Gradualism of Indian Reforms

B-Span is “an internet-based broadcasting station that presents World Bank seminars, workshops, and conferences on a variety of sustainable development and poverty reduction issues.”

A recent video Some Lessons from Economic Reforms in India features Montek Singh Alhuwalia, and has Brad DeLong, Richard Eckaus, and Nurul Islam as discussants. From the site, here is what I gather.

Gradualism is what Indian reforms are about. Reform works slowly in India because the political establishment has to be pushed to liberalize the system. Thus gradualism in the reforms is forced on the system due to India’s participatory democracy. The push is mainly from technocrats from within the country and not from outside as in the case of many developing countries. Reform such as privatization is therefore home-grown and internally initiated and not as a part of the Washington Consensus type of externally imposed condition.

Ahluwalia notes that gradualism in reform reduces the pain but postpones benefits as well. It also allows opponents time to mobilize against reforms.

The site summarises Brad DeLong’s commentary:

” … the Indian experience allowed the losers in the process the time necessary to make adjustments. He said the lecture left listeners with the hope that technocrats can move democracies. He complimented the privatization process Ahluwalia described by suggesting the Latin American experience left it vulnerable to interpretation that it was a corrupt process. The Indian experience also suggested to DeLong that sequencing is possible via gradualism. India’s comparative advantage in the future, DeLong suggested, would be through further integration of technological knowledge and skills in its service sectors. He alluded to the fact that US domestic politics and international trade issues will also have a large impact on India’s development. He asserted that the US needs to open its markets to Indian goods, and the benefit would be to both countries.

My reaction to India’s reform is basically: It’s about time! I understand why it took so long and why it is going so slow. Fundamentally, the rigidity of the Indian system opposes any reform. The structural rigidity is due to the bureaucratic system designed by the British government to control the Indian economy for exploitation, and not meant for development. When the British left, that bureaucratic system was not dismantled because the political system which inherited the government of the country found it expedient to use the bureaucracy for continuing to exploit the economy for perpetuating its own hegemony over the country.

It took over four decades since political independence for the extractive political party to lose its stranglehold on the economy. The economy started gaining a degree of freedom. One must note that liberty — freedom — is implicit in the world “liberalization”.

We should also note that liberalization is not the same as privatization. Privatization happens if what was in public sector is moved to the private sector. Liberalization of a sector is about allowing firms to enter a sector and letting market forces to determine the actions of these firms, rather than by dictat from up on high. The Indian telecommunications sector, therefore, can be said to have been liberalized but not privatized.

If one thinks about it, one soon realizes that the larger society is what determines the politics of a country. And then the politics determine the economy of the country. Unless the politics change, the economy cannot change. And the politics don’t change until the society changes. Therefore, fundamentally, it is social change that lies at the root of all economic growth or disaster.

India’s economy is poor because Indian society is poor. It is an easy conclusion to arrive at but an immensely bitter conclusion for an Indian to accept.