This excellent study by Aseema Sinha is a pathbreaker in the fields of political economy and comparative politics generally, and an especially welcome addition to India studies. Conventional wisdom has it that low economic growth rates in India until liberalization in the 1990s were the result of centralized control, especially in the area of the issuance of licenses governing investments known as the license raj. On this view, licensing controls and cumbersome bureaucratic implementation procedures—supported by an ideology that sought to prevent concentration of economic power in the hands of a small group of private entrepreneurs at the expense of the wider social good—have been a drag on the Indian economy. Far better, the argument goes, would have been to let the market function to determine investment patterns. In essence, the debate about Indian growth has been framed around two alternatives—the classical free market and the dirigiste state.
Sinha's study successfully argues against this dichotomy and posits that both sides of the argument have missed the dynamic of what was actually happening. By focusing solely on macroeconomic policy and legal, institutional variables, the “market vs. state” debate cannot explain the enormous variation in growth rates and investment patterns across India's states. More fruitful is Sinha's approach, which examines the states' varying responses to central licensing regulations. Sinha argues that centrally directed regulations and procedures actually required coordination with the states, which gave the states room and considerable flexibility in pursuing their own programs and in turn shaping the central agenda. Her model of polycentric hierarchy provides a framework that permits disaggregation of the interactions in a seemingly dirigiste system. Simply put, the model permits analysis of state-centered relations (the vertical strategies) along with interactions within states and their regions (horizontal strategies). Horizontal interactions—which include social, political factors and alliances and the wider regional environment—are largely responsible for the individual states' responses to central regulation. A carefully drawn series of hypotheses expand on the basic model. The basic indicators of development are growth rates, industrial change and investment patterns, and economic outputs and distribution patterns of investments by the central public sector, state public sectors, joint public-private ventures, and the private sector. Explaining these are a range of social, political variables that conditioned the states' responses.
Sinha's research employs what she calls “methodological eclecticism” (p. 25)—a rich mix of approaches and data, both qualitative and quantitative. Historical materials are used to look at the colonial heritage of various regions under the British, including levels and patterns of industrial development and the social, political groups involved. These provide a benchmark of sorts leading to the selection of Gujarat, West Bengal, and Tamil Nadu as the main cases. Quantitative data trace changes in development over time and patterns of investment. Sociopolitical analyses of classes, castes, and political alliances and parties provide insight into the horizontal strategies pursued by each state. Interviews with Ministry of Industry officials (Indian Administrative Service state cadres) indicate how each state perceived central policies and the alternatives they made possible and how each pursued its own strategy in light of these possibilities. Finally, interviews with private entrepreneurs offer the reader insight into their primary goals and their views about public policies. Together, these methods are used to develop a most interesting comparative account.
Gujarat pursued a kind of “bureaucratic liberalism,” which meant that the state, in conjunction with private groups, used a strategy of active lobbying and pressures to attract investment. The Congress Party held a virtual monopoly of power until the mid-1970s, presiding over a broad coalition of larger farmers, traders, artisans, and lower castes. Farming castes, particularly the patidars, also went into businesses that provided a bridge between farming and industry. Investments in infrastructure and loans extended opportunities for small-scale ventures, reinforcing the coalition and making it difficult for labor in both industry and agriculture to have much political impact. The regional variable of having Mumbai close by spurred the Gujaratis to encourage investments. The result was good growth, lowered unemployment, and poverty reduction.
Bengal's strategy, by contrast, was one of confrontation with the center. Industry was concentrated in the Calcutta area, major traditional investors were not Bengali, and indeed, the strong subnationalism of being Bengali tended to isolate them from the mainstream of politics and decision making. It also deterred other non-Bengali persons from investing. In fact, although many Marwari business people remained in Bengal, their investments tended to flow westward (p. 198). The Communist Party of India (Marxist), while having a nationalist ideology, is in fact a “regional party” using subnationalisms to win electoral support. It tended to view the center as exploitive and to promote policies based on this view. The result was industrial decline.
Tamil Nadu used a combination of both liberalism and confrontation. Faced with strong subnationalisms involving shifting caste and cultural identity, political parties mobilized electoral support along social rather than economic lines (p. 205). Outsiders were often blamed for the ills of the state. On the other hand, regional competitiveness from especially Karnataka and Kerala spurred periods of bureaucratic liberalism as well. Tamil Nadu then is a mixed picture.
Sinha argues these strategies laid the basis for industrial policy in the post–license raj period, with Gujarat sustaining a strong development path, Bengal a much weaker path, and Tamil Nadu experiencing a more mixed record.
Sinha includes a chapter that indicates how her model may be applied to other states, focusing on Brazil, China, the former Soviet Union, and post-Soviet Russia. Even though it is suggestive, this chapter clearly is an invitation for other scholars to expand the comparative scope of her findings and is not entirely essential to this study of India. It would be interesting to see how Sinha, and others employing her approach, might extend the analysis beyond industrialization and apply her approach to other aspects of development. Could one apply it to other areas of development such as education, health, or particularly agriculture? In all these policy areas, one would expect to find similar variations in the extent of central control (direction) versus market allocation. Certainly with the current preoccupation with globalization, less attention is being paid to these areas than to industrialization. I suspect that this approach would work well and that it would illuminate the more knotty policy problems associated with unemployment and poverty. However, I would like to see more on this.
In an important essay, Amartya Sen (1997: 27) noted that the pro and anti market positions seem to have an “odd ‘hold’ on all sides, so that we concentrate only on some issues and ignore many—often more important—ones.” He was so right. Aseema Sinha's book breaks out of that straitjacket. In so doing, it greatly enhances our understanding of the political and social dynamics of public policy, shedding light on India and at the same time developing a theoretical framework of broader relevance.
