India and World Economy: Search for Self-Reliance

Author(s): Vijay Laxman Kelkar

Reviewed work(s):
Source: Economic and Political Weekly, Vol. 15, No. 5/7, Annual Number (Feb., 1980), pp.
245+247+249+251+253+255+257-258
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 India and World Economy: Search for
Self-Reliance
Vijay Laxman Kelkar

Would it be correct to characterise the Indian development experience - such as it has been -
as being in the nature of 'dependent development' of the kind associated with the countries of Latin
America ?
This paper, while noting all the constraints in the path of economic development of India, argues
that taking the Indian experience as a whole since Independence, such a negative assessment is not
warranted. AManysocial and economic indicators - the growth and diversification of the country's trade,
increase in food production, decline in the proportion of foreign aid to net national product, the degree
of control exercised by the State over the functioning of the transnationals, the growth of scientific and
technological manpower, etc -- suggest that India's performance compares well with that of many under-
developed countries. The foundations for this growth were laid in the Second Five-Year Plan formulated
under the guidance of Jawaharlal Nehru.

INDIA's experience in development
planning and industrialisation has been
subject of considerable analysis and
discussions by Indian and foreign
scholars. These discussions have been
conducted with various viewpoints as
well as on different analytical planes.
Most of the studies, barring a few ex-
ceptions, have focused the attention
on the internal aspects of the national
economy. In recent years, the emphasis
has essentially been on analysing the
issuies related to industrial stagnation,
employment, income distribution, land
reforms and modernisation of agricul-
ture. Undoubtedly, these are critical
development issues. However, the ten-
dency of excludinig issues concerning
the relationship between India and the
international economy or world eco-
nomy, by treating Indian economy to
be an almost closed economy is quite
puzzling. Not only the relationship
with the external sector including
foreign trade is of critical importance
for the determination of rate, pattern
and the effectiveness of capital accu-
mulation, but in an age of imperialismn
it is also of the central importance to
the political economy of the growth
process.
In other words, India's relationship
with the world economy is of strategic
relevance. It is clear that the achieve-
ment of developmental objectives de-
pends upon the framework of relation-
ship that India builds up with the rest
of the world. This framework would
naturally encompass various aspects of
relations - political including security,
cultural and economic. It is interest-
ing to see that political aspects have
hbeen far better articulated. For in-
stance, the conoept of 'non-alignment',
the corner-stone of India's foreign
policy, has been a subject of volumi-
nous discussion and lively debate. It
is however astonishing that, compara-
tively, discussion or debate relating to
India's international economic relation-
ship has been rather meagre. Even the
Five-Year Plan documents did not
always explicitly state these aspects.
In fact, in the formal sense the objec-
tive of self -relianoe did not appear
clearly uintil the Third Five-Year Plan.
Of course, it is not suggested that
economic independence or self-reliance
was not of central concern to the fra-
mers of First or Second Plans. In
fact, as our discussions will show, it is
the Second Five-Year Plan which
provided the essential foundations for
India's pursuit towards economic in-
dlependence. Perhaps the only reason
that self-reliance or economic indepen-
dence did not appear exPlicitly in the
Second Plan is that the policy-makers
took that to be axiomatic.
India's relationship with the world
economy or India's international econo-
inic relationship is indeed a wide and
compliex subject. An exhaustive treat-
ment of this important subject would
mean, amongst other things, discussing
the issues related to international poli-
tics, inter-action between the internal
and international political forces, etc.
The aim;of this paper however is
modest; it attempts to focus attention
on only one aspect of this relationship,
i e, economic independence or self-
reliance, and evaluate India's achieve-
ment towards this objective since the
process of planned economic develop-
menit was embarked upon.
It is perhaps necessary to define first
the concept of 'economic independence'
or a 'self-reliant' economy. The key
to this is provided by the concept of
'dependence', the formulation of which
is one of the important contributions of
th.e Latin American scholars to the
understanding of the process of econo-
m,ic transition in the newly emergent
nations. According to Santos, "By
dependence we mnean a situation in
which the economy of certain coun-
tries is conditioned by the development
and expansion of another economy and
to which the former is subjected. The
relation of interdependence assumes
the form of dependence when some
countries' expansion is self-sustaining
('dominant' ones) while others can do
so only as reflection of that expan-
sion".1 In other words, an economy can
be -called self-reliant or economically
independent if its development process
or the process of capital accumulation
is not dominated by another economy
or external economic agents andl this is
not subject to the developments in
those economies. It may be then argued
that for an economny to be self-reliant it
has to be a closed economy. Surely, this
can be only a limiting case; because for
the developing countries, or for that
matter for any country, such a situa-
tion would mean considerable economic
costs both in the short run as well as
in the long-run. Absence of any ex-
change with another economy would
mean completely forgoing the produc-
tion, consumption and growth possibi-
lities due to the specialisation and in-
ternational division of labour. In other
words, it fails to recognise that inter-
national trade is also a co-operative or
non-zero-sum game where gains can
accrule to all the participants. Hence,
it is understood that it is not autarky
that is being sought when one talks of
economic independence but rather
'symmetric' interdependene between the
national and other economies. Although
the above concept of 'dependence' is
extr.emely useful in understanding the

245
ECONOMIC AND POLITICAL WEEKLY
issues related to self-reliance, one
should be aware of its serious short-
coming - the absence of any reference
to a time-frame or dynamics of such
relationships. This issue is of consider-
able importance as the process of capi-
tal accumulation itself brings out struc-
tural changes in the developing coun-
tries. It is, of course, true that the
direction in which these structural
changes are occurring would depend on
the character and balance of various
political forces. However, it is necessary
to recognise that the process of capi-
tal accumulation can open up the pos-
sibility of changing the underlying re-
lationship itself. For instance, it is per-
fectly possible that for a short dura-
tion an economy can be 'dependent' on
other economy for increasing rapidlv
the rate of accumulation or capital for-
mation. However, such a process itself
can lead to the elimination of 'asym-
metry' due to its increased economic
and technological power via accretion
of capital stock, technology, etc. This
would suggest that one will have to
differentiate 'tactical' or short-run as-
pects of dependence from the 'strategic'
or structural aspects of dependence of
the developing economy vis-a-vis do-
minant economies or world economy.
A study of 'dependence' or self-
reliance of an economy would have to
look at its external trade pattern of
the ownership of means of production
as well as the control of teclhnology and
technological progress. It means that
-there are various dimensions to the
concept of self-reliance. Obviously, these
are inter-rielated. For instance, what a
country can trade internationally would
naturally depend on what it can or
does produce and' what it consumes. In
other words, trade and domestic pro-
duction and consumption are inter-
linked. What is the common element of
evaluation is the dimension relating to
ability of the national economy to take
autonomous decisions relating to econo-
mic policies and capital accumulation.
Another way of looking at economic
independence or self-reliance could be
the ability of an economy to minimise
the potential of other countries to in-
flict economic and political costs either
in the short-run or in the long-run.
Needless to say, this would depend on
the size of the economy as well as its
dynamism. When one talks of the size
it is understood that amongst other
things it means population, gross na-
tional product, total level of interna-
tional trade and total industrial output.
Undoubtedly, in this context, not just
absolute size but the relative size of
our economy is of relevance. Also, the
Annual Number February 1980
country's ability to adapt or adjust will interesting to see that formally this con-
bc an important consideration. In some cern related to only the 'tactical as-
ways this aspect is going to be of in- pects' of dependence, i e, dependence
creasing relevance in the fast changing on external sector for financial resour-
and unstable world. The key to this ces. The only two exceptions are the
is provided by the technological capa- Second Five-Year Plan and the draft
bilities or potentialities of the country Fifth Five-Year Plan which focused on
embodied in its physical and human the strategic aspects of India's relation-
capital. Even if' one looks at 'depen- ship with the rest of the world. Equally
dence' in this way, it is obvious that it can be argued that the total elimina-
one has to look at the country's pat- tion of food imports n,eed not be taken
terns of international trade, ownership as a strategic objective. One is aware
of means production and technology. It that complex issues are involved here.
is also obvious that the concept of 'do- In fact, in India, the policy for the
mination' is central to the entire dis- imports of agricultural products, espe-
cussion. This concept is not amenable cially wage goods, holds the key to an
to quantitative measurement. Ultima- understanding of internal balance of
tely, it has to be judged in the totality political forces as well as its dynamics.
of the relationship and conclusions will However, this subject is of such im-
have to be qualitative. portance and complexity that it re-
In classical sense the dependent quires a separate discussion.
economy has a characteristic where its Since 1947 developments in India's
production and trade pattern is highly foreign trade show considerable diver-
concentrated towards markets of the sification, in terms of both commodities
metropolitan centres, i e, developed as well as trading partners. When one
countries, and the nature of exchange compares India with other developing
is such that a dependent economy lar- countries, India appearsto have been re-
gely exports raw materials and imports markably successful in the process of
manufactured prodlucts and even the diversification. One indicator for diversi-
export sector is usually of an 'enclave' fication is the concentration index.
type. It is Inow being argued that conm- Changes in concentration index are
pared to this classical form of depen- given in Table 1. As seen from this
dence there are now newer forms of Table, in terms of markets, the concen-
dependence in which a dependent tration index declined from .68 to .22
economry could be industrialised in its between 1947 and 1977. There were
domestic production structure while it similar sharp declines in the case of
is dominated by transnationals and its imports and the share of metropolitain
foreign trade - which could even take countries of the west declined remark-
the fornmof exports of manufactured ably. For instance in 1947-48 the
products is dominated by these markets of the UK and the United
foreign companies from the metropoli- States accounted for more than 45 per
tan countries. Equally, creation of new cent of India's exports while their
technologies and the pace of technolo- share went down to 20 per cent
gical progress is conditioned by these by 1977-78. This was achieved by in-
outside agents. This has been charac- creasing India's trade with the socialist
terised as a process of 'dependent de- countries and the developing countries.
velopment'.2 In stich development pro- Towards this, the instrument of Rupee
cess the capital goods are essentially Trade was ani inrovating initiative by
supplied by the metropolitan countries India. The share of the East European
thereby introducing structural or strate- countries in India's trade has increased
gic form of dependence. It is obvious steadily in the last two decades and in
that one has to evaluate India's posi- 1977-78 it accounted for 14 per cent.
tion in all these aspects. The trade basket has also undergone
We have already noted that as far as considerable change. For instance, the
the formal plan documents are con- share of manufactured exports which
cerned, the First and Second Plans did was only 45 per cent in the years of
not give anv precise definition of self- Second Five-Year Plan increased to 59
reliance; only the Third Five-Year Plan per oent by 1977-78. A large part of
gave some indications about this. First, these mranufactured exports are ac-
it argued that self-sufficiency in food counted for by technology intensive
was an important Plan objective; products-engineering goods, consult-
secondly it argued in terms of elimninat- ancy, electronics, etc. It is obvious
ing the dependence on concessional aid that this process of diversification
or foreign assistance. The Fourth Five- would mean reduction of dependence
Year Plan elaborated this further by on any one particular commnoditymar-
setting out a time phase for reducing ket or a country market for procuring
the concessional net aid to zero. It is foreign exchange - an imlportant in-
247
 ECONOMIC AND POLITICAL WEEKLY Annual Number February 1980

TABLE I: DIVERSIFICATION IN INDIA'S has reduced its dependence in the area of these manufactured products India
EXPORTS of foreign trade. One could argue that has done better compared to other
although India has reduced dependence developing countries in the sense that
Commodity Geographical with some individual countries, vis-a-vis these have been consistently lower in
Year Concentra- Concentra- world economy as a whole, it seems case of India. This study however is
tion tion
Index Index to have the same degree of dependence. preliminary and does not fully take in-
Needless to say, such a conclusion to account the problems due to quality,
1947-48 .69
would be misleading as there is no transport costs, etc.
1960-61 .31 .35 such political entity as a world econo- Another notable achievement in the
1965-66 .30 .33 my but only a collection of individual structure of trade is the near-elimina-
1970-71 .23 .26 differ.entnational economies. But, more tion of food imports. As seen in Table
1975-76 - .22
importantly, this share does not seeni .3, the level of net imports of food-
The concentration indices are worked to be 'excessive'. When one compares grains has come down from a peak of
out uisingthe formula / [ E(xi/Exi )2] this ratio to the experience of other 10.34 million tonnes in 1966 to a mere
economies of comparable population 0.41 million tonnes in 1977. Th;s is
Where xi = Export of ith commodity size or diversity of resource endow- of importance as the bulk of the food-
or ment (US, USSR, China), it can be grains supplies cam!o from the major
Exports to ith market seen that in India this share is com- metropolitan powers. This change in
n parable. In fact, it has been argued the structure of imports can be con-
Exi = Total Exports of India that this share could be beneficially strued as major advance in self-reliance.
larger in the case of India by partici- But although the dependence on im-
TABLE 2: INDIA'S GROSS NATIONAL pating more aggressively in the world port of food has been considerably
PRODUCT AND FOREIGN TRADE
trade. In any case it can be argued reduced, one should be aware of the
that purely in terms of concentration new areas of dependence that have
Year Exports/ Imports/ Total in trade or in terms of trade structure emerged, particularly due to energy
Gnp Gnp Tyade/
Gnp Indian economy has gained considerable imports as well as imports of edible
Per Cent Per Cent Per Cent autonomy vis-a-vis metropolitan coun- oils. Energy being an universal inter-
tries. mediate, its source of supplies would
1953 5.08 5.84 10.91 Another important feature about the be of vital consideration to any econo-
1955 5.81 6.62 12.42 iy. In this sector the recent develop-
1960 5.22 8.27 trade relationship is the progressive
13.49 ments for India have not been very
1965 3.89 6.11 10.0 decline on dependence on rest of the
1970 4.09 4.74 8.83 world for imports of capital goods as encouraging. India's dependence on a
1971 5.11 6.53 11.64 a percentage of total capital formation. few countries for the sulpply of energy
1975 5.49 7.15 12.64 has increased. Equally, the importance
1976 6.48 6.39 For instance between, 1960-61 and
12.87 of these markets in termis of absorbing
1977 6.22 6.93 13.15 1973-74, although the fixed investment
in form of equipment increased from India's exports of goods and human
Rs 819 crores to Rs 1,984 crores, the capital has also considerably in-
TABLE 3 : NET IMPORTS OF
FOODGRAINS share of imported equipment went creased and this has injected a new
down sharply from 43 per cent to just 'asymmetry' for India in its relation-
Year 9 per cent.3 This shows that through ship with the other countries. It is
Net Imports
(Million tonnes) the policy of industrialisation with unfortunate that the extent and signifi-
special emphasis on heavy industries cance of this dependence for the long-
1966 10.34 India has created a production struc- term growth prospects of India is not
1967 8.66 yet well understood or analysed.
1968 5.69 ture by which the need for import of
1969 3.85 capital goods is reduced and thus en- Although in terms of diversification
1970 3.58 larged its autonomy in acceleration of of supplies of imports or exports
1971 2.03 the rate of capital accumulation. This markets, reduction in the imports of
1977 0.41
autonomy is of relevance in the 'tactical' capital goods, food imports, etc, suggest
Source: Government of India, Econo- sense but more so in the 'strategic' that Indian economy has become more
mic Survey 1978-79 sense. Historically capital goods indus- self-reliant. It can also be argued that
tries had provided the springboard for Indian economy has become more
put in stepping up the rate of capital the technological progress.4 By creating vulnerable to foreign supplies. VWe
accumulation. This aspect will be of this base India has created a potential have already noted the energy dimen-
considerable help in case the economy for sustained process of technological sion of this. Now India's import basket
has to adjust due to rapid changes in change and development. There is some sho,ws that more than two-thirds of
the external environment either in pro- evidenence, although not conclusive, imports are accounted by imports which
duct markets or in the regions. As we that it may also have helped in im- are for maintenance or for intermediate
have argued earlier this 'flexibility' in proving India's terms of trade, at least products.5 It is well known that de-
the economic activity is going to be upto 1973-74, the year of the first 'Oil- mand for such products is considerably
of decisive importance in the coming shock'. Admittedly, for better under- more inelastic than for the finished
decades. It is interesting to see (Table standing of this it is necessary to have goods. In other words, such an import
2) that although in overall terms, i e, indications aboumt movements in the structure could mean lesser manoeuvr-
ratio of total foreign trade to GNP, factoral terms of trade. Unfortunately ability either in terms of trade or of
India's dependence on the rest of the for the Indian economy such estimates adjustment process. Although it is not
world has shown remarkable constancy, are not available. Some of the preli- clear whether one should categorise
in terms of individual countries and minary industry-wise studies suggest such manoeuvrability to be of 'tactical'
especially metropolitan countries India that in terms of unit value of imports imlportance or of 'strategic' importance,

249
ECONOMIC AND POLITICAL WEEKLY Annual Ntumber February 1980

TABLE 4 TRADE IN EXTERNAL inany of the developing countries. In shows that between 1950 and 1976, the
ASSISTANCE fact, for the developing countries Raul grant component in total aid was only
Prebisch has identified this aspect to around 25 per cent. Hence if one takes
Period/Year Total Share Share I)e of an important source of depend- inlto account both these corrections -
Net of of erice that leads to the creation of false tied purchases and appropriate interest
Aid Total Net
(Rs cr) Net Aid needs and adversely affects the quality rates -it may turn out that even for
Aid in life and other related aspects of the the years of the Second, Third and
in NNP development.8 As far as India is con- Fourth Five-Year Plans, in real terms
Total Per cerned, observations based on casual India received hardly any amount of
Imports
Per Cent evidence suggest that in terms of life concessional aid. Hence, instead of con-
Cent styles Indian Metropolitan towns fare cessional aid if India had made com-
favourably compared to other metro- roercial borrowings it would have meant
Upto First
Plan 293.9 8.1 0.16
politan cities of the third world (ex- lesser political costs; and, more impor-
During Second cluding of course, those of socialist tantly, it is possible to argue that such
Plan 2,133.2 43.7 3.88 countries). However, it is perfectly a policy would have forced the policy
During Third possible that one should not rush to makers to pursue more rational econo-
Plan 3,988.4 64.1 4.23
1966-67 856.9 45.1 3.29
any optimistic conclusions as the mic policies in terms of exchange rate
1967-68 862.7 43.0 2.83 underlying proc,ess as of today may and resource allocation.
1968-69 527.6 27.6 1.68 not be very different even in India.
1969-70 443.8 28.1 1.28 One of the most disturbing develop-
1970-71 341.4 20.9 0.90 There is an additional point. The nients in Indian economy has been the
1971-72 354.8 19.4 0.86 success in diversification of exports may progressive increase in capital out-
1972-73 154.8 8.4 0.35 not have been an unmixed blessing. The
1973-74 403.5 13.7 0.72 put ratios across the various sectors of
1974-75 1,251.7 27.8 1.89 diversification of trade may have been the national economy (Table 6). There
1975-76 1,153.6 21.9 1.65 at the cost of the growth rate of India's are well known conceptual as well as
1976-77 844.2 16.6 1.12 foreign trade and this may have affec- measurement problems regarding com-
1977-78 467.4 7.8 0.56 ted adversely the growth rate of the putation of capital output ratios which
economy and capital formation. In other dictate a measure of caution when one
TABLE 5 GRANT ELEMENT IN
words, with greater concentration in makes international comparisons. How-
ASSISTANCE RECEIVED BY INDIA, terms of export products and markets ever, for the given country comparison
1950-76 Iindia could have expanded its exports over time do-es not have all these dif-
(Discounted at the Long-i erm Lending at much rapid growth. Tlis is especially ficulties. In a labour surplus economy
Rates in Various Countries) true for the 1960s. When the growth capital output ratios could perhaps be
Country Loan
could have been far more rapid and an acceptable indicator of the produc-
Percen-
Amount tage of India could have increased total bargain- tivitv. It is true that in a developing
(in Rs Grant ing power vis-a-vis its trading partners economy, due to the needs of social
Cr) Element or other economies and thus perhaps overhead capital, substitution of newer
in achieving greater manoeuvrability ill
Total forms of energies, etc, capital output
Assistance this external sector. As seen in Table ratio would tend to grow. However for
10, it is necessary to be aware of the Indian economy both in terms of cross-
US (Total) 4,931.56 32.5 process of increasing 'marginalisation'
West Germany
section comparison with other develop-
1,170.00 7.9 of the Indian economy vis-a-vis the
United Kingdom 1,352.00 25.9 ing countries and historical comparison
Japan 508.00 11.1 international economy. This is reflected with the developed countries, the capi-
Grand Total 8,142.19 28.9 in the declining share of India in world tal output ratios would indeed look too
IBRD 669.00 5.0 trade, world industrial production, in-
IDA excessive suggesting inefficient utilisa-
1,804.00 74.0 duistrial exports, etc, and this has im-
USSR 784.79 22.8 tion of resources. There could indeed
Total (East Euro- plications to India's bargaining power be various reasons for this phenomenon.
pean) 959.57 22.8 and thus for economic independence.7 Stop-go policies for the public invest-
Aa far as dependence on aid is con- ment projects may have also contributed
Source: M Sebastian; 'External As-
sistance to India: The Real cernied, barring the recent experience to the delays aind gestation lags. This
Aid Element in It in Brah- due to high oil prices, the dependence would result in higher capital output
manada and Others (Eds): has been progressively declined (Table ratios. It is sometimes argued that in-
"Indian Economic Develop- 4). In any case, the concern vis-a-v?s dustrialisation and trade policies them-
ment and Policy", Vikas, New
Delhi, 1978. concessional aid was perhaps excessive selves may have been responsible for
and counter-productive. Recent calcu- inefficient allocation of resources. Part
lations show that in real terms the cf the reason could also be dule to
its importance itself cannot be mini- concessional aid was not at all that 'disproportionality' in the production
nised. In passing one should note concessional if one takes into account structure. It is suggested that absence
anotlherimportant issue relating to im- the terms of purchases, e g, tied loans. of appropriate pricing of imported in-
port strucure which emanates from the Some estimates suggest that there puts either on current account or capi-
development policy - the imports of could have been 20-30 per cent erosion tal account may have been one of more
luxury products including consumer in the content of foreign aid. More important variables in explaining this.
durables. In recent years, the develop- iimportantly, if one takes into account An economy which is trying to increase
ing countries' consu-mption-styles have the prevailing long-term interest rates, its rate of growth would record im-
been showing the 'internationalisation especially in the era of expansion of port surpluses as this gives the pos-
process' and this has assumed a con- Euro-dollar market in the 1960s and sibility of increasing the rate of capi-
siderable importance in directing pro- 1970s, the grant element has not been tal accumulation. In this process ex-
duction and investment pattern for too significant. For instance, Table 5 ternal borrowing mlay inject dependence

251
ECONOMIC AND POLITICAL WEEKLY Annual Number February 1980

TABLE 6: SECTORAL INCREMENTALCAPITAL OUTPUT RATIOS IN FIVE YEAR PLANS (AT 1970-71 PRICES)

'Period Agricul- Primary Secondary Manufac- RegisteredUnregis- Elec, Gas, Tertiary All
ture turing tered etc
1951-52/1955-56 1.91 1.95 4.17 3.91 5.50 1.25 17.86 6.75 3.62
1956-57/1960-61 1.93 1.92 5.00 5.65 6.92 2.10 16.05 6.44 4.16
1961-62/1965-66 5.04 5.11 5.60 2.63 19.09 5.37 7.34
1961-62/1964-65 2.21 2.37 4.16 3.96 4.68 1.74 18.21 4.69 3.83
1966-67/1968-69 1.58 1.77 11.03 23.94 90.13 6.64 15.08 7.68 5.14
1969-70/1973-74 2.74 3.02 10.33 7.73 7.05 9.76 24.54 6.93 6.11
1974-75/1976-77 12.31 8.60 6.70 9.28 11.94 5.24 13.74 5.19 6.21

Source: National Accounts Statistics,CentralStatisticalOrganisation,1978.

biut, surely, it could be onl a tactical
or a short-term one because over time
it wouldl not only reduce the need for
suoh borrowing but also would be able
to get these resources on the terms and
con(litions which are far more favour-
al)le to the national economy. What is
being argued is that what mav look to
be 'dependence' for a stagnant economy
need not be so if the economy is dyna-
mic. This is of particular relevance to
portfolio type of borrowing from the
international capital markets. The crux
of the mnatterin such cases lies in the
produictivitv of the economy.
The various structural changes ir,
India's industrial economy andl theii
implications to the foreign trade link-
ages have already been noted. It is
wvell knowvn that the basis for these
achievements were provided in the
Second Five-Year Plan which started
the build-up of heavy industries and
the capital goods sector. It has been
argued bv mans scholars that the pro-
(ess of industrialisation need not be in-
compatible with the phenomenon ot
dependlence. In fact, it is argued that
within a certain framewzorkthese could
he muitually reinforcing, and that this
could be valid whether industrialisation
is 'inward'-oriented (import substitu-
tion) or 'outward'-oriented (export-led
growth strategy). In both the types of
induistrialisation, contemporary exam-
ples are available in the countries of
Asia, Africa or Latin America where
dependence on the metropolitan coun-
tries continues. A class alliance which
ensures this consists of local capital,
the State andl international capital -
a 'triple allianice' which is the basis for
maintaining dependent development in
these developing countries.8 The rela-
t ive role of transnationals in domestic
produiction and the teohnological capa-
bilities of the developing country seems
to be the desiderata in characterising
whether dlevelopment is 'dependent
developnment'or not. Hence, it is neces-
sary to look Itt the operations of tranis-
nationals or private foreign investment
in india.
There is little doubt that in absolute the manufacturing sector was only 12.;
terms the operations of private foreign per cent. As seen in Table 7, between
investment in India have been increas- 1964 and 1972 the total resouircesouit-
il)g. It is interesting that precisely th- flow due to private foreign investment
years in which the growth of heavv in India was Rs 524 crores, accounting
industries was leing sought were also to only 5 per cent of the total export
the years which saw remarkable growth earnings of that period. This percent-
ii the production activities of transna- age would be even smaller if one takes
tionals in India. The operation of trans- into accouint the ratio of these to grosb
nationals can adversely affect capital capital form;ation)in these vears. Table 8
accumnulationin ess6ntially two wavs: gives data for foreign subsidiarie s for
first bv draining of resources from 1975-76. This data shows that the shave
the developing countries in the form of of these transnationals in value added
dividend remittances, royaltv payments. in manufacture sector "as only arouind(i
payments of management services, an(l 1(0 per cent. Admittedlly. it (loe5s ilt
disguised remittances through transfer give a complete picture. But it shouild
pricing: and second, bv retarding the l)e noted that value addled in manufac-
process of technological transform-a- tuired sector wvould accouint for mor;
tion. than 85 per cent of the total value
added by private foreign investment in
It shouild be straightaway noted that India. Hence it is possible to sav that
on the operationis of the transnationals the share of tratnsnationalsin terms of
the data in India is rather inadequate. value added or their impact on drain-
For instance, the latest year for which ing Of resources shows that they do nOt
comprehensive data is available on th- have the character of donminanice.In
operations of foreign private investment the export sector. the estimates showv
relates to 1970 and it has been pub- that transniationals do not contributle
lished in the suirvey brought ouit by thfe even 5 per cent of Indlia's exports. It is
Reserve Banlk of India in 1974. Need- possible to arguie that to understantl
less to avyadditional evidence is avail- the implications of their production
alle from other souirces for the later activity, perhaps mere value added
years although this information is not may be an underestimate as it does not
complete and is not strictly compar- capturet its backward linkages which
able. For instance, an informative can be captured if one i1ses total sales.
monograph was brought out recently Equally, value addled mna also under-
bv the Economic and Scientific Researrvh estimate the impact on the economyv
Foundation of FICCI covering the to]) dlue to the variouis forwvardlinkages.
:300 companies and their experience re- But suil-chpossible under-estimationiof
aarding foreign collaboration includingT the role of private foreign investment
foreign equity capital.9 Similarly. some may be because of definitional problems.
studies have attempted to compuite the It is possible that transuationals can
contribution or costs of foreign private dominate the Indian enterprises, say
capital. These studies show that thle with even 25 per cent of equity (.40
contribution of the private foreign in- per cent being the dividing, line for the
vestnmentmav -well have been negativ: FERA). Even mere technological agret-
even in the limited sense of the availa- ments can be the source domination.
bilitv of investible resources.10 How- There are many examples where tech-
ever, these stuidies also show that in nological collaboration agreements which
terms of the macro aggregates. th,e contain various types of restrictive
transnationals# role in the Indian clauses including restrictions on exports.
economv does not show any evidence Althouigh the extent to wvhich this ad-
of domination. For instance, RBI data verselv affects India's exports of manni
show that in 1970 the share of private factuired products is not yet know%n,t
foreign investment in value added in [nax not be insignificant.

253
ECONOMIC AND POLITICAL WEEKLY Annual Number February 1980

TABLE 7: TRENDS IN REMITTANCES BY PRIVATE FOREIGN INVESTMENT the fact that the technological capabi-
(Rs crores) lities in India have been considerably
augmented.
1964-65 1966-67 1969-70 1970-71 1972-73 Total There is also increasing evidence
that in the field of agriculture there
Profits and 20. 3 22.6 44.1 56.5 54.6 315.8 has been considerable ikncrease in
Dividends
Royalties 2.2 3.44 5.8 5.23 7.33 40.8 India's potentiality of creating new
Technical Fees 2.6 4.66 13 20.6 11.3 80 technologies. One should, of course, be
Interest Payments 2.24 8.1 11.8 12.8 15.6 88.1 aware of some of the important qualifi-
cations. We have already noted that
Source: Vijay L Kelkar, 'Export led Growth and Private Foreign Investment in these are only quantitative indicators
Trade', Anvesak, Ahmedabad, December 1976.
and do not give any indication regard-
kng the quality of the stocks. Further,
TABLE 8 : SELECTED INDICATORS FOR logies would better indicate the we do not have industry-wise or sector-
FOREIGN SUBSIDIARIES, likely trend. However, even such a wise breakup of scientific output. As
1975-76
(Rs Million) measurement has one serious drawback far as evidence on productivity is con-
as these indicators only measure the cerned, so far, the impact of this on
Indicator Subsidi- Subsidi- inputs that go to this activity and does productivity of industrial sector or
aries aries not give any indication of the qualita- economy as a whole seems to be
and
Control- tive and quantitative impact it will negligible although in the agricultural
led have on the economy's production sector the picture seems to be different.
possibilities. In fact, this also suggests Further, a question can be raised whe-
Paid-up Capital 3,114.2 3,968 that even the number of inventions ther the stock of technologies which
Turn Over 25,195 33,900
(Manufacturing) (22,898) that are patented in a country may we have now are relevant in the con-
Value added 8,398 11,300 not be an entirely reliable indicator of text of recent energy crisis and the
Exports 1,204 1,712 the quality and quantity of useful problems related to exhaustible resour-
(Manufacturing) (854) technologies that are being generated ces. This issue is of particular
Dividends 110.3 123.8
Knowhow payments 19.5 21.8 in an economy. In spite of these relevance as some studies indicate that
Royalty 7.9 8.7 problems it is useful to look at the in India industrial production is more
Others 30.3 37 indicators in terms of inputs because, energy and materials intensive. In
after all, these inputs characterise the addition, some people have put forward
Souirce: S K Goyal, 'The Impact of extent to which the necessary condi- the presuasive hypothesis that the
Foreign Subsidiaries on India's
Balance of Payments, Indian tions for improving the technological technological distance between India
Ihstitute of Public Administra- capabilities are being fulfilled. and the advanced countries seems to
tion, New Delhi, 1979.
In purely quantitative terms, India's be increasing. In addition, there is
record is quite impressive in the increasing evidence of gross underuti-
In spite of these qualifications it is
creation of the stock of human capital lisation of scientific and technological
possible to say that the industrial sec- manpower and, in addition, of the
tor as a whole in India is not doniina- trained in the fields of science and growing loss of this important asset
ted by transnationals. Of course, one technology. Between 1950 and 1977 due to brain-drain. For instance,
can talk of a particular branch of iii- the stock of scientific and technical between 1950-70 Indian scientific per-
dustry or industrial product where manpower increased from 1.9 lakhs sonnel residing abroad increased from
they have monopolistic or oligopolistic to 23.2 lakhs - a spectacular growth 2,368 to 19,824 and there is no evi-
position in the Indian markets. It is rate by any standards. Similarly, the dence that this trend has been abat-
also true that ip terms of rate of national expanditure on scientific ed. In spite of these qualifications, it
gIowthk the transnationals are consi- research and development has been
is possible to argue that the consider-
derably more dvnamAc than Indian growing both in absolute and relative able amount of potential has been
corporate private sector. In othet terms. In 1948-49 this accounted for
created in Indian economy in the area
words, if present trends are continued only Rs 1 crore which increased to of science and technology and towards
their share could well increase to such Rs 450 crores in 1976-77 accounting
a capacity to successfully adjust or
a level where their operations could for 65 per cent of gross national pro- adapt to the external stocks.
have considerable significance. duct. Similarly, scientific manpower
As it has been argued earlier, it is employed in research and development All this evidence clearly suggests
the country's technological capability activity has shown impressive growth. that Indian development experience
that is of critical importance. How One of the useful indicators in this cannot be described to be of the na-
does one measure the technological regard would be the number of patent ture of 'dependent development' either
capabilities? One obvious measure is applications. Although the total num- in the classical sense or in the con-
the level of per capita or per worker ber of patents filed has been constant, temporary sense, at least as of today.
productivity. However, this may not the number of patents filed by Indian Of course, it is necessary to be aware
provide a directional change that citizens has almost trebled and the of the existence of trends which can
is occurring or that can poten- share of.. foreigners came down to al- make the development process to be
tially occur. Towards this the stock most 50 per cent by 1976-77 (Table otherwise. It is abundantly clear that
of human capital and physical 9). Unfortunately, industry-wise the major impulse for the creation of
capital, the rate of growth in these breakdown of this activity is not avail- self-reliant economy was provided by
stocks as well as its allocation towards able. Nevertheless it can be argued the investment strategy of the Second
creation of new knowledge and techno- that these indicators are suggestive of Five.Year Plan and consequient dyna-

255
ECONOMIC AND POLITICAL WEEKLY Annual Number February 1980

TABLE 9: NUMBER OF PATENT APPLICATIONS, 1968-77 added. In addition, the practice of

characterising foreign companies with
Year Indian Foreigners Foreigners Total less than 40 per cent foreign equity
Resident in Resident
India Abroad as Indian companies for the pur-
pose of the public policy would en-
1968 1,110 107 4,141 5,358 courage the operations of these com-
1969 1,120 168 4,158 5,446 panies. In some ways India may have
1970 1,116 162 3,864 5,142
1971 1,231 185 2,929 4,345 been successful in containing the
1972 1,180 142 2,373 3,695 operations of the transnationals so
1972-73 1,143 136 2,360 3,639 far by containing the process of
1973-74 976 174 2,341 3,491 'internationalisation of consumption'.
1974-75 1,148 66 2,192 3,406
1975-76 1,129 34 1,833 2,996 However, in no case it can be main-
1976-77 1,342 23 1,739 3,104 tained that the success is not rever-
sible.
Source: Research and Development Statistics, Department of Science and Tech-
nology, Government of India. It is possible that when seen from
the viewpoint of transnationals, in
TABLE 10: PERCENTAGE SHARE OF INDIA IN SELECTED ITEMS the earlier phase of India's develop-
ment all preconditions did not exist
Item World Third World for their expansion. It was perhaps
left to 'public' foreign capital to
1950 1975 1950 1975 create these preconditions and now
Population 14 15 22 21 these transnationals can take offensive.
Exports 2 1 6 3 For instance, as far as foreign trade
Imports 2 1 7 3 is concerned, the present neo-protec-
Gross Domestic Product 2 1 10 6
Agricultural Output 11 10 25 20 tionist practices of the developed
Industrial Output 1.2 O.8' 12 6 countries pose a serious threat. It is
Wheat 4 7 15 20 not accidental that the protectionist
Rice 20 20 23 22
Fertilisers
pressures are highest in relation to
Production 2 16 those products in which the bulk of
Consumption 3 14 production is held by the national
Energy enterprises in the developing countries.
Production 1 1 9 4
Consumption 1 2 20 9 It is also not accidental that in post
Electricity (generated) 1 1 14 12 war years maximum trade expansion
Steel 1 1 41 12 has taken place in the form of intra-
Cement 2 2 12 10 industry trade and a very large part
Machine Tools - 1 14
of it has been intra-firm sales or the
Sources and Notes: Population, Steel and Cement: United Nations, "Statistical Year- sales between related firms, that is,
book", 1953 and 1977; GDP and Exports and Imports: transnationals. There is no doubt that
UNCTAD, " Handbook ", 1977 and 1979; Agricultural Output in the recent past transnationals
and Industrial Output calculated from UNCTAD, "Towards the as
Technological Transformation of Developing Countries", TD/238. would be an important factor in decid-
India's figures derived from UNCTAD, " Handbook ", 1977; ing the trade policies of the developed
Wheat and Rice : "Production Yearbook", 1960 and 1977; data for ouL,ntriesvis-a-vis the developing coun-
1950 are average for 1948/49-1952/53; Machine Tools: National
Machine Tool Builders' Association (US). Data are for 1976 and tries including India."1
in value terms, 1978-79 EconomicHandbookof the Machine Tool It seems that these potential threats
Industry (McLean, Va, 1978); Energy: United Nations, "World can be met provided India maintains
Energy Supplies, 1950-74 and 1971-75" total energy data were in
physical units of coal equivalent; electricity generated in kwh. the thrust of industrialisation and
builds technological capabilities for
mism in the industrial sector. The short-run but even in the long-run adapting or creating technologies
other important driving force was in this trend could persist unless a break- which will enable increases in produc-
the development of the science and through occurs in the area of solar tivity, growth rate and the rate of
technology sector including the ex- and other forms of energy. Non- capital accumulation. There is no
pansion in the stock of human cApi- availability of energy and related tech- doubt that Jawaharlal Nehru and the
tal. However, the developments in nologies may well turn out to be a strategy of the Second Five-Year Plan
the last decade or so in both the major constraint in determining India's may have even greater relevance for
areas suggest that these efforts are development prospects. India in shaping its relationships with
slackening. Similarly, in many indus- In spite of the fact that at present the external world and in pursuing
tries, the industrial base which was the role of the transnationals in the an autonomous path of economic
created in the 1950s may now be re- Indian economy is not very large either development.
presenting an outdated technology in terms of production, technology or
and in these sectors Indian industry investible resources it would be a Notes
may well be relatively more back- serious mistake to underestimate the [This Paper was presented at a Semi-
ward. In addition, there are disturb- potential threat. We have already nar on 'Jawaharlal Nehru and Planned
ing trends regarding the entire energy noted that in the corporate sector it Development' held at New Delhi,
sector. Not ,only India's vulnerability is the most dynamic in terns of rate January 11-14, 1980. The views ex-
pressed are personal.]
has increased considerably in the of growth - sales, assets or value 1 D Santos, 'Economics of Depen-

257
 dence', American Economic Re-
view, May 1970.
2 For theoretical exposition in the I-,~~~~~~~~~~~~~~~1
setting of the Latin American ex-
perience of these concepts see P
Evans, "Dependent Development",
Princeton University, New Jersey, O,A

1979. It is important to note

that such a pattern of develop-
ment has certain features regard-
ing domestic economic policies
and the nature of the domestic
polity. In this paper we are fol- v F-I)
7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~!
eeW
lowing only the international eco- "'-4 ~ ~~~~~J
nomic relationships aspects.
3 "Studies on the Structure of
IndianwEoconmy and Planning for
Development", Planning Com-
mission, New Delhi, 1979, Table
15.
4 For historical perspective of in-
dustrialisation as well as the role
of capital goods industry see N
Rosenberg, "Perspectives on Tech-
nology", Cambridge University
Press, 1976.
5 Planning Commission, op cit.
6 Raul Prebisch made this point in
his statement in UNCTAD V in
Manila. see, UNCTAP Document,
TD(V)/CRP 7, Manila Philip-
pines, 1979.
7 Surendra J Patel: "Planned Deve-
lopment: The Choices Ahead",
paper presented at the Seminar on
Jawaharlal Nehru and Planned
Development, New Delhi, January
11-14, 1980.
8 P Evans, op cit.
9 V Sriram and others, "Top 300 .tribal india
Companies", Economic and Scien-
tific Research Foundation, New {/ lo~ins the
Delhi, 1979.
10 See Vijay L Kelkar 'Export Led
Growth and Private Foreign In-
miarcjh of pro rW,ssW
vestment in India: An Evalua-
tion", Anvesak, Journal of the Remote places in Mayurbhanj and
Sardar Patel Institute of Econo-
mic and Social Research, Decem- Bastar, the Tribal hinterlands of
ber 1976; . S.K Goyal:. "Tte Barajamda, Guva and Barbil are now
Impact of Foreign Subsidiaries on on the modern economic map of India.
India's Balance of Payments",
Indian Institute of Public Admi- Iron ore mines have opened up new
nistration, March 1979. vistas for thousands. Better clothing,
11 Analysis regarding the role of
Transnationals in Trade Policies: food, medicine, education. The fruits of
/fIOAUORAIG
see C Helleiner "Transnational progress brought in the wake of
{A 10ENMN

Enterprises and Neo Political zXRS

- ULIG employment.
_FR BAAURSA AG
Economy of USA Trade Policy"
Oxford Economic Papers. March ~~.tfNE DiHI1002
MMTC's export efforts lead to laying of
1977.
700 Kms of new Railway line. They
opened up lifelines of communication
NICCO between farflung places cut off from
NATIONAL INSULATED CABLE modern India for hundreds of years.
COMPANY OF INDIA (NICCO) has The railway lines carried ore traffic.
tied up with Furmanite International
of UK for the establishment of a ser-
They also developed a'wareness of the
vice company in India to be called
common bonds. Tribal regions are now
'Furmanite Nicco'. The service would marching ahead with the rest of India.
be to seal off leaks of steam, water,
boiler feed water, hydrogen, ammonia,
hydro-carbons, various gases and che-
micals without having to shut down
the plant. This high technology has
been developed over the last couple of
decades by the UK company and is
already operational in 16 countries.
The Furmanite process is very useful
for conserving energy and product
losses, as also preventing the unplan-
ned shutdown of various continuous
process plants.