India’s Open-Economy Policy This book is the first major exploration of Indian political economy using a con- structivist approach. Arguing that India’s open-economy policy was made, justi- fied, and continued on the basis of the idea of openness more than its tangible effect, the book explains what sustained the idea of openness, what philosophy, interpretations of history, and international context gave it support, justification, and persuasive force. Drawing on a wide range of contemporary and historical sources, and going as far back as the nineteenth century, the author reconstructs the way in which Indian policymakers have interpreted economic priorities, perceived success and failure, and evaluated the destiny of their nation. By the 1990s, their imperatives increasingly highlighted a sense of rivalry, especially with China, and globalism, a desire to play a strong role in world affairs. The book shows how a sense of nationalist urgency was created through globalism and rivalry, allowing policy- makers to privilege international needs over domestic political demands, replace economic independence with interdependence as a priority, and ensure that the broad basis of India’s openness could not be challenged effectively even though certain policies faced severe opposition. This book will be of interest to those working on International Political Economy, Globalization, Economic History, Public Policy, and South Asian politics. Jalal Alamgir is Assistant Professor of Political Science at the University of Massachusetts, Boston, specializing in the relationships between globalization and representational politics. Routledge contemporary South Asia series 1 Pakistan Social and cultural transformations in a Muslim nation Mohammad A. Qadeer 2 Labor, Democratization and Development in India and Pakistan Christopher Candland 3 China–India Relations Contemporary dynamics Amardeep Athwal 4 Madrasas in South Asia Teaching terror? Jamal Malik 5 Labor, Globalization and the State Workers, women and migrants confront neoliberalism Edited by Debdas Banerjee and Michael Goldfield 6 Indian Literature and Popular Cinema Recasting classics Edited by Heidi R.M. Pauwels 7 Islamist Militancy in Bangladesh A complex web Ali Riaz 8 Regionalism in South Asia Negotiating cooperation, institutional structures Kishore C. Dash 9 Federalism, Nationalism and Development India and the Punjab economy Pritam Singh 10 Human Development and Social Power Perspectives from South Asia Ananya Mukherjee Reed 11 The South Asian Diaspora Transnational networks and changing identities Edited by Rajesh Rai and Peter Reeves 12 Pakistan–Japan Relations Continuity and change in economic relations and security interests Ahmad Rashid Malik 13 Himalayan Frontiers of India Historical, geo-political and strategic perspectives K. Warikoo 14 India’s Open-Economy Policy Globalism, rivalry, continuity Jalal Alamgir India’s Open-Economy Policy Globalism, rivalry, continuity Jalal Alamgir First published 2009 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2008. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Routledge is an imprint of the Taylor & Francis Group, an informa business © 2009 Jalal Alamgir All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Alamgir, Jalal, 1971– India’s open-economy policy: globalism, rivalry, continuity/Jalal Alamgir. p. cm. – (Routledge contemporary South Asia series; 14) Includes bibliographical references and index. 1. India–Economic policy–1991– 2. Globalization–India. 3. Competition–India. I. Title. HC435.3.A43 2008 338.954–dc22 2008022604 ISBN 0-203-88697-6 Master e-book ISBN ISBN10: 0-415-77684-8 (hbk) ISBN10: 0-203-88697-6 (ebk) ISBN13: 978-0-415-77684-4 (hbk) ISBN13: 978-0-203-88697-7 (ebk) For Amma and Abba Contents List of figures x List of tables xi Preface xii List of abbreviations xv 1 Explaining the continuity of openness 1 2 The politics of causes and consequences 19 3 Roots of globalism and rivalry 45 4 Evolution of economic globalism and economic rivalry 81 5 Perception, policy, and persistence 121 Appendix 132 Notes 134 Bibliography 158 Index 172 Figures 2.1 Fiscal deficit of the Indian government, 1970–71 to 1990–91 21 2.2 India’s current account balance, 1970–71 to 1990–91 22 3.1 Defense spending in China and India, 1953–74 61 3.2 Top suppliers of conventional weapons to India’s neighbors, 1980–2006 64 4.1 Comparative GDP of India and China, 1960–2005 93 4.2 Changes in the structure of the economy 93 4.3 Trends in life expectancy and infant mortality rates 94 4.4 Comparative indicators of science and technology 95 4.5 Openness ratios in India and China, 1970–2005 96 4.6 India’s trade with China, 1990–2006 119 Tables 2.1 Changes in India’s governments, 1991–99 38 3.1 Share of China in arms imports of Pakistan and Bangladesh, 1951–2006 63 3.2 R&D expenditure by India’s government, 1965–95 68 3.3 Indigenously developed guided missiles of India 72 3.4 Satellite programs of India and China 73 4.1 India and China, basic indicators 91 4.2 India and China, relative position in the world 91 4.3 India and China, human and social development indicators 92 4.4 Current trade and investment statistics 97 4.5 Export competition between India and China, 1979–84 98 4.6 India’s export competition: Marjit/Raychaudhuri (1997) findings 103 4.7 World market shares of China and India in select commodities 103 Preface This book uses a constructivist approach to explain why India’s open-economy policy has continued apace and become established despite political turmoil. When I began the initial research a decade ago, India was teeming with “a million mutinies,” as V. S. Naipaul put it. Everything about the country, espe- cially its economic policy, was shaped inexorably by material immediacies. Or so it seemed. As I dug deeper, I began to find that explanations based on mater- ial factors, whether political or economic, were weaker than they initially appeared: they could not account for the tenacity of India’s open-economy policy. Nor could they adequately explain how a policy, especially one con- sidered a radical departure, is marketed such that its political risks are reduced and that the policy becomes embedded enough to survive changes in govern- ment. To entrench policy is not an easy task – and particularly so in a society that is incredibly diverse, spectacularly complex, and typically “argumentative.” Yet this is exactly what has happened in India since 1991: economic openness has come to be accepted in society as a core national value, on a par with other fundamental values that the state is committed to protect. I explore the ideational basis of this acceptance. My research and writing proceeded in three phases. I did initial fieldwork and interviews in South Asia in 1997–98, which, in hindsight, turned out to be an opportune point between the initiation and consolidation of India’s open- economy policy. The Centre for Policy Research in New Delhi, the Centre for Policy Research and Analysis at the University of Colombo, and the Centre for Social Studies at the University of Dhaka hosted my fieldwork in the subconti- nent. I am especially indebted to Isher Judge Ahluwalia, Jayedeva Uyangoda, and Borhanuddin Khan Jahangir for their strong leadership and advocacy in facilitating the research. During this time I also received suggestions from Balveer Arora, Sanjaya Baru, Amit Bhaduri, C. P. Bhambri, B. Bhattacharya, Bishwajit Dhar, Ayesha Jalal, Atul Kohli, Deepak Nayyar, V. A. Pai Panandiker, and Eswaran Sridharan. I should add the disclaimer that not every- one here shared my views. I am indebted to Mr. and Mrs. Fazlul Ahad, who insisted on having me stay for four months in their house in New Delhi, and quickly became a second family to me, and to Anne Ranasinghe, who hosted me in her lovely bungalow in Cinnamon Gardens in Colombo, and shared with me Preface xiii her politics and poetry, not to mention the post-dinner Scrabble games, which she insisted were essential “to keep our faculties running.” I conducted additional research at the Southern Asian Institute at Columbia University and the Watson Institute for International Studies at Brown Univer- sity between 1999 and 2003. I received encouragement and feedback from many, including Richard Francis, Rodney Bruce Hall, Rounaq Jahan, Deepa Kumar, Andrew Marble, Craig Murphy, Baldev Raj Nayar, Nagesh Rao, Grahame Thompson, and Linda Weiss. Four mentors were critical to the success of this project. For their guidance, feedback, and benign neglect of my occa- sional foibles, I thank: Thomas Biersteker, who influenced my thoughts on glob- alization and constructivism; Robert Wade, who helped me understand better the political economy of development; Dietrich Rueschemeyer, who emphasized the socio-historical importance of the state; and Linda Miller, who not only prodded me with affection to write clearly, but also, as editor of International Studies Review, where I worked, allowed flexibility in my schedule to accommodate the composing of initial drafts. The third phase of the work, including additional research, presentations, and substantial writing, took place at the University of Massachusetts, Boston. I received support and strength from many faculty: Elizabeth Bussiere, Elora Chowdhury, Leila Farsakh, Thomas Ferguson, Arjun Jayadev, Ruth Miller, Pratima Prasad, Heike Schotten, Rajini Srikanth, Primo Vannicelli, Ananya Vajpeyi, and Paul Watanabe, among others.