Introduction

India embarked on economic development as a deliberate policy upon its independence from the British in 1947. The nation state was endowed with a well-structured bureaucracy, a committed political leadership and a nascent industrial sector. However, it was still a primarily a poor country heavily dependent on agriculture and struggling with diverse and often conflicting interests of religion, caste, class, region, and languages. The diversity in the nation also led to the prevalence of a diverse set of ideologies. As Deena Khatkhate (1991) has observed “the country has remained a home for all kinds of ideologies – from communism on one end and the western type of conservative private enterprise philosophy at the other, with other heterogenous persuasions thrown in between”.1 Khatkhate has also rightly pointed out that the framework of Indian economic policies evolved out of this “medley of different political beliefs”.2 At the outset, under the influence of the first Prime Minister of India – Jawaharlal Nehru – the nation adopted the model of mixed economy, non-alignment in foreign policy, and secularism in state building as its guiding principles. However, there was a marked change in India’s tryst with economic development as it gradually moved away from the Nehruvian model of economic policymaking to a more neo-liberal model in the 1990s when India adopted the policy of Liberalization, Globalization and Privatization when it had to mortgage its gold reserves to the Bank of England to service the interest on its international debt. This paper seeks to explore as to why India moved from a mixed economy model to a neo-liberal model? What were factors at play that led to the changing of economic models over time? And what were the factors that led India to adopt a more open economic model over other available strategies (if any) in response to the 1991 debt crisis?

For the purpose of analysis, this paper engages particularly with three historical instances – (1) The adoption of the mixed economy model upon the independence of India in 1947; (2) The economic crisis of the mid 1960s after which India liberalized its economy and devalued its currency, however, only for an year, and thereafter embarked on economic nationalism on a more socialistic line; and (3) The balance of payments crisis of 1991 as a response to which India adopted a policy of Liberalization, Privatization, and Globalization.

This paper examines these three historical instances through the lens of three theoretical approaches. The first being that of constructivism.3 This approach focuses on ideas as an agent of change in shaping political economy. The second approach through which the phenomenon is analyzed is that of realism.4 The fundamental realist belief is the absence of a central authority (what realists consider as anarchy) in the world to regulate the behavior of states and therefore each state is left to fend for itself. In doing so,

the states pursue a range of goals among which security is considered a primary one, followed by the quest for resources.5 Among the realists, there are various viewpoints and the first approach that this paper adopts from among the array of perspectives in the realist school, is that of structural realism. Structural realism developed by theorists such as Kenneth Waltz looks at the world as a system that seeks equilibrium and is built on the relationships between states which are defined by anarchy.6 This paper argues that given the condition of anarchy and the equilibrium created in a bi-polar world – USSR and USA – led India to first adopt a mixed economy model and thereafter with the decline of the Soviet Union, it moved in favor of a liberal capitalist model influenced by the hegemon i.e. the USA. The final approach, again rooted in classical realist theory recognizes domestic politics and social factors as determinants shaping India’s behavior and economic models as a response to the various situations the economy was presented with.

A Constructivist Explanation

The Indian story of changes in economic model from a mixed economy or a state led model of development to a neo-liberal economy can be understood from the lens of constructivism. According to John Odell, “behavior depends not on reality but on how reality is perceived and interpreted … Substantive ideas held by top policy makers and advisers [are] decisive or necessary elements of explanation” (1982: 58).7 Therefore, as the constructivists would argue, the changes in economic models that India adopted can be explained by the ideas that were held by the policymakers in particular, and the society in general. Rawi Abdelal referring to the work of de Goede (2005) and Epstein (2008) has observed that “the structure, or the discourse within which agents are situated—is decisively influential for the very “thinkability” of options”.8 That liberalization for the policymakers of India was thinkable and acceptable in the 1990s and not at the time of independence, is rooted in the discourse and the commonly held ideas of the times.

Abdelal, Blyth and Parsons (2005) have argued that:

It is a straightforward analytical exercise to explore how societies, informed by their collective sense of self, may interpret the material reality of the world economies in vastly different ways, and thus reach divergent conclusions about which policies provide the appropriate solution. The interpretation of economic interdependence is a useful example. When the Soviet Union collapsed, some post-Soviet societies interpreted economic dependence on Russia as a threat to national security, while others saw it as a reason for further integration. There was no disagreement among any of these policy makers about what the material facts of the world economy were; they disagreed only about what they meant.9

In this sense, a strong case for the constructivist approach can be made by comparing India’s response to the economic crisis of the mid-1960s and that of the early 1990s. In response to the prior crisis, India adopted a policy of economic nationalism, while with the latter, it adopted a policy of liberalization, globalization, and privatization. In both these periods, the material realities were similar – the economy was deteriorating. In both cases, among the policymakers of the time there was hardly any difference of

opinion about what the material facts were – the economy was deteriorating; yet they differed on what the deterioration meant and their strategies consequently differed. In the 1960s the economic deterioration stoked fears of dependence over other nations perhaps owing to the insecurities of the recent past of colonial subjugation along with a deep reverence for the state as the savior of the economy. Therefore, state led nationalization of economic activity was considered the legitimate strategy in the late 1960s. On the other hand, in the 1990s the economic crisis resulted in the opening up of the markets and this was indeed considered as the legitimate strategy then.

If ideas are the influencing factors of such changes, what about interests and pressures? According to constructivists, the interests are formed through perspectives or commonly held interpretations of what these interests are after all. While the realists scholars stress on security and the realists as well as Open Economy Politics (OEP) scholars stress on the role of interest groups on influencing political outcomes, constructivists such as Alexander Wendt argue that “in order to specify interests one must first specify the beliefs an agent has about what is desirable in the first place, which is an irreducibly inter-subjective process.”10 The beliefs that India and its top policymakers subscribed to at the time of independence, held nationalism and autarky as supreme. This was perhaps influenced by the long-standing experience of colonial subjugation as the insecurity of being politically or economically dependent on or subjugated by a global power reigned supreme in the minds of the Indian policymakers. Therefore, while on the one hand a later economic crisis in the 1990s led Indian policymakers to adopt a liberal-capitalist strategy which was considered legitimate by the masses and policymakers alike, the earlier crisis of the 1960s, despite international pressures and a brief bend towards liberalization ended in economic nationalism as the brief experiment with liberalization was somehow interpreted as illegitimate. The difference in both these eras was that India as a nation by the 1990s had perhaps become much more confident about its sovereignty and independence. Further, it was the collective mindsets of policymakers that informed the economic modelling in the face of various economic and political challenges.

Independence and Developmental Nationalism

In the case of India, the discourse in which the makers of modern India were situated was dominated by the ideologies of socialism and Keynesianism at the time when the nation got independent. In the words of Sumit Sarkar (2008), the Indian political and cultural mindset until at least the early 1980s was that of “Developmental Nationalism” which “attained its apogee … under Nehru and the pre-Emergency Indira Gandhi”.11 The components of such developmental nationalism, according to Sarkar, were – (a) a fetishization of the nation, (b) a focus on poverty eradication, and (c) hence the need for state led development.12 This, he traces from the early writings of Naoroji and Bankimchandra to the dominant media discourse until 1980.

As early as the late nineteenth century, the economic thinking of early nationalists such as M.G. Ranade and Dadabhai Naoroji revolved around the centrality of state led economic development of India. The seeds of such a belief can be found in the intellectual milieu of the times and the circumstances in which nationalist leaders such as Ranade and Naoroji were operating in. According to Sarkar, “the influence of Keynesian ideas that acquired large-scale acceptance in the post-depression world, the New Deal in the United States of America, and the Soviet experiment – all would have contributed towards the

construction of mental models that leaned in favour of state intervention in economic development without leaving the same entirely to the market forces”.13

The acceptance of certain commonly held ideas was in the government and private actors alike. The state and the business class in India reached a compromise in the early years after independence and shared commonly held ideas on economic growth. Bipan Chandra has quoted N.R. Sarkar, the president of the Federation of Indian Chambers of Commerce and Industry (FICCI), voicing the views of the leadership of capitalist class in 1934 that: “the days of undiluted laissez-faire are gone forever...” when FICCI leaders such as N.R. Sarkar also argued that for an economically backward country like India, a high powered National Planning Commission was essential to make a structural break with the past. 14 Soon after, in 1938, under the leadership of Jawaharlal Nehru, who would later become the first Prime Minister of India, the National Planning Committee was set up. This committee worked over the next decade, producing twenty-nine volumes of recommendations that culminated in the creation of the Planning Commission(s) appointed by the government of India. Essentially, the dominance of ideas of a planned economy that protects the private sector occupied the collective mindsets of the English educated intelligentsia of India and the dominance of such an intelligentsia in the ranks and leadership of the Indian National Congress, led to the idea of state led growth model gain currency and appear as the only viable option for modelling the economy.

In fact, there seems to have been a widespread consensus around the need for state planning and even participation in the production process through the public sector – what Bipan Chandra calls as the “Nehruvian Consensus”.15 The 1931 Karachi Resolution of the Indian National Congress (INC) envisaged that “the State will own and control the key industries and services, mineral resources, railways, waterways, shipping, and other means of public transport”.16 Even the business leaders of the time were part of this consensus. In 1944, the top industrialists of the nation – J.R.D. Tata and G.D. Birla, among others, issued a “Bombay Plan” that called for the state to invest in infrastructure and save the indigenous capital from foreign competition17 .

The Bombay Plan read:

We consider it essential that this lack (of capital goods industries) should be remedied in as short a time as possible. Apart from its importance as a means of quickening the pace of industrial development in India, it would have the effect of ultimately reducing our dependence on foreign countries for the plant and machinery required by us and, consequently, of reducing our requirement of external finance.18

The plan even quoted the claim of Cambridge Economist A.C. Pigou that socialism and capitalism were “converging” and that a dynamic economy needed to mix both. Chandra has noted that the mixed economy approach, interestingly found advocates among the politicians (such as Nehru) because they saw it as a step in the socialist direction and it found advocates among the industrialists as they saw it as a step in the direction of promoting independent capitalism and of “pre-empting socialism by helping combine equity with growth.”19 Hence, different interest groups rationalized and interpreted their interests through the lens of certain commonly held beliefs.

Even technocrats who subscribed to such ideas found a greater say in the policymaking sphere. Nehru became influenced by the neo-marxist Professor P.C. Mahalanobis (a Cambridge alumnus like Nehru) and invited him to set up institutions like the Indian Statistical Institute and work on drafting the second five-year plan which came to be known as the beginning of the Feldman–Mahalanobis model, also popularly known as the Nehru-Mahalanobis model which focused on planned industrial investment, led by the public sector, to build up a domestic consumption goods sector. In totality, there was a widespread consensus on the idea of state intervention and mixed economy among economists, technocrats, politicians and even industrialists. Most of the leading technocrats, politicians and bureaucrats of the time were trained in Oxford, Cambridge, London School of Economics, and other British schools which were dominated by Keynesian ideas of economy and socialist ideas of the state. Their training in the influence of these schools of thought influenced the “thinkability of the options” (Abdelal) that they presented.20 Jawaharlal Nehru was from Cambridge and proclaimed himself as a socialist. In his autobiography, he wrote: “In my general outlook on life I am a socialist and it is a socialist order that I should like to see established in India and the world.”21 His close friend and first Defense Minister V.K. Krishna Menon – a long time civil servant – was educated at the London School of Economics and was a vocal supporter of the socialist cause and had an immense influence on Nehru. Ramachandra Guha in his book India After Gandhi mentions: “As early as 1953 it was being noticed in Delhi that the prime minister ‘turns blue when anyone criticises his diplomatic pet, Mr Krishna Menon’”.22 Alva Myrdal the then Swedish Ambassador to India has written that Nehru listened to Menon “…because of his brilliance. Menon was the only genuine intellectual foil Nehru had in the government’, the only man with whom he could discuss Marx and Mill, Dickens and Dostoevsky”(Guha).23 Even the most vocal opponents of Nehru, B.R. Ambedkar was trained at LSE and Columbia University, had a socialist vision of development.

The long time civil servant and close associate of Nehru, who would later serve as the Principal Secretary to Nehru’s daughter - Indira Gandhi, P.N. Haksar was again from the same institution (LSE), was considered a socialist, and quoted Marx, Mill, and Keynes on several occasions including in his obituary for Nehru where he claimed Nehru was clearly inspired by these ideologues himself.24 Likewise, a vast section of the makers of modern India, especially those part of Nehru’s coterie that came to be known as India’s “super cabinet” (Frankel, 2005) were trained in the quintessential British institutions and drank from the same ideological waters, influenced by socialism and Keynesianism.25 Thus, the idea of mixed economy emerged as the construction of shared values and norms that forged a national identity.

Ideas, Judith Goldstein (1993) contended, play a dual role: “first, as focal points or road maps, providing strategic guidance to policymakers; and second, once adopted, as rules that survive to bind future political choices”26 . Even after Nehru, the mixed economy model survived as an idea that bound the future political choices. Indeed, Indira Gandhi inherited much of the bureaucrats, technocrats, and policymakers from her father. Therefore, there was a continuity of mindsets under Indira Gandhi, who took after Nehru (with a brief interim where Lal Bahadur Shastri, Nehru’s chosen candidate was the Prime Minister).

1960s and Economic Nationalism

The two successive monsoon failures of 1965 and 1966 in a predominantly agrarian economy, a 12% rise in inflation from 1965 to 1968, the 20% per annum increase in food prices in the same period, the inflation caused dur to the wars with China (1962) and Pakistan (1965) and the peaking fiscal deficit at 7.3 % of the GDP in 1966-67 culminated in a national economic crisis under the government of Prime Minister Indira Gandhi (daughter of Jawaharlal Nehru)27. The economic condition was exacerbated by a political condition as amidst drought and famine, India lost support of its largest aid provider – the United States of America – in response to the Indo-Pak war (1965) and India’s neutrality in the Vietnam war as per the non-aligned movement28. The US, in President Lyndon B. Johnson’s words wanted to keep India “on a short leash” as the US refused to renew the long-term wheat loan as per the PL-480 agreement29. The IMF, the World Bank, and the Unites States wanted India to “(a) liberalize its trade and industrial controls, (b) devalue the rupee and (c) adopt a new agricultural strategy” but there was considerable suspicion in India regarding trade and industrial liberalization, and particularly over devaluation30. According to Rahul Mukherjee (2009):

The sentiment within the intellectual community and the views within the Indian Parliament were overwhelmingly opposed to the devaluation of the Indian Rupee. Such was the political opposition to the Rupee devaluation in the Indian Parliament that Mrs. Gandhi did not even inform President of the Congress Kamraj before Finance Minister Sachin Choudhury announced this (devaluation of currency) measure in June 1966.31

Nevertheless, India did bow under the international pressures and briefly liberalized its economy.

It is worth noting that this brief period of economic liberalization was dominated by intellectuals such as I.G. Patel who felt an affinity with the ideas of the social democrats, Mahatma Gandhi, and European Christian Socialists32. Most of all, he shared a heartfelt appreciation of the ideas of Professor A C Pigou33. Patel who served in various positions such as the Governor of the Reserve Bank of India, the Chief Economic Advisor of India (the Advisor to the Minister of Finance) was opposed to the physical development model of P. C. Mahalanobis. Instead he along with his followers at the Indian Economic Services and in politics including P.V. Narasimha Rao who later became the Prime Minister of India and opened the Indian markets in 1991, criticized the centrally planned development adopted by India in the 1950s and therefore spurred a brief era of liberalization in the nation. According to Raghavan, Patel spent most of his years at the Government of India “in persuading the West to lend or donate money to India”34.

However, the influence of communist ideology found greater appeal in the Indian masses and thereafter in the policymaking circles than the briefly popular model of Patel. As per Bipan Chandra, the devaluation of currency and the short period of liberalization was seen as “‘arm twisting’ resorted to by external

agencies in favour of these policies, using India’s vulnerability and this led to an ‘economic nationalist’ response based on reversal to (and often considerable accentuation of) the earlier policies of control and state intervention”35.

The 1967 elections resulted in a major setback for the Indian National Congress in states and a split in the party in November 1969. At the same time, the communist parties rose to prominence and Indira Gandhi while still the Prime Minister gauged the national sentiment thereby giving her policies a radical left turn36. The general mindset, including that of Indira Gandhi had been sympathetic towards socialism and suspicious of dependence over the west. The policy of trade promotion and private sector participation was reversed by 1969. The government nationalized private sector assets in areas such as insurance, banks, coal, wheat, and significant parts of the steel industry. Large industrialists in the private sector were controlled stringently in relation to the quantities and types of goods they could produce through the Monopolies and Restrictive Trade Practices Act (MRTP; 1969). This ultimately led to the exit of multinational organizations such as Shell, IBM, Coca Cola and Caltex from India37. This was also the time when I.G. Patel left the position of the Secretary of Economic Affairs at the Government of India and joined the London School of Economics as the first South Asian Director of the School. In a way, this can be considered as the victory of the ideas of nationalistic socialism over the ideas of liberalization.

The observation of Abdelal et. al (2005) is befitting here:

one way in which national identities influence economic policies is from the cognitive content embedded within them. .. policy makers may … hold very different understandings of how the world works, or what might be thought of as the causal connections among various material facts…. different understandings may lead agents to make essentially dissimilar choices in essentially similar circumstances38.

The exit of Patel was also the time when Indira Gandhi’s trusted Principal Secretary, P.N. Haksar, held even greater sway over government policy. Katherine Frank writes, “Indira trusted Haksar’s intelligence and judgement implicitly and completely. From 1967 to 1973, he was probably the most influential and powerful person in the government39.” He is credited to have been the chief strategist behind the nationalization of banks and other private enterprises. Haksar, Indira Gandhi, and her husband Feroze Gandhi, in the 1930s were much influenced by the work of V.K. Krishna Menon at the India League in London and indeed the coming of Haksar in Indira Gandhi’s coterie in 1967 resulted in a gradual, yet a more acute return to the socialist policies of V.K. Krishna Menon (the trusted civil servant and Minister of Defence under Nehru)40. “There was a strong moral core to the socialism of P. N. Haksar and his colleagues” writes Ramachandra Guha.

Haksar, groomed in the school of thought of V.K. Krishna Menon’s socialism and his bureaucratic charisma, once wrote to Indira Gandhi that “if some of our industrialists feel that we can in this latter half of the 20th century have orderly economic growth with political stability by applying the antiquated Manchester School of Economics, they must surely be warned against having a death wish41.” Haksar, according to Guha, shared his influence, and power with the career diplomat T. N. Kaul, the politician turned diplomat D. P. Dhar, the economist turned mandarin P. N. Dhar and the policeman turned security

analyst R. N. Kao. “Collectively”, adds Guha, “they were known (behind their backs) as the ‘Panch Pan-dava’, after the five heroic brothers of the Mahabharata”. Almost all of them were left radical intellectuals. Under such a condition, the ideas and cultural norms held by the top policymakers again dictated the Indian economic strategy. The policymakers, in their turn, defined the national discourse. With the national control over media – primarily through newspapers, radio, and television – the government was able to influence and shape the public perspective with much ease. The collective ideas of these policymakers permeated the narrative picked up by the Congress party as well as the national discourse. Under there influence, during Indira Gandhi’s political campaigns, slogans like “garibi hatao” (eradicate poverty) became popular in the Indian discourse and Indira Gandhi in 1972, in her speech at the first global conference on the human environment (UNCHE) at Stockholm famously questioned: “Are not poverty and need the greatest polluters?”42. Thus, even issues such as environment protection were seen from the lens of socialist ideas.

John Ruggie has rightly observed that “collectivities of individuals within states hold intersubjective understandings that affect their behavior,” just as do “collectivities of states.43” In the case of Indira Gandhi’s India, the collectives of Individuals who held sway over policymaking interpreted their reality from a socialist lens – whether in matters of environment conservation or in matters of economic policy. In ‘Constructive Political Economy’ (2005), Abdelal et. al have discussed three main mechanisms through which constitutive elements as identity and norms of behavior are constructed. These are: “persuasion, socialization, and manipulation”44. “Behind any pattern of collective behavior”, they observe, “there might be some individuals who were persuaded into it, some who were socialized, and some who were manipulated” (Abdelal et. al, 2009).

Persuasion according to them, is the “entrepreneurial action of innovative people” as these “These “carriers” bring new interpretations into an arena and then persuade others to take them up”45. As discussed above, the likes of Naoroji, Nehru, V.K. Krishna Menon, P.N. Haksar, and I.G. Patel were persuaders for the Indian society to buy into their ideas of socio-economic modeling. However, the ideas that they chose, as the constructivists would argue, perhaps had nothing substantially advantageous or disadvantageous about them, but they were adopted because of their “relative elegance and simplicity, or due to its relatively simple connection to (historical) experiences”46. In this case the historical experience was that of colonial subjugation. Moreover, a constructivist would argue that these persuaders such as Haksar, Menon, Patel, Nehru, Naoroji etc. “were generally successful people and so were seen as generally worthy of imitation, empowering them to persuade others even on points that had no logical relationship to their own success” (Abdelal et. al, 2009).

Further, the as per Abdelal, Parsons, and Blyth, persuaders adopt a strategy of manipulation - that they “may use some sort of power to impose a new idea or norm on others” and the recipients “rationalize” the new idea or norm and forget that they ever questioned it47. This seems to be evident in case of Indira Gandhi who was first pursued by I.G. Patel to adopt a comparatively liberal economic policy even though as far back as 1930s she was apparently enamored by Krishna Menon’s socialism. Similarly, she again resorted to Haksar’s socialism and let go off I.G. Patel’s ideas. The rationalization might have happened again. In both cases, the economists and their followers were influential civil servants and enjoyed

widespread respect – a power that they may have employed towards persuading Indira Gandhi while she rationalized their ideas while forgetting the previous ones. At a larger level, the whole nation adopted these ideas through the same process owing to the government-controlled mass media and the manipulation as well as rationalization facilitated by it.

It must also be appreciated that at least from the beginning of the Nehruvian era, the fetishism of the state and nation was something that the majority of the population had already been socialized in, perhaps by earlier persuaders such as Naoroji and Bankhim Chandra. That explains as to why the Patel-influenced flirtations with liberalization did not gain much currency in the larger Indian discourse – because the Indian intelligentsia was already and for a long period socialized into a set of very different ideas that stood opposed to Patel’s ideas of foreign aid driven development and liberalization of markets.

According to the constructivists, “socialization is a decentralized, collective, consensual mechanism” that stands between persuasion and manipulation48. While persuasion and manipulation require an actor or a carrier who cajoles others to reorient their beliefs, norms, or identities. Abdelal, Blyth, and Parsons argued that “socialization suggests a more diffuse process in which a group of people work their way collectively to certain norms or ideas.” For the Indian policymakers, this process took place primarily in their training at Oxford and LSE. For the Indian public, this diffused process of socialization was facilitated by the government-controlled television and radio, as well as by the powerful influence of the Indian policymakers. According to Abdelal, Blyth, and Parsons “It implies relatively low levels of contestation and variation within the group, since such irregularities would disrupt the repetitive rehearsing or “social learning” by which it posits that norms and ideas enter individual thinking and action.” Indeed, at the time of Independence, and up until the mid-1960s certain ideas such as the importance of state led development, were considered to be true and even necessary, without much contestation. The diffused process of socialization that leads to collective mindsets is in close proximity to what Lefebvre has argued in his work the ‘Coming of the French Revolution’ and in ‘La Grande Peur de 1789 (The Great Fear of 1789)’. According to Lefebvre, it is important to study mindsets and that the French Revolution took place as a result of certain rumors as well as the coming together of certain mindsets or mentalities. These rumors were among the peasantry who were convinced of a plot against them by the aristocrats. Some of these rumors, Lefebvre has argued, were even baseless, but were generally accepted be true. Likewise, according to constructivist authors, people are likely to coordinate around certain mindsets and begin to believe them to be true. This explains the paranoia against foreign capital in the brief liberalization experiment of the mid-1960s.

The story after the 1970s also follows a similar pattern. The suspicion of foreign capital sustained throughout the seventies and was shared by the policymakers of the time. This was coupled by a push for greater fiscal discipline and a focus on greater self-sufficiency. The government even decided to run and take over “sick” companies including a number of textile mills. The fiscal deficit was brought down from 7.3% of the GDP in 1966-67 to 3.8% in 1969-70. Efforts were made to make the agricultural sector self-sufficient and land reforms followed. The idea was to “change India’s “begging bowl” image and creating considerable food security even to meet extreme (drought) situations” (Chandra). While the Indian bureaucrats were weary of foreign capital, they were less weary of foreign intellect and technological support and therefore welcomed the Green Revolution by introducing high yield variety (HYV) seeds, fertilizers and inputs. Consequently, the balance of payments situation improved with a reduced reliance on food and imports. There was also a concerted effort to reduce dependence on foreign aid and the net aid as a proportion of Net National Product (NNP) which peaked to an average of 4.22% during the first half of the 1960s reduced to 0.35% in 1972-73. Further there was an increased focus on the development

of the indigenous small-scale sector while eschewing from private foreign investment49. In 1977-78, 86.5% of the technology import agreements did not involve any foreign share or equity.

1980s and Trends of Liberalization, Privatization and Globalization

From the 1980s the socialist consensus of the 1970s began to erode. A new generation of leaders essentially saw the socialist commitment resulting into a backward form of capitalism in the nation. The rhetoric against the restrictive trade practices promulgated by the MRTP Act of 1969 began to gain currency and the catch phrase of the time to criticize the cumbersome regulation of the markets was “License Raj”. The origins of this shift in rhetoric is hard to trace. One reason for the declining popularity of the idea of state led development of the economy, as has also been alluded to by Bipan Chandra, is that the people got tired of the fiscal discipline of the 1970s and consequently an era of profligacy or at least relaxation ensued in economic policy during the 1980s. It was also perhaps the infusion of a new generation of leadership who were socialized into a new set of ideas that led the change. Sanjay Gandhi, Indira Gandhi’s son, had set up a Maruti-Suzuki joint venture in New Delhi which, more or less, monopolized over the automobile market but at least opened the doors for a foreign firm to penetrate into the Indian consumer market. The Maruti Suzuki car would quickly overtake the sales of India's known brands – the Ambassador and the Fiat cars, which had not upgraded their technology for decades50.

Rajiv Gandhi, Indira Gandhi’s son found himself in the position of the Prime Minister after Indira Gandhi’s assassination in 1984. Educated at the Trinity College, Cambridge and the Imperial College, London, he sought to bring about a more scientific temperament to India. Rajiv’s plan included technology led development which, somehow, laid the path to create a culture against the slow and cumbersome bureaucratic system that governed the Indian economy. Even before becoming the Prime Minister, he had managed the Youth Congress and organized the 1982 Asian Games.

Rajiv Gandhi, being the youngest Prime Minister that India had ever seen, wanted to build the image of India as a nation vibrant and growing. He was joined by Technocrats such as Sam Pitroda who pitched to Gandhi, the Idea of a telecommunication revolution in the nation. Pitroda, a telecommunications engineer educated at the Illinois Institute of Technology, came to India and set up the Center for the Development of Telematics (C-DOT) with the support of Rajiv Gandhi. During the 1980s Pitroda headed six technology missions related to telecommunications, water, literacy, immunization, dairy and oil seeds. He was also appointed as the Chairman of the India Telecom Commission. Harsh Sethi in his 1988 article The Great Technology Run has explained how the values of technological innovation were coupled with those of democracy and this became part of the Indian rhetoric soon enough:

Pitroda’s basic model is one of transfer of technology, where diffusion is equated to democracy. Since innovation is a messy and slow process, all that is given to the people is consuming of the system which in the language of the mission is euphemistically called participation51.

The technology of telephone switch production was licensed to the private sector via C-DOT. In tandem with the telecommunication infrastructure development, a big push was given to the program of computerization. Import duties on technology products were reduced and the use of computers in offices and schools was encouraged by the government through various policies. At the same time foreign manufacturers were allowed to enter home market to ensure quality. At the same time various policies were changed to promote exchange rate flexibility as well as exports led growth in India. The efforts in the field of building an infrastructure for technological development and the gradual privatization of the

same produced impressive levels of industrial growth in the mid to late 1980s that were surpassed only after 200352.

While the technology-democracy coupling was being formed, it seemed to stand against the slow and sluggish state of the Indian economy and bureaucracy. Sam Pitroda’s own narrative of his motivation to bring telecommunications and information technology was that while visiting India in 1981, he tried to make a call back to his family in Chicago and couldn’t get through53. Therefore, the lack of technological and economic capabilities created some sort of a need admixed with a feeling of inferiority in the people, which created a widespread narrative that the things as they stood had to change and any practice associated with the old, socialistic ways of doing things came to be seen as an impediment to growth and by extension, the national interest.

While a general scientific and internationalist temperament (spurred partially after the Asian Games) was on the rise, the nationalist-economic-socialist ideals were loosing their appeal. There was a gradual shift in the economic discourse too. Economists such as Manmohan Singh (who would later become the Prime Minister of India) and Jagdish Bhagwati argued for more openness and less government control on the Indian economy. PM Rajiv Gandhi’s coterie was made of liberal economists such as Montek Ahluwalia, Shankar Acharya, Rakesh Mohan, and Vijay Kelkar. Bhagwati and Srinivasan (1975) had argued that government restrictions on capital which were a result of certain ideas and ideologies led to proliferating rent seeking activities and created an “iron triangle” of businessmen, bureaucrats and politicians54. The media attention on various corruption scams in the government, such as the Bofors scandal, which did not even leave then Prime Minister Rajiv Gandhi untouched, created much vehemence against the political structure of the nation. Therefore, big business, bureaucracy, and politics came to be seen as the adversaries of national growth and interest.

According to Gilpin “the late 1970s and early 1980s witnessed the defeat of both development economics and the LDC strategy of import-substitution that had been intellectually supported by development theory55.” This was also the victory of neoclassical economics according to Gilpin.

Rahul Mukherjee has discussed how the pro-liberalization agenda had arrived in India “even though the political conditions for change would need to wait till the balance of payments crisis of 199156”.According to him:

The most visible sign of desperation among the pro-liberalizing technocrats was a confidential paper authored by Montek Singh Ahluwalia within the Prime Minister’s Office in June 1990, which was leaked to the press. Prime Minister Vishwanath Pratap Singh had visited Malaysia with Montek Ahluwalia and was surprised to find a backward country develop to a greater extent than India within a short span of time. He had urged Ahluwalia to pen his thoughts about economic reforms at a time when the balance of payments crisis was around the corner. In a paper titled, “Towards restructuring industrial, trade and fiscal policies,” Ahluwalia had drawn the blue‐print for radical economic reform in India. The paper

recommended tariff reduction, greater freedom for foreign capital, a 20% devaluation of the Rupee, the closure of unviable public sector units, and raising the MRTP asset limit quite substantially57.

It was in the backdrop of this collective mindset of liberalization which had already become pervasive in the 1980s, that India adopted a policy of Liberalization, Privatization, and Globalization (LPG) when the balance of payments crisis of 1991 surfaced. The balance of payments crisis came to a head when Indian foreign exchange reserves could barely finance three weeks’ worth of imports while the government came close to defaulting on its financial obligations. This led the government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts. Government of India's immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral security. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million (Meredith, Robyn 2007).

When Finance Minister Manmohan Singh announced a new, essentially neo-liberal budget in 1991, he began his speech with Victor Hugo’s lines: “no power on earth can stop an idea whose time has come”58. The idea was neo-liberalism which came with the policy of a free and open market. Here again, it was the socialization of the economists and top policy makers into a new liberal school of thought that played a role in spurring this change of economic mindsets and the move from a mixed economy model to an open economy model. As discussed, the dominant policy and thought leaders of the 1980s including Rajiv Gandhi and Sam Pitroda were trained in a more liberal and scientific environment of Imperial College London and the Illinois Institute for Technology. Other prominent Indian economists, such as Manmohan Singh then Finance Minister was trained in London School of Economics which had taken a more neo-liberal ideological turn. The Delhi School of Economics at the University of Delhi, which more or less defined the discourse of economic policy in India came to be dominated by professors with a neo-liberal bent of mind. These included figures such as Kaushik Basu who was again trained at the London School of Economics and was a close associate of then Finance Minister Manmohan Singh.

The process of reform began in 1991 as the exchange rate was linked more realistically to the market (the rupee underwent about a 20 percent devaluation at the very outset). There was considerable loosening of industrial licensing requirements which led to the abolition of Monopolies and Restrictive Trade Practices Act, 1969. Further, a concerted effort to reform the public sector ensued which led to the consensus toward gradual privatization of the public sector. According to Chandra et. al, this was a unique attempt by India to move from the Nehruvian planned industrialization to a more reform-based approach to economic development. From the 1990s onward, working with businesses to promote “inclusive growth” became the policy narrative in India and even some parties on the left have ever since picked up this discourse. According to Rahul Mukherjee “The reason why 1991 was different from 1966 was that this time technocratic conviction within the executive branch made a virtue of dependence on the IMF at the time of the balance of payments crisis”. Thus, from a constructivist explanation, the ideas collectively held by the policymakers and the public influenced their interpretation of the liberalization of the economy.

Realist Explanations

According to realist thinkers, rather than ideology, the national interest is shaped by the existence of anarchy: “the lack of an ultimate international authority, and thus the absence of any guarantee that the nation will not be invaded, overrun, conquered, and pillaged” (Kirshner)59. According to Gilpin, “state-centric realism does not reject the importance of moral and value considerations in determining behavior” and despite the emphasis on power “other factors such as ideas, values, and norms do play an important role” in determining socio-political outcomes60. Thus, while ideas held by the dominant policymakers determine outcomes, as constructivists would argue, the question remains as to how the actors become dominant or influential in the first place.

The process of persuasion that Abdelal et. al talk about, which in their words is the “entrepreneurial action of innovative people” culminates in success because the persuaders find the power and socio-political conditions to influence policy choices and to define the rhetoric. As mentioned earlier, according to Abdelal, Blyth and Parsons, the persuaders as also in part successful in their persuasion because they are “generally successful people and ... seen as generally worthy of imitation, empowering them to persuade others even on points that had no logical relationship to their own success”. The persuaders become successful, it can be argued, due to certain social and political factor. Further, the powerful social and political forces tend to find effective persuaders to suit their needs and fulfil their agenda. This is evident in the instance of the mid-1960s crisis when Indira Gandhi determined to devalue the currency and liberalize the market for an year solicited the services of I.G. Patel who was more liberal in his mindset than others in the government, but who later resigned after reluctantly implementing the nationalization of banks policy as he was explicitly told by Indira Gandhi that this was a “political decision” and that no arguments in protest would be entertained61. Patel resigned from the position of the Chief Economic Advisor to the Government of India. Also, the others with a socialistic bent of mind such as P.N. Haksar co-existed with Patel when he was implementing his liberal agenda in 1966 and were influential figures even then.

Therefore, according to the realist explanation, the considerations of security and survival rather than ideologies were the ones that most informed the Indian economic model and foreign relations after its independence. Indeed, survival for India was a big question after the gaining independence from the British. The nation had already been divided into multiple parts and was surrounded by East Pakistan on the one hand and West Pakistan on the other. In foreign relations, under the leadership of Jawaharlal Nehru, India adopted a policy of non-alignment – i.e. it did not side with any of the power blocs – whether USA or the USSR. Similarly, in economic policy, it did not side with either of the parties too keeping in view the possibility that either of the state could exert economic power to make India dependent upon them. Aligning with either model of economy could lead to a conflict with the other power bloc and could result in the sovereignty of the state being eventually challenged. This was already a time where many across the world were speculating whether India, as a nation, given its diversity and conflicts, could survive at all. Even as late as 1969, the British journalist Don Taylor wrote:

the key question remains: can India remain in one piece – or will it fragment? . . . When one looks at this vast country and its 524 million people, the 15 major

languages in use, the conflicting religions, the many races, it seems incredible that one nation could ever emerge62.

In this section of the article I deal with two strands of arguments, which sometimes overlap. The first strand takes a Waltzean approach to argue that the structure of the international world order was a dominant influencer if not the defining factor of the change in economic models in India. It also defined the way that the nation dealt with various crises. The route that it takes to argue the Waltz’s approach is via discussion about the contestation of USSR and the USA for hegemony – and the impact of their contestations on India’s stance under a condition of anarchy. According to Waltz “Although the actions and politics of states are decided according to internal processes, those outcomes are shaped by the very presence of other states and interactions with them63.” This is the line that the section on international structures takes while freely incorporating views from other theorists such as Robert Gilpin and Kenneth Oye, who may or may not subscribe to facets of Waltz’s theory of structural realism. The crux of the argument on the subsection entitled “International Structures”, thus, is that the international structure functions on a principle of “balance of power” as Waltz would argue and therefore, the changes in the distribution of power spurred by the contestation of the USA and USSR influenced India’s economic models64. At the time of independence, when USA and USSR exerted power and created a bi-polar world, India adopted a mixed economy model. When the USSR became more important for India’s strategic interests in the 1960s and 70s, the Indian economic structure leaned towards socialism and finally with the imminent downfall of the Soviet Union, India moved towards a more liberal capitalist economic model on the lines of USA in the late 80s and early 1990s.

There has been considerable debate about Waltzean structuralism in realist thought. Kirshner (2010) has criticized Waltz’s likening of states with firms in a micro-economic structure that function on a principle of balance of power (equilibrium) leaving firms with limited agency in the face of market forces65. Therefore, according to the non-structural realist thought, states have greater agency than Waltz would argue they have. Therefore, for non-structural realists it may be useful to look inside the state and the range of goals that the state seeks to pursue. Looking inside the state therefore, is what the second part of this section deals with.

Gilpin too, criticizes the systemic or structural viewpoint of Waltz. In explicating the nature of International Systems, he builds on the definition of Robert Mundell and Alexander Swoboda: "A system is an aggregation of diverse entities united by regular interaction according to a form of control" (Mundell and Swoboda, 1969, p. 343)66. Therefore, according to Gilpin, the international system is made up of:

(a) Diverse entities: state actors

(b) Regular interactions: that give rise to diplomatic, military, economic, and other relationships among states that constitute the functioning of the international system.

(c) Form of control: which is defined by anarchy.

Since the form of control itself is anarchy (which is almost the same as having no control), therefore, according to Gilpin, the system does exercise some control over the entities (states), however, “the nature and extent of this control differ from the nature and extent of the control that domestic society exercises

over the behavior of individuals”67. This is because according to the definition of systems, the forms of control in a domestic setting are much more well defined. Therefore, Gilpin emphasizes on the role of domestic politics as an addition relevant factor in shaping national responses to global changes.

Gilpin in War and Change in International Politics (1981) has emphasized that:

(a) “States create international social, political, and economic arrangements in order to advance particular sets of interests” (pp. 25).

(b) “The thrust of political, economic, and technological forces creates challenges and opportunities”; (pp. 234).

(c) “domestic politics and political leadership create the responses of states to these challenges and opportunities” (pp. 234).

The second strand of thought we are dealing with, covered in the section of the present article entitled ‘Domestic Society and Politics’, therefore argues in a more classical realist tone and brings in the role of domestic politics as a key influencer of the economic models adopted by India. The argument in the ‘Domestic Society and Politics’ section is that it was indeed the role of the social structures, domestic political actors and interest groups that shaped the economic models in India in the post-independence period. In dealing with domestic politics however, this analysis has also to an extent, taken elements of the public choice theorists every now and then and has emphasized on the role of individual political actors, such as Indira Gandhi, Nehru, industrialists such as Dhirubhai Ambani etc. as promoting their individual self-interests which contributed to the political and economic outcomes. However, the analysis does accept that these individuals were also operating in a socio-political context and not independently of it. Gilpin (2001) has argued that “The state and the national interest cannot be reduced, as the public-choice position asserts, to the individuals who happen to be in power at any particular moment”68. This is especially evident in dealing with the period of 1960s in the domestic politics section, wherein it becomes evident that despite the personal policy preference of Indira Gandhi and the Congress President K. Kamraj, the government had to adopt a neo-liberal economic model for at least a year - 1966-67.

Finally, there is also an implicit appreciation of the idea that both, international structure, and domestic politics played a key role in determining the economic models adopted by India. This is in line with what Gilpin has said about economic settings: “The government, powerful domestic interests, and historical experiences determine the purpose of the economy and establish the parameters within which the market (price mechanism) functions.69”

International Structures

The Nehruvian Mixed Economy Model

One explanation of the economic model that India adopted is the influence of dominant actors – USA and the USSR. When India attained Independence, the USA and Russia had established themselves as the leading players in the international system. It was also the time when the Britain was a hegemon in decline yet its influence was still quite prevalent. India, being an erstwhile British colony, to a large extent, modeled its polity and public administration systems (the civil services, foreign services etc.) primarily on the British model. However, the economic modelling on the lines of England was problematic since the

British economic model was rooted in colonial exploitation and moreover, quite apparently that model of economic development was on the decline. Therefore, the Indian policy makers were left with one of the following options to model the economy: (1) adopt a liberal capitalist model on the lines of the USA; (2) adopt a socialist state led development model on the lines of USSR and (3) develop an indigenous model of development. The last option had its challenges primarily in the fact that indigenous models were too few and far in between. Gandhi in his writings developed the idea of small scale village led economies and talked about the “small is beautiful formula” of development – however, these ideas never developed fully into an economic model and were given some lip service by the government by creating a third tier of village level governments and even here the stress on the economic aspect of Gandhian thought were not given much importance70. The other indigenous models were rooted in ancient Indian economic structures documented primarily in the works of Kautilya (Arthashastra) and other ideologues of the ancient times. The right wing of India had greater affinity to such models. Yet, the theoretical development and application of indigenous models was yet unclear and to a large extent inchoate. Therefore, it was the contestation of hegemonic models of the USA and Russia along with the pressures that these countries exerted on India, that shaped the economic modeling of the country.

According to Stephen P. Cohen, the cold war brought the USA and USSR in search of allies in South Asia. On the one hand, the Comintern of 1949 declared “uprisings throughout the world” including India71. On the other hand, the United States already saw India as “pivotal” in furthering its interests72. From the Indian perspective, however, an active engagement in the cold war was seen as detrimental to the national interest73.

According to Cohen, firstly, Cold War was seen at excessively militarized and India considered it against their strategic interests to take part in supporting the arms race considering its own vulnerability. Secondly, “the division of the world into two heavily armed blocs meant less (economic) support for the peoples of Asia, Africa and Latin America”. Nehru and his coterie of policymakers were opposed to the Cold War precisely because of these reasons and “tirelessly criticized the Cold War for its detrimental effect on the economic development of the former colonies and poorer regions of the world, including India” (Cohen).

Upon its independence, from a game theoretical analysis, India was entering in an infinite iterative game with three players– USSR, USA, and India itself (while this is an over-simplification of the Indian situation of the time yet is helpful for the sake of analysis). The goal for India was to alter the payoff structure in a manner that ensures its survival and growth. Assuming that adoption of one strategy between capitalism and socialism, would have resulted in a unit benefit from one party out of USA and USSR, and a unit loss from the other party – the net payoff for India would have resulted in zero at best. Additionally, the perception was that playing the game would rather result in net loss than gain. On the other hand, not playing the game could result in the same outcomes as well. However, there was a difference here. Not playing the game had lesser risks of threat than playing the game. India therefore went with a strategy of non-alignment in the cold war which essentially meant not playing the cold war game. At the same time, it played both strategies on the economic front – i.e. mixed both economic models to an almost equal degree (at least in theory) – which was concomitant to playing none of them. In the backdrop of the Cold War, adopting a system which was better aligned with either of the economic models – capitalist or socialist, was seen as detrimental to India and it was these considerations that led to the adoption of a mixed economy policy.

In fact, a clear link between Nehru’s policy of non-alignment in international politics and the model of mixed economy at home, is evident in his speech in the Constituent Assembly on December 4, 1947 (New Delhi). He said: “foreign policy is the outcome of economic policy, and until India has properly evolved her economic policy, her foreign policy will be rather vague, rather inchoate, and will be groping”74. Therefore, a mixed economic policy at home was seen as essential to sustain a policy of non-alignment abroad. The policy of non-alignment abroad, in turn, was seen as essential for the survival of the Indian nation state. Nehru, being the first Foreign Minister of India as well as the Prime Minister for the first two decades after its independence, aligned the national economic policy and external relations by adopting mixed strategies. In a mixed strategy played in a manner that both parties see the potential that India could in a future stage of the game side with them at a later stage in the game, could have both parties investing in it. This allowed India to accept foreign aid from both the power blocs – USSR and the USA – while being able to afford a distance from their political contestations. Therefore, the essential considerations that led to a mixed economy model was a concern for survival and security and these considerations shaped the national interest. This is in line with the realist interpretation of the national interest.

The mid-1960s Crisis

The mixed economy and non-alignment stance of India continued until the mid-1960s until it was faced with a formidable economic and financial crisis. The financial crisis changed the opportunity costs for India and forced it to enter the game of contestation between the power blocs.

The concept of “power and plenty” (Katzenstein) discussed in the realist literature is akin to the considerations of security and survival. A low resource, insecure state pursues security and survival, while a high resource and secure state begins to pursue power and plenty. India, at least up until the 1960s can be considered as a low resource and insecure state with considerations of security and survival reigning supreme. The Sino-Indian war (1962) and the Indo-Pak war (1965) had led to massive deficit expenditure on part of India to support its war efforts. The government’s consolidated fiscal deficit (state and centre) rose up to the level of 7.3 % pf the GDP and the inflation rose up to 12 % per annum between 1965 to 1968. With the failure of crops in two successive years of 1966 and 1967, the food inflation shot up by 20% per annum. According to Malone and Chaturvedy (2009) from its inception until the 1960s “foreign aid played an important role in India’s development process and the need for it influenced foreign policy to an extent.” However, in the face of the 1965 Indo-Pak war, the USA suspended its aid to India. While this had led to a severe deterioration of India’s relationship with USA, the Sino-Indian war of 1962 and USSR’s neutrality in the same had strained India’s relationship with Russia. In an effort to rebuild relationships with the US, Indira Gandhi made a visit to Washington in March 1966 and President Lyndon B. Johnson promised to send 3.5 million tonnes of food grains to India and provide $900 million in aid75.

However, actual dispatches of food grains from the US to India were irregular and came in small installments while the US had initially agreed to send the food grains in lumpsum quantities with most of the grains being delivered to India in the first installment itself. According to Chandra, Johnson’s “tonne-by-tonne” or “ship to mouth” policy of food grain dispatch was to pressurize India to change its farm policy and change its position on Vietnam.

Further, the deal with the USA came with the condition of currency devaluation. Indira Gandhi government devalued the Indian rupee by 57 percent, from Rs 4.76 to Rs 7.50 to a dollar in May 1966. India would have hoped to gain from the devaluation by boosting its exports. However, the net gain through an export led growth was not apparent after a year of adopting such a policy. The exports had

risen, but not to the same degree as the government would have expected. At the same time, the big Indian industrialists who thrived on importing technology, material, and machines took a hit due to the currency devaluation and consequently opposed the move. According to Rahul Mukherjee:

Indian business was overtly supportive of the (liberalization) reforms but was largely opposed to the devaluation. Domestically driven import substituting industry needed cheap imports for the manufacture of goods for the Indian market. Industry was averse to the rise in import prices consequent upon the devaluation.

Therefore, the benefits from the adoption of a US based model of economy were neutralized by losses that came with it.

As the balance of power shifted towards the USA with India seeming to adopt a more liberalized economic model, the USSR soon joined the race of counterbalancing this shift and began to improve its relations with Pakistan. With the inconvenient relationship with the USA and the threat of Russia siding with Pakistan, India made a move to again shift towards its more comfortable partner, the USSR. The role of historical relationships becomes important here to understand why USSR was a more comfortable partner for India as opposed to the USA, even though both were big players in the world economy. In the Nehruvian years, USSR had already emerged as a closer partner to India in its developmental agenda. During the first five year plan, in 1955, the Soviet Union was the lowest bidder and offered to set up the Bhilai steel plant in India – the first public sector plant in the country. Outbidding West Germany and England, USSR proposed to set up the Bhilai steel plant in 275 million and accepted the repayment of the loan in rupees at the rate of 2.5% repayable over a period of twelve years. According to Balwant Bhaneja, “The importance of Soviet economic relations with India becomes significant when one realizes that in the 1960's it was with India the U.S.S.R. had the largest amount of trade (outside the satelite countries)”.76 According to Marshall Goldman (1967), the Soviet Union was supplying oil and other materials to India at a lower than market rate. On the other hand, the USA was the first nation to recognize Pakistan as a state in 1947 and was considered as a closer strategic partner to Pakistan.

According to Gilpin “economic actors are attentive not only to absolute but also to relative gains from economic intercourse; that is, not merely to the absolute gain for themselves, but also to the size of their own gain relative to gains of other actors”77. Russia’s gain is dealing with India was informed by the presence of USA in the equation. Additionally, India’s relative gains in dealing with Russia were informed by the presence of Pakistan in the equation.

As a result, Indira Gandhi started distancing herself from the USA. In a statement issued in July 1966 she criticized the bombing of Hanoi and later in that month she visited Moscow for the first time and signed a joint statement with the Soviet Union demanding an immediate and unconditional end to the US bombing and branding US action in Vietnam as “imperialist aggression”. She visited USSR again in 1967 and “worried by the Soviet efforts to build bridges with Pakistan … Mrs. Gandhi assured the Soviet Union of India’s friendship” (Chandra). In her 1967 Independence Day speech, Indira Gandhi singled out “’industrialists and businessmen’ who had the nerve to talk of worker indiscipline while continuing to ‘make big profits and draw fat salaries’” (Guha). According to Guha, Indira Gandhi was one of the first leaders in India who used ideology to fulfil a political agenda, rather than the other way around. In any case, the ideology and rhetoric, as would be interpreted through a lens of realism, was constructed by real political needs.

Some historians have emphasized that the fallout of India with the USA had happened due to the fact that Indira Gandhi’s relations with Nixon and Kissinger went sour.78 While this may be true, but India’s behavior was driven by self-interest rather than personal relations. In Waltzean analysis “The behavior of states and statesmen … is indeterminate” (Waltz 1979). That is to say that statesmen like Indira Gandhi or Nixon and even India’s collective preference did not have much agency on the side that India was to take. It was the structure of power distribution and history that determined these relationships.

Oye in his paper Explaining Cooperation Under Anarchy has explained how cooperation (and eventually survival) is possible by adopting a strategy of “tit-for-tat” or reciprocity in a multiple player iterated game79. This is essentially the strategy that India adopted when it entered the so-called game to seek benefits from either of the power blocs. The strategy of reciprocity meant that India would lean towards the party that would extend the greatest aid. This leaning also meant the adoption of the economic models of the favoring party. The PL-480 assistance and aid from the USA and financial support from the IMF came the conditions of liberalization of the economy along with devaluation of the currency. In lieu of the IMF loan, Indian economy started leaning in the liberal capitalist direction as a reciprocation to the US. Multinationals such as Coca-Cola, IMB, Caltex etc. set up shop in India. However, as discussed above, the limited benefits derived from the deal with the USA and USSR’s imminent closeness to Pakistan as a response to India’s move towards the USA, led India to almost completely swing in the direction of the USSR while paying lip service to non-alignment. According to Gilpin (2001) “national security is and always will be the principal concern of states” and the Russian threat to move closer to Pakistan indeed informed India’s decision to distance itself from the USA. The leaning towards the USSR towards the close of the 1960s meant that India began to replicate the economic models of the USSR to an even greater extent.

As a response to India’s leftwards turn, US aid to India by 1968 had shrunk to half of the level of what is used to be in 1964-65. At the same time USSR’s trade and aid to India had surpassed that of any country and India was almost fully in the USSR camp. By 1969, the Indian economic model had started looking much like a Soviet economy. One of the greatest step in this direction was the nationalization of private banks in 1969, followed by the Monopolistic and Restrictive Trade Practice under MRTP Act (1969), and the slogan of “garibi hatao” (eradicate poverty) and Indira Gandhi’s move towards a radical socialist manifesto in the general elections of 1970. India’s explicit alliance with the USSR became apparent with the Indo-Soviet Treaty of Friendship and Cooperation in August 1971. This came into action with India’s contestation with Pakistan in 1971. The USA deployed its seventh fleet in the Bangladesh Liberation war to counter India’s intervention. U.S.’s move was countered, in turn by the USSR dispatching a nuclear-armed flotilla from Vladivostok (Pacific Fleet) that encircled US’s seventh fleet. USSR also vetoed sanctions against India proposed by the US in the security council.

Riding a wave of victory in war, the support from the USSR and the opposition from the USA in the same, Indira Gandhi bolstered her efforts towards socialism by the nationalization of the insurance industry (1972) and coal industry (1973). Even domestic interest groups, such as those representing large scale industrial firms such as the Tatas and the Birla group failed to dissuade the government from its sweeping moves towards nationalization. The multinationals of the west had been asked to leave the country and the government decided to take over and run the sick units. In 1976, The Constitution (Forty-second amendment) Act was passed which enshrined the word “socialist” in the preamble of the constitution of India.

Thus, the concert of power and plenty in the background of international anarchy led India to take a socialistic turn from the mid-1960s – a trend which continued up until early 1980s.

1980s and the Liberalization post 1991 crisis

1980s was a period in world politics which saw the gradual, but apparent decline of the Soviet Union. Zubok (2009) calls the last years of Brezhnev’s rule and the next two years of interregnum under the leadership of Yuri Andropov and Konstantin Chernenko as “times of deterioration of the political and economic foundations of Soviet power.80” According to him “the Solidarity movement in Poland in 1980 and 1981 and the growing dependency of other countries of the Warsaw Pact on the economic and financial power of Western capitalist countries gravely undermined the empire built by Stalin.81”

According to Pankin Nikalai (1991) India had already began diversification efforts in the 1980s, yet it was still almost 70 to 85 % dependent on Soviet arms supply. Nevertheless, its move away from a Soviet structure of economy had already started. The “balance of power” was tipping towards the United States. 1980s was also the time when the Indian economy was again moving in the direction of privatization and to some extent liberalization, especially in the second half of the decade when Rajiv Gandhi became the Prime Minister. The Sengupta Committee Report recommended the closure of non-viable public-sector units82. In effect, India had already started mimicing the economic models of the USA before the economic crisis of 1991 arrived. Writing in 1990 for the Economic and Political Weekly, Pulapre Balakrishnan observed “In terms of its macro balances, the Indian economy over the past five years has behaved exactly as would be expected of any open economy subjected to a similar stimulus”. He added that one of the notable policies of the Rajiv Gandhi era was the “liberalisation of the foreign trade regime, which involved the dismantling of controls with respect to imports on private account, and the raising of limits for industrial investment not requiring a license.”

At the same time Rajiv Gandhi was personally a believer of strengthening the Indian Soviet ties. In an interview when asked about his stance regarding the USSR, he said "We highly value the wide-ranging time tested relationship with Soviet Union, based upon mutual cooperation, friendship and vital support when most needed”83.[ The Times of India (New Delhi), 13 November 1985] After a meeting with Mikhail Gorbachev in March 1985, Gandhi said in the lower house of the Indian Parliament (Lok Sabha) that India’s relations with the Soviet Union were “time tested” and that "India would always keep in mind that Soviet Union stood by our country in time of need”84. However, Rajiv Gandhi’s agenda of greater Indo-Soviet partnership was not to be fulfilled as India’s dependence on the USSR continued to diminish. This is in line with Waltz’s argument that “results achieved seldom correspond to the intentions of actors.85”

Due to a fall in oil prices in 1986-87, the Indo-Soviet trade had started declining86. While this was happening, the perception of infallibility of the Indo-Soviet partnership for mutual benefit had already collapsed. In 1990, Moscow lacked in rupee funds to pay for its purchases from India. India had to finance the USSR by granting it a technical credit of Rs. 1800 crore.87 The grant of such a large technical credit to Moscow increased India’s budget deficit and fueled inflation. The Soviet Union preferred to sell their oil for hard currency rather than supply it to India for rupee payment. As a result, “the ‘special relationship’ between India and Soviet Union was already disturbed when the process of final

disintegration of the Soviet Union started”88. By the end of the year 1991, Soviet Union disintegrated into 15 sovereign states. The supply of crude oil, crucial raw materials and vital spare parts were affected, and Indo-Soviet trade was dislocated and came to a standstill. India tried to protect and minimize the damage to its interests by moving closer to the West, to Southeast Asia and to China.

While the shift in economic models was gradually taking place as the Soviet Union was on the decline and the United States’ ascendancy as a hegemon was apparent, the Indian economy was adapting accordingly. The shift to a liberal economic model matured in its full form when in Iraq’s invasion of Kuwait led to a sharp rise in the oil prices which culminated into a balance of payments crisis for India in 1991. After 1991 India adopted a liberal capitalist economic structure and the word “socialist”, while still enshrined in the preamble of the constitution, remained only for its symbolic value. The political pressures of the hegemon – USA – are also well documented in this regard. Under pressure from the United states government, then Prime Minister Chandra Shekhar allowed the US aircrafts returning from Phillipines to refuel on Bombay’s International airport in return for salvaging the Indian economy through the support of western capital and the reconstruction fund from the IMF89. With the USA as the undisputed hegemon, the Indian economy now completely shifted to a liberal capitalist model and under Narasimha Rao as the Prime Minister and Manmohan Singh as the Minister of Finance, India adopted the LPG model of ‘Liberalization, Privatization and Globalization’.

Domestic Society and Politics

While the balance of power explanation considers states as economic actors, akin to small firms operating in a market responding to the forces of demand and supply (Waltz), according to Kirshner, “States in world politics are much more like large oligopolists than small firms under perfect competition”90. Further, according to Kirshner:

…despite their common attributes, states are less similar to each other than are firms of the same industry, and despite a common desire for survival, as realists have observed in the past states pursue a broad range of goals (certainly more diverse than goals of firms)… And even in pursuit of that most narrow, common goal—survival— states are still less predictable than firms, because they typically have more latitude—firms are selected out of the system with much greater frequency than are states….

… Structure thus informs importantly the environment in which all states act, but in that context, all states, and especially great powers, enjoy considerable discretion with regard to how they will pursue their goals and what sacrifices they will make in the face of constraints. It is thus impossible to understand and anticipate the behavior of states by looking solely at structural variables and constraints.91

Waltz has argued however, that “Structures never tell us all that we want to know. Instead they tell us a small number of big and important things.” He adds that “Structure . . . does not by any means explain everything. I say this again because the charge of structural determinism is easy to make.” Nevertheless, if structure does tell us about a small number of big and important things, it would mean that there are other things that the structure does not tell us about. Therefore, to get a broader picture of the

phenomenon of changing economic models, it becomes necessary to also look inside the state and the goals that the state seeks to pursue.

Gilpin uses the term “national system of political economy” to refer to domestic structures and institutions that influence economic activities. According to him, “whether a society decides that the market or some other mechanism should be the principal means to determine the allocation of productive resources and the distribution of the national product is a political matter of the utmost importance”92. At least when India attained independence, the market was not viewed as the most effective mechanism to determine the allocation productive resources and distribution of the national product. It was a combination of the state, the agricultural sector, and the large Indian business houses, among many other groups that contested to determine the allocation and distribution of resources. Gilpin adds that national economies are “embedded in a sociopolitical system”93. This section will attempt to show how the socio-political system of India impacted the economic decision making at various stages and in the face of various challenges. The primary players of this socio-political system were: the Indian National Congress (with its sub-parts such as the Syndicate); other political parties on the left and right which formed minority, yet influential oppositions; and interest groups such as the trade unions, and the business houses.

As Mancur Olson has pointed out, “the decision of a government to open its economy to imports and other commercial activities constitutes a politically risky action because it immediately results in many resentful losers and, at least initially, produces just a few winners”94. Therefore, the opening of an economy is the result of costly actions taken by “powerful states (hegemons) for economic, political, and especially security reasons”95. Gilpin and Olson both agree that the private economic interests, especially those of powerful business groups, also play an important role in the efforts of powerful states to create an international economy along with the political and security interests of states playing the central role in its creation. Indeed, it was the influence of powerful states (USSR and USA), powerful and big business groups, and the state concerns for security that came into play in determining the changes in the economic models for India.

The Mixed Economy Model

There is much evidence that points in the direction that the economic models that prevailed in India were the result of a contestation of interest groups within the country in an essentially political setting. To begin with, Nehru was approached by the large Indian conglomerates such as Tatas, Birlas, and Dalmias, whom Bipan Chandra has called the “Zaibatsus of India”, to persuade the government to pursue a set of protectionist policies to guard the domestic capital from international competition. They favoured a state led growth model not out of the considerations of ideology or the contestation of USSR and USA, but due to their own self-interest which could be furthered by the protectionist policies of the state. The FICCI became the representative of this consolidated interest group that lobbied on their behalf. At the same time, India was primarily an economy of poor workers and farmers and therefore the demand for welfare was also expressed in form of consolidated interest groups such as the “Mazdoor Sabhas” (Labor Councils) and the “Kisaan Sabhas” (farmers councils). These groups along with the communists had much influence in the Congress and comprised the majority of its cadres. At the same time the businesses strived to maintain good relations with the Congress as in the words of Sandeep Bharadwaj (2017) “Had the capitalists tried to oppose Congress, as businesses like the Tatas had suggested, instead of

collaborating with it, it is likely that the Left would have grown stronger within the party”96. Hence, various political interests maintained their relationship with the Congress and strived to influence its policies.

In general, the interest groups in India were represented by political parties. Although the Congress was the umbrella political party of the time, yet the Communist Party of India (CPI) and the Swaraj party, outside of the Congress, represented the interests of the farmers and laborers on the one hand, and the zamindars (landowners) and the professional elites on the other, respectively. Further, on the one hand, there was the Jan Sangh which was backed up by the Rashtriya Swayam Sevak Sangh (RSS) – the extreme right-wing Hindu organization, and on the other hand there were the fragments of the Muslim League who were the Muslim conservatives in India.

Gilpin has emphasized the role of elites in defining the national interest. According to him, “the interests and policies of states are determined by the governing political elite, the pressures of powerful groups within a national society” and that “the economic/ foreign policies of a society reflect the nation’s national interest as defined by the dominant elite of that society”.97 Even within the congress, there were dominant factions that leaned on the right or the left and supported these interest groups. However, the Congress at the time was dominated by the elites of the nation and most of these elites had certain common characteristics: more often than not they were from the upper castes and comprised mostly of Brahmins; they were a professional class and were mostly trained in the field of law (this included Nehru, Gandhi, Sardar Patel to name a few); they were western educated (with exception of Patel); and were attracted to the ideas of western democracies. It was the dominance of this elite in the Indian Independence struggle and thereafter in the government of India that defined the Indian politics of the time.

This elite was able to foster a compromise between the business classes and the proletariat classes, the religious right and the atheistic communists, which came to be known as the “Nehruvian compromise” (Chandra). The key tenets of such a compromise were a commitment to democracy, egalitarianism, pluralism, and socio-economic growth. The compromise was reached after much internal struggle and contestation within the Congress party which was the dominant political force within the country. This trend of conflict and compromise is visible even between the contestation of the political leaders within the congress, the chief of whom were Mahatma Gandhi, Subhash Chandra Bose, Sardar Vallabh Bhai Patel, and Jawaharlal Nehru. While Nehru opposed the inclusion of right to property in the Fundamental Rights of the Constitution of India, Patel supported the same and won this battle with Nehru accepting defeat. On the other hand, Nehru was in favour of setting up of a planning commission to drive economic growth to which Mahatma Gandhi was opposed state led economic development (Mukherji) – here it was Nehru, who was successful in imposing his agenda98. Again, while Gandhi favoured investment in small scale industry (such as textiles and khadi) with a considerable thrust coming from private sector, Nehru favoured large scale industrial projects managed by the governments to spur national growth. Here, a compromise was reached between the two and considerable privatization was allowed in small scale industrial production and in sectors such as agriculture, textiles etc. while the “commanding heights” of the economy with sectors such as energy, infrastructure, banking etc. were kept under the government control.

Each interest group, through the influence of politicians and political parties, put forth their own plan of development: As early as 1938, then Congress President, Subhas Chandra Bose, set up the National Planning Committee (NPC) with Jawaharlal Nehru as its Chairman99; In 1940, the leading Indian industrial houses came together to submit the Bombay Plan based on a model of growth wherein large private companies, through government support were to build the infrastructural capabilities of India with an investment spanning 15 years to begin with;100 In 1944, Acharya Shriman Narayan Agarwal forwarded the “Gandhian Plan” with a focus on small scale cottage industries and agricultural production; in 1945 the communist leader M.N. Roy forwarded the “Peoples’ Plan” which argued for the nationalization of agriculture, government control over heavy industries, and a “tight control over the profit motive”;101 in 1950 Jaiprakash Narayan came up with the Sarvodaya Plan which was inspired by the Gandhian plan with an increased focus on protection of the small scale cottage industries from foreign competition.102 These plans underwent a political struggle in the decade of 1940s and since within the Indian National Congress, the victor of the political struggle were the camps of Nehru and Gandhi, representing the western and more left leaning and the more right leaning elites respectively, the economic model that was adopted by the nation was a hybrid of the two, with elements from other plans incorporated to a lesser degree as a compromise.

Thus, according to Deena Khatkhate, the framework that emerged out of this political medley, which Chandra calls a “Nehruvian consensus” was, in fact, a lack of clarity on the way ahead103. Essentially, it was a political compromise borne out of the contestations between the Nehruvians, Gandhians, the rightists, the businesspeople, the workers, the landowners, the farmers, and the communists in the nation. This compromise was reflected in the mixed economy model.

The Indira Gandhi Era

Nehru’s death in 1964 created a political vacuum in the Indian National Congress (INC). The second Prime Minister, Lal Bahadur Shastri came to office after much intra party conflict and was primarily supported by a group within the INC called as the “Syndicate”104. The group, consisted of K. Kamaraj, the Congress president, and regional party bosses, Atulya Ghosh of Bengal, S.K. Patil of Bombay, N. Sanjeeva Reddy of Andhra Pradesh, and S. Nijalingappa of Mysore (Karnataka). According to Bipan Chandra, the Syndicate elected Shastri against his more experienced opponent, Morarji Desai because they felt that “he (Shastri) would be more amenable to their wishes and not challenge their leadership in the party”. According to Chandra, realizing the contours of his limited mandate, Shastri “did not make any major changes in Nehru’s cabinet, except for persuading Indira Gandhi, Nehru’s daughter, to join it as Minister of Information and Broadcasting”. Overall, Shastri kept a low profile and did not make much changes to the basic model of the Indian economy.

After the death of Shastri, Indira Gandhi took over as the Prime Minister in 1966 and also inherited a tough economic condition. With the burden on the exchequer after the wars with Pakistan and China along with widespread crop failure, Indira Gandhi also found herself amidst intense political turmoil.

Barely four months after coming into power, the decision to devalue the currency in the face of economic crisis led to widespread unpopularity and opposition for Indira Gandhi’s government. This along with what many observers have called “liberalization by stealth” was considered illegitimate in the Indian political circles and the intelligentsia.105

According to Gilpin the purpose of economic activity is impacted by, the sociopolitical system and a society’s values. Therefore, the constraints of any set of reforms is that they need to be made in “the socially approved ways in which economic objectives may be pursued”.106 In the face of imminent elections in 1967, the Congress party leaders felt that the decision to devalue the currency and liberalize the markets should not have been taken in an election year (Chandra). The decision to liberalize was not socially approved given India’s historical past of the struggle against the British Raj which had resorted to arm twisting when the Indian National Congress had launched the Swadeshi and Boycott movement to ban foreign made goods in favor of indigenous manufacturers. The decision to liberalize and devalue was taken in a similar spirit and was viewed as bowing down to the arm twisting of the west. According to Chandra “All sections of political opinion opposed the step, the most voluble critics being the left groups and parties, the majority of intellectuals and Kamaraj (then President of the Congress party), who also resented the fact that he was not consulted before the decision was taken.” In such a political environment, the opposition parties such as the Communist Party Marxists (CPM), the Communist Party of India (CPI), and the Jan Sangh took advantage of the popular mood and organized general strikes across the country.

The pressure from the left (CPI and CPM) and from the right (Jan Sangh) was mounting for Indira Gandhi. The Jan Sangh, in order to provoke the government organized a country-wide agitation on the pro-right wing Hindu agenda of banning cow slaughter and surrounded the parliament with mobs including sadhus brandishing swords, spears, and trishuls (tridents). On November 7th 1967, thus, government buildings were attacked, cars and buses were burnt down and incidences of violence with police erupted across the country. Even within the party Indira Gandhi’s position was weakened as the Syndicate and Kamraj ensured that she could not make changes in her cabinet as she pleased (Chandra). A weak and internally fractured Congress party went to elections in 1967. According to Bipan Chandra:

Factionalism in Congress was fully reflected in the selection of party candidates. The ticket distribution was dominated by the Syndicate members who acted in a highly partisan manner. Nearly a thousand Congressmen, who had been denied tickets, now chose to stand against the official Congress candidates as independents or as members of new state-level dissident groups.

At the same time, the opposition parties, on the left as well as the right, notwithstanding ideological orientations joined forces and contested elections in alliance in many states. The Congress suffered a serious setback in the elections but was able to retain majority in the parliament. The Congress party’s majority in the parliament reduced from 44.7% in 1962 to 40.8% in 1967 and it lost its majority in seven states – a new low for the party.

According to Kuldeep Nayar (1975) the defeat of the Congress was due to the defection of the rich and middle-class farmers who had benefited from the 1950s land reforms led by Nehru.107 Given the opposition to the one year of liberalization after the 1966 economic crisis, the INC went to the elections with a leftist rhetoric and projected a food grain procurement policy in their election manifesto to counter the successive years of droughts. As per Bipan Chandra, “In South India, class and caste structure or configuration was different from that in the North and the large presence of Communists kept the rural landowners tied to Congress. Moreover, alternative rich peasant parties were non-existent. In Bihar, Uttar

Pradesh, and Punjab, (i.e. the North Indian states) on the other hand, alternative parties in the form of the SSP, Bharatiya Kranti Dal (BKD), and the Akali Dal were available to act as vehicles of rich-peasant interests.” The rich peasants also belonged to similar groups of intermediate and backward castes and coalesced to form breakaway parties on caste and class lines.

This caused greater insecurity within the Indian National Congress. Efforts were made to destabilize Indira Gandhi as she lost the battle to place a friendly candidate as the Congress President after Kamraj. His successor Nijalingappa wrote in his diary: “I am not sure if she (Mrs Gandhi) deserves to continue as P.M. Possibly soon there may be a show down” and “that Desai discussed the necessity of the P.M. being removed”.108 As a response to the Syndicate’s opposition, Indira Gandhi according to Zareer Masani, took a more leftwards turn in her program and rhetoric which led to the final showdown between the left and the right wings of the Congress Party and a split in the Congress in 1969. The split took place on the issue of the election of the President of India when then President Zakir Hussain died in office. The Syndicate wanted to elect Sanjiva Reddy as the President of India and Feeling driven to the wall and aware of the Syndicate’s ultimate design to oust her from office by using Sanjiva Reddy’s presidency, “Indira Gandhi decided to fight with no holds barred, risk all, and carry the battle to the opponents’ camp with radical ideology as her main weapon” (Chandra). It was after this incident, that Indira Gandhi came up with the radical program of nationalizing the banking and ousting multinational companies from India. According to Guha, “Mrs Gandhi had rarely invoked the word ‘socialist’ before 1967”.109 Before Indira Gandhi left for the All India Congress Committee Convention of 1969 “the prime minister was apparently told by P. N. Haksar that ‘the best way to vanquish the Syndicate would be to convert the struggle for personal power into an ideological one’”.110 Not only was the radical left seen as a tool to defeat the opposition within the party, it was also seen as a viable tool by Indira’s faction of Congress, to defeat the breakaway parties represented by the rich peasants. Thus, it was the domestic politics of the times according to this explanation, rather than ideology in itself, that led to the leaning of the Indian economic model towards socialism in Indira Gandhi’s era.

The victory of Indira Gandhi over the more conservative Syndicate also meant the severance of the hitherto cordial relations of Indira Gandhi’s government with the large Indian Conglomerates. With the Monopolies and Restrictive Trade Practices Act (MRTP; 1969) that most adversely affected large business houses, Rahul Mukherjee writes, “Even G. D. Birla could not strike a relationship with Mrs. Gandhi, and J. R. D. Tata was quite disillusioned at this time”.111

This trend further continued when Indira Gandhi’s legitimacy was again challenged in 1974. The movement against Indira Gandhi started with a student strike in the state of Gujarat demanding the Chief Minister of the state, who was considered exceptionally corrupt, to be dismissed. This movement called the Nav Nirman movement became violent and led to the promulgation of an emergency or President’s rule in the state. This movement inspired the communists in the state of Bihar and another student movement began there. “These protests by the left sparked a competitive rivalry with the Akhil Bharatiya Vidyarthi Parishad (ABVP), the student union linked to the Jana Sangh” (Guha). Soon the movement got the support of a well-respected leader and a former freedom fighter Jayprakash, popularly known as JP. With JP coming into the picture, the movement spread across the nation as student groups – both from the left and the right wings – faced violence at the hands of the police and in turn retaliated with much violence. The communist groups organized a railway strike and in an incident at Gaya, students faced bullet fires by the police. The situation came to a head when Raj Narayan, a socialist who had lost in the parliamentary election against Indira Gandhi in 1971 petitioned in the court in the same year that Indira

Gandhi had won through corrupt practices and in 1975, the bench of the Allahabad High Court summoned Indira Gandhi to testify in the court and in a few weeks, declared her election null and void. To counter this, heeding to her advisors, Indira Gandhi declared national emergency and promulgated Presidential rule on the 26th of June, 1975.

With the promulgation of the emergency, Indira Gandhi now had absolute and indefinite power. An estimated 36,000 people were in jail during the emergency period, including JP. The capitalist class in India, having learnt their lesson with the nationalization episode, chose to side with the Indira. When asked about his opinion on the state of Emergency, J.R.D. Tata the head of the Tata group said “…things had gone too far. You can’t imagine what we’ve been through here – strikes, boycotts, demonstrations. Why, there were days I couldn’t walk out of my office into the street. The parliamentary system is not suited to our needs”.112 Similarly, as the emergency came with a lot of censorship, the Editor of Hindustan Times B. G. Verghese, was sacked by its owner, the industrialist K. K. Birla, according to Guha, “merely to please Mrs. Gandhi”. Further, “Birla was a devoted acolyte of the prime minister-after the Allahabad High Court judgement of 12 June” (Guha), he had taken a delegation of 500 businesspeople to plead with her to stay on in office.113

The period from the emergency until 1990 saw an accelerated growth at a rate of 5.9% percent as opposed to the earlier so called “Hindu Rate of Growth” at 3-4%.114 This, according to Rahul Mukherjee, was due to the increased collaboration of the government with the private sector. The nationalization followed by the emergency brought home a second consensus or rather compromise between the private sector and the government, when the latter clearly established its dominance over the former. The big business houses of India learned that their cooperation with the government was essential for their growth and even survival. When Indira Gandhi lifted the emergency and declared general elections (and lost), the private sector continued with its policy of abiding by the policies of the government and influencing it from within. This was the time when businesspeople started entering politics and found their way into the parliament at an increasing level. Upon her re-election in 1980, Indira Gandhi who now came back into power supported by big businesses, seemed to have done away with her earlier commitment to socialism and did not hesitate to have a Suzuki joint venture for automobile manufacturing licensed in collaboration with her son’s company – Maruti. This led to the gradual expansion and relaxation of the automobile sector as well as India’s small move towards capitalism.

Rajiv Gandhi and the 1991 Liberalization

The trend of increasing partnership of business and politics increased in the mid-1980s when Rajiv Gandhi became the Prime Minister. In the 1980s, a new business house by the name of Reliance Group emerged, led by Dhirubhai Ambani, who was famous for coalescing with government officials and ministers and is known to have built his fortunes through capitalizing on and manipulating government policies.115

The growing influence of big businesses in politics led Rajiv Gandhi’s Finance Minister, V.P. Singh to launch enquiries in various dealing and government contracts, against companies such as Reliance.116 V.P. Singh, due to his opposition to the industrialists and more importantly, due to his increasing differences

with the Prime Minister Rajiv Gandhi, was transferred from the Ministry of Finance to the Ministry of Defense. Here he was successful in unearthing a case of corruption in an arm deal between the government of India and the Swedish company Bofors. A number of Indian businessmen such as the Hinduja brothers were accused of being complicit in the Bofors Scandal. V.P. Singh contested an election on an anti-corruption platform which was the first national level election fought on an agenda to contain the power of the nexus between politics and business. V.P. Singh won the Prime Ministerial elections and ran a coalition government for a year. With the assassination of Rajiv Gandhi in May 1991 by a Sri Lankan terrorist group Liberation Tigers of Tamil Eelam (LTTE), and V P Singh’s retirement from active politics, India underwent an era of successive hung parliaments and fractured governments.

Unlike the crisis of mid-1960s after which economic nationalism became the economic strategy due to the political bickering within the Congress party and the rise of the left in India, the 1991 crisis came when India was undergoing a serious confusion of leadership. Chandrashekhar, then Prime Minister who stayed in office for a little more than six months and was from a minority socialist party, succumbed to the pressures of the industrialists and decided to mortgage India’s gold reserves to the Bank of England. Even though Chandrashekhar was a socialist right from his student days, he decided in favour of opting for the IMF loan because of real political considerations. With just 52 MPs in the Parliament, and the Congress’s imminent withdrawal of support, Chandrashekhar was perhaps looking to achieve something extraordinary by averting the crisis and thereby saving a chance for a comeback.117

However, it was Narasimha Rao who was elected as the next PM. Rao continued with the Liberalization, Privatization, and Globalization policy along with his Finance Minister Manmohan Singh. All this was taking place in the context that the majority of the long standing labour unions and labour movements had been ruthlessly crushed during the emergency period and the influence of industrialists on the government was on the rise. Thus, the Indian market was finally liberalized.

Taking Gilpin’s analysis forward, the changing models of the Indian economy can also be explained by the changing nature of the Indian society. According to Gilpin, the purpose of economic activity in a particular country determines the role of the state in that economy. The purpose of economic activity, in turn, is also determined by the collective goals and values collectively held by the societies. Gilpin notes that in societies “where the welfare of the consumer and the autonomy of the market are emphasized, the role of the state tends to be minimal” and in such societies the predominant responsibility of the state “is to correct market failures and provide public goods”.118 On the other hand, in societies where “communal or collective purposes prevail, the role of the state is much more intrusive and interventionist in the economy” (Gilpin).119 Thus, the change from a state led economic model to a more liberal capitalist model can also be explained by the deterioration of the collectivist nature of the society in India. This is corroborated by the research on the changing social structures and the culture of collectivism in India (Hofstede, 1980; Sinha 1984; Chadda and Deb, 2013). Sinha (1984) observed the comparative deterioration in the collectivist culture of India as evidenced by the change from the system of joint families to “transition families” to nuclear families over a period of time.120 It can be argued therefore, that a combination of political and social factors led to the change in economic models in India that resulted in the transition from a state led and managed economy to one where the state was to play the limited role of regulating rather than actively leading economic activities.

Conclusion

This paper analyzed various perspectives on the factors that influenced the changes in the economic models of India from 1947 to 1991. In evaluating the three historical periods – the Nehruvian period of mixed economy, Indira Gandhi’s period of economic nationalism leaning towards socialism, and the liberal capitalism that began in its nascent form starting 1980s and coming into full force after the 1991 balance of payments crisis – the analysis explored various theoretical perspectives of constructivism, structural realism and traditional realism. While the constructivist approach revealed the importance of collective mindsets and ideas that facilitated the changing of economic models, it seemed to fall short of explaining certain data points such as the mid-1960s acceptance of neo-liberal policies by the Indira Gandhi government and the quick reversal to an unprecedented level of a state intervention in the economy. Even if one were to not draw that conclusion, one could at least understand through the constructivist analysis that ideas did play a role in shaping the policy options, but the conditions that enabled those who were coming up with such policy options were enabled by socio-political processes. Further, the interplay between domestic as well as international factors, with a considerable role of historical development of domestic and international relations, played a key role in shaping India’s economic policies and models over time. The realist explanations highlighted the role of powerful states such as the USA and the USSR, power, legitimacy, and norms in understanding the changing economic models of India. A clear observation that becomes apparent from this analysis is that the continued commitment towards neoliberalism in India is far from permanent and stable, as many scholars would like to believe and advocate. The changing social, political, and ideological currents would, inevitably change the models of the Indian economy. If the “balance of power” thesis of the structural realists comes to be true, then the rise of China as a hegemonic challenger to the USA would compel India to update its economic models – whether more on the Chinese lines or the US lines, the economic model will inevitably change regardless of the direction it takes. However, if the thesis of the non-structural realists is closer to the truth, then the domestic political factors along with interactions with other social factors, though not exclusive of international political economic forces, could spur the changes in the economic model. What the classical realists would insist upon is that the change would be spurred by the actions of the state which would pursue a range of goals, the primary of which is ensuring security and following the pursuit of power and plenty. Nevertheless, putting a finger on what causes the change – interests, identities, market forces, or something else - is difficult and perhaps even futile. What is useful is the conception that the phenomenon of change is a complex interplay of ideas, political actors and social conditions that are difficult to be interpreted in a formulaic manner.

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55. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 309.
56. Rahul Mukherji, “The State, Economic Growth, and Development in India,” India Review 8, no. 1 (February 10, 2009): 81–106, https://doi.org/10.1080/14736480802665238.
57. Ibid.
58. “Finance Minister’s Victor Hugo Moment | The Indian Express,” accessed May 11, 2018, http://indianexpress.com/article/opinion/columns/finance-ministers-victor-hugo-moment/.
59. Jonathan Kirshner, “Realist political economy: traditional themes and contemporary challenges,” ed. Mark Blyth (Routledge Handbook of International Political Economy (IPE): IPE as a Global Conversation. London: Routledge, 2010).
60. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 17.
61. Mrinal Datta-Chaudhuri et al., “Book Review: I.G. Patel’s ‘Glimpses of Indian Economic Policy,’” India Today, accessed May 3, 2018, https://www.indiatoday.in/magazine/society-the-arts/books/story/20020304-book-review-i-g-patel-glimpses-of-indian-economic-policy-796527-2002-03-04.
62. Quoted in: Ramachandra Guha, India after Gandhi: The History of the World’s Largest Democracy (New York: Ecco, 2007).
63. Kenneth N. Waltz, Theory of International Politics (Waveland Press, 2010).
64. Ibid.
65. Jonathan Kirshner, “Realist political economy: traditional themes and contemporary challenges,” ed. Mark Blyth (Routledge Handbook of International Political Economy (IPE): IPE as a Global Conversation. London: Routledge, 2010).
66. Robert Gilpin, War and Change in World Politics (Cambridge: Cambridge University Press, 1981), 26.
67. Ibid., 28.
68. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 44.
69. Ibid., 41.
70. Ibid“Schumacher on Gandhi – by Surur Hoda | The Gandhi Foundation,” accessed May 11, 2018, https://gandhifoundation.org/2007/05/21/schumacher-on-gandhi-%E2%80%93-by-surur-hoda/.
71. Stephen P. Cohen, India: Emerging Power (Brookings Institution Press, 2001).
72. Ibid.
73. Ibid.
74. Jawaharlal Nehru, Important Speeches: Being a Collection of Most Significant Speeches Delivered from 1922 to 1946 (Indian Print. Works, 194AD).
75. Bipan Chandra, India since Independence, Rev. ed. (New Delhi: Penguin Books, 2008) 294-310.
76. Balwant Bhaneja, “Soviet Foreign Aid to India”, accessed May 11, 2018, http://www.asj.upd.edu.ph/mediabox/archive/ASJ-08-03-1970/bhaneja-soviet-foreign-aid-india.pdf
77. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 78.
78. See genrally: Bipan Chandra, India since Independence, Rev. ed. (New Delhi: Penguin Books, 2008).
79. Kenneth A. Oye, “Explaining Cooperation under Anarchy: Hypotheses and Strategies,” World Politics 38, no. 1 (1985): 1–24, https://doi.org/10.2307/2010349.
80. Vladislav M. Zubok, A Failed Empire: The Soviet Union in the Cold War from Stalin to Gorbachev (Univ of North Carolina Press, 2009).
81. Ibid.
82. https://www.cia.gov/library/readingroom/docs/CIA-RDP85T01058R000405800001-9.pdf
83. The Times of India (New Delhi), 13 November 1985
84. The Pakistan Times (Lahore), 12 April 1985
85. Kenneth N. Waltz, Theory of International Politics (Waveland Press, 2010), 35.
86. United Service Institution of India, Disintegration of the Soviet Union and Its Impact Upon the International Political System with Special Reference to South Asian Security: Proceedings of a Seminar Held at Auditorium, Nehru Memorial Museum and Library, Teen Murti House, New Delhi on December 2-3, 1992 (United Service Institution of India, 1992).
87. Ibid.
88. Ibid.
89. Barbara Crossette and Special To the New York Times, “India in an Uproar Over Refueling of U.S. Aircraft,” The New York Times, January 30, 1991, sec. World, https://www.nytimes.com/1991/01/30/world/india-in-an-uproar-over-refueling-of-us-aircraft.html.
90. Jonathan Kirshner, “Realist political economy: traditional themes and contemporary challenges,” ed. Mark Blyth (Routledge Handbook of International Political Economy (IPE): IPE as a Global Conversation. London: Routledge, 2010).
91. Ibid.
92. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 24.
93. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 42.
94. Ibid.
95. Ibid.
96. Sandeep Bhardwaj, “5. Businessmen and Nationalists: Rise of Money in Congress Politics,” Revisiting India (blog), August 31, 2017, https://revisitingindia.com/2017/08/31/5-businessmen-and-nationalists-rise-of-money-in-congress-politics/.
97. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 18.
98. Rahul Mukherji, “The State, Economic Growth, and Development in India,” India Review 8, no. 1 (February 10, 2009): 81–106, https://doi.org/10.1080/14736480802665238
99. Indian National Congress National Planning Committee, Jawaharlal Nehru, and Indian Institute of Applied Political Research, Report of the National Planning Committee, 1938 (New Delhi : Indian Institute of Applied Political Research, 1988), https://trove.nla.gov.au/version/22876713.
100. “Was the Bombay Plan a Capitalist Plot? - David Lockwood, 2012,” accessed May 11, 2018, http://journals.sagepub.com.proxy.library.cornell.edu/doi/full/10.1177/0257
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102. India Sarvodaya planning committee, Principles of Sarvodaya Plan. 30th January, 1950, 1950.
103. Deena Khatkhate, “National Economic Policies in India,” in National Economic Policies, ed. Dominic Salvatore (New York: Greenwood Press, 1991), 231-2.
104. Bipan Chandra, India since Independence, Rev. ed. (New Delhi: Penguin Books, 2008).
105. Ibid.
106. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 41.
107. Kuldip Nayar, India After Nehru (Vikas Publishing House, 1975).
108. Bipan Chandra, India since Independence, Rev. ed. (New Delhi: Penguin Books, 2008).
109. Ramachandra Guha, India after Gandhi: The History of the World’s Largest Democracy (New York: Ecco, 2007).
110. Ibid.
111. Rahul Mukherji, “The State, Economic Growth, and Development in India,” India Review 8, no. 1 (February 10, 2009): 81–106, https://doi.org/10.1080/14736480802665238.
112. J. Anthony Lukas, “India Is as Indira Does,” The New York Times, April 4, 1976, sec. Archives, https://www.nytimes.com/1976/04/04/archives/india-is-as-indira-does-with-total-censorship-guaranteeing-a-docile.html.
113. Ramachandra Guha, India after Gandhi: The History of the World’s Largest Democracy (New York: Ecco, 2007).
114. Deena Khatkhate, “National Economic Policies in India,” in National Economic Policies, ed. Dominic Salvatore (New York: Greenwood Press, 1991), 231-7.
115. Paranjoy Guha Thakurta, Subir Ghosh, and Jyotirmoy Chaudhuri, GAS WARS: Crony Capitalism and the Ambanis (Paranjoy Guha Thakurta, 2014).
116. Atul Kohli, Poverty Amid Plenty in the New India (Cambridge University Press, 2012).
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118. Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001), 150.
119. Ibid.
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