The Political Economy of India's Economic Reforms*

Abstract

This paper analyzes the history of the relationship between the state and the private sector in India. It concludes that India's economic reforms, which made development policy more dependent on international trade and private initiative, depended on the evolution of technocratic and political conviction. Reformers needed the support of financial crises for overcoming the powerful vested interests opposed to reforms. Successful reforms involved largely homegrown strategies of policy and institutional change. They have produced impressive growth rates and have benefited the rich and the middle class. The challenge for development and sustainable reforms is to make it more inclusive for poor farmers and unorganized workers.

Editors’ Overview

“…Mukheriji (2008) argues that India's economic reforms were affected both by policy ideas pursued at the elite technocratic level, as well as by the balance of payments crisis in 1991. Since India is a “noisy” democracy, unlike China, the Indian state could not easily change the balance of social forces favoring economic reforms in the absence of a financial crisis.…”

MarketizingHindutva: The state, society, and markets in Hindu nationalism

“…Such pro-market policies, and the political imagination that underpinned them, had gained many adherents in the Indian political and bureaucratic elite in the 1990s and 2000s, including in the Congress, which, for instance, introduced targeting into the formerly universal food welfare program, the PDS, in the 1990s. 70 The BJP introduced further targeting by establishing the Antyodaya Anna Yojana, a food subsidy scheme for the poorest families living below the poverty line, which was named after Upadhyaya's concept of antyodaya (upliftment of the lowest). 71 Yet, the BJP, whose upbeat campaign was framed by the slogan 'India shining', lost the 2004 election to a Congress Party that campaigned on a platform of 'economic growth for all, particularly for the poor, the vulnerable and the backward', and which promised 'freedom from hunger and unemployment' with promises of a national rural employment guarantee program.…”

Comment on “The Political Economy of India's Economic Reforms”

“…As a policy economist (and not a political scientist), I have approached Mukherji (2008) as an interested consumer, not as a critic of method. The paper explores three separate questions: the convergence of forces that made possible India's “big bang” reforms of 1991 (his term); the strategies that allowed these apparently radical reforms to be absorbed and generalized; and the political basis for judging that the reform momentum will be sustained over the longer run.…”