The Politics of Economic Liberalization in India

                              The Politics of Economic Liberalization in India

The paper traces the policy changes that occurred prior to liberalization in the 1990s and argue that reforms in industries started much before 1991 (i.e. in the 1980s). It takes a different approach to understand liberalization (unlike earlier approaches which state fiscal crisis and balance of payment crisis as the causes of liberalization). The route that the paper takes is towards understanding the policy discourse much before the economic liberalization which led to change in policies under the banner of new economic reform.  Three arguments that run through the paper are as follows:

1. There’s a shift in the policy discourse during the mid 1980s which changed industrial policy. This is due to the nexus formed by the political leaders and bureaucratic elites.

2. The paper talks about ‘change team’ which consists of ‘laterals’ (economic advisors appointed from outside the administrative career pool) and bureaucrats (and what pushed the team to take a reformist path).

3. Lastly, it discusses about the about the politics of economic liberalization. In this context it focuses on the differences in the policies adopted by Rajiv Gandhi (1985- 1989) and Narasimha Rao (1991-96).

In short, the focus of the paper is on an ‘epistemic community’ formed by political leaders and bureaucratic elites with new goals. It harps on the influence of ideas and thought processes of the leaders who undertake policy decisions. Thus while most of the literature argue that it is the fiscal crisis which necessitated reducing regulatory controls and other reforms in trade and industries, this paper argues that it is the new ideas taken in the 1980s by the Rajiv Gandhi Government which had sown the seeds of such reforms. It looks at changes in the policy arenas without a major change in regime type (i.e. democratic regime).

The paper divides liberalization episodes into three:

Episode 1: Indira Gandhi Government (1980-84) which are considered to be seed years of churning of new ideas. Senior advisors were expressing new ideas in written reports.

Episode 2 (the paper talks about it in greater detail): Rajiv Gandhi Government (1985-89) which put forward some of the reform ideas as if societal constraints were invisible which were challenged by many because of the existing socialist ideologies. The change was due to two developments:

a) The first of these developments was a change in the ideological positions of the senior officials which began in the 1970s towards market based approach.

b) The second development is the role played by the lateral entrants in the bureaucracy. It is argued that changed economic policy in the mid 1980s made it possible for the laterals to come in and use their ideas in recommending different policy options.

In the 1980s political ideas were more open to new ideas. State became free from its earlier policies. A political vacuum was created of new ideas where liberalization of industrial policy became an agenda. It was facilitated by Rajiv Gandhi Government as he was in favour of modernization and ‘change’. He called for a change of policy, namely, state controls, protection, licensing, self reliance and public sector functioning. He recommended a special team for the public sector reforms. There was thus a shift in the dominant ideas governing economic policies. Some of his policies are the long term fiscal policy, White Paper on public sector. In this context, the paper discusses the role of bureaucrats who were posted abroad and acquired a comparative perspective (becoming critical of earlier Indian policies). Of them, Abid Hussain and A.N. Verma are noteworthy. The foreign experiences led to such new thinking. On the other hand, the laterals are young and graduates from U.S. who were in favour of less Government, Knowledge based environment. For instance, the laterals in the World Bank backgrounds bring to India their cross country experiences. Montek Singh Ahluwalia is one of them.

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