The uplift in the economic growth rate during the 1980s had been bought with foreign borrowings but without restructuring the economy. The economy’s autarchic orientation continued and this meant that insufficient export income was generated to pay back the foreign debt. Had the borrowings been invested in exportables and India been given an open economy orientation, then repayment would have been easier. Had the capital come as equity rather than debt, the repayment would have not been a problem. But borrowings were made in debt form to retain political control over resources and this proved to be fatal. The economy crashed as it became unable to service its debt.
The political system crashed at the same time in as much as neither V P Singh nor Chandrashekhar could sustain a majority. The Budget for 1991 had to be postponed and central bankers had to scurry around raising money to pay back debt. The election of 1991 did not settle the issue though Congress (without Rajiv Gandhi) came back to power without a majority. A break away from the old model was now urgent in the economic sphere. Of the three sides of the triangle — social, political and economic, it was the economic which was the easiest to change quickly. But the change rapid as it was soon became mired into a reluctant transformation. The two other dimensions constrained the speed and thoroughness of the abandonment of the old dirigiste model in favour of economic liberalism.
Through the 1990s and into the 21st century, coalition governments persisted. In its first forty-two years after independence, India had six Prime Ministers of whom three had ruled for thirty eight years. In the next thirteen years there have been six more prime Ministers. Political continuity in the sense of one-party dominance has now gone. Economic self-sufficiency as an ideal has also been abandoned. The contending visions of nationhood have resulted in a marked rise in political and communal violence. There are caste wars in Bihar, Hindu Muslim violence in 1992/1993 and again in Gujarat in 2002 with smaller episodes in between. There is violence against dalits and Christians from those who prefer a Hindu India.
At the same time India has remained a democracy in a most resilient fashion. For someone who grew up when the world was worried about After Nehru who?, the question today seems absurd. Coalition governments have carried on Westminster politics in a most Indian fashion. Politics is more consensual, less elitist but at the same time more corrupt and self-serving. Democracy is too deeply entrenched now to imagine any other form of governance in India. Which by the same token makes it very difficult to imagine any drastic change in the second pillar of social conservatism. Thus castes are valorized as are regional and religious divisions. They are cards to play in the electoral game. Political power is the solvent which brings gains of patronage to communities which have little chance in the liberal market order for economic gain. Of course by resorting to political patronage, these ‘backward’ castes and scheduled castes dig themselves deeper into the mire of dependency. This strengthens the appeal of conservatism. The fact that some caste leaders spout secular or socialist slogans does not make them modern in any sense.
Thus the burden of keeping the show on the road, of plastering the differences together falls on the economic dimension. Economic reform over the last ten years has been slow, hesitant but consensual. The strategy of implementing reform through the democratic process has meant that unlike in Eastern Europe there has been no shock therapy, no convulsion. The reformers of today were the dirigistes of yesterday. There is continuity. Thus the growth rate has gone up only modestly (relative to East Asian countries) to between six and six and a half percentage points. There has been a slow trickle of FDI and India’s export performance remains modest. The rate of privatization has been slow for a long time though it has perked up in the last year or so. Infrastructure development is urgent as is the need for restructuring of public sector infrastructure provision if FDI is to be attracted. Budget deficits of the Centre and the states together are too large and represent a waste of savings.
But then the deficits are the price of the twin pillars of social conservatism and political democracy. Coalition politics and the patronage politics of social factions combine to make government expenditure a variable outside political control. Despite the misgivings of IFIs and credit rating agencies, Indian finance ministers carry on with the deficits as they are, knowing full well that any effective curbing of government spending would end any coalition. The same is the case with corruption and the crime/politics nexus. The quality of public life has gone lower as India’s democracy has become more inclusive. The costs of this democracy now constitute a non negligible burden on India’s growth rate. If even half of the deficit now running at 10 per cent of GDP is avoidable, we are speaking of around 2 per cent per annum in GDP growth rate.