Economics
Jaspereric
India1.pptxIndia – Planning Period
East India Company
The East India company was a private trading company chartered by Britain in 1600.
Monopolized trade with most of the Indian subcontinent through mid-1800s (dyes, cotton, silk, spices, tea, salt).
By early 1800s had a private army in India that was twice the size of the entire British army.
1857 rebellion was crushed by Britain.
British Raj
British colony from 1858 – 1947.
British crushed rebellions ruled through “divide and conquer”:
Caste system –Britain allied with upper castes, who received higher education and positions in civil service
Allowed vassal states and princedoms (most very small) to operate semi-autonomously
Large landowners given more secure property rights in return for maintaining order
Little indigenous industry. British flooded Indian markets with cheap goods from its factories. Destroyed village handicraft industry in India.
Built national rail system to transport troops, merchandise
Independence Movement
Began in 1920s.
Strongly influenced by Mohandas Ghandi
Mass demonstrations employed ”non-violent non-cooperation”
British finally driven out in 1947.
Partitioned subcontinent into India (majority Hindu) and Pakistan (majority Muslim).
Partition contributed to riots and Hindu-Muslim violence.
Ghandi assassinated by Hindu nationalist in 1948
Economy at independence
Britain left India with no industry, limited infrastructure, no financial system, no indigenous capitalist class
Country 80% rural with much land held by absentee landlords, millions of landless peasants
Extreme poverty and deep caste, class, ethnic and religious divisions
Economic Development Policies
Jawaharlal Nehru first prime minister. National Congress Party.
Established parliamentary democracy with independent media and right to form unions and independent associations.
Some party leaders influenced by Ghandi’s opposition to industrialization (English rule without the Englishman) and desire to see promotion of small-scale enterprises and village handicrafts.
But Nehru admired USSR and had been member of Fabian Society
Goal to industrialize, remain democratic and set aside sections of economy for small scale enterprise
Politics not rooted in rural poor (as in China), so land reforms limited. Mostly absentee landlords dispossessed and land bought by rich farmers.
State-Led Development
Policies influenced by structuralism:
Pessimistic about benefits of international trade and foreign investment
High tariffs and barriers to imports (licenses)
Foreign exchange controls
Set up national planning agency to develop five-year plans
Set up state-run financial institutions to control credit
Focus on Import Substitution Industrialization
Private ownership of capital, but some major industries nationalized (ships, rail).
Not concerned with inequality (though called itself socialist)
Planning under Nehru (1950 – 1965) and Indira Ghandi (1966 – 1977/1980 – 1984)
Focus on development of heavy industry (steel, machinery, rail, electricity)
Discouraged development of textiles and garments (colonial heritage), so industry not labor-intensive.
Strong restrictions on FDI.
Purchased technology rather than obtain through joint ventures.
180 industries reserved for small-scale enterprise
”License Raj”
Licenses required from government to:
Import goods (could take years to obtain)
Issue stock
Borrow money
Expand industrial capacity by > 25%
Engage in collaboration with foreign firms
Also extensive price controls and subsidies for inputs
Agriculture
Under-investment in agriculture and only minimal land reforms
Led to food insecurity
Persistent problem with famines
Became dependent on US for food aid, but US sometimes withheld aid (political disputes over close ties with USSR and India’s opposition to Vietnam war).
”Green revolution” led to food self-sufficiency, but reduced variety and stressed small farmers.
By 1979, India net exporter of grain.
Results
More public than private investment
By 1970s, public I fell and growth stagnant (average 3%/year).
Per capita growth only 1-2%/year, so poverty remained high.
Lack of income tax (relied on regressive consumption taxes) left government starved for funds
Little investment in health, primary education.
Despite socialist rhetoric (official declaration of “state socialism” in 1976) and promises to alleviate poverty
Kohli refers to government’s “gentle betrayal of the masses"
