The Political Economy of Development in India

by Pranab Bardhan

In this accessible book, Pranab Bardhan examines the political and social constraints on Indian development. In the newly added epilogue, Bardhan comments on the process of liberalization in the 1990's and examines the feasibility of the exercise in the light of ground realities. This ambitious and controversial book is essential reading for students of economics and politics.

Genres: Economics

162 pages, Paperback

First published January 1, 1984

Reviews

[Rohith · Rating 4 out of 5]

The original book is now almost 40 years old, but it remains one of the best explanations of the post-independent economy of India. When Bardhan wrote this in the mid-1980s, there was very little to be optimistic about the Indian economy. Over a 30 year period since the first year of the first Five Year Plan in 1951-52, per capita income of the country was increasing at 1.3% a year. The economic growth rate itself was at around 3.5% during this time. The predominant economic analyses were that of chronic poverty and how to overcome it through investment planning. Bardhan's analytical contribution is in assembling data from agriculture and industry during this time period into two phases: 1950-51 to 1964-65 and 1967-68 to 1981-82. Using this schema, he attempted to understand the political processes governing accumulation rather than distribution. Hence, his research question was not to understand how to improve the situation of the poor through public investment, but to disentangle the constraints that blocked the country's path away from a low-level equilibrium trap of slow growth.

One of the most striking findings in this phase-wise analysis is that in spite of the Green Revolution, the annual value added in agriculture was not much different as an average for the whole country. This is because while the green revolution increased yields in some crops like wheat in particular regions like the north-west, it did not yield an overall acceleration in agricultural growth rates. This period also coincided with deceleration in the growth of production of commercial crops like oil seeds and fibres. The growth rate in pulses had also become stagnant. What this indicated was a trend that, at a time when public investment (irrigation, drainage, flood control, prevention of soil erosion, checking salinity, widespread research and extension services, credit for production, rural electrification, etc.) in agriculture was slowing down, the rise in private investment couldn't make up for it. Historically, there also were institutional constraints in spreading the benefits of agricultural growth in northwest India to the rest of the country.

For industrial backwardness, Bardhan puts together analysis by the late Isher Judge Ahluwalia to show how import substitution declined. Ahluwalia constructed a dataset called 'import availability ratios' (defined as imports over imports plus domestic production minus any exports) to show that import substitution declined generally and rapidly with few exceptions from 1960 to 1965. By the 80s, the ratio for many sectors were higher than in the 1980s indicating a clear trend away from import substitution. There are two other things that one can notice from the data. First, that in 1981-82 the gross fixed capital formation in the public sector was half of the economy. That is, it was 5 times that of the private corporate sector. But the growth rate of public investment had halved. One of the reasons attributed here is the cutbacks in public investment in critical sectors like the railways (upto the mid-70s). Then there were shortages in electricity, infrastructure sectors like power, fuel and transport which had a cumulative impact much more than any shortage in any particular industry, which in turn had severe consequences for industrial growth. However, the early 80s did see a slight spike in public investment attributed to increasing financial intermediation. That is public sector banks and insurance companies, schemes for compulsory savings for growing number of salaried employees and increase in revenues from petroleum and petroleum products. But this was accompanied by increasing current expenditure of the government in terms of wages and salaries. Some have attributed it to a rise in capital-output ratios (increasing inefficiencies sector-wise).

After this, Bardhan proceeds to assess the state as an autonomous actor. He sought to understand the state beyond the classic Marxian or Weberian explanation as an entity acting on behalf of the dominant proprietary class as he doesn't believe it explains state action since the industrial revolution. However, Bardhan also recognises the change in approach that Marx and Engels undertook since 1853 with their work on the 'Asiatic Mode of Production'. So, the state is now, not just managing class interests, but owns the means of production like land. The successful break that dynamic capitalist societies like Japan, South Korea and Brazil were able to make at this time was because of the state's role in large scale irrigation works. India, paled in comparison.

Following this, he gives an exposition of the three dominant proprietary classes in India: the industrial bourgeois, the rich farmer and the professionals. The industrial bourgeois favoured state-control over industries as the top business houses received the lion's share of bureaucratic allocation of licenses to operate. Bardhan also documents the rise of Ambani, the Modi brothers (Gujarmal and Kedar Nath) and the Nandas who took advantage of the ease of restrictions on foreign collaborations. They were the first challengers to the traditional industrial elites such as Tata, ITC, and Hindustan Lever. This is not to suggest that foreign equity capital flowed. That still was minimal due to government restrictions. The period also saw a substantial expansion of small-scale industries through subcontracting and ancillarization.

Numerically, the most important class is that of the rich farmer. From before independence, when agriculture was dominated by upper-caste absentee landlords, the land reforms transformed the structure to enterprising middle castes who took control of the rural economy and politics. They have used poor peasants, agricultural labourers and intermediate classes to agitate for favourable public policy like institutional credit, lower taxes and subsidised inputs. Agrarian capitalism in India has now diversified into money lending, trading, transport, and other businesses less susceptible to the vagaries of agricultural production. The class interests of the local landlords prevent land reform by the state and the cross-cutting cleavages of ethnicity and caste prevent the formation of an agrarian class alliance. A counter-point often raised is on how social groups within agrarian society are often in conflict with each other. Bardhan argues that Jats and Rajputs or Bhumihars and Yadavs have often come together in states like Uttar Pradesh and Bihar, respectively in order to protect their class interests. This has caused them to ally with poor Chamar peasants to achieve political goals. Electoral politics has strengthened this vicious cycle.

The third major proprietary class is the professional class. This is arguably the most interesting argument put forward by Bardhan challenging the Marxist analytical category of the petit bourgeois. Bardhan argues that if physical capital can be the basis for social stratification, why not human capital in the form of education, skills and technical expertise? This is the basis for class antagonism between public sector professionals and the owners of private capital. The educated elite that form part of the independent civil service originally set up from Mughal times to British colonial rule, now consist mostly of professionals coming from business, farmer or trader families. In a country where education is the quickest route to upward mobility, affirmative action or reservations in government jobs, professional engineering and medical colleges have been the most bitter social and political battlegrounds.

These elites who are the top two deciles of the Indian population have multiple conflicting interests and hence, is difficult to put them together in monolithic categories of class. The conflict that Bardhan documents is of two kinds: (i) urban and rural proprietary classes, and (ii) professional public sector class and proprietary class in industry and trade. It's fascinating to read Bardhan's account of successful farmers' agitations in different parts of the country as "flexing of the muscles of rich farmers" when India is going through large farmers' protests since September 2020. As for the latter, businessmen without clout have to supplicate themselves to bureaucrats in order to obtain licenses to operate firms in certain industries. Beyond control and regulations, nationalisation of industry has been with the intention of expanding the class of white collar workers. Bureaucrats prove to be relatively less harmful to rich farmers. A high profile exception was Devraj Urs, Chief Minister of Karnataka in the 70s and 80s, under whose watch, upper caste civil servants worked with small 'backward caste' farmers to take on rich farmers through land reforms.

The last two chapters of the book deals with how the Indian public economy by the early 80s, had become a large elaborate network of patronage and subsidies. Pressure group politics by heterogenous proprietary classes result in constant deal-making. Acemoglu and Robinson might refer to these as extractive institutions that are not conducive to long-term economic growth. As for the relationship of this conflict management to democracy, Bardhan argues that it owes a lot to the Congress party structure till the 1970s. The multi-class alliance forged by Gandhi in the early 20th century which allowed the establishment of a complex system of distributing patronage is different to western models of political clientelism, according to Bardhan. As he lamented the disintegration of the Congress system in the late 70s, today we see its replacement with a ethnic Hindu nationalist machinery.

[Albphilipp]

This book was originally a lecture series held by the author, which probably makes it a more accessible read than it would be if it was conceptualized as an academic book from the beginning. It provides an interesting approach to the economic history of India up to the 1990s. For me, its strength lies less in the used evidence but in the theory the author develops. The data is then only a further argument to give this theory validity.
Bardhan basically agues that the Indian economy was stabilized at a relatively low level by three proprietary classes: wealthy farmers, industrialists, and the professional class. He develops his argument quite well and on relatively few pages. Even 40 years later, his is an intriguing approach towards the Indian political economy after independence.

[Rishvanth Reddy · Rating 3 out of 5]

Pranab Bardhan’s ‘The Political Economy of Development in India’ is a noteworthy work, sharp and controversial, that contributed to the understanding of the nature of the post-independent Indian state and its impact on the trajectory of economic development in India from 1951 to 1982. Bardhan deals particularly with ‘the political economy of constraints that seemed to have blocked the economy’s escape from a low-level equilibrium trap of slow growth’. His core argument is that a coalition of the ‘dominant proprietary classes’ composed of rich farmers, industrial capitalists and professionals, and their interactions with the Indian state played a decisive role in determining the degree of autonomy for the state and its role in the development of India. This work is an essential read for everyone seeking to explore the field of Indian political economy and it opens the avenue for further investigations in the field.