"

ECOP 6121 & 6122

Long Essay A & B

By Jay Tharappel
Student Number: 312058225
05/11/13

Department of Political Economy
Faculty of Arts and Social Sciences
University of Sydney



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TABLE OF CONTENTS
1.0 INTRODUCTION 3
2.0 DIRIGISME: AN OUTGROWTH OF THE COLONIAL EXPERIENCE 5
3.0 THE INTERNAL CONTRADICTIONS OF DIRIGISME 8
3.1 THE CONSTRAINING IMPACT OF STAGNANT AGRICULTURE 8
3.2 THE FIRST THREE FIVE-YEAR PLANS: A TRANSIENT PHENOMENON 12
3.3 THE STAGNATION PERIOD AND ITS CAUSES 14
3.4 THE RISE OF THE INTERMEDIATE REGIME 17
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3.5 THE FIRST PHASE OF INTERNAL LIBERALISATION 22
4.0 THE SIGNIFICANCE OF THE 1991 REFORMS 27
5.0 CONCLUSION 29
6.0 APPENDIX ERROR! BOOKMARK NOT DEFINED.
7.0 REFERENCES ERROR! BOOKMARK NOT DEFINED.



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Question: What were the factors contributing to the Indian governments decision to
gradually abandon its dirigiste economic model, which culminated in the 1991
reforms?
1.0 Introduction

After achieving independence in 1947, the Indian economy was for roughly four decades
characterised by dirigiste development in the sense that the state exerted a powerful directive
influence over the economy, however the 1991 reforms represented a qualitative break from this
model. Whats needed therefore is a materialist account of Indias shifting economic landscape to
explain how the conditions that gave rise to dirigisme experienced mounting contradictions that
could no longer be contained within the original orientation of the economic system. In the
definitional sense, the adjective dirigiste (noun: dirigisme) refers merely to a checklist of
economic policies (i.e. the extent to which the government exerts control over the economy), many
of which, in India, faded in their influence over time in varying degrees. As such it is necessary to
identify why the 1991 reforms represented the qualitative break from the dirigiste system. It is
the contention of this paper that the defining feature of the political philosophy underlying the
dirigiste system was that it sought to actively achieve a measure of economic independence in
order to reverse the detrimental effects of colonialism, which could only be achieved by strong
state intervention. Although the liberalising measures of the 1980s undermined the dirigiste
system in the purely definitional sense of relaxing government controls, because these measures
were to relax the internal controls over the Indian economy, the system still embodied the
philosophy of economic independence. However the 1991 reforms that came afterwards were
focused more towards external liberalisation, which meant allowing foreign capital to enter
Indian markets, which is why it represented the pivotal break from the philosophy of economic
independence. Ever since the 1991 reforms, successive Indian governments have pursued
economic policies commonly described as neoliberal and considered in many ways to be the
antithesis of the dirigiste approach to economic development. Where previously the state
asserted monopoly control over a variety of industries and emphasised self-sufficiency; post-
reform governments have tended towards ceding greater economic space to the private sector,
and lifting restrictions on trade.

This question is relevant for challenging the hegemonic paradigm regarding the reforms and also
Indias post-colonial narrative in general. This paradigm, which is often championed by the two
major political coalitions, and best articulated by the likes of Jagdish Bhagwati and Arvind
Panagariya, is that while the policies of the so-called socialist dirigiste period were well
intended, because they hindered free-market forces, everything from Indias human development
to economic growth was held back. This paradigm often presents a dichotomy between the
%
inefficiency, corruption, bureaucratic red-tape, and stagnant economy of the socialist dirigiste
period; and the era of economic liberalisation that came afterwards, which, by promoting
economic freedom, supposedly alleviated poverty. A sign of the extreme disconnect between this
hegemonic paradigm on the one hand, and reality on the other, is that according to the former,
the notion that poverty has fallen since the reforms is accepted without question despite
empirical evidence suggesting otherwise. According to Bhagwati and Panagariya (2013, p. 48)
poverty failed to decline during the heyday of socialism [the dirigiste period] and that it has seen
a steady decline in the post-reform era is now incontrovertible. Although the governments
official estimates (see Item 1 in the Appendix) display a sharp fall in poverty, this statistical feat
was achieved by continually lowering the definition of poverty. In 1972-73, the poverty line in
rural areas was defined as the minimum expenditure needed for a person to access 2200 calories
per day, but by 2009-10 this definition was reduced to 1780 calories per day. Similarly in urban
areas, this calorific definition was reduced from 2100 in 1972-73 to 1720 in 2009-10. However if
the calorific definition (see Item 2) is held constant, poverty is shown to have stayed the same
during the final phase of dirigisme, and increased dramatically since the 1991 reforms. In
response to the controversy regarding definitions of poverty, Bhagwati and Panagariya (2013, p.
54) simply assert that poverty has fallen, and that the integrity and qualifications of the
Planning Committee responsible for producing the official data are beyond reproach. For these
reasons, the argument that dirigisme was abandoned because it held back the poverty alleviation
effort is clearly a myth that needs to be challenged by determining the real underlying causes for
Indias economic changes.

Often the hegemonic paradigm regarding Indian economic history tends to issue superficial and
oversimplified judgements about dirigisme primarily as a way of defending the existing social
order, while silencing debate about its faults by invoking the spectre of the dirigiste period and
its worst features. At the core of this superficiality lies the idealist and ahistorical conception of
history promoted by the likes of Bhagwati and Panagariya (2013, p. 25) who argue that dirigisme
was a product of Nehrus socialist ideas. This paper rejects such idealist notions and instead
argues that dirigisme originated as an outgrowth of the economic processes that defined
colonialism, which in turn influenced the political orientation and class interests driving the
independence movement. Furthermore, every instance of dirigismes dysfunctional character can
always be traced back to the fundamental dialectic of the class-relations of production
constraining the expansion of the productive forces. To demonstrate this, this paper presents a
chronological account of Indias economic history to identify the key pivotal points of change
leading up to the 1991 reforms. Firstly, dirigisme was a product of the economic processes that
prevailed throughout the colonial era, the effect of which was to restructure the Indian economy
around the interests of British capital, and as such, the defining feature of dirigisme was that it
sought to reverse the colonial experience by attempting to expand the domestic market while
shunning the export-orientation that had prevailed until then. Secondly, although the first three
&
Five Year Plans (FYPs) were a period of strong industrial growth (1951-1966), the contradictions
of dirigisme could be seen emerging, and they stemmed from the failure to adequately conduct
land-reforms and redistribute wealth. Thirdly, these contradictions are what contributed to the
rise of the intermediate classes, who, by benefiting from the inflationary tendencies of the
economy, helped perpetuate the stagnation period (which lasted from around 1966-1975).
Fourthly, the declaration of the state of emergency in 1975 was the sign that the rule of the
intermediate regime had reached the end of its tether, which in turn resulted in class power
shifting more in favour of upper-income consumers and large domestic private firms, whose
interests the state acted upon by internally liberalising the economy beginning in the late 1970s,
which eventually paved the way for the 1991 reforms.
2.0 Dirigisme: An Outgrowth of the Colonial
Experience

To provide a materialist explanation for why dirigisme was eventually abandoned, it is important
to determine why it emerged in the first place. Clearly there were a range of conditions that led
the Indian political class to pursue these policies, conditions that eventually changed, thereby
paving the way for the abandonment of this system. To the extent that dirigisme sought to
redress the social imbalances and poverty inherited from nearly two centuries of colonial rule,
these objectives were ultimately governed by the class-configuration of the Indian state. For the
political class leading the struggle for independence, the injustices of Indias colonial experience
was an indispensible component of their ideological arsenal, with the year 1757 representing for
them a crucial moment in history. It was after all the year British forces led by Colonel Robert
Clive led the East India Company to victory in the Battle of Palashi, paving the way for the
plunder of Bengal; for Britains eventual takeover of the Indian subcontinent; and for 190 years
of economic exploitation during which Indias per-capita income did not rise (Davis, 2001, p. 311).
A brief overview of the mechanisms by which India was looted helps explain the appeal of a
dirigiste state and of economic planning in general. Prior to the Palashi victory, the pre-capitalist
mode of production prevailing across India was based on the relative autonomy of towns and
villages, in which farmers would exchange food supplies for the goods provided by artisans.
However, owing to the growing European demand for Indian goods, demand for the goods
produced by Indian artisans began outstripping the demand for goods at the village level. At the
time, Indian merchants accepted only gold or silver as payment, because prior to the Industrial
Revolution, British industry wasnt capable of producing the goods that were demanded by the
Indian market. Growing European demand intensified the flow of bullion into India, leading to
the emergence, beginning in the late 17
th
and early 18
th
centuries, of a class of Indian merchant
capitalists whose wealth even allowed them to begin issuing loans to the various European
trading companies (Sen, 1980, p. 15-45).
'
Whats unanimously agreed upon by Indias independence leaders was that the British victory
set in motion a reversal of Indias economic development that could only be rectified through
conscious state planning. Indeed in the words of Indias future first Prime Minister Jawaharlal
Nehru, a significant fact which stands out is that those parts of India which have been longest
under British rule are the poorest today (Nehru, 1946, p. 296). The first phase of British rule,
from 1757 to 1813, according to Anupam Sen (1982, p. 47), killed indigenous Indian capitalism
in its nascent stage, the argument being that India was on the cusp of its own bourgeois
revolutionary epoch much like the ones that emerged in Europe. Prior to the Palashi victory the
nascent Indian merchant capitalist class accumulated capital in the form of bullion, which they
received as payment in exchange for Indian goods. The British victory meant the East India
Company no longer needed to pay in bullion, as their military control allowed them to set
artificially low prices, and as a result India exported its riches for a relative pittance, and
domestic consumption was squeezed (Habib, 1985, p. 358). Dirigiste policies sought to redress
these injustices by attempting to rejuvenate the domestic market, which, initially at least, was a
task that aligned comfortably with rebuilding the relatively weak Indian capitalist class. The
second phase of British rule, beginning with the Charter Act of 1813, ended the East India
Companys monopoly over Indian trade in favour of the interests of British industrialists who
proceeded to transform India into a producer of cheap raw materials, such as indigo and cotton,
and into a market for finished goods. The experience and knowledge of this process, which
deindustrialised India back into an agrarian country, inspired the ideology of the Swadeshi
movement (Sharma, 1999, p. 65) with its emphasis on self-reliance a key component of dirigiste
principles. Finally, in the last half-century of British rule, as a result of Indias export-oriented
polices designed to prioritise the production of cheap raw materials at the expense of food, the
per capita availability of foodgrain began to fall drastically (Patnaik, 2004, p. 9), culminating in
the 1943 Bengal famine. India emerged as an independent nation with a weak capitalist class,
and with productive forces that were geared towards the needs of the imperial centre. Given this
historical context, it is quite clear that dirigisme emerged because the absence of an
interventionist state would have entrenched the status quo.

The colonial experience strongly suggests that dirigisme emerged as a product of the multi-class
alliance of the independence movement, which united different sections of Indian society against
a common enemy. According to Sen (1982, p. 103), the movement, led by the Congress party, was
effectively dominated by the educated middle-class, the professionals, small businessmen, small
landlords, rich and poor peasants, and its leadership comprised of petit-bourgeois intellectuals,
in what Nehru had described as a front populaire against imperialism (Venkatasubbiah, 1961,
p. 7). As such it is little wonder the Indian state that emerged from this movement would
eventually be forced to deal with these differences by accommodating, mediating, and where
necessary prioritising certain class interests over others. This helps explain why a common line
of reasoning that runs through much of the literature contends that the unsustainability of the
(
dirigiste model stemmed from its deepening class-contradictions, which took on a variety of
different forms, and eventually resulted in the abandonment of dirigisme itself. In addition to the
argument that dirigisme emerged out of this multi-class alliance, conditions after independence
dictated that the only institution capable of making the large scale investments needed to build
the industrial basis for Indian capitalism was the state, primarily because of the absolute
weakness of the Indian bourgeoisie. Indeed according to Sen (1982, p. 88), in 1950-51, tax paying
income earners constituted 0.6 percent of all income earners and commanded 4.7 percent of all
total disposable incomes. If the wage-earning employees are deducted from this, the size of the
bourgeoisie is evidently extremely small, which rendered them incapable of building a national
economy on their own. For this reason, economic growth relied on public expenditures, which
rather than crowding out private investment, actually induced a crowding-in effect by firstly
building the industrial basis for Indian capitalism, and secondly, by acting as a major source of
demand for the goods and services offered by the private sector (Patnaik, 1998, p. 165).

Although the movement was led by the elite, it would nevertheless be unfair to cynically describe
dirigisme as merely a tool of elite Indian interests; or as the replacement of foreign exploiters for
indigenous ones; or to discount the ideological influence of Indian socialism as a material force
capable of applying pressure democratically to effect measures of economic redistribution.
Asserting this angle isnt for reasons of nostalgia, rather the importance lies in recognising that
although Marx & Engels (1848) famously characterised the government of a capitalist state in
general as a committee for managing the common affairs of the bourgeoisie, there are problems
with applying this formulation to a country like India, which didnt proceed along the same
historical path as European capitalism. Instead the vacuum left by colonialism, combined with
the weakness of the Indian bourgeoisie, meant that a more diverse range of class forces,
especially among the dominant proprietary classes, assumed state power. These included the
more radical first-generation of political leaders whose ideological motivations and experiences of
direct persecution would arguably have put them above merely acting as agents of elite interests.
This tendency can be seen in the section of the Indian Constitution titled The Directive
Principles of State Policy, which although not legally binding, made very clear its general
socialist character. Its author, the famous Dalit activist B.R. Ambedkar had argued that
although there was equality in the formal political sense of one man one vote and one vote one
value, the vast inequality of social life amounted to deny[ing] the principle of one man one
value (Venkatasubbiah, 1961, p. 7). Even Nehru, writing in 1933, was critical of the notion that
it was possible to forge unity between classes, or that the role of the post-colonial state should be
merely to prefer home interests to foreign interests (Nehru, cited in Sen, 1980, p. 101).
Although this paper prioritises the contradictions among the dominant proprietary classes as the
driving force behind dirigisme and its eventual abandonment, the ideological appeal for social
justice cannot be ignored as a factor behind the adoption of dirigiste policies.

)
3.0 The Internal Contradictions of Dirigisme

3.1 The Constraining Impact of Stagnant Agriculture

Independent Indias first challenge was to achieve security and self-sufficiency in foodgrain
production, as a means of providing the surpluses needed for industrialisation. However these
attempts were constrained by the inability of the state to discipline the dominant proprietary
classes, especially the rich landlords in the case of agriculture. Or in Marxist terms, the class-
relations of production, in this case the persistence of rural inequality, effectively constrained the
expansion of the productive forces. The need to expand agriculture was recognised by the First
FYP, which stated, for the immediate five year period, agriculture, including irrigation and
power, must in our view have the topmost priority (Nehru et al, 1952). The planners were
keenly aware that in order to build a modern, industrialised, and diversified economy while
consistently improving living standards, and keeping inflation under control, it would be
necessary to rapidly improve the output and productivity of agriculture. They were confronted by
a backward national economy in which agriculture and mining together employed 73 percent of
the labour-force, but contributed only 53 percent to GDP
"
. This implied an extremely low level of
productivity in agriculture relative to the other sectors of the economy, which was also recognised
by the planners who noted that, productivity per worker in organised industry, commerce and
transport is about three times that in agriculture (Nehru et al, 1952). Planners also recognised
that reducing rural inequality through land reforms was necessary for increasing agricultural
output
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. Indeed as early as 1951, the Planning Commission recognised that despite the high level
of public expenditures on agriculture in the short period since independence, there have been no
marked gains in production, adding that, the bulk of the agricultural producers live on the
margin and are unable to invest in the improvement of the land (Tomlinson, 2013, p. 156).

These findings coincided with pressure for greater land reforms. The economic argument against
Zamindari was put forwards by the United Provinces Zamindari Abolition Committee in 1948,

1
The figure for agriculture and mining (73 percent) is taken from Sen (1980, p. 89), whereas the figure for
what this sector contributed to GDP is taken from Economic Survey (2013, p. 8). However the latter
includes Forestry and Fishing as well. Nonetheless theyre similar enough for the purposes of making
comparisons.
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Where land is managed directly by substantial owners and there are no tenants in occupation, public
interest requires the acceptance of two broad principles: i) There should be an absolute limit to the amount
of land, which any individual may hold. This limit should be fixed by each State, having regard to its own
agrarian history and its present problems. The census of land holding and cultivation, which it is proposed
to hold during 1953, will give the data relevant to this decision. ii) The cultivation and management of land
held by an individual owner should conform to standards of efficiency to be determined by law. (Nehru et
al, 1952)
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who reasoned that because Zamindars
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invested very little capital in expanding production, that
the removal of intermediaries between the tiller of the soil and the State will in itself go a good
way towards the rehabilitation of agriculture (Tomlinson, 2013, p. 155). The argument in favour
of a more egalitarian distribution of rural land-holdings through land-reforms is that as a
strategy for boosting food production, it has a high output-investment ratio meaning that it
increases output without needing any additional investments normally associated with
agriculture, i.e. irrigation, electricity generation, and storage (Patnaik, 1998, p. 162). The reasons
for this are fairly self-evident. What the market produces is itself an expression of the existing
distribution of wealth, which means under conditions of extreme inequality, the market will be
biased towards producing luxuries even if the poor lack necessities. As such if tenant farmers and
landless-labourers are given their own land, especially in countries where theyre among the
poorest classes, theyll prioritise their own consumption, whereas previously theyd produce what
the landlord could sell on the market, which itself was governed by the inequality of purchasing
power between the rich and poor.

There are numerous cases where land reforms have been cited as playing a major role in
increasing output. Japanese land reform in the post-war era placed the upper limit on land-
ownership at 2.45 acres. A large population of tenant farmers who had previously been burdened
by heavy rents then acquired the surplus lands. According to Nakamura (cited in Patnaik, 1994,
p. 272), these reforms were the main reason for the increase in productivity. Similarly, according
to Brun & Hersch (1976, p. 128-29) North Koreas achievement of self-sufficiency in foodgrain
production by the early 1960s are also attributed to land reforms (this is of course prior to the
economic disaster following the collapse of the Soviet Union). In 1945, 60 percent of arable land
was controlled by landlords who comprised only 4 percent of all households, which was later
reformed by placing an upper limit of 12 acres on land ownership and redistributing surplus
lands (Brun & Hersch, 1976, p. 127-130). In 1946, owing to food shortages caused by the ravages
of war, rice rations were set at 500 grams per day (Brun & Hersch, 1976, p. 120). In that same
year land reforms were announced and by 1956 and 1960, foodgrain availability had increased to
747 grams, and 912 grams per-capita per day respectively (Brun & Hersch, 1976, p. 202).

In India there were three major types of land reform conducted throughout the period of the first
three FYPs; 1) the abolition of Zamindari, 2) land ceiling legislation, and 3) tenancy reform
(Bharadwaj 1994, p. 297). Under the colonial system of collecting land revenues, feudal landlords
known as Zamindars, who at the time of Indian independence controlled 50 percent of total land,
were given rights to extract tributes from their tenants, and in return would be required to pay

$
Zamindars were the traditional Indian aristocracy who were often the former princes of large territories
whose sovereignty had been ceded to the British, although they were permitted to keep their titles
(Tomlinson, 2013, p. 154).

"+
taxes to the colonial authorities (Ghatak & Roy, 2007, p. 252). The Indian government was
successful in abolishing the Zamindar class, whose lands were then distributed against a newly
created second-tier of wealthier farmers (Patnaik, 1998, p. 162). However the other two types of
land reform were mostly unable to be implemented. For instance the measures aimed at
imposing land-ceilings, that is, placing an upper limit on the area of land able to be owned, was
mostly a failure as there were enough loopholes enabling landowners to circumvent legislation by
registering their land under the names of different family members. As a result, only 1.7 percent
of total owned and cultivated land was declared as being above the land ceiling and only 1
percent ended up being redistributed (Ghatak & Roy, 2007, p. 252). Similarly, when tenancy laws
were introduced to provide greater protection for tenant farmers, this resulted in large
landowners circumventing these measures by shifting their tenants to different plots of land, and
in the worst cases evicting them. In the state of Bombay the introduction of these new laws in
1948 resulted in the number of tenancies falling by 20 percent; similarly in the state of
Hyderabad
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, which also introduced similar measures in 1950, estimates are that the number of
protected sub-tenants fell by 57 percent between 1949 and 1953. The broad trend that followed
resulted in landowners leasing back the land to its former tenants on a crop-sharing basis
thereby perpetuating the inequality of land-ownership, and proliferating a large population of
landless labourers (Tomlinson, 2013, p. 158).

Although planners in India recognised the macroeconomic benefits of land reform, and despite
the relatively modest land-reform measures already introduced, the Indian state has throughout
its post-independence history been unable to successfully implement any radical measures.
Patnaik (1994, p. 272) notes that compared to the other industrializing Asian nations, India has
the dubious distinction of being the only one, which after passing a larger number of land reform
acts than any other, today has much the same level of concentration of landed property as four
decades ago. Indeed in 1953-54 when the first NSS surveys of landholdings were carried out, the
wealthiest 13 percent of farming households owned 66 percent of the land; while the wealthiest 5
percent owned 43 percent of the land. This translated to a GINI
&
coefficient of 0.63 in the rural
sector, and by 1973-74, the coefficient had fallen only marginally to 0.60 clearly not significant
enough to impact rural inequality or to stimulate the rural economy. By comparison, the effect of
land reforms conducted in China, which were far more extensive and egalitarian, meant that by
1985, the GINI coefficient in rural China had fallen to between 0.20 and 0.30 (Patnaik, 1994, p.
272-3). As a result of these reforms, combined with other factors influencing agricultural output,
per-capita foodgrain availability expanded rapidly from 547 to 1094 grams per day between 1949

%
Prior to the States Reorganisation Act (1956), Bombay and Hyderabad were large states, and not merely
cities.

&
The GINI coefficient is a measure of inequality with higher numbers corresponding to higher levels of
inequality.

""
and the early 1990s (Zhang, 2011, p. 3708). Compare this to Indian agriculture where this per-
capita figure for all foodgrains has languished at between 400 to 500 grams per-capita per day
throughout the post-independence period (see Item 3). That despite India having anywhere
between 60 to 35 percent more arable land per person than China since 1960, which is when the
World Bank (2012) began compiling this data.

The failure to tackle agrarian inequality also explains why the Mahalanobis model, which was
adopted from the second FYP onwards, while theoretically coherent, was ultimately
unsustainable in the long run. This is because it was superimposed over grossly unequal class-
relations that prevented these plans from ever reaching their full potential. In 1953,
Mahalanobis conceptualised a two-sector model comprised of consumer goods and capital goods,
which suggested that to industrialise quickly, expenditures should prioritise the capital goods
sector. Indeed according to Mahalanobis, if industrialisation is to be rapid enough, the country
must aim at developing basic industries and industries which make machines to make the
machines needed for further development (Ahluwalia, 1994, p. 349). Theoretically, if prior to
implementing this plan the output of consumption goods is growing at the same rate as the
population, shifting investment towards capital goods will result in a decline in per capita
consumption, which would manifest itself through inflationary pressures causing a fall in real-
wages. To prevent such a decline, especially in a poor country where a large section of the
population lives in extreme poverty, it would be necessary to ensure that shifting investment
towards capital goods leaves the consumer goods sector growing by at least the same rate as the
population (Patnaik, 1998, p. 165). In a poor country like India, this invariably requires the
expansion of foodgrain output, which India has historically failed to achieve.

This is where Mahalanobis revised four-sector model (Somashekar, 2003, p. 158), which formed
the basis for the second FYP, actually lends itself to arguments in favour of land reform. The new
model included capital goods (K), factory consumer goods (C), household industries including
agriculture (C2), and services (C3). If the purpose is to shift investment allocations towards
capital goods, while simultaneously ensuring that basic human needs are being met, the question
would be; how can the output of foodgrains be increased without investing greatly in agriculture?
Land reforms were the obvious solution because they would have raised foodgrain output (C)
with very little additional investment needed. The argument against land reform was that even
if it did manage to increase agricultural output, it would reduce the marketed surplus of grain,
because the new landowners would be more inclined to consume their output than sell it, thereby
raising food prices in the cities and hindering industrialisation (Patnaik, 1998, p. 166). However
according to Patnaik (1998, p. 167) even if that did happen, it would be an overwhelmingly
positive development for two reasons. Firstly, because the beneficiaries of the land reforms, who
constituted a large share of Indias population, would be consuming more for the first time in
generations. Secondly, given that land reforms have been shown to increase agricultural output,
"#
eventually these producers would have diversified their consumption, which would increase their
demand for industrial goods, thereby providing a source of demand for the industrial sector, and
also it would increase the portion of grain theyd sell on the market. Failing to conduct land
reform made the problem worse since it resulted in Indian industry relying on landlord-
capitalism for its food supplies a problem that will be covered later.

Prioritising investment in capital goods requires forgoing short-term consumption in order to
achieve the long-term goal of a higher growth trajectory and therefore improved living standards.
But why should consumption goods be treated as a homogenous entity? Surely it would make
sense to differentiate between necessities such as food on the one hand, and the luxury
consumption goods demanded by the wealthier sections of society on the other. Making such a
distinction would lead to the conclusion that the former should be prioritised by heavily taxing
the latter. For this reason the four-sector model actual lends itself favourably to radically
redistributive policies when taken to its logical conclusion. However this is where, again, the
inability of the Indian state to enact permanent structural changes to the existing class-
configuration stifled economic progress and therefore laid the groundwork for the eventual
dismantling of the dirigiste system. Given that economic growth according to this model requires
squeezing the rich through taxes on luxury goods, and expropriating their land for redistribution,
the extant class relations of Indian society, especially in the countryside, constituted the original
fetter on the expansion of the productive forces.

3.2 The First Three Five-Year Plans: A Transient Phenomenon

The first three FYPs spanning from 1951-65, and corresponding with Jawaharlal Nehrus tenure
as Indias first Prime Minister (1947-64), were relatively successful in terms of industrial growth,
which grew by an average of 7.7 percent per annum during this period. What followed was a
period of industrial stagnation (referred to from now on as the stagnation period) from around
1965 to 1975 during which industrial growth more than halved to 3.6 percent per annum
(Nayyar, 1994, p. 219). The advent of this stagnation period begs the question as to why
industrial production grew so rapidly during the first three FYPs in the first place? More
specifically, to what extent were the conditions that enabled roughly fifteen years of initial
expansion exhausted, thus leading to the stagnation of the mid 60s? Firstly, India had inherited
significant foreign exchange reserves as a consequence of the Second World War, which enabled
the government to import the capital goods needed to initiate the industrialisation process. These
reserves depleted rapidly. At the beginning of the first FYP, foreign exchange reserves stood at
10.25 percent of GDP, which fell dramatically over the following fifteen years to around 1-2
percent where it remained until the economic revival of the late 70s (see Item 4).

"$
Secondly, the rapid industrial growth during the first three FYPs was essentially a temporary
phenomenon. It involved exploiting numerous opportunities for industrialisation via import-
substitution, especially for products that could easily be produced in India including basic
consumer goods such as cotton, textiles, and sugar, as well as other crude, basic and
intermediate goods, such as steel cement and paper (Bagchi, 1977, p. 78). However this process
can only provide a temporary stimulus, because once domestic industries are capable of
producing the goods that were hitherto imported, industrialisation via import-substitution
eventually exhausts itself of further opportunities (Chandra, 1982, p. 519). In addition to this,
India received large quantities of food aid from the United States, which rose from Rs. 5.1 crore
during the years 1951-6, to Rs. 853.2 crore during the years 1961-6, which helped keep
inflationary pressures down during this expansionary period. This aid soon diminished for
reasons to be covered later. Ultimately the absence of the conditions that made the first three
FYPs successful surrendered the economy to its inexorable constraint stagnant agriculture. In
essence, every attempt by the government to revive the industrial sector with increased
investment ended abruptly as soon as food-price inflation caused real-wages to fall, thereby
constraining the overall purchasing power needed to absorb industrial output.

Thirdly, because the government had failed to increase agricultural output by tackling rural
inequality, the growth in industrial production couldnt be matched by the expansion of domestic
purchasing power for industrial goods, which ultimately ensured that industrial production
would gravitate towards the consumption demands of the wealthy. In the case of a backward
economy that manages to steadily increase per-capita foodgrain availability, it would make
logical sense for the proportion of per-capita consumption on industrial goods to increase.
However, the consumption patterns of the Indian population overall shows that the domestic
market for industrial goods began shrinking even during the first three FYPs when industrial
growth was strong. Between 1952-53 and 1964-65, the per-capita expenditure on industrial goods
in both rural and urban India experienced a downward trend (see Item 5 & 6), which is a
testament to the effects of food-price inflation stemming from the lack of per-capita agricultural
output growth in that period. Furthermore that the demand for industrial goods was heavily
concentrated among richer sections of society suggests another cause for the stagnation period
that came afterwards, namely the inequality of industrial consumption. In Rural India, between
1952-53 and 1964-65, the richest 5 percent of households consumed anywhere between 20 to 25
percent of all industrial goods, which was roughly equivalent to the consumption of the poorest
60 percent of households (Sau, 1974, p. 41). Similarly in Urban India, this figure oscillated
between 24 and 29 percent between 1952-53 and 1964-65, which was roughly equivalent to the
consumption of anywhere between roughly 50 to 60 percent of the poorest households depending
on the year (Sau, 1974, p. 42). This trend continued throughout the stagnation period as
evidenced by the gross inequality in the ownership of assets. In 1962 the top 10 percent of
households owned 51.13 percent of assets, and by 1972 this figure was still a high 50.68 percent;
"%
while the bottom 50 percent owned 8.52 percent of total assets in 1962, which fell only slightly to
7.76 percent in 1972 (Srivastava, 1994, p. 207). The constraining impact of the existing class
relations on the expansion of the productive forces is evidenced by the fact that although the first
three FYPs showed strong industrial growth, that is, although the productive forces expanded,
they operated at well within their production frontier as evidenced by the utilisation ratio for all
manufacturing industries falling from 87.7 to 79.6 percent between 1960 and 1970 (Raj, 1976, p.
55).

The first three FYPs were considered relatively successful, especially when evaluated according
to their own modest targets (see Item 7), and especially when compared to the former colonial
regime, because for the first time in nearly two centuries the forces of the state mobilised its
resources towards its own internal development, whereas previously Indias role was to enrich
British industry at the expense of its people. Although the new economic regime represented a
major historical advance over that which preceded it, by failing to solve the agrarian question
through land reform, that is, by failing to address the original structural cause of Indias
economic backwardness, the grinding inequality of the Indian countryside not only prevailed, but
also constituted a major macroeconomic opportunity cost, and proceeded to constrain all future
attempts at economic development and poverty alleviation. It was a case of the relations of
production strangling the further development of the forces of production, a situation that could
have been rectified only by at the very least, reforming those unequal property-relations in
favour of greater equality, without which the results of planning would remain incremental, and
fail to achieve the inclusive economic growth made possible only by qualitative changes to Indias
overall class-configuration.

3.3 The Stagnation Period and its Causes

The stagnation period provided a major ideological weapon to those favouring the eventual
abandonment of the dirigiste system, and in the contemporary discourse on economic policy, is
often invoked as an example of the inefficiencies of Indira Gandhis socialist policies, primarily
by those in favour of ceding greater economic space for the private sector. The defining feature of
this period was the sharp fall in the rate of growth of capital goods, which fell from an average of
14.16 percent per annum during the first three FYPs, to 2.6 percent between 1965 and 1975 (see
Item 8). Since investment in capital goods is what enables an economy to expand its productive
forces, such an abrupt slowdown indicates that during the stagnation period the productive
forces of the economy had stopped expanding. However it is not enough to simply cite the
symptoms of that stagnation period as the reason for the economic changes that emerged later,
rather the analysis must extend to explaining, firstly, how stagnation was an outgrowth of the
"&
class-configuration of Indian society, and secondly, how the economic effects of stagnation
mobilised certain class forces into a critical mass capable of overthrowing dirigisme.

The immediate causes for explaining the stagnation period can be summarised as the
governments failure to mobilise domestic financial resources for reinvestment and economic
expansion. Over the course of the first three FYPs, fiscal revenues, as a percentage of GDP, rose
from 6 percent in 1951 to 14.1 percent in 1965-66, declined to 13.2 percent in 1968-69, and
remained at around this level throughout the stagnation period; and by 1973-74 this rate had
only increased marginally to 14.7 percent. As a result, between 1960-61 and 1964-65, the average
annual growth rate of public expenditures was 13.2 percent, however during the stagnation
period between 1964-65 and 1973-74, this rate fell substantially to 2 percent (Jha, 1980, p. 66).
Aside from the gradual exhaustion of the states revenue raising abilities and the lack-of-demand
problem raised earlier, it could be argued that the government could have boosted expenditures
on capital goods during the stagnation period by resorting to deficit spending. However there
were three major barriers to pursuing such a policy. Firstly, the economy was already
experiencing inflationary pressures stemming from the inability to boost agricultural output. As
such it would have been politically difficult to pursue industrial expansion, which would have
arguably exacerbated this problem (Bagchi, 1994, p. 405). Secondly, the generous food-aid India
had received from the United States diminished, and from then on it had to be paid for in hard
currency, which made imports more expensive especially after the 1966 devaluation of the Rupee
(Chandrasekhar, 1988, p. 325 & 333). Thirdly, the effect of the Green Revolution was that it
drastically raised input costs (especially on fertilisers and pesticides), which in turn translated to
farmers demanding higher procurement prices, which only exacerbated inflation further
(Patnaik, 1998, p. 179).

There were a few major reasons for the inability of the state to mobilise the financial resources
needed for economic expansion. Firstly there was the prevalence of a large untaxed parallel
economy, which was an invariable outgrowth of the contradiction between the Indian states
development strategies on the one hand, which were predicated on the ability to mobilise
domestic resources, and the need to superimpose this model over a largely informal Indian
economy. In the words of Prabhat Patnaik (1994, p. 119), the strategy was predicated upon the
assumption of a sort of fiscal omnipotence on the part of the government which was obviously
unjustified in the context of the Indian economy (emphasis added). The first official
investigation into this problem was carried out by the Wanchoo Commission in 1970, which
estimated concealed income to have risen from Rs. 700 Crore to Rs. 1400 Crore per year between
1961-62 and 1969-69. However this was considered an underestimation by one member of the
Commission, D.K. Rangnekar, who argued the real figures were Rs. 1031 Crore and Rs. 2833
Crore for those same years. According to the Commission, the opportunity cost of being unable to
capture this revenue amounted to forgoing an average of Rs. 1000 Crore per year, which was
"'
approximately 37 percent of total tax revenues, for the time period analysed (Jha, 1980, p. 46-8).
Furthermore the exchequer came increasingly to rely on exacting tax revenues from an
incredibly small percentage of the Indian workforce. Indeed in 1980, Indias income tax-base was
comprised of 3.75 million people, or 0.55 percent of the population (Jha, 1980, p. 107); and by
1995 this tax-base had grown only marginally to 12 million, or 1.3 percent of the population
(Sharma, 1999, p. 241). Squeezing those on fixed-income salaries of course contrasts sharply with
the generous state subsidies offered to rich farmers who the state were unable, if not unwilling,
to tax. It is for this reason that despite agriculture contributing between 50-30 percent of GDP
between 1951 and 1986 (Economic Survey, 2013, p. 8-9), during that same period, agricultural
taxes as a percentage of total tax revenues dwindled from 7 to just less than 1 percent
(Bharadwaj, 1994, p. 320).

The reason for this resource mobilisation problem stemmed from, according to Rai (1992, p 11),
the inability of the state to impose a minimum measure of 'discipline' and 'respect for law'
among the capitalists. On the one hand, the dirigiste state ensured the nascent Indian
bourgeoisie had a protected market free from international competitors; their monopoly status
empowering them to inflate their profits, while the weakness of trade unions and the large
reserve army of labour ensured a disciplined workforce (Patnaik, 1977, p. 127). Moreover by the
end of the third FYP it is estimated the state contributed 60 percent of total national investment,
and provided the effective demand for the majority of the output of private firms, including half
the cement, one third of the paper, and half or more of the steel, aluminium, and copper produced
in the country (Jha, 1980, p. 67). In addition to this, private firms often received lucrative state-
contracts, generating large fortunes for their owners (Rai, 1992, p. 10). On the other hand, the
general inability, if not unwillingness, of the Indian state to exact the revenues needed to
continue its expansionary policies was the primary factor behind the sharp fall in the growth of
public investment. It is especially telling that tax evasion was according to Rai (1992, p. 10)
something the state generally turned a blind eye upon, which of course implies significant
levels of corruption between elites and the state machinery in general, and also correlates well
with Patnaiks (1977, p. 134) argument that stagnation stems from the growth of economic
surplus in private hands relative to that with government. In summary, the Indian bourgeoisie
needed the state, but were unwilling to replenish the exchequer with the revenues needed for
reinvestment.

Admittedly there were also exogenous constraints on the Indian economy during the stagnation
period; namely the 1962 war with China, followed by the 1965 and 1971 wars against Pakistan,
which compelled the state to divert more resources away from the civilian economy and towards
import-intensive militarisation; the 1973 OPEC oil embargo, which was a major supply-side
shock; and the droughts of 1965-67 and 1971-73, which resulted in food shortages (Rangarajan,
1982, p. 292). The impact of the droughts in particular reinforces the argument that the logical
"(
outcome of agricultural stagnation is ultimately the hindrance of industrial growth, as evidenced
by the slow to negative growth experienced during those aforementioned periods of drought (see
Item 9). Nonetheless it is the structural causes stemming from the class-configuration of Indian
society that provides the best explanation for the changing economic regime.

3.4 The Rise of the Intermediate Regime

The most compelling argument for explaining the stagnation period was put forward by Prem
Shankar Jha (1980, p. vii) who contends that Indira Gandhis first term as Prime Minister (1966-
77) coincided with the rise to dominance over the Indian economy of the intermediate classes,
who had a vested interest in the perpetuation of a stagnant economy. The concept of an
intermediate-regime was originally coined by Michal Kalecki to refer to the lower-middle class
and the rich peasantry who in his view constituted the ruling class of some countries. The
relevance of this theory to the Indian context was first recognised by K.N. Raj (1973, p. 1189),
according to whom the conditions originally cited by Kalecki that would allow this class to
consolidate its power were directly applicable to India. Firstly, the state had carried out some
basic land reforms to dismantle feudal-property relations, which in turn created a new class of
landowners with characteristics of this intermediate class (covered later). Furthermore, the
economic assistance of the socialist camp, led by the Soviet Union ensured that India could assert
a degree of independence from imperialist capital, thereby offering this class breathing room to
carve out its own economic space. In the Indian context the intermediate classes were comprised
of 1) rich farmers, that is net-sellers of foodgrain; 2) civil servants; and 3) small-proprietors
(including self-employed industrialists, owner-managers of small companies, family owned
companies, small manufacturers, and traders).

The development of capitalism in Europe ensured that these classes, roughly analogous to the
petit-bourgeoisie, would assume a subordinate role to the bourgeoisie in terms of their ability to
influence state policy. In India this wasnt the case because capitalism didnt emerge as an
outgrowth of its own indigenous contradictions as it had in Europe, rather it was imposed by a
foreign bourgeoisie who displaced their Indian rivals. As a result, post-independence India
emerged with a small bourgeoisie, and a much larger intermediate class. While the latter
werent as wealthy as the industrialists who authored the Bombay Plan, they made up for this by
their numerical size. According to Jha (1980, p. 103), this class was comprised of at least 20
million people multiplied eight to ten times as many dependents. Additionally, their levels of
education and wealth were relatively better than the general population making them a political
force to be reckoned with. According to Jha (1980, p. 98), both Kalecki and Raj had failed
recognise the specific characteristic that consolidates all the aforementioned groups into a unique
class, namely that under conditions of shortages, these groups are in a position to charge higher
")
prices, thereby shifting the inflationary burden onto poorer classes, namely urban workers, and
the rural poor.

3.4.1 The Rich Farmers: Indias Kulaks

The largest of the intermediate classes were the 8 million rich farming households, who in 1980
'
,
owned 55 percent of Indias total cropped area. In the agricultural sector, the class division is
between net-sellers and net-purchasers of foodgrain. The former are the surplus or rich
farmers, that is, those who produce more grain than they consume, and as such gain from high
food prices. The latter are the poor farmers who are defined as such because theyre negatively
affected by high food prices. This category includes landless agricultural labourers who earn
wages to buy their food on the market; tenant-farmers whose share of the harvest isnt enough to
subsist on; and the small farmers and fisher-folk who sell their produce on the market to
purchase cheaper foods, and as such are negatively affected by high food prices. The importance
of this division between rich and poor farmers lies in the inelasticity of demand, meaning that a
change in demand relative to price will be low. This is because when food prices rice, because
people need to eat, theyll end up spending a larger percentage of their incomes on food. This
fundamental reality means rich farmers are able to withhold grain from the market until prices
increase, which poor farmers, driven more by the immediate need to earn an income, are
incapable of doing. As such the former oppose compulsory procurement during bad harvests
years, while supporting it in years of good harvests. In sharp contrast, the net-purchasers of
foodgrains, including landless labourers, the urban working class, and all other groups on fixed
incomes, benefit from compulsory procurement during bad harvests as that would ensure, firstly,
that food-price inflation can be kept under control, and secondly, that the fair price shops, which
the poor depend on the most, are kept stocked with subsidised food (Jha, 1980, p. 99).

The ideal scenario for securing economic growth would have been for foodgrain output to increase
at a much faster rate than the population thereby allowing agriculture to function as the bargain
sector envisaged by Mahalanobis. In other words, the supply of increasingly cheaper food would
allow the government to expand other sectors of the economy without causing inflation. However
in India the opposite was happening. Instead of farmers providing cheaper food and increasing
output, rich farmers received large financial concessions from the state but offered very little in
return by way of increasing output. Firstly, this is evidenced by the procurement policies of the
government during that period. Prior to 1974, the government procured wheat from farmers at
slightly less than what it was sold for in fair price shops, which invariably meant the state had to

'
Although this proportion is for 1980, the unchanging inequality in the countryside should indicate that
these general ratios would be applicable for the stagnation era as well.

"*
pay the costs involved in transporting, storing, and distributing this grain. It covered these costs
by importing cheaper wheat from the United States, which it could sell at a higher margin, but
eventually gave up this practice when world wheat prices rose drastically after 1973 presumably
as a result of the oil supply shock. That imported wheat (prior to 1973) was cheaper than the
procurement price offered to farmers provides an indication as to how high procurement prices
were. The ostensible reasons for these policies were that theyd ensure large wheat supplies, but
in reality they reflected the powerful influence exerted by the farm lobby (Jha, 1980, p. 103-4).
Indeed according to Mitra (1972, p. 108), the terms of trade between industry and agriculture,
between 1961-62 and 1973-74, shifted in favour of the latter by 50 percent.

Secondly, in 1969 the Indian government nationalised 14 of the largest banks holding 85 percent
of total bank deposits in the country (Mahapatra, 2013). On the surface this appears to be an
appropriate solution towards solving the problem of mobilising domestic resources for
reinvestment. Although the ostensible purpose of this move was to extend low-interest loans to
the so-called priority sectors of the economy including agriculture (Tomlinson, 2013, p. 176), the
primary beneficiaries of this move were again rich farmers whose access to these loans even
strengthened their position as moneylenders as they often re-loaned these funds to poorer
farmers at usurious rates. Finally, that rich farmers benefited greatly from the stagnation period
is evidenced by the greater concentration of land ownership by rich farmers during that era. In
1961-62, farms larger than 10 hectares accounted for 24.4 percent of total farmland, this figure
rose to 31 percent by 1970-71 (Jha, 1980, p. 105). In essence the opposite of the Soviet scenario
was unfolding, and Indias kulaks, far from being squeezed, were being subsidized heavily with
only marginal improvements in per-capita foodgrain availability being achieved as a result.

3.4.2 Civil Servants: A Kind of Pseudo-Proprietor

The bureaucracy, referring to the managerial strata of the civil service, is the second
intermediate class in that they too had an interest in perpetuating stagnation by pushing the
burden of inflation onto other classes. Although civil servants are technically on fixed-incomes,
which means they should have class interests opposed to the intermediate class, Jha argues that
because their position empowers them to accept bribes in exchange for services, this actually
makes them a kind of pseudo-proprietor. More importantly, the worse the shortages, the greater
theyre able to increase their earnings through corruption, with practices including but not
limited to; blackmarketing, bootlegging, smuggling, colluding in the evasion of excise levies, or
speeding up the process of obtaining official sanctions (Jha, 1980, p. 100). A direct consequence
of the inability of the state to raise tax revenues was that during the stagnation period the
bureaucracy grew at a faster rate than jobs in the material sectors of production (Jha, 1980, p.
105). This was because creating a job in the productive sectors of the economy is significantly
#+
more expensive than creating a new job in the bureaucracy. Indeed according to the Reserve
Bank of India, the average cost of merely creating a job in the public sector during the first three
FYPs was (in 1968-70 prices) around Rs. 14-15,000, whereas the average annual salary of a civil
servant was Rs. 5000 (Jha, 1980, p. 79). In addition to this, because expanding these jobs was
relatively easy and cheap in the short-term, it was politically useful way of satisfying the demand
for jobs. This is why overstaffing became a serious problem throughout the 1970s and is
potentially as bad as generating unproductive jobs given the diminishing marginal returns on
additional workers. Indeed Bagchi (1994, p. 394) cites the example of the Durgapur Steel
Factory, which was designed to operate with a workforce of 7,500, but in fact operated with a
workforce of 15,000 by the 1970s even though similar plants around the world would require
only 3,500 workers. Creating a job in the productive sector increases the pool of material goods
available in the economy, whereas creating a job in the bureaucracy amounts to an act of
consumption since it takes from the material sphere of production without adding to it. This isnt
to say bureaucratic jobs are unnecessary, indeed every state needs its general staff in order to
function, only that once the optimal level of bureaucracy is reached, theres an opportunity cost
involved in pursuing the strategy of generating employment by this method. Thats because this
money could be better spent creating jobs in material production, which although will initially be
more expensive, the firms that hire these workers will potentially become solvent entities
capable of raising their own revenues by selling their products, and thus no longer needing any
exogenous government investment, much unlike the bureaucracy which will need to pay the
salaries of their workforce for a lifetime.

3.4.3. The Small Proprietor

The third intermediate class was the small proprietor. Here an important distinction needs to be
drawn between privately owned large firms run by professional managers on the one hand, and
small-proprietors, referring to owner-managed small to medium firms on the other. There are
two reasons why the latter constituted an intermediate class, and as such, benefited from and
helped perpetuate stagnation. Firstly, on the question of whether small-proprietors benefit from
inflation, Jhas argument is less convincing than those made for rich farmers and bureaucrats.
He implicitly argues, firstly, that all small-proprietors benefit directly from inflation since they
earn the proceeds of the higher prices they charge, whereas because the professional managers of
large firms are paid fixed-salaries, their real-wages fall as a result of inflation. While this is
logical in the abstract, whether small-proprietors benefit from inflation ultimately depends on
the relationship between what they sell and which commodities have become more expensive.
Aside from the impact of exogenous supply shocks, the ultimate cause of inflation in the Indian
context was stagnant agriculture. As such small-proprietors would benefit from food price
inflation if they were selling food (or commodities linked with food). However if they were selling
#"
non-food items such as clothing, under conditions of food-price inflation, the portion of their
customers budgets reserved for food would increase (given the inelastic demand for food),
thereby reducing their demand for clothing, which has indeed been the experience during the
stagnation period. For these reasons it would be inaccurate to assert that all small-proprietors
benefit from inflation as it ultimately depends on what theyre selling. Nonetheless small-
proprietors have greater agency to raise prices and cheat the system by for example selling their
products on the black market, whereas professional managers receive promotions according to
their ability to increase production. As such, even when small-proprietors are treated as a
homogenous group regardless of their specific responses to inflation, it could be argued they
nonetheless have a greater stake in stagnation than the professionally managed firms. Secondly,
this class was able to use its political clout to lobby the state to be biased against large firms, and
there are numerous examples throughout the post-independence era of the state acting decisively
to serve these interests. The First Industrial Policy Resolution in 1948 had promised safeguards
against intensive competition by large-scale industries as well as limitations, through the
licensing system, on the expansion of large firms. In 1967, the dissolution of the managing
agency system (Jha, 1980, p. 119), which was originally introduced by the British to pool finances
for large investments (Sen, 1982, p. 72-4), forced large enterprises to split up into smaller
companies. Similarly in 1969, the Dutt Committees report on industrial licensing, led to the
Monopolies and Restrictive Trade Practices Act (Jha, 1980, p. 119), which put definite limits on
the expansion of large enterprises.

Recognising the heavy influence of small-proprietors and of the intermediate class on Congress
policy isnt to argue that the Congress party was exclusively beholden to their interests. As
mentioned earlier, for the Congress to consolidate its rule as the party of the grand multi-class
alliance, it naturally required and indeed received corporate support. However the electoral
success in 1967 of parties that catered more exclusively to the intermediate class, namely the
Bharatiya Kranti Dal, the Samyukta Socialist Party, and the Jana Sangh compelled the
Congress Party to realign itself with these interests (Jha, 1980, p. 116). The Congress
governments 1968 decision to specifically ban corporate donations to political parties is an
example of this (Gowda & Sridharan, p. 227, 2012). This helped the Congress party destroy the
financial basis of the non-communist opposition, particularly the free-market Swatantra party
who were backed by the large industrial firms in Bombay and Ahmedabad. Meanwhile the small-
proprietor lobby was significantly powerful, and coupled with their advantage of numeric size,
could more readily decide the fate of governments. Their influence was ultimately reactionary
because for the purposes of economic development, it would make more sense to allow the growth
of large industrial firms on the grounds of efficiency because they operate on much larger
economies of scale. Additionally the concentration of the surplus in their hands makes taxation
potentially a much easier task as opposed to taxing a large number of relatively inefficient small
firms managed by proprietors with a much more direct interest in avoiding tax. As such, by
##
constraining the growth of large firms, the economy remains dominated by small-proprietors who
are more likely than large firms to accumulate revenues through untaxed channels, which in
turn adds to the problem of mobilising domestic surpluses for reinvestment.

3.5 The First Phase of Internal Liberalisation

The stagnation period ended when economic policy shifted from representing the interests of the
intermediate classes to those of rich consumers and large firms. Industrial growth throughout
the entire dirigiste period had been concentrated among the wealthier sections of society, whose
growing desires to imitate the consumerist lifestyles of the west could no longer be satisfied by
the limited range of goods offered by the autarkic system. What began therefore in the late 1970s
and continued throughout the 1980s was a period of internal liberalisation, which removed the
restrictions on incumbent businesses, particularly those that had restricted the growth of large
firms. This phase was defined by large firms being permitted to import specifically the capital
goods for the domestic production of the commodities demanded by the affluent. Although these
processes ushered in periods of strong economic growth during the Fifth, Sixth, and Seventh
FYPs, it resulted in a growing balance of payments crisis, and worsening debt levels, which
added to the growing pressure for the 1991 reforms.

As Kalecki had argued, continuous economic growth was a necessary condition for intermediate
regimes to remain in power, as such, the stagnation period couldnt have continued indefinitely
without political repercussions. Taking this into consideration, Jha (1980, p. 147) argues that
although the Allahabad High Courts decision to dismiss Indira Gandhi from office certainly
triggered the declaration of the two-year State of Emergency, the state had grown increasingly
authoritarian since the mid-sixties, which correlated closely with the economic pressures brought
about by the contradictions of the intermediate regime. The Emergency erupted after a decade of
the state offering sizable concessions to the intermediate classes while fixed-income groups were
squeezed by taxation and inflation. This explains why the number of industrial disputes had
grown as sharply
(
as the size of the police force throughout the stagnation period, which
eventually culminated in the banning of strikes during the emergency. Or why, of the promises
made by Prime Minister Gandhi in 1975, only the ones favouring rich farmers and small-
proprietors were actually acted upon (Jha, 1980, p. 177). Indeed Jha (1980, p. 186) argues that
the Congress lost the 1977 election because a critical mass of those who had suffered as a result
of the intermediate regimes legacy of unemployment and inflation, withdrew their support, and
voted for the Janata in protest. For these reasons the emergency can be interpreted as the

(
The number of man-days lost in industrial disputes rose from 5-7 million in 1961-62, to 18-20 million by
the middle and late 1960s (Jha, 1980, p. 162)

#$
intermediate class fighting back against challenges to their rule. However the defeat of the
Congress in 1977 didnt change the economic regime immediately, because the victorious Janata
party represented the same intermediate interests, especially those of rich farmers. Indeed a
telling sign of the kulak lobbys influence over the government was clear when in 1978, then
Deputy Prime Minister Charan Singh (Morarji Desai was Prime Minister), organised for one
million farmers to descend upon Delhi from neighbouring states to issue to their demands.
Afterwards Charan Singh was made Finance Minister allowing him to implement a federal
budget that offered even more subsidies, including a 50 percent tax reduction on fertiliser, and
higher procurement prices policies that contrasted sharply with the Janata partys neglect of
poor farmers (Sharma, 1999, p. 200).

Although the return to democracy in 1977 briefly intensified the states commitment to
intermediate interests, the re-election of the Congress party in 1980 for Indiras Gandhis second
term as Prime Minister represented a qualitative break from the intermediate regime that had
dominated India from the 1960s onwards. This corresponds well with the argument put forward
by Rodrik & Subramanian (2004, p. 28), writing for the IMF, that the governments attitude
towards the private sector had shifted considerably from being outright hostile to supportive,
which is a perception they argue was shared by business as well. The first thing to notice about
the year 1980 was that it represented a qualitative break from the past in the sense that the
economy moved on to a higher growth trajectory. Indeed according to an econometric analysis of
both the aggregate and per-capita GDP of Indias post-independence history, the first qualitative
shift towards a higher growth trajectory took place in the early 1950s, prior to which the colonial
economy had experienced close to zero growth in per-capita income; and the the second shift was
in 1980 (Nayyar, 2006, p. 3). Even a cursory glance at Item 9 appears to support the view that
the year 1980 did indeed represent a break from the past, with a much smoother growth curve,
and without the volatility seen earlier.

This new growth trajectory cannot be understood without recognising an important consequence
of the earlier stagnation period, namely that the productive capacity of the economy stopped
growing, and continued to reflect the superior purchasing power of the upper-income sections of
society. While this class may only constitute the wealthiest 10 percent of the population, thats
still a huge market in absolute terms, especially since their purchasing power is roughly
commensurate with that of their middle-class counterparts in the OECD countries (Bagchi, 1994,
p. 418). The desires of the affluent for the lifestyles prevailing in the advanced capitalist
countries could no longer be reconciled with the intermediate regimes favouritism towards
small-proprietors and its bias against large firms. The main reason for this being that unlike
small-proprietors, large firms possess the technology and the economies of scale needed to
produce the consumer goods demanded by the rich.

#%
This explains why the balance began shifting in favour of large firms during the first phase of
liberalisation in the late 1970s and early 1980s. In 1978, acting on the recommendations of the
Alexander Committee, the government liberalised imports of raw materials and components, and
increased the range of importable items. Then in the early 1980s, large private firms were
allowed to enter sectors of the economy that were hitherto reserved for the public sector; red-tape
was removed making it easier for firms to expand capacity (Bagchi, 1994, p. 357); and protections
and subsidies were removed for the small-proprietor dominated cottage industries (Bagchi, 1994,
p. 394). A new phase of import liberalisation began in 1985, when the government acted on the
recommendations of the Hussein Committee Report (1984) and moved to remove restrictions on
capital goods for the stated purpose of bringing Indian industry up to date with the latest
technology. These reforms were enacted because large firms could only manufacture these newly
demanded luxuries by importing advanced capital goods that can only be provided by foreign
transnational corporations (Chandrasekhar, 1988, p. 337).

This isnt to say there was a conscious decision to focus production around the demands of the
rich, rather this was the logical outcome of the absence of any serious challenge to existing social
inequalities. Perhaps hypothetically under conditions of greater equality these productive forces
would have produced more basic goods with a much broader market (Bagchi, 1994, p. 417). The
dialectic in operation here is as follows; if society moves along a particular path as a consequence
of its class-character, this creates favourable conditions for continuing along the same path. The
corollary to this in Indias case is that by refusing to rectify the problem of social inequality, and
by allowing for the perpetuation of the status quo, it was only inevitable that future
developments would reflect an intensification of the status quo. This helps explain why,
beginning in the late 1970s, government policies began encouraging conspicuous consumption by
reducing indirect taxes on luxury goods, and cutting income taxes for those on higher incomes
(Nayyar, 1978, p. 236).

The impact of these early liberalisations was that from 1978 onwards, the trade deficit had
widened (see Item 10), thereby placing mounting pressure on Indias balance of payments. In
response to this, a counterargument was made that the mounting import bill wasnt caused by
the influx of imports (for primarily luxury consumption) but by the sharp surge in oil prices that
had continued from the late 70s onwards. However as the Item 11 shows, oil-imports (as a
percentage of GDP) had peaked in 1980-81 and then fallen, owing in large part to increased
domestic oil production (Patnaik & Chandrasekhar, 1995, p. 7). In addition to this, given that
monetary policy operated according to a pegged exchange-rate regime, this meant the mounting
pressures towards devaluing the Rupee (as a result of the trade deficit) would have to be offset by
running down foreign exchange reserves to maintain the value of the Rupee. It is these pressures
that are said to have provided the pretext for the 1991 reforms because it caused the widening of
the current account deficit to 3 percent of GDP; and depleted Indias foreign exchange reserves to
#&
a value less than a billion US Dollars by July 1991 (RBI, 2010) or the equivalent three weeks
worth of imports (Weinraub, 1991).

A contradictory feature of the 1980s boom was that it was driven by debt, which (as mentioned
earlier) was a product of the states inability to mobilise tax revenues by disciplining its
dominant proprietary classes. Indias fiscal balance had been in surplus throughout the 1950s
and 1960s, which then crossed over into deficit during the 1970s (Patnaik & Chandrasekhar,
1995, p. 5). In the 1970s, public debt-to-GDP ratio was 5 percent, in the 1980s it jumped to 9
percent (Rodrik & Subramanian, 2004, p. 17), and by 1990-91 it had reached 10.1 percent
(Patnaik & Chandrasekhar, 1995, p. 6). These debt levels dont appear particularly threatening
especially when considering Indias current public debt-to-GDP ratio stands at 67 percent
(Trading Economics, 2013). However at that time, the growing debt levels were countered by
undermining some of the egalitarian features of dirigisme by increasing the administered prices
of food in ration shops and resorting more towards indirect regressive taxation (Patnaik &
Chandrasekhar, 1995, p. 7). Furthermore Indias external debt-to-GDP ratio rose significantly
from 12.5 percent in 1977-78 to 21.2 percent in 1988-89. These figures is higher than public debt-
to-GDP because along with external government borrowings, it also includes private sector
borrowings, IMF loans, and deposits by non resident Indians that can be easily repatriated to
foreign banks (Nayyar, 1994, p. 46). In response to such conditions the government could have
chosen to handle the debt crisis by pursuing either of the following approaches. It could have
cutback on the consumption of the wealthy by imposing import-restrictions on unnecessary
imports, which would in turn allow foreign exchange reserves to be prioritised for servicing
external debt. Or it could have made the shift towards trade liberalisation and export-oriented
policies in order to counterbalance the surge in imports with an export thrust. The decision to
pursue the latter course over time reflects the reality that purchasing power was dominated by
the wealthy, which of course follows logically from the dialectic mentioned earlier, namely that if
society moves along a particular path as a consequence of its class-character, in this case towards
wealth being concentrated in the hands of a minority, this creates favourable conditions for
continuing along the same path.

Theres a tendency for pro-reform commentators to cite the insolvent public sector as a
contributing factor leading up to the crisis of 1991, which is the argument made by Shyam
Kamath (1992) writing for the CATO Institute, who identifies that in 1988-89, 101 of the
country's 222 largest public sector companies recorded losses, and concludes therefore that this
problem could only be rectified through the wholesale privatization of the huge and inefficient
public sector. Such arguments make it seem as though the privatisation drive following the 1991
reforms was an objective solution, however this focus on the public sector inefficiency is nothing
more than a second-order cause that needs to be understood within the context of the dominant
trend of the 1980s, namely that of the state serving the interests of the private sector. Firstly, the
#'
insolvency of the public sector was grossly exaggerated. Indeed a study conducted by Sankar,
Tilak, and Sai (cited in Bagchi, 1994, p. 412) between 1983-84 and 1985-86 compared the
profitability of public sector firms with their private sector counterparts (541 firms in total), and
concluded that although the latter realised a larger return on capital than public enterprises
)
,
if the sick private enterprises that had been nationalised by the government, and the highly
profitable public sector oil companies were excluded, the difference between public sector and
private firms was only 1-2 percent in favour of the latter. Furthermore this sample included only
the solvent private firms, which means if a comparison were to be made between private and
public sector firms in the original sample without any of the above qualifications, it would have
been unfairly biased against the public sector. Secondly, Kamaths (1992) argument that the
growth of the public sector [was] at the expense of the private sector ignores the reality that
private sector firms by the mid 1980s were heavily indebted to public sector banks and abusing
the credit provided to them. Indeed according to the same study by Sankar, Tilak, and Sai (cited
in Bagchi, 1994, p. 413), the total outstanding debt of 597 private firms, each with a credit limit
of Rs. 10 million or more, came to Rs. 26,553 million, which amounts to a debt-to-capital ratio of
10 percent. Thirdly, according to a BBC article (1998) detailing a similar set of arguments,
between 1986 and 1991, state owned enterprises made 39% of gross investment, but generated
only 14% of GDP, however this ignores that public sector companies intentionally kept their
prices low, which the private sector benefited from (Bagchi, 1994, p. 412). In summary, according
to Patnaik & Chandrasekhar (1995, p. 5), the state exchequer was the medium through which
large-scale transfers were made to the capitalist and proto-capitalist groups. Much of what was
technically public sector debt amounted to disguised private-sector debt in the form of the
nationalisation of insolvent, or sick private firms, and enormous outstanding loans to the
private sector.

There is a major difference between the first phase of liberalisation implemented before 1991 and
the second phase implemented afterwards. The first phase was characterised by internal
liberalisation, that is, it focused on lifting import-restrictions on specifically those capital goods
needed to produce consumer goods domestically, so long as those capital goods didnt have any
domestic competitors producing them (Ahluwalia, 2003). However the second phase was focused
more towards external liberalisation, which involved lifting restrictions on the importation of
finished consumer goods, thereby forcing domestic firms to compete directly with international
capital. Of critical importance is recognising that external liberalisation of the kind that
happened in 1991 was not unanimously supported by the entire Indian capitalist class. There
was of course the classic schism between those who see international competitors as a threat to
their own domestic empires, and those who stand to gain from an export-oriented economy. The

)
This is measured as the ratio of profit before tax plus interest to total capital employed (Bagchi, 1994, p.
412)

#(
question then becomes; what were the factors that shifted the balance in favour of the latter set
of interests favouring the external liberalisation of the economy?

Firstly, in an economy where licenses and regulations governed commercial activities,
transaction costs will be extremely high, which in turn necessitates the emergence of different
kinds of middlemen whose skills arent associated with material production as much as they are
with working around the system and obtaining favours by corrupt means. It was argued by
Patnaik & Chandrasekhar (1995, p. 6) that such a class of international racketeers, fixers [and]
middlemen were more inclined towards external liberalisation as it would allow them to expand
their own business opportunities, especially in import-export operations, that had until then been
hindered by the dirigiste system, albeit its slimmed down 1980s form. Secondly, if industrial
growth serves the affluent whose incomes are comparable with those of the middle-class in the
OECD countries, then they, along with the private firms that produce the commodities they
consume, both have a shared interest in dismantling specifically those government controls that
restrict their consumer choices; but this shared interest extends only so far. This is because while
the upper-income consumer wants access to all consumer products even if it means undermining
protectionism, domestic private-sector proprietor would only want to dismantle those controls
that prevent them from importing the capital goods needed to produce these commodities
domestically, while still relying on protectionist barriers to prevent direct competition from
overseas companies. Theres much to suggest that on the question of this particular conflict of
interest, the sympathies of the political class were closer to those of affluent consumers. Indeed
according to P. Chidambaram, who as Minister of Commerce played a major role in the 1991
reforms, because of this protected market, the Indian people were being given shoddy goods and
services at very high prices. Similar sentiments were echoed by Manmohan Singh that could
also be interpreted as being somewhat antagonistic to domestic business, if you have a
controlled economy cut off from the rest of the world by infinite protection nobody has any
incentive to innovate (PBS Documentary). Furthermore, according to Patnaik & Chandrasekhar
(1995, p. 7), the basis on which the political class pushed for import-liberalisation policies in
general was that although the segment of the population with the purchasing power to buy these
goods was small, their absolute size made them quite a large market, which is of course true.
Finally, for India to jettison export pessimism in favour of its capitalist class gaining a share of
the worlds export markets, international capital, represented by the World Trade Organisation
(WTO), would invariably demand reciprocity in terms of gaining access to the Indian market
otherwise India couldnt have joined the WTO in 1995.
4.0 The Significance of the 1991 Reforms

#)
Changes to an economic regime often benefit some classes for the very same reason they harm
others. While it is true that a balance of payments crisis needs to be fixed, the manner in which it
was fixed was more an expression of the interests of the wealthy than it was a purely objective
and scientific solution to the problem. The immediate cause of the 1991 crisis was a worsening of
the current account deficit. This was as a result of the First Gulf War, which resulted in oil prices
surging
*
; a reduction in exports to the Middle East; and a loss of remittances from workers in the
Gulf. However, theres much to suggest the 1991 balance of payments crisis could have been
easily averted, and that its intensification wasnt an inexorable event as much as it was a
product of short-term mistakes and confusion about the future of dirigisme. At the time many
Indians working in Kuwait wished to shift their savings, which had an estimated value of 5 to 7
billion US Dollars, to Indian banks, which the latter refused because they were unsure about the
outcome of the war, and therefore the future value of the Kuwaiti Dinar. If they had accepted the
money, the foreign exchange crisis could have been prevented but instead that money was lost to
foreign banks (Patnaik & Chandrasekhar, 1995, p. 1). Admittedly, the government had imposed
import-restrictions as a purely short-term measure in early 1991, which transformed the trade
deficit into a surplus by March 1991 (Patnaik & Chandrasekhar, 1995, p. 2), however this didnt
solve the crisis as it was offset by speculation as funds illegally left the country.

The real significance of the 1991 reforms was not that it averted a looming crisis, rather that it
provided a pretext for the implementation of a whole range of structural adjustment reforms that
benefited the wealthiest 10 percent. This is evidenced by the long-term structural shift towards
devaluation as opposed to import-restrictions. Implemented in July 1991, the first short-term
measure of the reforms was to allow the Rupee to devalue in two stages by 25 percent (Patnaik,
1996, p. 3), the reason being, to counter the massive draw down in the foreign exchange
reserves (RBI, 2010), after all to maintain a pegged exchange rate (which India had until March
1993) it is necessary to draw down foreign exchange reserves so as to boost the demand for the
Rupee. The pressure for such reforms reflected the growing mismatch between the dirigiste
attempt to build internal markets, and the cosmopolitan lifestyles demanded by upper-income
consumers. Indeed in the aftermath of the 1991 reforms, the surge in imports has been
increasingly comprised of capital goods for the production of luxury consumption goods in what
Utsa Patnaik (1996, p. 5) described as a private spending spree by the well to do. The effect of
growing inequality in the lead-up to the 1991 reforms was that it forged an alliance between the
agenda of the World Bank and IMF (i.e. the BWI, or Bretton Woods Institutions) and wealthy
upper-income consumers, which combined to form a powerful ideological force for change. The
dirigiste model, which at least tried to build an internal market, was predicated on using foreign
exchange reserves for priority purposes, namely, for importing oil, food, and capital equipment
for industry, while placing restrictions on the import of non-essential goods such as luxuries. By

*
For most of the 1980s, oil prices had been falling, until it rose sharply in 1991.
#*
contrast, the combination of devaluation and trade-liberalisation after the 1991 reforms has
essentially reversed this developmentalist equation. It has engineered a situation whereby the
country sustains its ability to absorb imports is by squeezing the poor through food-price
inflation. This is because in order to facilitate a surge in luxury imports, while simultaneously
trying (and currently failing) to counter a potential balance of payments crisis, it becomes
necessary to boost exports, which invariably involves exporting food.

The result of these policies can be gauged in terms of food security, as evidenced by the fact that
prior to the 1991 reforms, between and including the years 1961 and 1990, India was a net
importer of grain, importing 2.84 million tonnes of foodgrain per year on average. Whereas in the
years following the reforms when trade was increasingly liberalised, between 1990 and 2011
inclusive, India became a net exporter of grain, exporting 4 million tonnes of grain per year on
average (Economic Survey, 2013, p. 24). Admittedly, the most recent export figures shows that
agricultural exports make up only between 10 and 15 percent of the total value of exports
(Economic Survey, 2013, p. 93), however Indias trade-deficit would presumably deepen even
further if an export ban were imposed on foodgrains without similar restrictions being imposed
on unnecessary imports as well. Earlier in this paper it was argued that a problem with the
dirigiste model was that for a variety of reasons, it was unable to significantly raise foodgrain
output. Despite this, foodgrain output was at least growing, albeit slowly, in the decades leading
up the 1991 reforms, whereas afterwards, per-capita foodgrain availability has been trending
downwards (see Item 3). The plan, according to the RBI (2010), was to improve domestic
competitiveness, but as Item 10 shows, the devaluation didnt lead to an export boom, rather the
trade-deficit rose dramatically along with the reliance on trade and today India finds itself in the
midst of a second balance of payments crisis.
5.0 Conclusion

The original sin of the dirigiste system, which lies at the foundation of every one of the
aforementioned contradictions, was the governments failure to adequately redistribute wealth
and land. The dialectic in operation here is that a failure to achieve greater equality undermines
the ability of the system to remain viable and tilts the economic balance in favour for those for
whom the system has already served its purpose and has since become a hindrance. This failure
stemmed from the contradictions among the multi-class alliance that assumed power after
independence. They were unified on the understanding that since the conscious use state-force by
the Raj was needed to exploit India, reasserting Indias economic independence would also
require an interventionist state, the absence of which would ensure Indias continued subjugation
by foreign capital. Having achieved the objective that initially united them, the state would have
to reconcile the competing interests that divided them, resulting in a somewhat dysfunctional
$+
regime that was forced to prioritise one set of interests over another in an anarchic manner. At
the one extreme, the purpose of the state for the fledgling capitalists was to offer protection from
foreign competition, and for landowners, to offer high procurement prices; whereas at the other
extreme, the poor hoped independence would lead to the redistribution of assets and income,
which could only be achieved by disciplining and dispossessing the wealthy. Even assuming that
the poorest sections of society, namely the landless agricultural and menial workers, never had
any serious influence over the state to begin with, the differences among the various proprietary
classes were still mutually antagonistic enough to prevent the system from acting with a unified
purpose.

Despite the first three FYPs having achieved significant industrial growth, the inflationary
barrier of high food prices hindered the potential for this to continue. The origins of this problem
stemmed from a failure to radically redistribute land like in other countries where such policies
greatly increased output. Instead the abolition of Zamindari merely created a larger,
homogenous class of landlords who benefited from the inflation caused by food shortages. Other
than the economy being held to ransom by this class, the rich landlords offered absurdly little to
the exchequer by way of taxes, which of course compounded the problem of mobilising domestic
resources. As a result, the inter-sectoral terms of trade moved in favour of agriculture and
against industry, which was the exact opposite direction to that which was envisaged by the
Mahalanobis model, and a primary factor behind the stagnation period. The onset of industrial
stagnation had its origins in an inability to significantly raise agricultural output, but it also
gave rise to the even more bizarre phenomena of the intermediate classes who actually benefited
from stagnation by being in a position to at the very least pass on its worst effects to the poor. To
ensure continued political support, and given the prevailing industrial stagnation, which made it
more expensive in the short-term to hire workers in the material sectors of production, the
government sought to fulfil the promise of creating jobs via the growth of an inefficient
bureaucracy that today has, perhaps superficially, come to symbolise the dirigiste period.

Although the fledgling capitalists needed state protection and investment as a prerequisite for
the expansion of their own domestic empires, they were unable or unwilling to be disciplined
through taxation for the purposes of replenishing the very exchequer they relied upon. What
emerged among capitalists was the contradiction of the prisoners dilemma in the sense that
individual capitalists were motivated by their own self-interests to evade taxation, despite the
collective interests of Indian capitalism requiring they be disciplined. By being unable to
mobilise these domestic resources, the untaxed surpluses fuelled conspicuous consumption by the
wealthy whose desires to imitate western lifestyles generated social pressure for controls on the
importation of luxury goods to be relaxed, and eventually, their objective interests could no
longer be contained by the dirigiste system, and the broader social interests it at least attempted
to serve. The resources spent on luxury consumption amounted to a major opportunity cost since
$"
those resources could have been directed towards expanding the material sectors of production.
This lopsidedness of consumption existed even during the first three FYPs when industrial
growth was strong, which drives home the point made earlier that if there is a lack of wealth-
redistribution, that is, if purchasing power remains concentrated among the affluent, then
naturally production begins prioritising their interests and tastes over other more pressing social
objectives. Under such conditions Dr Ambedkars thoughts offer fresh relevance for
understanding Indias changing economic landscape, because its only to be expected that where
theres economic inequality alongside formal political equality, those with a vested interest in
perpetuating the former will dominate and subvert the latter.




Year
Changing
Official
Calorie
Benchmark
Rural
Poverty
Changing
Official
Calorie
Benchmark
Urban
Poverty
1972-73
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2009-10
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Year
Rural
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(2400
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Rural
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(2200
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Urban
Poverty
(2100
Calories)
1972-73 72.00% 56.40% 60.00%
1983 70.00% 56.00% 58.80%
1993-94 74.50% 58.50% 57.00%
2004-05 87.00% 69.50% 64.50%
2009-10 90.50% 75.50% 73.00%
,!
6.0 Appendix
Item 2. Consistent Poverty Estimates
(Patnaik, 2013)
Item 1. Official Poverty Estimates (Patnaik, 2013)
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Item 5. Percentage of Per Capita Consumer
Expenditure Spent on Industrial Goods in Rural India
(Sau, 1974, p. 39)
Item 6. Percentage of Per Capita
Consumer Expenditure Spent on
Industrial Goods in Urban India (Sau,
1974, p. 40)
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Consumer Durables - - 11 6.2
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General Index 5.7 7.2 9 4.1
$&
Plans
Item 7. I|ve ear |ans (Dash, 2000, p 114)
(Lconom|c Survey, 2013, p. 10)
Item 8. Annual Compound Growth Rates in the Index of Industrial Production
(Chandrasekhar, 1988, p. 334)
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p. 10)
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7.0 References


Ahluwalia, I.J. (1994), Contribution of Planning to Indian Industrialisation, in T. Byres (ed.),
The State and Development Planning in India, Delhi, Oxford University Press

Ahluwalia, M.S, (2003), Economic Reforms in India since 1991: Has Gradualism Worked?,
accessed 25/10/13, http://planningcommission.nic.in/aboutus/speech/spemsa/msa008.pdf,

Bagchi, A.K. (1977), Export-Led Growth and Import-Substituting Industrialisation, in D.
Nayyar (ed.), Industrial Growth and Stagnation, Oxford University Press, Bombay

Bagchi, A.K., (1994), Public Sector Industry and the Political Economy of Indian Development, in
T. Byres (ed.), The State and Development Planning in India, Delhi, Oxford University Press

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