Political Economy Part 1: Economic Development

1. Political EconomyPart 1: Economic Development Gov 1255 Politics of India Prof Prerna Singh

2. Political Economy of Economic Development in India • 1950 to 1964 The Nehru era • 1965 to the early 1980s The Indira Gandhi era • 1980s onwards

3. Political Economy of Economic Development in India Statist model of Development: Import Substitution-led Industrialization • 1950 to 1964 The Nehru era • 1965 to the early 1980s The Indira Gandhi era • 1980s onwards

4. Political Economy of Economic Development in India Statist model of Development: Import Substitution-led Industrialization • 1950 to 1964 The Nehru era • 1965 to the early 1980s The Indira Gandhi era • 1980s onwards • Mid-1980s – 1991 • 1991 onwards Pro-Business turn Neo-liberal Reforms

5. In this Lecture Statist model of Development: Import Substitution-led Industrialization • 1950 to 1964 The Nehru era • 1965 to the early 1980s The Indira Gandhi era

6. Statist model of Development • What was this model of development? • Why was it adopted? • What was its impact? • How did it vary under Nehru vs. Indira Gandhi?

7. The Statist Model of DevelopmentImport Substitution-led Industrialization • The Leading Role of the State • Emphasis on self-sufficiency • Substituting imports to minimize foreign dependence • Priority to heavy industry • Neglect of agriculture • Focus on higher education

8. Why was this model adopted? • External factors • Theory of Keynesian economics • Experience of other countries • Internal factors • Values of Indian nationalist movement • Nehru’s nationalist and socialist leanings

9. The Statist Model of Development Nehru’s nationalist and socialist leanings Suspicion of an open economy

10. The Statist Model of Development Nehru’s nationalist and socialist leanings Suspicion of an open economy • Resistance to foreign investors • Protectionism Preference for heavy industry

11. The Statist Model of Development Nehru’s nationalist and socialist leanings • Suspicion of an open economy • Resistance to foreign investors • Protectionism • Preference for heavy industry Serving the interests of Nation-building

12. Ideological proclivities +Interests

13. Ideological proclivities +Interests Economic elite Politicalelite

14. What was the Impact of the Statist Model of Development? Mixed Results

15. On the negative side • Overall rates of economic growth were sluggish • Inefficient economy • Neglect of Agriculture • Neglect of Social Development

16. On the positive side • Industrial growth was respectable • Retained Goal of Self-Sufficiency

17. Indira Gandhi Years • India's democracy became more populist and deinstitutionalised, • economic rhetoric moved far to the left, • the gap between the state’s developmental capacities and economic goals widened even further, to the detriment of industrial development

18. Indira Gandhi Years • Nehru’s statist model of economic development essentially continued without any major changes. • Two main changes: • a major shift in agricultural policy that had a benign long term impact on food production • and a variety of left-leaning changes that reflected Mrs Gandhi's political calculus that helped neither economic growth nor redistribution.

19. Modifications to Statist Model of Economic Development under Indira Gandhi • A major shift in agricultural policy • Green Revolution • Left-leaning changes • Symbolic = Politically Consequential • Economically Consequential

20. Economically consequential policy developments with an adverse impact on economic growth: • Largess to interest groups • Radical political rhetoric & policies + New level of labour activism = Alienation of domestic & foreign private investors • Distancing from world economy

21. Indira Gandhi State Ambitions  Populism Nehruvian Statist Model of Economic Development Deinstitutionalization State Capacities 

22. IndiraGandhi = Developmental State became less developmental State Ambitions  Populism Nehruvian Statist Model of Economic Development Deinstitutionalization State Capacities 

23. Political Economy under Indira Gandhi • Time of Missed Opportunities in global context • “Politics” over Economy