryanvis have been doing for the last 30 years.
Ideas are the critical foundation, but ideas can only come of age in a society that has a commitment to liberal exchange of ideas, that allows free expression, and doesn’t insist on toeing the party line.
What 'liberal exchange of ideas' was occurring in Taiwan or South Korea or Malaysia or any other country which adopted sensible policies? Why is Bangladesh overtaking India? Is it because Bangladesh is more liberal and exchanging ideas incessantly? Don't be silly.
But India under Modi is not set up for a similar churning of ideas or the infrastructure to convert sound ideas into policy.
Modi does not matter. Chief Ministers, like Yogi, do matter. But there is no need for 'ideas' when it is obvious what needs to be done. Shruti is pretending that demonetization was based on some economic idea. It wasn't. It was purely political. Modi had guarded his flank against Anna Hazare type nutters. No doubt, as the General Election approaches, 'growth' will magically appear.
The 1991 reforms were passed quickly but were in the making for many months by technocrats who worked with different governments. In India today, instead of building a cadre of economists within India’s bureaucracy, the emphasis is on helicoptering in academics from elite institutions abroad like Raghuram Rajan or Kaushik Basu to serve as central banker or chief economic advisor.
Shruti is being silly. It was Manmohan who did that. Modi knows these fellows are useless.
Narasmiha Rao deserves the credit for bringing in Manmohan, as Finance Minister, and giving Subramaniyam Swamy (who claimed to have been a pal of Rajiv's) a Cabinet level post. This enabled him to do something radical which, if successful, would get him a place in the history books. Rao, though appearing a rustic lackey of the dynasty had seen how 'Andhrapreneurs' could rise up and lift up the people with them. Thus his mindset was similar to that of the Punjabi economist born, as he was, into an agriculturist family.
Their liberal ideas have limited buy-in with the permanent bureaucracy who lack the training or commitment to values of free exchange economic growth.
I've been hearing this nonsense for four decades. Crap American Universities have been promising to 're-educate' the incorrigible Indian babu for many many years. But what happens when they get their hands on an Indian bureaucrat? They produce a Sanjeev Sabhlok type imbecile whom even the Australians can't stomach.
And because of the frictions caused by the mismatch and in part because of criticism from former advisers who have returned to the West, Modi’s government is increasingly skeptical of foreign or elite influence.
So are we all. These guys are useless. Still, Manmohan thought they could affect perceptions in Western financial markets. So putting in Rajan would reduce inflationary expectations and putting in Basu would influence 'ease of doing business' indices. But nobody was fooled so the thing was forgotten. Even Panagariya was sent packing.
Market-friendly reforms are unlikely because
Farmers turn up on their trucks and lay siege to the Capital. They even storm the Red Fort!
However, the enabling legislation is there. It is up to the States to implement it.
India under Modi is missing true commitment to liberalization and lacks the culture of understanding and nurturing economic ideas within the government and bureaucracy.
Why not simply say 'India is a shit-hole. Its people are very shitty. Thank God, I got out!'
Shruti is talking nonsense because she is part of a scam whereby the most useless IAS officers are packed off to get a PhD at George Mason- after which, with any luck, they will fuck off to Australia or Namibia or wherever.
I will now show that Shruti is wrong in thinking that 'ideas' matter when it comes to economic policy. This is for two reasons
1) beliefs about the world are not ideas. Wrong beliefs lead to bad policies, no matter what 'idea' supervenes
2) Economists have shit for brains and this soon becomes obvious to everybody
Madmen and Academic Scribblers
John Maynard Keynes said, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
Keynes was the slave of the belief that diminishing returns arise in agriculture while Income elasticity of demand for food is high (coz the workers are all malnourished, right?) Thus he predicted in 'Economic consequences of the Peace' that America would become a net food importer. Britain would use its colonies to grow food (under Atlee, there was a 'ground nuts scheme' in East Africa- the idea was that the British could no longer afford butler and must get used to spreading a paste made from monkey nuts on their bread) but the Germans would starve- unless they conquered Poland and the Ukraine. Keynes thus justified the German General Staff's maximal strategy!
But both socialism and liberalization in India were a result of dominant economic ideas of their time.
No. They were the result of the incentives facing policy-makers. Why did Pakistan have a Planning Commission just like India? Was it coz barristocrats and Generals had studied under Laski? No. It was because the guy running things wanted to monopolize corruption. He didn't want the bead counters at the Ministry of Finance to get their greedy little mitts on his cut.
If Harold Laski was the academic scribbler influencing Nehru, the sole dissenter of planning in India in the 1960s, economist B. R. Shenoy,
Nonsense! There were plenty of others. Shenoy had been invited to appraise the Second plan and wrote a dissenting note. He was seen a follower of Malviya- i.e. a Hindu reactionary.
The fact is, the moment a right wing industrialist, like TTK- or, indeed, Deshmukh- was put in a position of power they succumbed to its lure and what Ambassador Kaul called 'free money' from Uncle Sam. It was the US which financed Nehruvian Socialism. Why? The alternative was Communism.
was a student of F. A. Hayek, who had famously demonstrated the impossibility of socialist planning. Shenoy was the economic advisor to India’s free-market party, the Swatantra party, that opposed the License-Permit Raj.
But it was shit. Rajaji had shat the bed in Madras by proposing that education be casteist. Glamorous Maharanis couldn't make a socially regressive party electable.
With a different political arithmetic, he could have been the architect of an economically free India.
Only if
1) Delhi could still increase its power over the 'Presidency' cities which, being ports, would have boomed. In the Fifties a different problem reared its ugly head- that of the Punjabi refugee. As Milton Friedman had notice, those fucking bastards, that too in places like Jullundhur, were creating prosperity! It was the duty of Congress to fuck up the Punjabi- by refusing them permission to set up industries- so as to convert them to Gandhian Ahimsa. In 1939, Mahatma Gandhi had warned that when the Brits left, the Punjabis, regardless of religion, would team up with the meat eating Muslims to seize power from the cowardly Hindus. True the Muslims had been beaten or killed or chased away, wherever they showed signs of getting uppity, but the problem of Punjab- or any other region which started to grow on the basis of hard work, thrift and enterprise- remained. The Center must use its power to prevent 'economic divergence' or risk not just the territorial integrity of the country but also the spiritual integrity of naked, hungry, defenseless India quietly starving to death while muttering 'Ahimsa! Ahimsa!'
2) US foreign policy hadn't been so shitty towards brown peeps- e.g. in Vietnam. It was inevitable that India would need the Soviet nuclear umbrella. Anyway, the US had a nasty habit of toppling its own puppet to put in some nonentity for no good reason whatsoever. The Soviets didn't want India- it was too poor- and encouraged its wing of the Indian communist party to support the administration.
3) Farmers, if allowed to prosper, could be guaranteed to vote for the ruling party. They didn't which is why, once the Green situation got under way, 'dominant castes' formed regional parties which broke the National party's hold on the States.
Decades before becoming the finance minister who liberalized India, Manmohan Singh completed his doctoral thesis in 1962, titled “India’s export performance, 1951–1960, export prospects and policy implications,” under the supervision of I. M. D. Little at Oxford University. Little was a critic of the then-dominant protectionist approach to developmental economics, and an advocate for trade liberalization by developing countries.
Ian came late to that particular party. Irma Adelman, and- before her, in the case of Taiwan, a couple of Chinese American economists at Cornell- had already got the South Koreans to embrace sensible trade and currency policies.
Indians knew all about what was happening in South Korea. But, it was argued that if those guys got fat their fighting power would decline. They were becoming more, not less, dependent on US troops. But the Americans have a nasty habit of running away. So, it was safer for India to remain naked and poor. If it got rich, it would get conquered.
True, some Defense guys pointed out that the South Koreans had put up a good show in Vietnam. Still, after India won the Bangladesh war, there was a different problem. If Indians thought the country could fight and win, why could it not feed itself and prosper? It is better to be a Gandhian mendicant constantly getting beaten while quietly starving and muttering 'Ahimsa! Ahimsa!'
Both the planning and the liberalized economy in India were a product of global ideas spread from elite academics
which were funded by smart businessmen. Who started the Cowles Commission? Some rich guy named Cowles.
India too had smart businessmen who had already shown they could set up 'elite' academic institutes. But Delhi needed to cut them off at the knee so as to prevent their burgeoning into a threat to their own political hegemony which was based on having spent long years in jail muttering 'Ahimsa! Ahimsa!' as millions starved. Delhi did succeed in centralizing power though one consequence was that Indian academia immediately turned to shit. Look at Kosambi. The guy was once a very promising mathematician. The Tatas hired him and he could have done something useful in computing. Instead he started writing pseudo-lefty shite and publishing proofs of the Reimann conjecture in shitty little journals of Agricultural Statistics. Apparently, some elderly prof. in some shitty college has just done this again.
to intellectuals, bureaucrats, and politicians. The history of the Indian economy, as well as the history of ideas, become deeply relevant to understanding the fall and rise of Indians’ fortunes.
Yes, yes. Why did Turks conquer India? It was because of 'history of ideas' innit? How come Brits conquered India. Same 'history of ideas' I suppose. Nothing to do with the fact that Brits paid their soldiers properly or that fighting for the Turks could make your family rich. On the other hand, fighting well for an Indian Raja might cause him to see you as a potential rival. Better run away while you still can.
The Indian economy had experienced extremely poor growth and a very high level of human deprivation under the British colonial government.
But so did India adjacent places not under that government.
Especially between 1914 and 1947, when the British government treated India as an extractive economy towards the war effort,
After 1919 there was no net drain. Moreover, use of Indian troops outside India had to be paid for by the Brits. That's how come Britain was India's main debtor at the end of the Second War.
national income grew at a little over 1 percent per annum and per capita incomes were stagnant.
Why? Royal Navy based 'pax Brittanica' was very cheap. There was no incentive to make the country more productive so as to pay for its own defense. One reason South Korea, Taiwan, Singapore, Malaysia etc. went for export led growth was because they faced a serious military threat (not so serious in Malaysia's case coz Sukarno was crap)
British mercantilism and extractive policies, exacerbated in the war years through price and quantity controls, led to famines that killed millions of Indians.
No, the corruption and incompetence of elected Bengali leaders led to two big famines. The second one occurred after the Brits were long gone.
Shruti spent the first part of this essay whining about the crazy price and quantity controls in the India into which she was born. She does not understand that these were brought in by Indians for Indians. The Brits were more laissez faire, but once they ceded power to the Provinces, they had to play along.
Socialist planning was globally in vogue by the thirties, and Indian nationalist leaders were influenced by the British Fabians.
The Fabians had shat the bed, as far as India was concerned, when Olivier became Sec. of State for India.
Jawaharlal Nehru visited the USSR in 1927 for the tenth anniversary of the Bolshevik revolution, and was fascinated by the working of its socialist experiment. “The contrast between extreme luxury and poverty are not visible,” Nehru wrote, “nor does one notice the hierarchy of class.” He concluded that the “Soviet Union treated its workers and peasants better, its women and children better, even its prisoners better.”
Then came the holodomor and the purges etc. Incidentally, Sarojini Naidu's brother- Chatto- perished in the latter. Nehru had an affair with Naidu's daughter- Padmaja. He knew what had actually happened under Stalin.
The ideology of planning gradually found its way into the heart of the burgeoning independence movement and the Indian National Congress.
The 1935 Act gave Provinces autonomy. Obviously, politicians had to come up with budgets and a plan as to how to allocate revenue. This had nothing to do with the 'ideology of planning'. It was simply management accountancy as applied to a Government body. Still, it must be said, some Indian industrialists and economists had been thinking in 'Listian' terms about how to build up a modern heavy industry sector from the 1890s onward. This inevitably meant a conflict between the industrialists on the one hand and the vast mass of primary producers (because protectionism worsens the terms of trade for the latter) Congress had facillitated the corrupt Modi-Lees deal in the Thirties which screwed over the cotton farmer but benefited the manufacturer. Thus what happened in the Fifties was a continuation of feather-bedding- this time only for a chosen few industrialists.
It is noteworthy that non-Congress 'worker and peasant' movements in the late Thirties and subsequently focused on 'bread and butter' issues like land reform and labor laws. Congress sought to take the wind out of their sails with things like the bogus 'Bhoodan' scheme whereby landlords were allegedly giving up land voluntarily and communal ownership of land in villages was being established. Labor was bought off in various corrupt ways which V.V Giri initially opposed- which is why he was considered Leftist. Indira used him as a stalking horse against the Congress Syndicate and then lurched towards a purely imaginary Left. Still, many influential people believed that the Communists were using that dumb doll. Indira may have been very stupid, academically speaking, while the Leftists may have had impressive academic credentials, but she had them by the balls except in cases where they had no balls but thought it wise to pretend otherwise.
A Congress Socialist Party, spearheaded by Nehru and consisting of ardent socialists and planning enthusiasts, was formed within the broader fold of the Congress in 1934,
This is false. The CSP was formed by JP Narayan and Acharya Narendra Dev. Minoo Masani was active in it. Nehru was not a member though avowedly a Socialist.
and it organized the National Planning Commission
it was a Committee. The scientist Meghnad Saha suggested it to Bose- then President of Congress- who got Nehru to chair it.
in 1938 to chart out in greater detail the role that state planning could play in aiding the growth of the nation.
The idea was that the State would arrange the funding for heavy industry and provide the land and infrastructure.
The National Planning Commission met at intervals throughout the late 1930s and early 1940s, coming up with proposals that greatly influenced the goals and the institutional structure of the planning mechanism in independent India.
Nothing wrong with that. Planning must exist where there is a fiscal budget. It is sufficient to show how various projects can pay for themselves and then see how the thing could be financed cheaply. This would involve mobilizing savings through the Post Office, cooperative Banks, Insurance schemes etc, etc.
Indian Planning didn't have to be a fucking disaster. It became so for three reasons (assuming the cretin Mahalanobis was just fudging the numbers to justify what the politicians wanted)
1) American 'free money'- which turned out to be inflationary and which had crowding out effects. Obviously farmers suffered because of PL480 grain imports
2) The extraordinary decision to throttle the textile sector. This was obviously political. I suppose Big Business houses preferred a quiet life and monopoly profit under 'import substitution'.
3) 'Export pessimism'. Indeed, Independent India's big idea was India was a shithole and its people utterly shitty. It couldn't defend itself or feed itself or compete on global markets. It could only sit quietly in a corner muttering 'Ahimsa! Ahimsa' while waiting for Uncle Sam to refill its begging bowl.
I'm sorry that last is unfair. The truth is our politicians were willing to beg from anywhere. There was a R.K Laxman cartoon of a Minister poring over a map of the globe. He is trying to find a country which hasn't yet given India a little money. This shows the Internationalism and Global Vision of the Gandhian politician.
In addition to the National Planning Committee’s report, many plans were created for the specific needs of India’s development problems. The first emerged in 1934, under the aegis of the revered engineer M Visvesvaraya. The essence of his plan was to industrialize India, and double national income every ten years.
This was feasible because the main bottleneck- lack of engineers- had been overcome. However, the War- and post War capital controls- meant this vision was impractical. Governments alone could channel development funds. This meant Development Econ- which is an utterly useless piece of shit- suddenly appeared.
In the 1940s came the Bombay Plan - from a group chaired by Sir Ardeshir Dalal and comprising industrialists - attempting to outline the nature of the various sectors of the mixed economy.
Interestingly, it paid more attention to education and health and so on. Actual industrialists understand that workers need to be well fed and healthy and literate. Scientists or Statisticians like Mahalanobis, (aspirationally speaking) Pant, etc didn't get this. Also they didn't know that prices change. Gadgil pointed this out. Poor old Mahalanobis thought he was solving a problem in dynamic programming. How was he supposed to know that stuff costs money to buy and that prices change according to supply and demand and that 'incentives' matter? Still, his 'simulations' provided a pretext for whatever the Government found it convenient to do.
The People’s Plan, crafted by Marxist M. N. Roy, embodied the ideas of Lange-Lerner and the Soviet planning exercise.
Nonsense! It envisaged the Government paying a fixed 3 per cent profit to private agents and thus skated over 'public ownership of the means of production'. It then spoke dreamily of agriculture expanding four fold and industry expanding six fold because there will be no greed and everybody will be sweet and nice. A Lange-Lerner model has state control of all non-labor inputs. Roy knew very well that Commies would be beaten to death if they tried to grab land from muscular peasant castes or take over factories from clever Marwaris who could summon plenty of muscular peasants or, worse yet, Gurkhas with khukris.
And the Gandhian Plan of S. N. Agarwal, which emphasized a self-sufficient closed economy, preserved the village as the unit of economic activity. By the end of the Second World War, socialism was the new orthodoxy in Indian politics.
Because there was no possibility of a return to the golden age of free Capital movement. The notion was that India could get bigger transfers by pleading poverty and pretending to being doing something about it- rather than just letting everyone have babies like crazy.
In post-colonial India with Nehru as prime minister, an anonymous wit quipped that “in every meeting of the Indian Cabinet there is a chair reserved for the ghost of Professor Harold Laski.” First Trilok Singh, also a Laski student, and then P. C. Mahalanobis were tasked with executing that vision by developing the First and Second Five-Year Plan.
She means Tarlok Singh who was Nehru's private secretary. A previous Finance Minister, John Mathhai, had resigned because of Mahalanobis's elevation. It was natural that Nehru would try to cut the legs off the financiers of his Party so as to secure his own hegemony. But they found a way around him quickly enough. Still, if subsequent Finance Ministers had said 'there's no money', then Nehru's Planning Commission could have worked little mischief. It was American 'free money' which caused it to be such a disaster.
Even abroad, post-WWII academic economists believed that while developed countries can prosper from free trade, developing countries need high levels of protectionism to ensure survival of local industries.
This is true for infant industries. But the Japs had showed that you could start a thing off in the Public sector and then privatize it so as to get a stream of tax revenue from it. Thus were the zaibatsu born. Later their M.I.T.I directed scarce funds towards high value adding sectors- e.g. electronics, silicon chips etc. India went the other way because of 'export pessimism'- i.e. Indians can't compete at anything. Suppose they start winning at stuff. Then they will kick out the losers running the country and put in people who would deliver good governance at a moderate price.
It should be mentioned that poor old Mahalanobis was unaware that bureaucrats make losses when they run Industries. His equations led him to suppose that the Government, unlike a greedy capitalist bastard, would save all the profits it would quite magically make. Thus nationalizing a thing would turn it into a cash cow mooing happily while other such cows proliferated. Industry was very happy to borrow from nationalized banks and then do nothing while getting their money out of the country by some corrupt scheme or the other.
India was additionally burdened by Nehruvian socialism that created an intricate system of quantity controls. But during Nehru’s tenure, essentially the first three Five-Year Plans, India’s economy grew at 4.0–4.5 percent and GDP per capita grew at 2 percent.
The 'steel frame' was not yet corrupt and Judges could still speak English properly. Also, the US didn't permit Indian immigration till 1965. Anyway, once Post War exchange controls weakened or were done away with, both capital and talent fled India and other such Socialist shitholes.
Economists in India and the world over thought that India’s performance, especially when compared to the colonial period, was commendable for a poor country with a burgeoning population and limited resources.
But American journalists were already showing the evils of 'licence-permit' Raj. Milton Friedman has paid a brief visit and made his views known. Actually, Hindi films were already depicting the horrors of red-tape. There was a Kishore Kumar film- apna haath jagganath (your own hand is God (i.e. you can make your own destiny)) which came out in 1960 which had the hit song 'permit ke liye mar mit' (you have to die to get 'permit').
With the passing of Nehru, the command-and-control economy was further strengthened by Indira Gandhi, as her government nationalized various sectors of the economy, doubled down on its restrictive licensing and permit regime, and tried to squash political dissent, culminating in the Indian Emergency. The architect of nationalizing all means of production was her principal secretary, P. N. Haksar, also a student of Harold Laski. Economically, the Haksar-Gandhi team doomed India to sluggish growth, averaging 2.5 percent.
Thankfully, smart peeps could now run away to America. Also corruption permitted the rise of Ambanis and Andrapreneurs etc.
But ideas also evolve and change with time. Globally, academic economists began to take notice of developing countries like South Korea that were growing rich by embracing free trade. Starting in the seventies, economists like Jagdish Bhagwati and Anne Krueger wrote extensively advocating free trade in India and Asia.
I think Bhagwati and others, e.g. Minhas, had been saying sensible things in the Sixties. Manmohan, for all anybody knows, too may have mumbled some such things.
The South Korean growth miracle defied all protectionist models for poorer countries, and economists at the World Bank and the IMF were paying close attention.
Irma Adelman advised them. She could have also stopped the Vietnam war by getting Uncle Sam to finance land redistribution which would have destroyed the peasant's incentive to shelter the Viet Cong. McNamara, repenting his Vietnamese sins, did help China rise up later on. However, it is not the case that either the World Bank or the IMF had every supported protectionism or Socialist economic policies.
Bhagwati and Krueger were joined by Padma Desai and T. N. Srinivasan, who called for dismantling the industrial licensing system within India to encourage competition in the domestic markets. These views slowly started percolating through the bureaucracy and expert committee reports in the late 1970s and 1980s enabled some ad-hoc reforms from time to time.
No. These guys didn't matter in the slightest. Indian businessmen had a far more detailed knowledge of what was happening and what could happen. The rise of Sanjay Gandhi was the first sign of hope. Haksar was booted out. Janata should have been more pro-business but it was too utterly crap to do anything. When Indira returned, she did so as a Hindu goddess with a deep interest in religion and spirituality and zero interest in Laskian shite. Rajiv- incarnating the Hindu God Ram- was even more impatient of that type of stupidity. Stealth reform gathered momentum under him. Had he built the Ram Mandir and espoused Hindutva, he could have been India's savior from a mischievous type of Socialism. Now, in Modi, the country has finally got what it wanted. Except in Kerala (whose CM says he wants to be the Deng Xiaoping of India) the Left has been utterly destroyed.
Interestingly, according to Natkat Singh, it was Haksar (whom Sonia trusted because he had been against Sanjay) who suggested she put in Narasimha Rao as P.M! That Lefty loon finally did something useful before dying. Or perhaps not. The alternative was Sharad Pawar.
By the 1980s fiscal discipline, deregulation, currency and trade liberalization, privatization, and other reforms became the leading prescription for developing countries per the “Washington Consensus.”
Which was actually developed in Latin America for Latin Americans by Latin Americans. Washington is always shit- coz it represents Big Government. That is the only consensus.
Several top Indian technocrats, like A. N. Verma, Montek, Singh Ahluwalia, Jairam Ramesh, and Rakesh Mohan, were part of this emerging consensus during their time at international institutions like the World Bank, the International Monetary Fund, and the United Nations.
What brought about this change? It was the fact that when Indian bureaucrats went abroad they found themselves the guests of a very wealthy diaspora of entrepreneurs. Suddenly, their little privileges- having an ugly Ambassador car and a phone connection- seemed pretty small potatoes. True, their kids might get scholarships to Ivy League. But their cousins, the entrepreneurs, could gift Libraries and endow Chairs so their Lamborghini driving kids could get their Harvard MBAs without having any brains whatsoever. But brains don't matter. These kids knew how to 'buy low and sell high'. That's it. That's the whole story. There is no other idea in Economics.
While they all worked with Rao and Singh as part of the team that formulated and passed the economic reforms of 1991, it is lesser known that many of them had been working on these ideas since the late eighties and had presented different elements of the reforms blueprint to previous governments.
Bureaucrats prepare blueprints and present them, if they have nothing better to do- i.e. get rich off bribes. Nobody reads that shit.
For instance, Montek Singh Ahluwalia authored one such reforms blueprint hoping that Prime Minister Rajiv Gandhi would launch India’s liberalization.
Hilarious! Rajiv and his chums were too busy getting rich. Indeed, Rajiv was so busy in this respect, he failed to notice that not just V.P Singh, but also his cousin, Arun Nehru, were sharpening a knife to stick in his back. Incidentally Arun's daughter married an ex-pat billionaire's son. She then tried to extort money from the rich dude by invoking the anti-dowry Act! This was hilarious. Or so I initially thought coz I assumed that the shipping tycoon in question was much richer than the humble Indian politician. This was because I was deracinated. The authentic desi knew that the Indian politician has eaten more gold than any ex-pat's ships can hold.
He turned it into an actionable policy memo – dubbed the M Document [b]– upon Prime Minister V. P. Singh’s request. It was referenced by Chandra Shekhar’s finance minister Yashwant Sinha during his short term in office, prior to the elections that saw the rise of Narasimha Rao and Manmohan Singh.
There is a story that V.P Singh, as part of his war on the Corporates, brought in Mohan and Verma to propose far reaching reforms which would have diluted the money power of the Dynasty (which, for Rajiv, even in opposition, was based on his Dosco chums in the Corporate sector). Sadly V.P alienated the RSS without gaining Commie support and thus his reign was brief. Still, it could be claimed that Ajith Singh (Charan Singh's son) had started talking to business people and so there was some optimism that Ajith (then considered a possible future PM) could implement a new policy.
Rakesh Mohan, a Princeton-trained economist who had worked in the Philippines division of the World Bank, saw the Asian growth miracles firsthand. Joining the Ministry of Industry as an economic adviser in 1988 (3 years prior to the reforms) Mohan – along with then Secretary of Industry A. N. Verma, who had witnessed the East Asian transformation during his time at the UN Economic and Social Commission for Asia – created the first comprehensive compilation of all the industrial licensing policies, control mechanisms, and lists of industries subject to different provisions.
This is a telling detail. I happen to know that a leading business family has had the best records of every single such provision going back to the Sixties. In other words, private agents knew more than the bureaucrats. I wouldn't be surprised, if Mohan & Verma got a little discreet help from some such player. The typical Bureaucrat thought he held all the power because he could summon a magnate to Delhi and keep him waiting like a supplicant. But the magnate had already figured out a way, using existing regulations, to neutralize that bureaucrat. The Indian sense of humor, requires keeping mum and nodding your head while an impotent cretin drones on.
These ideas eventually found an audience outside academic and bureaucratic circles, among some politicians.
Shruti thinks Indian politicians are like dim little co-eds. They can be influenced by books and lectures.
The fall of the Soviet Union helped convince Indian politicians that more socialism could not be the way out of India’s 1991 crisis.
No. One argument for keeping the permit Raj was that it kept the Soviets happy. With the collapse of Communism in Europe, another question arose. How much Capitalism would India have to embrace to avert Western meddling? The fact is, the Americans could always seize upon some excuse to impose sanctions. Worse still, India might lose the protection of Russia's Security Council veto.
By the late 1980s, even China, more centrally planned and more populous than India, was growing rapidly thanks to Deng Xiaoping’s successful market-oriented reforms.
Edwin Lim, of the World Bank, had helped China. He expected to do even better in India. Sadly the 'activists' and 'public intellectuals' and foreign funded NGOs prevented him from achieving anything. They could draw on the work of plenty of celebrated Economists and intellectuals.
Prime Minister Narasimha Rao, in his previous position as Rajiv Gandhi’s external affairs minister, had witnessed the Chinese miracle led by Deng Xiaoping, whom he personally admired.
Subramaniyam Swamy went one better by teaching Deng to pronounce Chinese correctly. This is because Swamy's mummy had taught him to say Aiyayyo. This is the key to Manadarin phonetics. Mind it kindly.
Rao dedicated himself to political consensus building.
He hadn't the clout. He brought in Pranab to do the heavy lifting.
He had to overcome opposition from within his party, still wedded to Nehru’s and Indira Gandhi’s socialist vision, while also persuading opposition parties to support the minority government. Tactfully, he pitched liberalization to his party men as a continuation of Nehruvian philosophy, and to the opposition as the only solution to the economic crisis. In his address to the nation, he declared the intent for a new kind of self-reliance: “My motto is trade, not aid.”
Rao benefited from anti-RSS sentiment among the 'secular' parties. Furthermore, Congress didn't have a 'vote-catcher' because the heir- Rahul- was too young. Fortunately, the CPM politburo decided, for some arcane ideological reason, that it could not lead a coalition Government. This meant, after everything else had been tried- India had plenty of 'Young Turks' who turned out to be senile eunuchs- the BJP came to power. But Vajpayee and Advani were already too old.
Each retelling of the 1991 story propagates the myth that Indian policymakers tend to only pursue major policy reforms in the face of economic crises.
It was not a myth. The fact is, Rao had been put in by the Queen Regent (who could not hold office because she was Italian). He could respond to exigent circumstances but not change a long-standing plank of the Dynasty's platform.
The fact is, Rao remains an enigma. Why did he do land reform when he was C.M of A.P? Nobody asked him to do it. Why did he do liberalization on being made P.M? Who knows? The man could speak 17 languages and still nobody could understand what motivated him to subvert his own class interest and the interests of the Dynasty he appeared to faithfully serve.
When it came to trade reform, there was only one question which Manmohan Singh had to answer. Would scrapping regulations worsen or improve the balance of trade? The answer was it would improve it in the longer term (because of devaluation's J curve effect) but the thing should be done as part of multi-lateral negotiations. Pick your moment. Don't rush things .
On the other hand it is true that the opposition to reform based on 'swadesi' and anti-market ideologies was opportunistic and tactical. Why?
Two things had changed.
1) Government policy towards Punjab- viz. keep it agricultural and deny it manufacturing industry- had proved disastrous. There was a full fledged Khalistani insurgency which was very good at assassinating senior politicians. Had Punjabi youth been able to come forward in manufacturing industry, the way their father's had done in agriculture, then there would have been no recruits for the terrorists.
2) Delhi had suddenly become a proper metropolis. Members of Parliament could feel it. The Maruti car and color TV had changed expectations. The West had 'yuppies'. Delhi had 'puppies'- young upwardly mobile Punjabis- and their mores were catching on. It made sense to let Manmohan and Montek do what Minhas had not been able to do- viz. pursue sensible economic policies which would not cause Punjabis to take up guns and shoot Gandhis or Gandhian nutters.
This, at any rate was how South Indian officials in Delhi explained 1991. The fact is, the Southies could use its bureaucratic clout, in a quiet way, to do sensible things for their own states or for new sectors- e.g. computing and electronics. The incorrigible stupidity of the cow-belt- not to mention the babbling Bengali buddhiji- however, would only respond to the threat of the Punjabis losing patience and driving the blathershites out of office, or just shooting them. Forget Khalistan, why shouldn't the Sikhs 'purify' Hindustan itself of stupid virtue signaling cretins so everybody could start living better?
And if only India could get a leader like Narasimha Rao, one willing to use his political capital, India’s fortunes would once again change.
Rao had no political capital. He was only put in after Shankar Dayal Sharma turned down the job. Moreover Rao was very old and had no big constituency in his native state. Pranab Mukherjee would have been a better choice but the Dynasty had never forgiven him for staking a claim to the top job after Indira was assassinated.
It must be said, in Soniaji's defense, that she thought Rao had promised her to 'perform', not 'reform'. She thought the old fellow wanted to perform a bharatnatyam dance. But that bastard had different ideas! She never forgave him for this. That's why, she wouldn't let Rao's body be given honors by her party. The corpse was returned to Hyderabad for cremation.
As Prime Minister, Manmohans Singh, did have political capital which he used to secure the 123 deal and thus show that the Left was a paper tiger. But when he tried to do the same thing with respect to the fiscal deficit, after a credit downgrade, in 2012, he had to back down. Why? Rahul baba had decided not to take over. Let Advani or Mulayam or whoever clean up Congress's mess. After all, what had kept the Dynasty in power was the incompetence of its rivals. But Modi, not Advani, took the top job. He wasn't incompetent. Sad.
What is forgotten is that it was not just the arrival of Rao but the decades-long run-up and debate of economic ideas, that allowed these policies to ferment within the bureaucracy, and reach fruition at the opportune moment in 1991.
This is nonsense. Bureaucrats don't matter. Parliament does. But legislators prefer virtue signaling to making good policy choices because India is so poor that the effect of any change scarcely impacts the misery of the median voter.
The importance of incubating ideas is often forgotten in the retelling of India’s change in fortunes.
First this lady says 'ideas matter', but, in the case of India, it is obvious that ideas don't matter. So now she says 'incubating ideas' matter! In that case, how does she explain that reforms which could not be achieved by Central Government fiat (International Trade is a Central Subject) were not achieved at all? I suppose she will say 'we must incubate those ideas some more'!
Why not simply say 'magic works. A rabbit will pop out of that hat just now. Well, a rabbit will definitely pop out of that hat once magic has incubated for a sufficiently long period. Too bad the Universe will have ended by then. Still, that doesn't alter the fact that magic is important because I have proved that rabbits will pop out of hats.' Incidentally, I teach Economics at some expensive Amrikan University. I'm not stupid at all.
The 1991 Project is an effort to kickstart a discourse on economic growth-centered reforms in India by focusing on economic ideas.
Which, however, must be incubated till rabbits pop out of hats.
In the coming months, our team will publish essays, data visualizations, oral histories, podcasts, and policy papers demystifying the Indian economy.
They will all be stupid shit.
The project hopes to raise and answer many questions.
of an utterly foolish type.
Why does economic growth matter?
Coz peeps like eating nice things and wearing smart clothes and buying cool stuff.
How did socialist planning impoverish India?
It lowered factor productivity by preventing mobility based on opportunity cost ratios.
If socialism was so bad, why did India adopt it as an economic model?
So as to centralize power, thus reversing the effect of the 1935 Act and preventing further partitions or Civil Strife. Also, Communism appeared a viable alternative. This would have involved 'class war'- i.e. guys with names like Nehru or Gandhi or Iyer getting their heads chopped off.
How did India switch from a command-and-control to a market economy?
It did not have a 'command-and-control' economy. It had an 'administered' price and quota regime floating on top of a vast black economy.
What is the political economy of institutional persistence and change?
It is nonsense about how ideas must be incubated till rabbits jump out of hats.
How can India achieve high rates of economic growth once again?
By scrapping Land and Labor regulations and dismantling the Inspectorate Raj and curbing Judicial activism and kicking out foreign funded NGOs and shooting or imprisoning andolanjivis along with criminal/politicians. But this must be done at the State level.
We, the contributors to the 1991 project, will discuss the Indian economy and life under socialism and after liberalization.
But your discussion will be shite coz of all the shit you guys have been incubating in your brains.
We will cover the salient economic ideas over the past century and their impact on Indian policy. We will tell the stories of the madmen, and academic scribblers, and intellectuals, and technocrats who reformed India. We will discuss the way forward for India to strengthen institutions that can support a market economy. And most importantly, we will discuss policies that can enable economic growth.
But Indians already know the whole story much better than these cretins. Still, they have crap books to shill. Apparently there is a niche market for that shite. Let these guys make a little money from it. What great harm are they doing?