If India has weathered the financial crisis, it is largely because of the remnants of its old developmental state model.
It would appear that India is having a good crisis. Despite initial appearances to the contrary, the Great Recession turned out to be anything but 'global'. While the advanced industrial countries, pre-eminently the US, were hardest hit, growth in the emerging economies, India prominent among them, slowed only momentarily. As the crisis wore on and growth differentials widened, it became clear that the emerging countries were increasingly becoming the motors of world growth, thereby signalling an acceleration of the geopolitical shift of capitalism's centre of gravity away from the US and the advanced industrial world and towards them. This shift was announced by Goldman Sachs in its famous 'BRIC thesis almost a decade ago.1 But its pace was slower then, thanks to the US-dominated world financial system funnelling so much of the world's capital, and demand, into the US economy.
India's government, and the policy- and opinion-making elite who generated the country's cross-party neoliberal consensus on economic policy of recent decades, were already in a self-congratulatory mood before the crisis. After decades during which India was seen as a developmental non-event, confined to the tepid 3.5 per cent per annum 'Hindu rate of growth', over the past decade it had finally been hitting the headlines - with the BRIC prediction about India's economic future; the high growth rates that seemed to confirm it, briefly touching 10 per cent in 2006; unprecedented capital inflows; a strong rupee; and a buoyant stock market. Now they could be even more pleased with themselves. The Indian economy had not only escaped the worst, but was even garnering benefits. Growth rates had initially declined, from 9 per cent in 2007-8 to 6.7 per cent in 2008-9, but this decline was tiny compared to those suffered by the advanced industrial world; and the Economic Survey for the year ending April 2010 put the economy on track for 7.2 per cent growth for the year ending April 2010;2 while in his Budget Speech the Finance Minister projected growth rates of 8.5 per cent and 9 per cent over the next two years.3
More generally - as the international business press increasingly recognised in its stepped-up coverage of the Indian economy (for example the Financial Times now devotes a special page on its website to it) - India was second only to China in its importance as a growth pole of the world economy. And the crisis had made the G-20 group, of which India was a member, the successor to the G- 7 group of leading country governments that sought to manage the world economy; Indian policy-makers were now hobnobbing with those of far larger and richer economies. New Delhi and Mumbai, not to mention Bangalore and Hyderabad, were now on the itineraries of the world's most powerful decision-makers. This in turn increased the likelihood that India would become a member of the United Nations Security Council, fulfilling a long-standing aspiration. Yes, China's growth was far more spectacular and sustained, but - reflecting a widespread sense of superiority about India's democracy - many predicted that India would be the Tortoise to China's Hare: 'India has the "soft architecture", the democracy, the rule of law and the freedom of speech that provide shock absorbers and make its economic prospects more enduring'. And these made for a '"better micro story" than China': India had 'its world-class companies and entrepreneurs, its large English-speaking and ITcompetent workforce, and its prudently regulated banking system'.4 And as if to celebrate India's long-awaited entry into the first rank of the world's nations, the Indian government approved the design of a new symbol for the Indian rupee, a still soft currency, so that it could take its place among the world's leading currencies without sartorial handicap.
However, things may not be quite as good as they seem. …