India: Thriving at 60news
14 August 2007

The uncertainty of a decade ago has given place to a muscular self-confidence to an India that looks to the future with confidence. By Prem Shankar Jha

Prem Shankar JhaTen years ago India turned 50. For the Indian nation, however, it was a moment of lingering self-doubt. A four-decade old strategy of growth lay in ruins. We had given it up in 1991 and been rewarded with four years of rapid growth from 1993 to 1997. But the scars inflicted by the economic crisis of 1991 were still too fresh, and the successes of 1993-97 too short-lived to permit any great measure of self -confidence.

Ten years later the uncertainty of a decade ago has given place to a muscular self-confidence. The country is now well into its fifth year of rapid growth. The last two years saw growth touch 9.4 per cent - a possibility that used to be dismissed as a pipe dream only half a decade ago, and the average for the past four years is a staggering 8.8 per cent.

What is still more satisfying to the Indian ego is the fact that this growth has been noticed all over the world. Analysts in the US and Europe, who used to dismiss India as at best a caged tiger only a decade ago, now believe (and hope) that it will be one of the two drivers of global economic development in the 21st century - the other being China.

The contrast between the past 15 years and the three decades that preceded it could not be greater. Between 1956 and 1975 India grew at 3.6 per cent a year, one of the five slowest growth rates in the world. How does one account for the change? The common practice is to blame it all on Pandit Nehru. Had he not adopted a ''socialistic pattern of society'' and tried to create a ''mixed economy'' in which all the ''commanding heights '' were to be occupied by the public sector, and had he not closed off the economy to the external world just when capital was seeking new homes in the low wage newly industrialising countries, India would have been far, far ahead of where it is now.

But this is a convenient fiction. The truth is that the closed economy was forced upon us by a huge foreign exchange crisis that began in 1955 and peaked in 1957. And as for closing India to foreign investment it was done by Indira Gandhi, not Jawaharalal Nehru.

The most important, of several, reason for India''s slow growth was a conflict between an already established large and medium-sized industrial establishment that pre-dated Independence and a new mushrooming intermediate stratum of entrepreneurs, who mushroomed with extraordinary speed after the government suddenly and completely stopped the import of all but essential consumer goods in 1957.

The import of virtually every consumer good, from graphite pencils to nail cutters, very few of which were then being manufactured in the country, created a huge gap between supply and demand. Those who had succeeded in obtaining import licenses reaped huge windfall profits, which became the seed capital for investment in the very things they used to import.

This new class needed space to grow, and for this it had somehow to prevent the already extant industrial houses, soon to be christened the ''large industrial houses'', space to grow. It got its chance to convert economic into political power when Mrs. Gandhi banned company donations in 1970 but did not create an alternate, legal system for party finance. It moved in with cash to fill the gap. It was thus no coincidence that all the most restrictive industrial laws, the Industrial Licensing Policy amendment, the Monopolies and Restrictive Trade Practices Act and the Conversion clause, were passed in and after 1970.

These restrictions created an economy of permanent shortages and black markets in which the intermediate stratum thrived. But this was a parasitical economy, so growth languished and the quality of employment steadily worsened. The foreign exchange crisis of 1991 showed that a closed economy that shunned competition could not compete in the world market. It therefore brought the inherent contradiction between the interests of this stratum and those of the nation to a head. The only solution was to break down the walls that had been built around the Indian economy. But this also destroyed the protection that the intermediate stratum of entrepreneurs had relied upon to ensure its survival.

The industrial recession from 1996 till 2003 was the shakeout period for the intermediate stratum of entrepreneurs. Those that were able to adapt to the new conditions flourished, but the remainder, large and small, perished in the thousands. Today the conflict between it and the large industrial houses no longer exists. Instead India has developed one of the most muscular entrepreneurial classes in the developing world. This rapprochement is mirrored in the appearance of a new word in the media -- India Inc. Today, India Inc. is busy spreading its wings abroad.

This promises to transform the future. The challenge before the country during the first four decades was how to speed up growth. It did not meet it very well. The challenge before it in the seventh and eighth decades is going to be not growth, which can more or less be taken for granted, but equity.

The approach paper to the 11th Plan has called it ''inclusive growth. And so far the Manmohan Singh government has not met it very well either. But the mists that surround the future are slowly clearing. It is apparent that neither privately owned nor government land can any longer be appropriated for ''development'' without triggering a violent backlash that could scare investors away.

It is also apparent that, with the joint family breaking up under the pressure of poverty and rising expectations, and with nearly all the new employment being created in the unorganised sector, what the poor need is not handouts of the type promised in the common minimum programme, but social insurance and old age pensions. These are the real challenges before our society.

About 80 years ago John Maynard Keynes wrote that without the rise of trade unions, capitalism would have met a premature end. Something very similar can be said of neo-liberal growth today.

* The author, a noted analyst and commentator, is a former editor of the Hindustan Times, The Economic Times and The Financial Express, and a former information adviser to the prime minister of India. He is the author of several books including, The Perilous Road to the Market: The Political Economy of Reform in Russia, India and China, and Kashmir 1947: The Origins of a Dispute, and a regular columnist with several leading publications.

(The author''s articles can be read at

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India: Thriving at 60