From Dirgisme to Neoliberalism: Aspects of the Political Economy of the Transition in India

By Chandrasekhar, C. P. | Development and Society, June 2010 | Go to article overview

From Dirgisme to Neoliberalism: Aspects of the Political Economy of the Transition in India


Chandrasekhar, C. P., Development and Society


This paper argues that internal contradictions arising from the inability of the post- Independence Indian state to introduce the institutional changes and adopt the interventions needed for successful import-substituting industrialisation, had resulted in a crisis in that growth strategy by the mid-1960s. Yet the transition to neoliberalism occurred only after a decade-and a half, and in accelerated fashion only after two decades. The paper would trace this lag to the timing of changes in the international financial system that was a prerequisite for liberalization. It would argue that once the transition occurred and gained momentum India emerged as a successful instance of neoliberal growth because of the foundations created in the import substituting years, her fortuitous ability to avoid severe balance of payments and financial crises, and the human face which governments were forced to adopt given the compulsions of democracy in a populous country with significant poverty.

Keywords: Neoliberalism, India, Industrial Growth, Finance Capital, Planning

Over the last two decades or more, the developing world has shifted out of development strategies involving a highly interventionist and often developmentalist state to one that has been widely characterised as a neoliberal strategy. Neoliberalism is of course an ambiguous and loosely defined term, even when restricted to the economic sphere. So it would be useful to clarify the sense in which it is being used in this context. In what follows, neoliberal theory and practice are taken as referring to: (i) the use of the rhetoric of market fundamentalism, in which the market or ostensibly "free economic exchange" is presented as the most efficient mechanism to work the economic system, to pave the way for the increasingly unfettered functioning of private capital, both domestic and foreign; (ii) the use of the notion of a minimalist state, to be realised by dismantling its developmentalist version, to legitimise the shift of various terms of trade and mechanisms of distribution in favour of the owners of capital and their functionaries and conceal the conversion of segments of the state apparatus into sites for primitive accumulation; and (iii) the pursuit of a regime of accumulation where the home market and deficit-financed state expenditure are replaced by exports and debt-financed private expenditure as the principal stimuli to growth.1

Despite a degree of commonality across developing countries with respect to the transition to a neoliberal strategy, there is no unanimity on the factors that accounted for this transition. Some attributed it to "government failure." That is the very idea that the state would be able to garner adequate information, ensure that there are no agency problems and successfully direct development was brought into question. Others saw a neoliberal strategy as being more "efficient" in the allocation of resources and therefore capable of ensuring sustained growth, unlike the interventionist alternative. Yet others see the transition not as result of some objective choice among alternatives, but as reflective of changes in the relative strengths of different classes.

In what follows, this paper examines India's post-Independence development experience to identify the factors that led to the failure of interventionist, import-substituting strategies, assess the options that were available in the context of that failure and understand why "neoliberalism" emerged as the preferred alternative. Post-independent India was one of the classic cases of Stateled economic development. Not only was the State highly interventionist, but over time the economy included a sizeable public sector, especially in areas of infrastructure and basic industries. The "mixed" economy which thus came into being within the political framework of a parliamentary democracy made the Indian experiment novel and unique and the Indian industrialization strategy was seen as a model for other developing countries with a reasonably-sized home market. …

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From Dirgisme to Neoliberalism: Aspects of the Political Economy of the Transition in India
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