India is a country of more than one billion people. This is a
simple statement to write, and far easier to read without really
understanding. India is the largest experiment in representative
democracy in history, a successful model with problems of scale. Fifty
one years of unbroken democracy is impressive under any measurement with a
country of any size. If you consider that when one speaks of a 200
million member middle class, one is only discussing 1/5 of the entire
population spread over an area the size of the continental U. S. west of
the Mississippi, the achievement becomes even more impressive. India does
not conduct a full census of its people. It cannot even reach all of its
people in a systematic way. Even in times of acknowledged surplus and
export India cannot feed all of its people outside of the Gangetic Plain
Any progress in the Indian economy is great progress, and any
comprehensive study is an accomplishment. In studying India one is
staggered by the complexity of its social political, and economic
structures, and confounded in an attempt to understand nuance or detail.
India is the ultimate in Edward Hall's "High Context Societies." Change
occurs very slowly in India, if it occurs at all. India has historically
chosen a separate path in global development since Independence and is
only now taking steps towards globalization. No one government, and
certainly not a coalition government can alter the course quickly even if
it were inclined to. A succession of governments has paid varying degrees
of lip service to the liberalizing policies proposed by the IMF. Some of
these governments have even taken steps toward implementation . However,
in India nothing happens quickly, and the state shows no sign of vanishing
towards irrelevancy. In so far as one may reduce the motivation,
collective action and mindset of just under one billion people into a
single coherent statement of purpose, it is to say that the people of
India are united in an inflexible pursuit of nationalism, determined to
flourish outside of the community of nations in so far as it is humanly
possible. India will retain a socialist government, planned economy, and
centralized institutions. It is the only way India has known in three
centuries, and the alternative is anarchy. India's policy of
globalization is one of extreme reluctance, evasion, and institutional
resistance, which will not be overcome easily or quickly.
Modern India is the successor state to more than three millennia
of civilization and recorded human history. The national character has
been shaped by extraordinary diversity of thought, opinion, religion and
practice. A warlike collection of peoples the continent has never
enjoyed peace such as the last fifty one years. United under a federal
government for the first time and acceding to Partition India has finally
set aside the most violent divisions and embarked on a passage to full
membership into the developed world. The national character as it exists
today has developed in response to its recent past. Recent in India is
far longer than the entire national history of the U. S. One thousand
years ago the Hindu peoples of India were invaded in turn by the Mongols,
Persian Muslims, Arabian Muslims, and fought amongst themselves for
already scarce resources, pride, and ideology. Four hundred years ago
India was invaded by European settlers. The Portuguese, Spanish, Dutch,
English and French. Each party fought over various parts of the
subcontinent with the aid of various Hindu or Muslim Subidars, in a
complex web of alliances and counter alliances. The details of which can
and do fill several libraries. The details of battle, defeat, submission,
and conflict are only relevant in that they confirm a pattern of abuse
that no educated Indian has forgotten. The British finally defeated the
French in the early 19th century, and the British Crown administered the
colony without pretense of indigenous government form 1857. Ninety years
of struggle followed under the auspices of the Indian National Congress.
After the first World War reforms accelerated and India was slowly given
the tools to function without the British Raj. The late revolutionary,
elites retained power after Independence. Between 1947 and 1991
Jawaharlal Nehru, his daughter Indira Gandhi, and her son Rajiv Gandhi,
ruled India as Prime Minister for all but six years. All but fourteen of
fifty one years of Independence have passed under the leadership of one
party and one family. Only the past eight years have been spent with the
Congress party in the role of opposition. The cumulative effect of recent
and modern Indian history has been an innate distrust of the West, Russia
to the North, and China to the East, and the development of socialist
nationalism. In the past year India's latent Hindu nationalism has
asserted itself over the more secular nationalism practiced by the
Congress Party. Evan as pressure mounts for greater liberalization of the
financial sector India resists implementation.
The social networks of India are limited only by the antiquated
phone system, and the limits of Indian transportation infrastructure.
The family unit remains key, and there is terrific pressure among the
elites to sustain families throughout India. Each social organization is
an extension of family ties, and responsibility. The majority of these
families cannot participate to any meaningful degree in the market. The
poor in India need a safety net which only the government may provide. No
other group has proven able or willing to do so. No official measure of
poverty was reported by the World Bank, but the prevailing estimate is
that more than 40% of the population, 400 million people cannot afford
even an adequate diet. An additional 40% cannot participate in the
economy for lack of education or resources. For the past eight years
India has operated under a series of coalition or caretaker governments
with the Congress Party standing in opposition. Periodically one party or
another will pull out of coalition on points real or imagined to assert
its independence and improve its political fortunes. The principal issues
of such dissension are education policy, privatization, globalization,
issues of poverty, and international policy. There is no consensus in the
Indian electorate, even among the elites. Even when measures are passed
through parliament the implementation falls to an entrenched and jealous
civil service intent on maintaining the security of their own jobs, and
privileged status. Federal workers have a very high status which
transcends governments, and traces its roots to the British Raj. Full
participatory democracy has achieved success in cultivating debate on
issues, but has failed to bring forth another leader of the whole of
India. This has proven very costly in human terms. The extent of poverty
as described by my source material is beyond my comprehension.
The internal politics of India are every bit as divisive as the
external conflicts with Pakistan and China, and negotiations with foreign
firms and lenders tend to be. External conflict has artificially built
internal consensus. "The roots of India's growing problems of
governability are not socio-economic, but are located in its political
structure. A highly interventionist state dealing with a poor economy has
become an object of intense political competition. The spread of
egalitarian political values and opportunities provided by democracy have
in turn helped to transform what was once a heterogeneous social structure
into many groups of mobilized activists. Failure of leaders to make
timely concessions has intensified political demands and activity. The
growing weakness of fragmented political parties has made it difficult for
leaders to govern effectively. " Hindu nationalism has been a
contributing factor to the development of a socialist domestic policy and
isolationist foreign policy since independence. In recent years this
nationalism has expanded to create a more active, and even less
conciliatory foreign policy under the leadership of the Bharatiya Janata
Party, (BJP). India's foreign policy is a direct reaction to internal
political conflicts and quest for primacy among India's more than thirty
parties represented in Parliament and inestimable number of interest
groups,. This is consistent with the models presented by Snider, but he
does not touch on India specifically. The BJP has tried to shift the
debate away from pressing, and divisive internal issues toward less
prescient international conflicts. The detonation of nuclear weapons in
May was a sort of "national theater" aimed at seizing the national agenda,
and maintaining a fragile coalition. Internally this seems to have worked
in the BJP's favor, especially in light of the Asian financial crisis, but
may have done great harm to the long term prospects of the Indian Economy,
by compounding the problems of bureaucratic barriers with disincentive to
make long term investments on an even less stable subcontinent.
India's 5% growth rate in GDP, down from 7% two years ago, is one
of the best in Asia after the cascade effect created by Japanese bank
failures. India's highly protected currency, non tariff barriers to
imports, and low entanglement with foreign multinationals left the nation
largely unscathed as the crisis unfolded. Yashwant Sinh cast India's
current financial situation favorably. "Suddenly, there has been a
feeling that India has not become part of the East Asian meltdown, and
India is being perceived as a stable pole of economic development. and
progress is an environment that appears very difficult. " Government as a
whole is championing India's "resurgence." It is hoped by the government
that this oasis of stability will attract foreign direct investment even
under its unfavorable regulations, and endless supply of red tape. This
is after all the country that politely showed IBM and Coca-Cola the door
when they refused 51% Indian ownership of their subsidiaries on the
subcontinent. India's current comparative prosperity may be a very
temporary bubble.
The World Bank, and IMF consider India's economy to be one of the
most tightly regulated, state dominated, and protected. Expert
performance is "dismal," with a marked decline in India's share of world
trade, last year, and full currency conversion on the capital account is
several years away. It may never happen if other countries choose to
abandon efforts at globalization, and India reverses her modest efforts in
this area. This week's Asia-Pacific Economic Conference in Malaysia may
signal a shift in the trend which India would be happy to follow, as a
less painful course. The Loreaux book, does not cover India or a case
like it India has not opened itself to strategic alliances, like South
Korea, has no economically hegemonic neighbor like Mexico, and does not
have an economy as strong as that of Japan. Unlike of each of these
economies India has never asked for or received significant direct aid
from the United States. Japan received such aid following the second World
War, and South Korea was urbanized for the first time following its war
with the north. Having never released control to the private sector,
allowed interference from multinational corporations, or hegemonic powers
India has tremendous leverage in continued resistance. Further capital
crises may emerge, but until this happens again internal pressure will
maintain the status quo, in this large country used to austerity, and
import substitution. The truth of the matter is, even if India does not
maintain token efforts at globalization there is very little the United
States or anyone else can do to pressure them. One billion souls, and
nuclear weapons are very persuasive in any discussion, especially should
India become a strategic partner of the US, balancing China. India has
excelled at playing powers against each other resisting both free markets,
and communism during the cold war, when the principals were the US. and
Soviet Union. Though the great leaders have passed on, President K. R.
Narayanan, the former Ambassador to the United States, and a member of the
lowest caste, along with Prime Minister, Atal Behari Vajpayee are well
respected in the International community, and continue to articulate firm,
yet non aggressive statements in matters of International security.
Public rhetoric for domestic consumption aside India's ruling
party is continuing to make reforms albeit slowly. Fiscal stimuli to the
economy, in the agricultural sector and Infrastructure is being balanced
with at least partial divestment in nationalized Industry, promising to
decrease holdings from more than 50% to 26%, selling off Air India,
entirely, and further promising to conduct share offerings and strategic
sales. No information is available on to whom these sales will be made,
or whether those actors are domestic or foreign. It is not clear that
divestment will result in real economic diversification. The Indian
elites are loath to surrender real control, but eager to boost earnings
and profits. These profits will of course enrich the elites far more than
the poor. There is not a great deal of free capital in India, and what
capital does exist is concentrated in very few hands.
While the IMF and World Bank have muted their standard openness
prescription, both entities call for structural changes to the Indian
political economy. India must control its annual deficits, and practice
fiscal restraint by cutting deficits, and restructuring its slim tax base.
In addition to central government deficits the various states post fiscal
deficits as well, for a combined total of 9% GDP per year. This deficit is
said to be a major inhibitor to growth. 7-10% growth over the next
several years is required to attack India's tremendous poverty. It would
take 15 years of consistent 7% growth to reach the per capita GDP of
Indonesia, 37 years for Thailand, and 46 years to equal Malaysia. That
projection is measured against these economies' recession performance.
Pre recession these estimates would be far less reasonable. The World
Development indicators show that India is clearly one of the poorest
performers in the world, and there is a great deal to be done, but in
order to speak on it confidently I will have to conduct further research.
Indian banking as expected from the preceding paragraphs is highly
concentrated, and strongly influenced by the bureaucracy. Since
nationalization the Indian government has retained control of 85% of
deposits through the State Bank of India (26.7%) and the nationalized
commercial banks. Less than 5% of deposits are held in independent banks .
This is consistent with a centrally planned economy, or mixed economy, and
India retains characteristics of both. Though heavily regulated
indigenous entrepreneurship is encouraged, and allowed to invest its
resources as it sees fit. However, the government does set fiscal policy
through their banks down to the lowest denominators, which limits any
concern's independence should it require a loan. The loans are flowing
again, but in a very controlled fashion to prevent past mistakes from
recurring. I will speak more on that in the final paper
In the next iteration of this paper I will expand on my brief analysis of
India and Pakistan's Economies, and develop a comparison of Indian and
Pakistani banking practices. The differences will be compared on social
terms mainly in the way that Hindus, and Moslems view banking, and their
level of trust in the institutions, with the help of the Snyder book.
This will extend to the structure of the two banking systems, expanding
into the discussion of the effect the banks, and the governments have on
the larger economy. I will offer economic comparisons between the two
countries with data provided by the world development Indicators. Tabular
data without analysis has been included with this paper. Politically, I
will speak to the acknowledged conflict between India and Pakistan, and
also on the shadow posed by China whom I suspect is the real reason that
India has felt it necessary to openly test its new generation of nuclear
weapons and press the West for access to supercomputer technology. India
is reported to be in secret consultation with senior U. S. officials
discussing security issues, which may be opened later this month. Finally
I will compare the two countries response to globalization, with a
particular emphasis on why India has the stronger hand to play in future
negotiations with creditors, and foreign governments. There is a clear
path ahead, but I have a great deal more research to do before I can apply
the course readings adequately. Since none of the course readings
addresses India or Pakistan directly, it is necessary to build a deeper
understanding before I can apply the various models we have studied.
Earlier today I learned that Peter Evans has written a book which examines
India, in greater detail. My hope is that this piece will make his
article in Business and the State in Developing Countries more clear to
me, and serve as a bridge to the other authors we have studied this
semester. I have been overwhelmed by the scale of this project, and it
shows in this paper. I am therefore going to turn in what I have and
start fresh after the weekend.
In any journey India has taken towards globalization, it has been pulled
kicking and screaming by a succession of governments. Colonial history
under the British Raj set a pattern for nearly forty years of isolation,
and unity behind a single ruling family, supported by the Congress Party,
and confirmed by multiple fair elections. The Congress Party's hold on
real power has been maintained by its dominance of what Evans calls a
Weberian bureaucracy . So even when the current parliament passes
legislation, implementation is left to the professional bureaucracy,
secure in the knowledge that their tenure will outstrip that of the
current government. In this most independent minded of nations the elixir
of globalization which in theory will cure the world's ills, establish
democracy where none existed before, and provide for the needs of a
society and the entire community of nations in a single dose, has proven
very difficult to swallow. India at least under the present constitution
has proven adept at challenging the conventional wisdom and succeeding
beyond all expectation. In matters of openness and state control of the
means of production, India may strike out on its own again, and succeed,
as it has done numerous times in the past. In the case of conducting the
government of a subcontinent and conducting the symphony of a national
economy India may just be the nation which again breaks all of the rules.
Bibliography
Agrawal, B. P., Commercial Banking in India After Nationalization,
Classical Publishing Co, New Delhi, India, 1981.
2 Batra, G. S., Globalization Strategies, and Economic Liberalization,
Amol Publications PVT LTD, New Delhi, India, 1994.
3 Central Intelligence Agency, The CIA World Factbook Online 1998, CIA,
Langley, VA, http://www.cia.gov.
4 Hambly, Gavin; encapsulation of Indian history drawn from a series of
lectures offered at the University of Texas at Dallas during the spring of
1996.
5 Kishore, Adarsh, Economic Reforms, State-Market Synergy, Rawat
Publications, Jaipur, India, 1996.
6 Malgavkar, P.D., Quality of life and Governance, Trends, Options and
Institutions, under the auspicies of the Center for Policy Research, New
Delhi, Konark Publishers, New Delhi, India, 1996, p 330.
7 Maxfield, Sylvia, and Schneider, Ben, Business and the State in
Developing Countries, Evans, Peter, "State Structures, Government-Business
Relations, and Economic Transformation," Cornell University Press, Ithaca,
New York, 1997.
8 Misra, Baidyanath, Socialism and Market Economy, Baidyanath Misra,
"Market Socialism," Anu Books, Meerut, India 1996.
9 Narayanan, K. R. India and America; Essays in Understanding, Information
Service of the Embassy of India, Washington, D. C. 1984.
10 Nicholson, Mark, "What a Difference a Year Can Make." The Financial
Times, London, England, October 26, 1998, annual country report.
11 Sharma, Shubhra, "Shubhra provided me with the HHI ratios in an
exchange of resources. Her source was the Reserve Bank of India: Banking
Statistics and Basic Statistical Returns (1993).
Christopher Kane
ckane@gov.utexas.edu
Teachng Assistant
The University of Texas at Austin
(512)491-5090