The Constitution of India has envisioned a liberal-democratic-welfare state with socialist goals. Sounds a bit torn between different directions but the goals of welfare democracy with equitable redistribution of resources are considered important. A result of this goal has been the importance given to the planning process for long-term development. This goal is also reflected in the policies related to progressive taxation (tax slabs as per size of income), transfer payments, social and developmental programmes and a regime of resource redistribution through subsidies, exemptions and concessions to various groups of people. Economic role of the state in terms of ownership of the public sector enterprises is also part of the state policy. Planning process, combined with public sector economic role of the Indian state, has prompted observers and writers to call Indian political economy as ‘state capitalism’ (André Bettelheim), ‘command economy’ (Lloyd and Susanne Rudolphs), ‘permit-license-quota’ Raj (C. Rajagopalachari) etc. The state-directed planned economic development with focus on capital-intensive heavy industrialization under the Nehru-Mahalanobis16 model was meant to achieve the goal of a socialist state with complementary role for the private sector. However, the advantage for the private sector was to operate within the overall protected arm of the state with its self-reliant and import-substitution policy. Various public financial institutions for credit financing to the enterprises were available. A policy of priority sector lending was also adopted. Such a policy ensures credit finance facility to certain areas such as agriculture and agro-industry, small-scale industry, export-oriented enterprises etc. It ensures flow of a fixed percentage of the total credit from the public sector banks to these areas.
While the policy of heavy industrialization continued as part of building a self-reliant, import-substitution economy, in mid-1960, the Government of India adopted the New Agricultural Policy (NAP) as the central component of the Fourth Five Year Plan (FYP) (1969–74).17 The NAP with its emphasis on high yielding seed varieties (HYVs) was meant to revolutionize the agricultural production. HYVs became the mantra of ‘green revolution’ and ‘capitalist farming’ that have characterized the agrarian scene especially of Haryana, Punjab and western Uttar Pradesh in northern India after the 1970s. In the Fourth FYP, rural development and poverty alleviation was given importance.
Heavy emphasis for reallocating public investment towards the agricultural and rural sectors has been supported by certain studies that pointed out the need for investment in agriculture and rural development as part of policy towards poverty alleviation and agricultural self-sufficiency. The famous study ‘Poverty in India: Dimensions and Trends’ by V. M. Dandekar and N. Rath published in the two issues of the Economic and Political Weekly, (2 and 9 January 1971), gave ‘precise estimates of the numbers, consumption expenditures, and calorie intake of the poor’.18 Dandekar and Rath’s study pointed out that those who lived on 50 paise per day in rural areas and 75 paise per day in urban areas were poor. This study suggested that so far the planned intervention had not much affected the poor. It suggested that unless specific programmes and policies in a targeted manner were adopted for the poor, their lot would not improve.
Michael Lipton’s Why Poor People Stay Poor: A Study of Urban Bias in World Development insisted that there was an inbuilt bias in industrialization strategy towards the urban centre. It pointed out the neglect of rural and agricultural sector in public investment. This is known as the theory of ‘Urban Bias’. It argues for reallocation of public investment towards the agricultural and rural sectors. Lipton compares the flow of public and private investment allocations in cities, city connecting roads, five-star hotels and sport stadia with allocation for rural poor, agricultural implements, research, drinking water and land upgradation etc. Lipton provides a critique of Indian political economy from the perspective of ‘urban bias. This critique has been supported by many politicians and observers particularly echoed in the ‘India versus Bharat’ slogan.
For long after independence, it was held that land reforms, community and block extension programmes, price control, food security, rationing etc., could deal with the problem of poverty. It was felt that in the long term growth and development would ‘trickle down’ to the poor and remove the perennial problem of poverty.19 From the Fourth FYP, direct attack on poverty was made a strategy through poverty alleviation programmes. The study of Dandekar and Rath, incidentally, coincided with Indira Gandhi’s garibi hatao campaign in early 1970s. Various poverty alleviation and rural development programmes emerged out of the political agenda of garibi hatao and the economic requirement of reallocating public investment in agricultural and rural sectors. The BPL people became the target for upliftment. The struggle between the poverty line and the Indian state continues even today and given the pace it promises to continue for some more time to come.
Until late 1980s, political economy of the Indian state has been characterized by a mixed three-dimensional policy. This included heavy industrialization with public sector ownership, agricultural development and poverty alleviation. Without doubt, bureaucracy in post–Independent India was supposed to play a welfarist–developmental role and not merely a monitor of permit, licenses and quota. However, by the late 1980s, it had already dawned upon the Indian state that neither the poverty line had vanished, nor bureaucracy had dissociated itself from the licence-permit-quota raj, nor import-substitution could be sustained in the fast changing world of globalization. Come 1990s and we have the era of liberalization, divestment and privatiztion. The policy of liberalization meant replacing the policy of import substitution and opening the domestic market for external players. Divestment or disinvestments and privatization aimed at diluting the economic role of the state by ceding financial and regulatory control over the public sector and government owned enterprises by reducing stake.
Political economy of privatization and disinvestments are supposed to remove licence-permit-quota raj, make the domestic industry competitive, and reduce the role of the state in those areas which are not core government functions or which are commercial in nature. It is argued that government should withdraw from areas which do not pertain to core government functions and should concentrate on its core areas of social sector, education, health and public goods. It is also argued that proceed of disinvestments should be appropriately reallocated for catering to the requirements of health, education especially primary education and social security. It may also be noted that earlier public sector enterprises were also considered as a means of employment generation. Now, private sector initiatives are supposed to provide employment generation while the state initiative would complement it.
To what extent the goals of poverty alleviation, universal education, employment generation, food security with a view to be available to all in times of need, basic health, water and electricity facilities and balanced regional development have been achieved is a matter of debate and there would be differing views on this. The fact, however, remains that there is poverty, unemployment, illiteracy, drought related food scarcity, regions where even electricity, primary health centres, primary schools, portable water, connecting roads and other basic amenities still challenge the dreams of the people and dare them to think of them in their live times. Some sensitive observers have commented on the issues of poverty and basic human necessities and have shown the need for a more proactive role of the state in these areas. P. Sainath’s Everybody Loves A Good Drought and Jean Drézé and Amartya Sen’s India: Economic Development and Social Opportunity have raised the issues of drought and poverty and fulfilment of basic human necessities. Drézé and Sen argue that expansion of human capabilities through meeting basic human needs of education, health care, water, sanitation, housing etc. would be useful not only for better human lives but also for economic development. Educated and skilled human resources would contribute to economic development.
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