The Institutional Framework of India - Growth, Development and Structural Change, Indian Economy | Indian Economy - B Com PDF Download

Institutional Framework of India’s Development

From rural development to agricultural development. “India lives in its villages” had long been the constant refrain of the country’s politicians. In 2003, 60 percent of the country’s population was still rural. Yet, India’s leaders never linked agrarian reform to broader development goals or adequately addressed the linkages between distributive aims, rural well-being, and agrarian productivity. Mostly, each of these elements—redistribution, agrarian well-being, technical improvements in the service of agrarian growth—were treated separately at different moments, a product of the crisis of the day rather than of long-term strategic thinking about how they fit together into a coherent developmental strategy.

India’s initial years of independence (1947-1955) saw the implementation of land reform legislation and the creation of community development institutions with the goal of achieving broader well-being for India’s citizens. It was not clear, however, how that strategy would fit with the emphasis on large-scale industrialization that was so prominent at the time. Moreover, land reform was left to the states, given the pressures by landlords and powerful notables in India’s ruling Congress Party. Its uneven and indifferent implementation robbed land reform of its radicalizing promise to change agrarian relations or to improve agrarian income and well-being.

The failure to address the core of India’s agrarian problem created a food crisis in the early 1960s that led India’s policy makers to move toward a limited technocratic and intensive solution aimed at agrarian productivity and selfreliance in food grain production. The New Agricultural Policy concentrated resources (credit and the Intensive Agricultural District Programme) and technology (high-yielding varieties of seeds, irrigation, fertilizers, pesticides, etc.) in the already advanced areas of the country and among progressive farmers. It also sought to involve foreign—largely U. S.—aid with research institutions set up for this purpose. The strategy paid off in increasing agrarian productivity, and India’s dependence on imports of food grain became a thing of the past. By 1988-1989, India was producing 170 million tons of food grain. Regionally, the greatest improvements occurred in the wheat-growing regions of Punjab, Haryana, and western Uttar Pradesh. Yet, this newfound self-reliance could not address the problems of the rice-growing regions of the country, thus creating new regional disparities in agrarian patterns. Even more tragically, large sections of India’s populace have continued to suffer from chronic malnutrition and hunger despite the self-sufficiency in food grain production, highlighting the role of institutions that mediate the production process to the consumption of food; distribution of food continues to be a persistent failure of India’s “Green Revolution.”

Industrial development as the lynchpin of the modern developing state. Industrial development was the centerpiece of India’s developmental strategy; its instrument was a strong public sector and regulation of the private sector for public purposes. Thus, India adopted an import-substitution industrial strategy (ISI), rather than developing its comparative advantage in agricultural and textile goods. Exports were neglected. This strategy was to be implemented by the central government, the licensing system, the constitutionally mandated Finance Commission, and the Planning Commission, which acquired disproportionate power in the early years.

The centerpiece of the regulatory state came to be identified with the licensing system—the so called “license-quota-permit raj”—that set up licensing regulations to direct the flow of industrial investments to desired locations and sectors and with the desired mix of product and technology. The purpose of the act was to regulate the entry of firms, to keep industrial capacities in line with plan targets, to achieve regional balance in the creation of industrial capacities, and to diversify the industrial base. Such applications were also reviewed for suitability of the proposed enterprise or expansion plans from the point of “national” and economically rational objectives.

Despite such rationality and preeminent power, the regulatory system became a combination of policy and patronage, wherein different groups established privileged channels of access to state policy. These distributive coalitions received subsidies, concessions, and benefits in return for their political support. As a consequence, the developmental health of the nation suffered.