1.

Details of Module and its Structure

Module Detail

Subject Name Political Science

Paper Name 02: Indian Politics: II

Module Name/Title Process of Globalization: Implications for Indian Politics

Pre-requisites

Objectives Major objective is to highlight the impact of globalization on

India’s national sovereignty. Since the inception of democracy in
India, the state has faced major challenges and has stood out
relatively successful in many areas if not in all. The challenges
faced by the Indian state were of varying kinds. It faced economic,
social, and political challenges.

Keywords Globalization, Indian Politics, Indian State.

 2. Development Teams

Role Name Affiliation

Principal Investigator Prof. Ashutosh Kumar Department of Political

Science, Panjab
University, Chandigarh
Paper Coordinator Prof. Rekha Saxena; University of Delhi;

Prof. Sanjay Lodha MLS, University,

Udaipur.

Content Writer/Author (CW) Dr Niraj Kumar Maharaja Agrasen

College, University of
Delhi)

Content Reviewer (CR) Prof. Rekha Saxena University of Delhi

Language Editor (LE) Prof. Rekha Saxena University of Delhi

Globalization and the Indian State

Globalization can be understood as all the capitalist economies of the world coming closer.
People say that the world has now become a “global village” (Marshal McLuhan). In the
period of globalization the world economy has become qualitatively more integrated; large
amounts of economic activities take no or very little account of national boundaries; and the
nation-state’s power is in decline or perhaps becoming defunct as a result of powerful global
economic forces. Modern technology has greatly contributed in globalizing the world.
Whether it is related to satellite or internet communications or rapid courier services or the
massive increase in aeroplane traffic, all of these have immensely contributed in integrating
the world. In other words these have shrunk the world. The “Washington consensus” which
talks of free market or neo-liberalism is another breakthrough in the process of globalization.
This is another ideology which has boosted the process of globalization. This ideology sees
globalization as the welcome historical ascendance of the laissez-faire model; states should
not try to encumber global capital movements; increasingly intense global trade will improve
efficiency and general levels of well-being, and so on. A key institutional source of these
ideas is the IMF-Wall Street-Treasury Complex (Gowan, P. 1999, The Global Gamble
(London: Verso).Because of this ideology of the free market it is being termed as the
“Washington consensus”. This whole process has affected our lives in many ways. People
argue that states are losing its autonomy or have very little autonomy. Therefore, India is also
not isolated or untouched by the effects of globalization.

The main focus of the paper is to highlight the impact of globalization on India’s national
sovereignty. Since the inception of democracy in India, the state has faced major challenges
and has stood out relatively successful in many areas if not in all. The challenges faced by the
Indian state were of varying kinds. It faced economic, social, and political challenges.

After getting independence on 15 August, 1947, there was a major challenge in front of the
leaders of freedom struggle to chalk out the strategy and to plan for smooth functioning of
Indian state. There were many ideological currents working for planning the future course of
action for India. “No other thinkers in modern nationalist tradition could match Gandhi and
Tagore in intellectual significance. Yet, paradoxically, the political imagination of
independent India – both of the elite and of subaltern groups- turned decisively in an opposite
direction. Their ideas were accorded a hollow reverence, which actual political reasoning fell
deeper into an abiding enchantment by the state. Gandhi brought independence to India, but it
was Nehru – an entirely unrepentant modernist – who obtained the historical opportunity to
decide what to do with that independence, and how the powers of the newly acquired
sovereignty should be used (Sudipta Kaviraj; 2010, “The Trajectories of the Indian State”,
New Delhi: Permanent Black, P-67).

There has been a considerable debate about the nature of post-independent Indian state. But
despite these differences the idea of development has been the guiding principle of state
policy. At different phases of Indian political economy the policy paradigms have differed,
per se, from “Indian Socialist” to Indian Business liberalism”. From 1950’s to 1991 the
period is characterized as one of planned economic development initiated by the first Prime
Minister Jawaharlal Nehru. The strategy of what it called “socialistic pattern of society” by
means of centralized democratic planning. Nehru’s strategy was to give prominence to public
sector in the process of industrialization without negating the role of private sector. In other
words, Nehru’s strategy was mixed economy. But later under the global pressure after 1990’s
there was a shift in government’s economic policy. From 1991 onwards the period was
characterized by Liberalization, Privatization and Globalization (LPG). Notwithstanding with
these variations, Indian political elite regarded “development” as their overriding goal. The
idea of this development primarily focused on industrial and agricultural development along
with the growth of other incidental sectors. It will be discussed later. Now I will discuss the
impact of globalization on national sovereignty.

Impact of Globalization on National sovereignty

Scholars have argued in two different directions. First batch of scholars have argued that in
the era of globalization because of the mounting pressure from international financial
institutions and international market, India has liberalized its economy. In this process the
sovereignty of the state is eroding. Second batch of scholars have argued that in the phase of
globalization the state has become stronger. In my opinion it is in between the two positions.
It is neither losing its sovereignty completely nor has it become too strong.

To understand the position we can divide the Indian development strategy into three phases:
(a) the phase of Indian Statist Policy Regime; (b) the Phase of Indian Authoritarian Tinge in
the late 1970’s; and (c) the Phase of Neo-Liberal Economic Reforms. I will discuss these
phases.

(a) The Phase of Indian Statist Policy Regime:

In an attempt to fulfil the aspirations of the Indian state to industrialize and develop faster,
initially the greater emphasis was laid on the public sector. When Mahalnobis was given the
charge of preparing the model of planning he was in favour of a single sector model, but later
in 1953 he developed a model with two sectors, “differentiating the two sectors on the basis
of whether they produced investment goods or consumer goods, along with making the
explicit assumption of a closed economy. His distinction between the two sectors paralleled,
though it did not completely follow, Marx’s division between Development I and
Development II” ( Baldev Raj Nayar; 1997: P-16).

When the Nehru-Mahalnobish model initiated the five–year plans, planning and state
intervention were dominant themes on the economic and political scene. “The two sector
model of a developing economy which features in the work of Lewis and Rastow is mirrored
in India by the Nehru-Mahalnobish strategy for industrial growth or the time of the second or
third five-year plans” (Stuart Corbridge and John Harris (eds); 2000, P-26). The first three
five-year plans (covering the period 1951-66) should be treated separately from the
subsequent ones. There is continuity in the formulation and implementation of first three
plans due to Nehru’s personal commitment. Due to the overwhelming support commanded by
the Congress party, India also enjoyed political stability at the centre. It was because of the
leaders of the Indian National Congress, who also fought for independence.People had the
natural regard for those leaders who were freedom fighters like Nehru, Patel, Pant, Azad,
Rajendra Prasad and others.

The first five-year plan (1956) had a long range perspective of doubling the per capita income
in 27 years. The short term goals were rather modest because there were other problems
which had to be urgently attended to for instance, those arising out of the war and partition.
The estimated national income in 1950-51 (at 1952-53 prices) was rupees 9110 crores. The
target was to raise it to Rs 10,000 crores by 1955-56. This implied not more than annual
growth rate of 2-3 per cent and it was achieved. Another target was to raise the rate of
investment in the economy. It was estimated to be 4.9 per cent at the end of the plan year.
This too was achieved. Significantly, all these were achieved without a price rise; in fact,
there was a small decline in prices. Thus the five year plan prepared the ground for more
ambitious planning in future (Dandekar; 1994: P-7).

The second five year plan was perhaps more significant because the basic objective was to
establish ‘’a socialistic pattern of society’’. Essentially, this means that the basic criterion for
determining the lines of advance must not be private profit but social gains, and the pattern of
development and the structure of socio-economic relations should be so planned that they
result not only in appreciable increase in national income and employment but also in greater
equality of income and wealth. The benefit of economic development must accrue more and
more to the relatively less privileged classes of society. It is not surprising that given these
objectives, the planners felt that the market as resource allocation mechanism could not be
relied upon, and felt that, the state had to take on heavy responsibilities as the principal
agency for acting on the behalf of the community as a whole. The public sector had to expand
rapidly. It had not only to initiate development, which the private sector was unwilling or
unable to overtake, it had to play a dominant role in shaping the entire pattern of investments
in the economy. Whether it made the investments directly or whether these were made by the
private sector. This version of the statist economy provided the foundation for economic
policies justifying state intervention in the economic life of the Indian citizens. The
intervention included state ownership and monopoly in parts of both the real and monetary
sectors add a complex system of controls and licenses regulating activities in the private
sector (Majumdar; 1997: P-28).

The first (1951-56) and the second (1956-61) five year plans aimed at a growth rate of 5 per
cent per annum, but did not achieve the target and it was around an average of 3.5 per cent.
Although it was below the target, it was too low. Keeping in view the two wars (years of wars
were 1962 and 1965) which India fought in this period, the growth was well accepted, and it
was very impressive.

But in this era India did really had a command economy. The nature of planning was adapted
to India’s centralized parliamentary federal democratic state. It can be considered a pre-
globalization phase. The national sovereignty of the state was intact. There was no
compromise made on this front.

(b) The Phase of Indian Authoritarian Tinge in the late 1970’s: Making Statism
Fight Absolute Poverty

There was a break in the planning process during 1966-69, which was a period of “Plan
Holiday”. The regular planning was substituted by three somewhat ad-hoc annual plans
(1966-69), Planning was then resumed with even more ambitious targets in the Fourth
Five-Year Plan in 1969 covering the period 1969-74. The discontinuity of Five-Year
Plans was due to the external shocks (rise of international oil prices, the strain caused by
the birth of Bangladesh and bad harvests that set the stage for major crises in 1973-75).
Meanwhile there was a significant change in the political scene and a decline in the sense
of optimism with which the first two Five-Year Plans had been greeted. The Fifth Five-
Year Plan was not completed because of the change of the party in power in 1977. The
average rate growth in GDP for the period of 1966-77 was 3.5 per cent.

India’s developmental performance during the first phase of Indira Gandhi’s reign was
adversely affected by at least two features of the polities of this period. These were (a) the
increasing electoral pressures emanating from the political arrival of the peasantry,
particularly the middle-castes of peasant cultivators, as a result of the “ruralizing
elections” that crossed a critical threshold by the fourth general elections in 1967; and (b)
the gathering momentum of a massive mass movement organized, first in Gujarat by
Morarji Desai and later in Bihar, with wider geographical spread across the major
Northern and Western states started by student and non- Congress opposition, that drafted
the socialist-turned-Gandhian, Jayaprakash Narayan, from virtual political retirement to
offer overarching leadership to these movements. They were subsequently joined by some
trade unions and the Hindu and Sikh right wing forces. Prime Minister Indira Gandhi
managed to checkmate and appropriate the newly emergent peasantry through populist
electoral mobilization by the Congress Party, remodelled in her own image, but the
containment of the pressures from mass movements and a sizable section of unionized
Indian Railways men, who staged a nationwide strike in 1974, proved to be a more
difficult proposition. The new strategy of electoral mobilization was attempted by Indira
Gandhi by assuming a more progressive, pro-poor, ideological posture by splitting her
own party in 1969 and forcing the Right Wing old guard syndicate faction out. They
formed a separate party called the Congress ‘o’ (Organization) that emerged as the first
officially recognized opposition party in the LokSabha by the virtue of its size. In a swift
move Mrs Indira Gandhi nationalized fourteen major private commercial banks,
abolished the privy purses of former princelyrulers and proceeded to have a snap mid-
term poll in 1971 on the catchy slogan of “GaribeeHatao”, which she won hands down.
But this spectacular electoral success was not without concomitant costs. Her adventure
was to make a direct personal appeal to the masses, bypassing the intermediate structures
of the Congress Party and federal autonomy of the state governments. Populist politics, if
somewhat undemocratic, was progressive in a way but overturned the rationalist
calculations of economic planning. Scarce resources were diverted on partisan and
personal preferences to electorally profitable but economically unproductive expenditures
and channels. That was the beginning of the division of huge amounts of revenue to
subsidies and loans on economically irrational and unfeasible banking securities
considerations.

The populist measures helped the Congress Party win massive majorities in the
Parliament and the state legislatures in 1971-72. But these successes were soon overtaken
by protest movements of almost nationwide nature and the worst trade union strike by
railwaymen fuelled by the revolution of rising expectations of the masses and classes that
overloaded the limited capabilities of the state to meet them. Beginning the 1973-74,
these agitations virtually put the government under siege that finally led to the imposition
of internal national emergency by the Indira Gandhi Government in 1975. The wages of
this contested over-centralization of power in a Prime Ministerial regime, obliterating, for
all political purposes, the federal features of the political system, were enormous. The net
upshot of all these intra-elite controversies and mass political conflicts was a serious
detrimental effect on the developmental as well as democratic dimension of the Indian
state.

The Post-Emergency 1977 elections ushered in a new phase in Indian politics. This phase
started with the first non-Congress government in New Delhi formed by the Janata Party
which restored the democratic features of the constitution by enacting the 44th
Constitutional Amendment, dismantling the authoritarian features earlier introduced by
the 42nd Amendment passed by the Emergency regime. It also made a shift to larger plan
investment in the rural sector. It’s premature fall in 1979 resulted in the restoration of the
Congress Party to power in 1980, led in this decade first, by Indira Gandhi(1980-84), and
subsequently by Rajiv Gandhi(1984-89), which in turn was followed by the Janata Party
led National Front Government(1989-91), the Congress-Minority Government led by P.
V. NarasimhaRao (1991-97), Janata Party led National Front Government(1996-98),
BharatiyaJanata Party (BJP) led National Democratic Alliance (NDA) Government(1998-
99 and 1999-2004), and Congress Led United Progressive Alliance (UPA)(2004-2009
and 2009-to date).

I am clubbing these period together because all these governments either initiated or
accelerated neo-liberal economic reforms and pursued these policies with varying pace,
despite their divergent positions and policies on cultural issues, e. g., secularism vs.
“cultural nationalism”, which is a euphemism for Hindu Communalism.

When we analyse the economic indicators of these periods, we find a consistent growth of
an average of 5 per cent despite the changes in the political scenario and a brief period of
the emergency. Agriculture did not do well but industry and services were growing much
faster in the post-liberalization period.

(c) The Phase of Neo-Liberal Economic Reforms

However, this rosy picture of supposedly sustained economic development since the
1980’s when “reform by stealth” began; especially since the 1990’s when a more
comprehensive package of reforms was more openly heralded appears to be either a
miracle or statistical jugglery. I say this for two reasons. First, the Nehru era in particular
was period of relative social as well as of political stability, notwithstanding political
upheavals of the Partition in 1947. Second, the idealistic nationalist flavour of the
freedom struggle, even though gradually wavering, had survived through the 1950s to the
1970s. Given these factors it is rather surprising that the rate economic growth during this
period did not exceed 5 per cent. Compared to these decades, the growth rate from the
1980s to 1990s at least in GDP terms, have consistently ranged between 5.5 and 5.6 per
cent peaking at 6.7 per cent between 1992-93 and 1996-97. This reasonably high rate of
growth has been reported in a period in which India been unstable, both in the sense of
governmental instability and social instability. It is hardly necessary to recount the quick
turnover of minority and/or coalition governments at the centre since 1989.

The period between 1990-91 was characterized as very crucial one. The climatic crises
resulted from a near bankruptcy in early 1991 and one can identify some forces beyond
the control of Indian planners that triggered it. The 80s witnessed the turning point in
many of the socialist economies with a strong link to India. The Congress Party under
Rajiv Gandhi had lost in momentum and the political system at the centre faced serious
tension due to lack of leadership. The economic and political situation was very grim. The
inflation was 12 per cent a year and rising. The current account deficit was about $ 10
billion. All the economic indicators were showing warning signals. Against this
background in 1991, the Minority Congress Government of P. V. NarasimhaRao took
charge. Dr.Manmohan Singh a distinguished economist was made the Finance Minister.
He started an era of neo-liberal economic reforms, marked by radical departure from the
past policies (Majumdar; 1997: p. 30). “The new government immediately sought standby
loan from the International Monetary Fund (IMF) and devalued the rupee. These actions
were followed by Dr.Manmohan Singh’s first budget, which laid out what was, in the
Indian context, a radical strategy for stabilizing the economy and reducing the budget
deficit, and by policies which promised structural adjustment “(Stuart Corbridge and John
Harris; 2000: p. 121). This was a turning point in Indian economic history. The process of
economic liberalization started. The market forces were given relatively free hand in
steering some vital sectors of the economy of the country and this vital change in the
scenario created an opening for a major reorientation in the strategy of economic
development. It significantly started the process of gradual transformation of the Indian
state from its role as a bureaucratic state to a regulatory state. While the state sector was
not entirely dismantled, there was a comprehensive policy to accelerate the process of
bureaucratic deregulation, privatization and globalization. In this shift in the policy
paradigm there appeared new possibility of a renegotiated partnership between a states
playing a reduced regulatory role as a facilitator of economic development in partnership
with the market. In service delivery and socio-economic change the voluntary sector or
non-governmental organizations in the civil society, were also invited to play an
important role.

The new Industrial Policy statement was launched by the state in July 1991, which
brought about a radical change in the overall economic/industrial policy framework.
Attempts were made earlier also to liberalize the economy, but by this new Industrial
Policy a radical change was brought in this direction. It included the abolition of the
industrial licencing system, liberalization in rules of foreign investment, technological
collaboration, removal of the restrictions on large private companies, etc.

On this radical shift in the Indian economic development, which came in the form of
economic liberalization, there are two groups of analysts. One group is impressed by the
better performance in the growth rate and some other economic indicators, in comparison
to those of the past, on the bases of some summary indicators, while the other group takes
a more critical view and argues that the improvement is more apparent than real.

In fact it may be pointed out that some have even argued that the high rate of growth in
the 1990s cannot be attributed to the neo-liberal reforms of 19991. For, the Indian
economy had already shown a high rate of growth in the 1980s, the decade before 1991.
This point, however, is clarified by pointing out that the economic improvement of the
pre-reform decade was really due to the policy of the Rajiv Gandhi Government and its
financial profligacy and jugglery, and foreign borrowings- which can hardly be credited
as real indicators of economic health (K. N. Kabra; 2003: p. 12).

The argument of the first group of analysts can be summarized by an observation of

VibhaPingle (2000; p. 27); “the Indian economy has, nevertheless, clearly stabilized and
gone through a structural adjustment since 1991. The balance-of-payments position has
improved. From a situation where India’s foreign currency reserves were $31.3 billion.
Inflation which had reached record levels of 16 per cent in 1991, it was at 7.7 per cent in
May 1999. Exports have grown at an average annual rate of around 13 per cent since
1992 to 1993. The economic growth rate since then has been around 6 per cent a year and
the industrial growth rate has been around 7 per cent a year”.
 In the pre-liberalization period, especially in the 1980s the growth rate was very
impressive, but it did not cross the 7 per cent mark.

The other group argues differently from the first. They have sharply contradicted the
claims of the advocates of the neo-liberal view. They argue that it has been more than two
decade since the structural reforms for economic liberalization were initiated in the Indian
economy. The reforms made in this period have produced unprecedented economic
growth. Before the reforms in 1991, the rate of economic reforms remained constant at
around 3 to 4 per cent in the 1980s (where the growth rate was much higher). By the mid-
1990s, GDP growth exceeded 7.5 per cent annually, agricultural growth also remained
high; and social indicators like literacy, infant mortality, and longevity also improved
(Ray; 2002: pp. 323-24).

Even though the high rate of growth, distributed unequally, had led to an increase in the
number of poor people and also to the widening of the regional disparity. Ironically, even
after liberalization and higher percentage of growth rate, there was hardly any reduction
in poverty between 1991and 1997. Compared to this period, poverty was declining in the
pre-liberalization period.

By the 2000s and beyond, the post-reform scenario shows that the service sector of the Indian
economy has grown faster than the industrial and agricultural sectors. The basic growth data
pertaining to 1980-2008 show the GDP growth rate averaging at 6.2. Service sector at 7.5 is
ahead of the two basic sectors—Industrial sector at 6.7 and Agricultural sector at 3.5. In
terms of the overall sectoral composition of the economy today, the contribution of the
service sector in GDP exceeds 50 per cent, the remainder being shared by the other two
sectors at more or less 25 per cent each. One of the major failures of the economic reforms
has been that this lopsided growth has not been made more balanced in the three respective
sectors. Another major problem has been the failure of the growth to create more
employment. A major complaint of the advocates of the reform has been the absence of any
effort to bring about labour law reforms, which said to be hampering productivity and
growth. However, this seems to be only the half story as informal measures like not filling the
vacancies through regular employment and recourse to contract and casual jobs have
transformed the workforce considerably. In addition, without any formal amendment in
labour laws, the trade union movement has also been considerably weakened through
executive and judicial actions. Moreover, reforms so far have succeeded in bringing about a
good deal of bureaucratic-deregulation than expanding international trade or bringing in
expected foreign direct investment (FDI). Further, economic reforms have favoured the big
corporate sectors much more significantly than the medium and small industries.

We can see from above discussion that Indian had to sacrifice on many counts. The impact of
globalization can be seen on its economy. In 1990’s India was compelled to liberalize its
economy under pressure of IMF (International Monetary Fund), WB (World Bank), and
WTO (World Trade Organization). India had to sacrifice its sovereignty because of economic
compulsions. It introduced Neo-liberal Economic Reforms. Now I will analyse the impact of
globalization on Indian state from Liberal and Marxist perspectives.

Liberal Interpretation of the Impact of Globalization on the Indian State

Academic interpretation of the Indian state in the pre-globalization phase, both in its liberal
and Marxist versions, clearly maintained that the Indian state was autonomous from its class
base. Liberals like Rajni Kothari and Lloyd and Susanne Rudolph believed that the state
stood above the societal conflicts playing the role of an independent mediator or arbiter of
conflicting interests or pressure groups. The liberals particularly highlight the framework of
constitutionally guaranteed fundamentals rights to individuals and groups in the society and
the promissory directive principles of state policy in the constitution towards providing
common framework of citizenship and social securities to the unemployed, women, children
and the older people as well as the needy and poorer sections of the society. They also draw
attention to the regularity of free and fair elections within a competitive party system, even
though initially the Indian National Congress remained a predominant party both at the state
level until the late 1970s. Moreover, liberals also emphasize the independence of the
judiciary and the existence of the free press.

However, in the liberal interpretation of the Indian state, one finds a lament for the growing
crisis of democratic governance generated by the tendency of authoritarian response from the
top to the democratic challenge from the bottom, especially during the 1970s. This decade
witnessed the rise of Prime Minister Indira Gandhi to the height of her political power in the
government and the Congress party. This trend was symptomized by the extra parliamentary
mass movement led by Jayaprakash Narayan against growing corruption and authoritarianism
in the Congress government. The government imposed internal emergency to suppress it.
Kothari, who was the major theoretician of what he called “the Congress System”, had earlier
maintained that it had worked in a highly democratic way under Nehru and his immediate
successors until 1971. The emergency to him was the end of democratic era and a lapse into
authoritarianism. He attributed it to the crisis of political institutions and the decline of the
moderate state in the country (Rajni Kothari;1988, “Decline of the Moderate State”, in his
State Against Democracy: In Search of Humane Governance, Delhi, Ajanta Publications, Ch-
2).

The Rudophs also noted a trend of political deinstitutionalization in India in the post-Nehru
era. To quote them, “Deinstitutionalization accompanied Prime Minister Indira Gandhi’s
attempts, between 1969 and 1984, to centralize power in her own hands” (1987; P- 7). They
also observed that the Indian state which operated with considerable autonomy from its social
base until now, tended to its come under increasing societal pressure constraining its
autonomous functioning (Lloyd and Susanne Rodolph; 1987,In Pursuit of Lakshmi: The
Political Economy of Indian State, New Delhi: Orient Longman, “Introduction”and “Chapter-
1”).

The neo-Marxist interpretations of the Indian state by PranabBardhan, AnupamSen and

AchinVanayak also broadly agreed that neither the class of capitalists nor the class of
workers, the two major classes of fundamental importance in an industrial or industrializing
society, had emerged in India to be so powerful as to dominate the state.PranabBardhan
argued that given the tradition of strong state in Mughal and British India, the civil society
was relatively weak in relation to the over developed state in feudal and colonial period. Thus
the state in independent India began its life as relatively autonomous actor. He also noted that
in the decades between the 1950s and 1970s the Indian state acquired direct ownership and
control of the industrial economy to an unprecedented extent in history. This was the result of
the state directed strategy of planned economic development under Prime Minister Nehru and
his immediate successors. Bardhan theorized the existence of three “dominant proprietary
classes” in the Indian political economy: Industrial bourgeoisie, rich farmers and the
professionals in civilian and military bureaucracy beside the political class. A class coalition
of these three proprietary groups manage the Indian state, neither of which exclusively
controlled the state due to the prevailing plurality and heterogeneity of interests represented
by the. This he finds to be different from the division of bourgeoisie in industrially advanced
country into different bu largely complimentary fractions like industrial capital, finance
capital, and mercantile capital. To quote him, “In the most parts of the country agrarian
capitalist is sprouting, and in the better irrigated regions it may even be described as thriving”
(PranabBardhan;1984,Political Economy of Development in India, New Delhi: Oxford
University Press, P-48). Yet deep caste, political, economic, and regional divisions within
this class “make consistence class action virtually impossible even in a localized area” (Ibid;
P-49). In the Indian context Bardhan finds the third major proprietary class-the professional-
different from the standard Marxist history of the industrial west. This is for two reasons.
First, classes are typically defined in terms of ownership of physical capital, which is lacking
in this case. Second, Bardhan fails to satisfactorily demarcate the white collar workers in
public bureaucracy and the political leadership representing the state, whom he refers to as
the “state elite”. He tries to get over the first difficulty by attributing to the professionals the
“human capital in the form of education, skills, and technical expertise” (Ibid; P-51). The
second difficulty mentioned above is left unresolved by conflating the conceptual distinction
between class and elite. Bardhan’s analysis is replete with the description of conflict of
interests among the three dominant proprietary classes. This conflict is shown by adverse
terms of trade between industry and agriculture over land reforms, control of industrial
monopolies and restricted trade practices, share in subsidies for competing interests and
clients aligned with various proprietary classes and ministerial and bureaucratic control of
public and private sectors of industries and rent-seeking for their power and brokerage by
these state functionaries, etc. to Bardhan, these conflicts adversely affected rational and
efficient surplus capital accumulation and public management. However, the dominant
proprietary classes found it extremely difficult to take collective action on account of the
large and heterogeneous class-coalitions they were constrained to operate.

The result was the fiscal crisis and overload on the state that culminated into the neo-liberal
economic reforms in piecemeal ways since the mid-1980s and acceleration of the process of
the shift to a new economic policy regime especially in 1991 to tide over the balance of
payment crisis. In the Epilogue added to the 1988 edition of Bardhan’sPolitical Economy of
Development first published in 1984 it is noted that the most vocal opposition to reform came
from the Indian Business Houses and the organized labour. He also notes that the reaction of
the farmers and blue collar workers was rather muted due to their highly fragmented nature.

What has been the impact of globalization on the Indian state? Social Scientist and Political
Economists in India have generally argued that globalization has adversely impacted the
autonomy and independence of the sovereign nation-state. This trend of analysis is more or
less common across the ideological divisions broadly reflected in liberal as well as Marxist
analysis. The difference, if any, is only in terms of degree. Liberals for example, present a
less alarmist view than the Marxists. To sample the major ideological persuasions, we discuss
here the analysis of Baldev Raj Nayar from the former perspective and PrabhatPatnaik and C.
Chandrasekhar from the latter.

Nayar begins with moderating the interpretation of those who argue that neo-liberal economic
reforms prompted and pressurized by the multilateral institutions of global capitalism like the
IMF(International monetary Fund), World Bank( WB), and World Trade Organization(WTO)
have reduced the economic and political sovereignty of the Indian state, that was arguably
prevailing since the hey days of Nehru. He has argued, in the first place, that the state-
directed strategy of heavy- industrialization was planned beyond India’s economic resources,
which resulted in foreign exchange crisis right in the first half of the 1960’s. The crisis was
eased by the foreign aid, which in fact was paradoxically an index of India’s dependence on
foreign assistance for executing its policy of economic independence. Two other factors
contributed to these economic vulnerabilities, namely, the failure of the public sector
industries and agricultural sectors to yield the surplus necessary for continued
industrialization. The resultant fiscal and food deficits, aggravated by wars with China in
1962 and with Pakistan in 1965 and Droughts in 1955-56 and 1966-67, made the country
critically dependent on foreign aid and food supplies from the west, mainly the USA. Nayar
argued the even in 1991 the real cause of economic reforms was India’s own worst financial
crisis. If the multilateral global capitalist institutions pressed for their prescribed policies,
“they were pressing against an already open door” (Baldev Raj Nayar; 2007,Globalization
and Politics in India, New Delhi: Oxford University Press,P-377). If anything, post reform
Indian economy became more diversified, foreign direct investment considerably expanded
and it became relatively more capable of dealing with the economic crisis. In Nayar’s
assessment, “the period of globalization has been marked by the augmentation of national
autonomy, rather than an erosion of it, because of the opening of the Indian economy [which]
improved India’s capabilities” (Ibid; P-381). Nayar does, however, concede that the assumed
effect of globalization may lie ahead when the Indian economy opens up further beyond a
point. But he also adds that the adaptive capabilities of India’s relatively mature economy
need not be underestimated nor be the fact forgotten in case of economies of India and China,
size itself is a factor of autonomy and manoeuvrability.
 Marxist Interpretation of the Impact of Globalization on the Indian State: Prabhat
Patnaik and C.P. Chandrasekhar

While the liberal interpretation of this phenomenon largely focuses on the deepening crisis of
the Indian democracy in terms of political deinstitutionalization and the growing fiscal
overload on the national state, Marxist political economists like PrabhatPatnaik and C.P.
Chandrasekhar draw attention to both the factors of global capitalism and Indian national
economy and the national state actors. As to the role of the Bretton woods institutions of the
IMF and World Bank, Patnaik and Chandrasekhar argue that traditionally there was
significant difference of approach between the two which subsequently narrowed over time
with significant consequences for the contemporary political economy. The World Bank has
always been opposed to any attempts on the part of the Third World countries to break away
from the pattern of international division of labour inherited from the days of colonialism and
semi-colonialism. However, the IMF was not so much bothered by the considerations of
blocking attempts of national economies for remodelling or restructuring the international
division of labour between the developed industrial and developing industrializing
economies. It was mainly concerned with fiscal stabilization (e.g. controlling fiscal deficit,
inflation, etc.). Following the two major oil shocks of the late 1960s and the early 1970s, the
two major Britton Woods institutions moved closer to each other in terms of their outlooks.
This change was promoted by a significant extent by the vastly enhanced role of globalized
finance. This has brought about, among others, the breaking down of what Lenis would have
called ‘inter-imperialist rivalry’ vis-à-vis the Third World. The advanced capitalist countries,
as result, present a remarkably common front and give a more or less unanimous support to
the structural adjustment measures being imposed by the Britton Woods institutions
frustrating any attempt by Third World economies in favour of dirigiste, i.e. state-directed
economic development. Now, there is all-out support for market against the state all over the
world.

In addition to the above changes in the global capitalist economy, Patnaik and Chandrasekhar
also draw attention to the contradictions in the dirigiste regime in India, which was bound to
affect the domestic economy. These contradictions have contributed to the sucking of
domestic wealth holders into the vortex of global capitalist economy and the undermining of
the viability of the dirigiste alternative. For state intervention to succeed, it is essential to,
have some ‘control area’ within the domain of the state over which it can ensure some
conformity of correspondence between the intentions and outcomes of public policy. With
the growing trend of financial globalization mentioned above, finance can now flow in and
out of the national economy in response to pressures emanating from abroad. As a result, to
quote Patnaik and Chandrasekhar (Baldev Raj Nayar; 2007,”India: Dirigisme, Structural
Adjustment, and the Radical Alternative” in Globalization and Politics in India, New Delhi:
Oxford University Press,P- 225), “it is not surprising that virtually all forms of
interventionism, not only traditional socialism, but even Keynsianism, welfarism,
conventional social democracy, Third World nationalism, and it’s necessary accompaniment,
the dirigistedevelopmental model, have all run into rough weather in recent years”.

As to the Indian model, there developed serious internal contradictions that led to the erosion
of its social stability and its economic viability.

Patnaik and Chandrasekhar refer to three interrelated and mutually reinforcing contradictions
in this context. The first was the growing fiscal crisis generated by the non-payment of taxes
to which the state generally turned a blind eye, the variety of subsidies and fiscal transfers by
the state, and the lucrative state contracts by which private fortunes were built up at the
expense of the state exchequer. This was disastrous for the Indian national state economy in
which the state exchequer remained the preeminent mechanism for primary capital
accumulation.

The second contradiction was the inability of the state to impose some ‘discipline’ and
‘respect for law’ among the capitalists, which is essential for the operation of any capitalist
economy within the democratic framework.

The third contradiction related to the cultural ambience related to an ex-colonial society and a
late industrializing economy like India’s. The market for industrial goods was very limited in
such a setting. Metropolitan global capitalist centres on the other hand are characterized by a
larger demand for industrial goods and continuous product innovation. The demand for
industrial good that subsequently grew in the Indian society was not satisfied by the
commodities produced by the Indian industries that lacked quality and innovation. They were
drawn to the commodities being produced and consumed by the foreign metropolitan centres.
This led to the growing demand in India for the lifting of import controls and failing this, for
‘black market’ purchases. All this led to the dismantling of the dirigiste in India and to the
import liberalization of the 1980s and the policy package of globalization in 1991. In this
denouement, the affluent Indians, private capital, bureaucrats moving between New Delhi
and the World Bank, and the political class in league with the crony capitalist class had their
vested interests and roles.

Do we have any alternative? In contrast to most analysts who seem to think we have none,
Patnaik and Chndrasekhar offer an alternative policy paradigm, not in imitation of the neo-
mercantilist strategy espoused by East Asian economies prior to their financial liberalization.
(South-East Asian economies were ‘liberal’, including in the sphere of finance all along.)
That strategy of the developmental state would not work in India, because India is a
democratic developmental state, in contrast to the generally authoritarian developmental
states of East Asia. To quote Patnaik and Chandrasekhar, “specifically, for economies like
India, this means that the volatility of financial flows has to be kept under check through a
combination: (1) direct regulations; (2) an overall sound balance of payments (in relative
terms, which is not synonymous with neo-mercantilism); and above all, (3) a development
strategy that ensures economic with social stability [and hence with equity and distributive
justice]” (Ibid; P-236). The implication is that India’s economic strategy of promoting
market-led growth must be coupled with a strengthening of democratic institutions. Capitalist
growth with democratic development will introduce a dialectics between the external
dimension of global capitalism and the internal dimension of democratic mobilization of the
basic classes at home namely, the workers, both organized and unorganized, and the bulk of
the peasantry.

Conclusion

Although both liberal and Marxist analysts, who discuss the impact of globalization on Indian
state broadly, argue that the state autonomy during this phase has come under strains, they
still differ in their assessment of the degree of this impact. Marxists are more alarmed by the
threat posed by globalization to the sovereignty of the nation state, but even they offer an
alternative policy paradigm to reduce this challenge. Both in their own ways emphasize the
strengthening of democratic institutions against the pressures of the capitalist class, either
national or global. This is in line with a recent book in comparative political economy, The
Nation State in Question, edited by T.B. Paul, G. John Ikenberry and John A. Hall, which
argues that globalization does not have a uniform impact on the state throughout the world.
This impact varies from region to region and country to country in the world. In the
concluding chapter in the book Ikenberry suggestively summarizes that, depending on its
own specificities and context each state must respond to the challenges of globalization in its
own way. (T. V. Paul, G. John Ikenberry, and John A. Hall; 2003, The Nation-State in
Question, New Jersey: Princeton University Press) given the maturity and the size of Indian
state and its economy, the autonomy of action of the state maybe creatively and critically
negotiated and renegotiated even during the era of capitalist globalization.