Revisiting The Political Economy of Development in India

Pranab Bardhan’s 1984 book The Political Economy of Development in India (PEDI) has had enduring influence. For students of Indian political economy it quickly became a scholarly touchstone. In the years since publication, however, political economy has fallen out of favour in South Asian studies. The contributors to this volume revive class analysis to interrogate India’s great transformation since the 1980s. This chapter outlines Bardhan’s key analytical tools, his innovative fusion of Marxist and rational-choice theory, and his diagnosis of India’s deep collective-action problems as a result of fierce competition between dominant classes. It then surveys the chapters that follow, which together find striking continuities in contemporary Indian political economy in the face of three decades of liberalization.

Rethinking the ‘Dominant Proprietary Classes’

In recent years, there has been a surge in scholarship on India’s middle classes, much of it focused on questions of identity formation and consumption practices. Yet there remains an analytical vacuum in such descriptive understandings. Pranab Bardhan’s concept of dominant proprietary classes provides an important avenue that can begin to deepen our understanding of the relationship between the middle classes and development in India. This chapter suggests that the middle classes rely on the systemic appropriation of public resources, in the face of its ideological support for liberalization. This appropriation of the public surplus contributes to the reproduction of inequality through longstanding structural processes.

The Stagnation Debate

The fact Bardhan sought to explain in 1984 was economic stagnation. After 1965 there was a dramatic slowdown in the growth rates of productivity and output growth in industry, particularly heavy industry. Bardhan made one of the last canonical contributions to the debate, providing a political economy explanation for this bad policy. He argued that India was structured around three dominant proprietary classes, which undermined government efforts to mobilize resources and use them for investment. The first enduring legacy is the link between public investment and subsidies. The second enduring legacy has been the significance of episodes of growth and stagnation. The third legacy is the lasting importance of public investment in explaining economic growth.

An Indian Gilded Age?

According to Forbes, India has experienced a striking growth in billionaire wealth since 1991. It has also experienced high-profile corruption scams between politicians and business. This chapter develops an interpretative comparison between contemporary India and the Gilded Age in the United States of America. It argues that there are important parallels with the Gilded Age, around private wealth creation on the back of corporate expansion, extensive links between business and political interests, and widespread sharing of economic rents as part of the political equilibrium; this nevertheless coexists with significant building of industrial capabilities. It then explores a contrast with the US Progressive Era. The comparison suggests the medium-term prospect is for a continuance of a mix of connected capitalism and populist social strategies, including in the wake of Narendra Modi’s election. This can be interpreted as a new version of Pranab Bardhan’s collective action problem.

Reflections on Indian Political Economy

In the more-than-three decades since The Political Economy of Development in India (PEDI) appeared, there have been many changes in the Indian economy and polity. But the principal theme of the 1984 book about the enormous difficulty of collective action in taking long-term policy decisions and implementing them in India’s complex heterogeneous society remains valid. This is reflected in governance issues around infrastructural investment, education, public health, and sanitation and environment. The chapter also considers other structural problems that were not discussed in the original book such as the legitimization crises arising out of the various unequalizing forces of capitalist development and the scattered social movements in reaction; the paucity of jobs for the burgeoning unskilled labour force even when the economy is growing relatively fast; the regional asymmetry in job creation; and the tension between rentier and entrepreneurial capitalism exacerbated by the growth process itself.

All Shook Up?

The Political Economy and Development of India (PEDI) outlined highly influential theories of both the Indian state and its bureaucracy. Professionals within the public sector were one of Bardhan’s three competing dominant classes, yet he was also clear that the state was an autonomous actor distinct from the rent-seeking officials who populated its lower ranks. Three decades later, economic reforms have ostensibly challenged the public sector’s economic, ideological, and policy dominance. This chapter argues that the Indian system remains more statist—and correspondingly less ‘pro-business’—than many scholarly interpretations today allow. Nonetheless, elite public sector professionals have become fragmented that challenge their coherence as a class, while new obstacles to effective state autonomy have arisen from the nexus between politicians and the petty bureaucracy.

The Second Dominant Proprietary Class

At around the time that The Political Economy of Development in India (PEDI) was first published in 1984 the rich farmers of India had begun exercising the power of their numbers in massive public demonstrations. A few years later the influence of rich farmers seemed to be on the wane. This chapter considers the trajectory of agrarian politics over the last thirty years. While a narrow alliance between state and big business increasingly appears to determine the pattern of Indian development, these dominant partners have still had to make compromises with rural interests for electoral reasons. Yet the capture of public resources by wealthy farmers comes at the expense of the agricultural economy as a whole.

Growth and the Subsidy Raj in India

The Political Economy and Development of India (PEDI) proposes what is now a very well-known hypothesis about the reasons for the low-growth regime that India experienced from the 60s to the early 80s: interest-group politics in a democracy leads to populism and subsidies, choking off resources for accumulation through public investment in infrastructure. This political economy of constraints, according to Bardhan, seems to have blocked the economy’s escape from a low-level equilibrium trap of low growth. This chapter looks at a part of Bardhan’s argument, namely the relationship between subsidies and growth. The chapter studies the patterns of growth in income per capita and subsidies over the period 1980–81 to 2013–14 and finds, contrary to PEDI, that both economic growth and subsidies increased. Put together, these trends do not provide evidence in favour of the ‘Bardhan subsidy hypothesis’ that the subsidy Raj was the most important binding constraint to economic growth in the 1980s.

Malgudi on the Move

In his seminal book The Political Economy and Development of India (PEDI), Pranab Bardhan recognizes the ‘ferment’ of subordinate classes but does not tackle the questions of their origins and roles. In this chapter we examine three aspects of the impact on the ‘rest of India’ of the coalition of dominant proprietary classes, whose competitive jousting over scarce resources in the 1970s and 1980s led Pranab Bardhan to conclude they had slowed investment and growth. We conclude that much of the economy is neither purely agrarian nor industrial, a heterogeneity that challenges distinct class categories. Not only is the persistent mass of small firms indispensable to dominant classes but also, to driving growth and livelihoods, the power of numbers is able to challenge the power of capital.

Business Interests and State Autonomy in India

Given the striking increases in the wealth and stature of India’s private sector over the past quarter century, we may expect its role to have changed from that outlined The Political Economy of India (PEDI). Such a conclusion is incorrect. First, despite the considerable deregulation of the Indian economy that has taken place, state elites still enjoy significant autonomy in policymaking. Second, while industrial capital has expanded faster than the other two dominant propriety classes, the rich farmers and professionals have developed in ways that make them formidable political counterweights to industrial capital. Third, although the state elite’s vision of ‘the national interest’ has evolved toward embracing private capital and the global market, the extent of big business hegemony over public discourse and policy should not be overstated.