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Mainstream, Vol XLVI No 32

Globalisation and India’s Economic Identity : An Overview

Wednesday 30 July 2008, by V Mathew Kurian


1. Introduction

By imposing colonialism and imperialism, the British deprived of India’s ‘economic identity’. During the freedom struggle, great leaders like Dadabhai Naoroji, Mahatma Gandhi, Jawaharlal Nehru and many others thought about an ‘economic identity’ for India. However, the privilege of constituting and implementing it mainly went to Pandit Nehru. The ‘economic architecture’ of post-independent India was largely Nehruvian. Nevertheless, in the (new) globalisation1 era, the Nehruvian ideas were dismantled by neo-liberal globalised economic forces.2 In this article, we will first trace the intellectual contributions of Jawaharlal Nehru in the constitution of the Indian economic identity. It will be followed by an examination of the interaction between the neo-colonial forces and the Indian state. The paper also intends to explore the impact of (new) globalisation on India’s economic identity. Finally, we propose ‘deglobalisation of the Indian economy’ to retrieve the genuine indigenous economic identity for the nation.

2. Nehru and India’s Economic Identity

As India was nearing freedom, there arose multiple views on the ‘economic identity’ for the emerging Indian nation among the members of the Indian National Congress. While leaders like Sardar Vallabhbhai Patel and C. Rajagopalachari stood for a Western type liberal economic order for India, the Marxist oriented members, including M.N. Roy, Netaji Subhash Chandra Bose, Jayaprakash Narain and others advocated for ‘socialism’. Gandhian economists like J.C. Kumarappa wanted the emerging Indian economy freed from any type of foreign influence. Pandit Jawaharlal Nehru assimilated all these suggestions and put forward an integrated economic identity for India.

Pandit Nehru as the grand architect of the Indian economic identity, instead of following the Western type ‘capitalism’ or the Russian type ‘socialism’, wanted India to follow a ‘mixed economy’. So he perceived that the good elements of capitalism and socialism be enjoyed in the ‘mixed economy’. Instead of socialism, he proposed the formulation of a ‘socialistic pattern of society’ with public sector achieving the ‘commanding heights’. He was also hopeful in blending a democratic polity with a planned economy.

In the above perspective, Nehru started driving the Indian economy. The remarkable achievements of the First Five Year Plan imparted great optimism to him and he, with the intellectual collaboration of the great statistician, P.C. Mahalanobis, prepared an ambitious model for the Second Five Year Plan.

The ‘model’ set economic growth and social justice as the twin broad objectives of the Plan. It prescribed a ‘two-pronged industrialisation’ strategy to achieve these goals. For rapid economic growth, the perspective was to build up heavy and key industries, particularly in the public sector. It was hoped that the ‘forward’ and ‘backward’ linkages of it would generate a revolution in industrial and agricultural growth and thereby in economic growth. In order to realise ‘social justice’, the model suggested the development of light industries. It was hoped that this segment of industries would provide jobs as well as ‘wage goods’ to ordinary people. For the just advancement of rural agricultural economies, the model recommended land reforms, community development programmes and cooperative institutions including cooperative farming.

As India inherited a heritage in cottage and small scale industries, the model did not anticipate any constraint in the promotion of it. But as India was lacking in modern technology and capital, the country had to depend on the Western sources for building up heavy and strategic industries. Since India then possessed a huge foreign exchange reserve, the model builders thought that Western machinery and expertise could be bought by using the foreign exchange reserves.

Though the Nehru-Mahalanobis model was a magnificent one, in the actual implementation of it in the Second Five Year Plan, the country failed to make a headway. This was largely due to the ‘neo-colonial’ intervention in the political economy of India in those times. The Western capitalist forces did not welcome the development of the country through an indigenous pattern of economic identity. As the Second Plan had to buy foreign technology and capital from abroad for building up the heavy industrial sector, the available foreign exchange was quite insufficient to meet the then requirement. So by 1958-1959 there arose a severe foreign exchange crisis in India compelling the government to seek foreign assistance. The Western forces, particularly the multinational corporations, found it a congenial situation to make India to oblige to their conditions. These capitalist forces, through multilateral institutions like the World Bank and IMF, required India to undo ‘the socialistic pattern of society’, with ‘public sector achieving the commanding heights’. So during the Second Five Year Plan the government was forced to succumb to the diktats of the global capitalist forces in allowing the private market forces sufficient role in the functioning of the economy.

This intervention of multinational corporations and their patrons wreaked two havocs to the Second Five Year Plan. Though India required foreign capital to build heavy and key industries, the MNCs took keen interest in the consumer goods sector. That, to a large extent resulted in the displacement of indigenous industries and a big blow to the Indian economic identity.

3. Indian Struggle to Preserve ‘Economic Identity’

Though Nehru initially compromised with neo-colonialism, subsequently he initiated a new international strategy in the formulation of Non aligned Movement (NAM) to break the onslaughts of global capitalism in the Third World. In international relations, India leaned more to the side of Soviet Union. It enabled India not only to obtain Soviet technology but also in enhancing the ‘bargaining power’ of India with the Western powers.

Jawaharlal Nehru expired in 1964 and Lal Bahadur Shastri emerged as the new Prime Minister of India. But he could run the government only for a brief time due to his untimely death. Shastri had a unique vision in governing the country according to an independent Indian identity. The very slogans ‘Jai Kisan’ and ‘Jai Jawan’ reflected this vision.

After the demise of Shastri, Mrs Indira Gandhi became the Indian Prime Minister. In her initial years she proved a bold Prime Minister coming in conflict with multinational capital. In this period, her government could enact a number of progressive measures like the termination of privy purses, bank nationalisation, Indian Patent Act 1970, MRTP3 and FERA.4 However, she committed a mistake in declaring an Emergency in 1975 which was used by multinational capital to pressurise the government to undo all the progressive steps. The oil crisis also made India very vulnerable. The people of India taught Mrs Gandhi a lesson by ousting the Congress party from power in the 1977 election. But the Janata Government formed after the election could not persist in power for long due to divergent views and interests in the party.

In the subsequent election, Mrs Gandhi’s government resurged into power. But by this time the Indian state was weakened and failed to counter neo-colonialism. The second oil crisis triggered a BOP crisis in India. Mrs Gandhi’s government approached the IMF for a fabulous loan to tide over the crisis. The IMF sanctioned the five billion SDRs loan on the basis of ‘conditionalities’. Along with the IMF loan, the first wave of liberalisation and privatisation entered the Indian political economy, posing a big challenge to the political and economic identity of the country. During the 1980s the foreign exchange situation of India still worsened. By 1990 India fell into a serious crisis.

The newly assumed Narasimha Rao Government approached the World Bank for external assistance. The Bank stipulated the globalisation agenda recorded in the ‘Anderson Memoranda’ to be followed by India. The then Finance Minister, Dr Manmohan Singh, adopted it and christened it as ‘New Economic Policy’. From a policy perspective, that resulted in the liquidation of the Indian economic identity.

4. New Globalisation and Indian Economic Identity

From an economic point of view, the new globalisation may be perceived as a process of ‘global marketisation’. The two pillars of it are ‘privatisation’ and ‘liberalisation’. From 1991 onwards, the politicians who assumed ‘power’ in India accepted this philosophy, even though the masses of the Indian people disliked it.

In the management of the economy, ‘planning’, was pushed backward and ‘market mechanism’ was given the driver’s seat. Public sector was pruned and displaced by disinvestment programmes. Private sector firms, including transnational corporations, started enjoying the privilege of assuming the ‘commanding heights of the economy’. The exim sector was considerably liberalised. The service sector, including finance, also was brought under liberalisation.

Globalisation integrated the Indian political economy with ‘world capitalism’. This process could unleash ‘dependent development’, enabling India to achieve a relatively higher growth in GDP. India is now branded as an ‘elephant’, emerging as a ‘global economic power’. But the vast majority of the people are still in the periphery of the economy.5 They are being marginalised, excluded and even exterminated. Poverty deaths and suicides have become regular occurrences.

Of late, globalisation on a world scale, has started addressing its own limitations.6 The energy crisis, global warming, agri-flation, massive unemployment and mounting food insecurity all make globalisation unpopular. The cradle of globalisation, the American economy, is currently undergoing a severe recession. The sub-prime lending crisis triggered a vulnerable monetary and financial situation with which, many economists fear, the country is heading towards a depression similar to the one that happened in the 1930s.7 A number of Indian financial institutions like ICICI lost huge amounts in this crisis.8 The ‘American Contagion’ may affect India in many other fronts.

5. De-Globalisation for Indian Economic Identity

Retrieval of the genuine Indian economic identity is essential for the sustainable human and social development of the Indian people. This ‘identity’ has to be a concern for all committed Indian people. We need a historical and interdisciplinary intellectual enquiry for rediscovering the true economic identity of India. We can start our intellectual journey from the Buddhist economics to the present times. This does not mean that we have to be fundamentalists. Rather, we must take history as a source of intellectual inputs.

Further, we need to identify our resource potential including traditional technology. India is a continental economy with a diversified resource base. We have to accept our vast population as an asset and political power has to be made accountable to the people. Then only would there be true democracy.
6. Conclusion

In this article we took the premise that Jawaharlal Nehru attempted to formulate and implement a distinct economic identity for India. But it was betrayed mainly by neo-colonialism. However, there was a struggle between the Indian state and neo-colonialism on economic identity. But in this struggle, the Indian state was gradually defeated and new globalisation was imposed on India which facilitated rapid economic growth. But globalisation only enhanced the misery of the people of India. So ‘de-globalisation’ is required for evolving a genuine economic identity for India.

Notes and References

1. The term ‘globalisation’ may be viewed from three points of view: (a) as a programme, (b) as an ideology, and (c) as a process. As a programme it is by TNCs for TNCs, and of TNCs. As an ideology it is ‘neo-liberalism’. As a process ‘globalisation’ is as old as capitalism. Globalisation is only the new phase of historical capitalism. See V. Mathew Kurian, “Life and Death through Globalisation: The Indian Experience” in P. Jegadish Gandhi and K.C. John (ed.), Upon the Wings of Wider Enumerrism (Delhi: ISPCK/Eec, 2006), pp. 223-235.

2. V. Mathew Kurian, “Economic Policy Changes from Nehru to Narasimha Rao: What Lessons we Draw?”, Mainstream, Vol. XXXII, No.5 September 24, 1994, pp. 11-13.

3. Monopoly and Restrictive Trade Practices Act.

4. Foreign Exchange Regulation Act.

5. R. Radhakrishna and S. Chandrasekhar, “Overview: Growth: Achievements and Distress” in R. Radhakrishna, (ed.), India Development Report 2008 (New Delhi: Oxford University Press, 2008), pp. 1-19.

6. Jeffrey D. Sachs, “Roots of America’s Financial Crisis”, The Economic Times, March 31, 2008, p. 15.

7. Visi Tilak et al, “Will Wallstreat’s Flu Make India Sneeze?”, Tehelka, February 9, 2008, pp. 38-41.

8. Bikram K. Tena, "Did he do it?—Special Feature”, 4 PS Business and Marketing, March 14-27, 2008, pp. 36-41.

Prof (Dr) V. Mathew Kurian is a Visiting Professor, School of International Relations and Politics, School of Management and Business Studies, Mahatma Gandhi University, Kottayam.

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