A balancing act?

Print edition : May 12, 2001
Globalization and Nationalism: The Changing Balance in India's Economic Policy 1950-2000 by Baldev Raj Nayar; Sage Publications, New Delhi, 2001; pages 285, Rs.450 (hardback).

IN this neatly brought out book Baldev Raj Nayar, Emeritus Professor of Political Science at McGill University, Canada and the author of many earlier books on different aspects of India's political economy, deals with three related themes. The first is a treatment of the foundational issues relating to globalisation, nationalism and economic reforms. The second is a critical appraisal of India's economic policy of the period from Independence till the 1980s. And the third is a review of the process of liberalisation which started in the late 1970s, gathered momentum in the 1980s and led to the economic reforms of the 1990s.

Nayar is at his best in the first of these themes. The origins of economic globalisation, he points out, "lie in the rise of capitalism in Europe and the penetration by capitalism from the economic core into the regional economies of the periphery around the world". He is equally clear that the present phase of globalisation is a continuation of the international economic order which the United States "as the new hegemon" brought about after the Second World War, using the newly formed international institutions "to serve the interests of the advanced industrial powers, more particularly the U.S." He also shows how the political and military power of the powerful countries was used to promote the interests of privately owned capital via the medium of the multinational corporations (MNCs). Hence the inference, "Globalisation in this perspective appears then not as a neutral universal force exerting itself uniformly around the world, but rather as representing the pressures of the economically advanced part of the world on the less developed part in an asymmetrically interdependent and hierarchically organised international economic system." Alas, these strong convictions expressed in the early pages of the book disappear fairly soon.

Another point that Nayar makes in the introductory chapter and maintains throughout is that state and market arose about the same time and continue to be strong forces in all economic policies. In fact the market cannot act on its own. It needs an agency outside itself to set the rules of the game and the state is that agency. In view of the unconditional support certain branches of economic theory give to the invisible hand of the market, this emphasis on the visible hand of the state in economic policy, even in the context of the onslaught of the global market, is important.

But I find Nayar's treatment of economic policy inadequate and confused. One reason for it, and perhaps the main one, is that he treats economic policy as an end in itself concentrating on its conceptual components and balance, almost completely ignoring its essentially instrumentalist role. He identifies (inward-looking) nationalism and (outward-looking) internationalism as the twin principles underlying economic policies of modern nation states. While he concedes the legitimacy of the former, he is basically an internationalist, if not a globalist. Consequently he is a vehement critic of India's economic policy of the first two or three decades after Independence, which, according to him was based on "the Nehru-Mahalanobis strategy" and an enthusiastic supporter of economic reforms started in 1991.

Nayar is harsh on the Nehru-Mahalanobis strategy for three reasons: it was autarchic; it relied on heavy industries; and it privileged the public sector. These three, according to Nayar, were derived from Jawaharlal Nehru's ideological commitment to socialism. He has no hesitation to give the verdict that the Second Five Year Plan was socialistic. And the evidence? Nehru's statements on socialism, the socialistic resolutions of the Congress Party and of the Parliament, and the fact that the Communist Party supported the Plan while the Indian industrialists opposed it! He ignores his own observation that hardly any country entered seriously into international trade without first building up a domestic economy with the help of strong protectionism. As for socialism being the source of economic nationalism, he fails to draw any inference from his subsequent treatment that the Bharatiya Janata Party (BJP) with no commitment to socialism also espoused a strong nationalistic economic agenda. His observation that India's economic performance during the period of the Nehru-Mahalanobis strategy was "starkly unimpressive in terms of per capita income, alleviation of poverty, and share in the world output and export" need not be contested. But it is strange that someone who attaches great importance to growth as such completely overlooks the fact that compared to the first five decades of the 20th century when India as a colony was open to the international economy, the growth rate of the Nehru-Mahalanobis "nationalist" decades was about three times as high.

BECAUSE of Nayar's reservations about economic nationalism, public sector enterprises and all other alleged attributes of socialism, he is something of a natural ally of the economic reforms started in 1991 and pursued since then. One does not see any reasoned support for these reforms in the book, or even a careful assessment of their impact. He, however, refers to them as constituting a paradigm shift "from the state to the market" and as "embracing globalisation and integration of the Indian economy into the global economy and initiating the dismantlement of physical controls along a broad front of the Indian economy". Surely, the economic reforms of 1991 did reverse some of the policies of the past; they have been attempting to integrate the Indian economy more with the international economy; they have dismantled the regime of controls in many spheres; they have been trying to reduce the lead role of the public sector. Nayar deals with these aspects selectively. But what has he selected?

As a political scientist he recognises (much more than economists do) that in view of India's immense social diversity and democratic polity, there would be a plethora of social groups. One would have expected that his appraisal of the economic reforms would, therefore, be in terms of the response of and impact on different major groups in society. Instead, he concentrates entirely on the business group, and the corporate segment of it at that. He is entitled to make his choice. But the reason he gives is peculiar. In his Preface he says: "Chapter 5 discusses the response of business to the reforms; labour may seem slighted in the process, but no separate treatment is indicated since Indian trade unions are largely the labour fronts of political parties"(!) Having thus selected the corporate groups for his analysis of the economic reforms, he goes into great details including the many differences within them. He appears to be more sympathetic towards the Bombay Group of those asking for a "level playing field".

As a result of this concentration on big business, Nayar is in no position to make any worthwhile assessment of the economic reforms as such, not even to consider whether they have achieved a proper balance. Towards the end of the book all that Nayar can claim for the reforms is that they have taken the economy to a higher growth path. There is no discussion of what the higher growth path consists of. There is no recognition of the near negative growth rate of the agricultural sector in recent years and of the frequent recessionary trends in the manufacturing sector. There is no treatment of the small scale sector though it is a major contributor to India's exports. The performance of the stock market is totally omitted. There is no consideration of the poverty profile. And, of course, Nayar has not heard about the pathetic conditions of millions of farmers and the large numbers of those displaced from their traditional occupations without anything of a security net to fall back on.

Baldev Raj Nayar's study makes a scholarly enquiry into the components of economic policies. It labours the obvious that since the early 1990s India's economy has become more open to the rest of the world in terms of trade and capital movements and less controlled in many spheres. But because of the preoccupation with the book view of balance, it ignores or is not able to enter into the complexities on the ground. That is a pity.

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