State and Capital in Independent India: From Dirigisme to Neoliberalism Chirashree Das Gupta Degree: PhD Economics Department of Economics School of Oriental and African Studies University of London ProQuest Number: 10731455 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. uest ProQuest 10731455 Published by ProQuest LLC(2017). Copyright of the Dissertation is held by the Author. All rights reserved. This work is protected against unauthorized copying under Title 17, United States C ode Microform Edition © ProQuest LLC. ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 Abstract This thesis examines the relationship between state and capital in post-independence India. There was a dramatic shift from the strategy of state-led capital accumulation. After the 1950s, this strategy became increasingly dirigiste. From the 1980s, economic policy in India shifted towards neoliberalism. The conventional wisdom is that this transition to neoliberalism was driven by poor economic performance in India during the period of state-led growth. The economy was characterised by inefficiencies because of government-created distortions that stifled entrepreneurship and needed to be corrected by neo-liberal ‘reforms’. However, capitalists in India were beneficiaries of dirigiste policies, and did not adopt neoliberalism as their collective agenda even when their disenchantment with the state peaked in 1965-66. It was only from around 1980 that a section of capitalists in India began to support a neoliberal turn. What explains this paradigmatic shift? This is the central question of the thesis. This research examines the role of the state in the capital accumulation process in India with a focus on the period from 1965 to 1980 to shed light on how and why the change in state-capital relations occurred. Throughout the 1970s, the expansion and diversification of the capitalist class with the rise of ‘new’ family-controlled business houses played a critical role in shaping the changes towards neoliberalism. This thesis examines the social origins, institutional access, privileges and restrictions, forms of political organisation and modes of expansion of capital. Both ‘zones of intervention’ and ‘zones of non-intervention’ by the state facilitated the various dimensions of this expansion. These developments forged new political alignments of capitalist interests and led to significant stratification within the class. These changes had critical impacts on the access of the capitalist class to technology and finance, defined the attitude of Indian capitalists towards ‘globalisation’ and accelerated the informalisation of labour force. 3 Acknowledgements This thesis would not have been possible without the support and help from various individuals and organisations. I would particularly like to thank Dr Chandra Ghosh and Dr Norman Hindson for the physical and material support they provided all through the span of the work. I would also like to thank Universities UK for the Overseas Research Student Scholarship, University of London for the Central Research Fund Grant, School of Oriental and African Studies for the Fieldwork Grant, the British Foundation of Women Graduates for the maintenance award for the writing up and Newby Trust, UK for a finishing grant. I would also like to thank all the staff members in the Department of Economics, SOAS, with whom I had the pleasure to teach and learn as a Teaching Fellow. I am particularly grateful to Dr Sonali Deraniyagala and Dr Stephanie Blankenburg for help and guidance at the start of the teaching process. I am grateful for suggestions and advice that came at various stages from various people. I would specially like to express my gratitude to Professor Ben Fine, Dr Sonali Deraniyagala, Dr Stephanie Blankenburg, Professor Amiya Bagchi and Professor Jayati Ghosh for their valuable comments. I would like to thank Professor P P Ghosh and Dr Shaibal Gupta of ADRI, Patna, for giving me the opportunity to present part of this work to a diverse audience in India. During the course of the fieldwork, I received immense co-operation and help from the staff at the Parliament Library, New Delhi, the FICCI Library, New Delhi, the Jadavpur University Central Library, Kolkata, the SNDT Women’s University Library, Mumbai and the library of the Centre for Studies in Social Sciences, Kolkata. I would also like to thank P.K. Ganguly of the CITU and Samik Laliiri and Nilotpal Basu of the CPI (M) for helping with access to data and interviews. I am grateful to FICCI and CII officials in Delhi and Mumbai, trade-unionists in the CITU and AITUC in Delhi and Patna and all the people from various organisations of industry and business, trade-unions and political parties who readily and patiently gave interviews and took part in surveys. I am also indebted to friends and family for their hospitality while travelling during the fieldwork. Debashis Das Gupta, Hazel Gray, Nina Balogh and Thomas Allan spent their valuable time reading, editing and proofreading the thesis. I cannot thank them enough. This thesis would not have been possible without their suggestions and comments. Alexis, Asma, Bappa, Emily, Foqia, Gaurav, Hazel, Jawahar, John, Laura, Madhuja, Michael, Mousumi, Nina, Paromita, Radhika, Sandy, Sobhi, Stephanie, Suchetana, Tom and Urvi stood by me in both good and bad times during the course of the thesis. 1 gratefully appreciate their friendship and solidarity. This thesis would not have been completed without the support I got from family members. I would like to thank my parents, Debashis and Deepa Das Gupta for their steadfast encouragement all through. I would also like to thank my partner Sayan Jyoti Gupta, my brother Aurko Das Gupta, and other family members Kajol and Pumima Gupta, Debjani Mitra and Gautam Das Gupta for their encouragement and help. Last, but not the least, I would like to express my debt, appreciation and gratitude for my supervisor Professor Mushtaq Khan. His advice, encouragement, ideas and constructive criticism transformed the arduous process of the PhD into a very pleasant learning experience. He was much more than a supervisor. He has been a constant guide and friend. No words can be enough to express my indebtedness to him. 4 Table of Contents Chapters Title Page Introduction 7-15 1 Dirigisme to Neoliberalism in India: The Context and the Debate 16-48 2 State and Capital in Independent India: The Problematic 49-74 Independence and Emergence of State-led Capitalism 7 5 - 9 8 4 Growth of the Indian Capitalist Class: 1950-1966 99-133 5 Continuity and Change in Capital Accumulation: 1966-1980 134-163 6 Sources of Accumulation: State Intervention and Non-intervention 1 6 4 -1 9 4 7 New Enclaves: ‘Old Oligopolies and New Entrants’ in the 1 9 5 -2 2 3 Pharmaceutical Sector Conclusion 2 2 4 -2 3 3 Bibliography and References 234-260 List of Tables Table No Title Page 2A South-South FDI Flows 51 4A Index of Industrial Production (Base: 1946 = 100) 108 4B Gross Domestic Capital Formation (GDCF) as Percentage of 109 GDP, 1950-55 4C Gross Domestic Capital Formation (GDCF) as Percentage of 116 GDP, 1955-65 4D Listing of Foreign Collaborations in India 1957-64 120 4E Taxation and Profits of Foreign Companies 1962 122 5A Average Annual Growth rates of GNP at 1993-94 Price 138 5B Percentage Shares of Sectors in GDP: 1950-51 - 2000-01 143 5C Hotels and Restaurants as a Share of GDP 145 5D Andhra Pradesh: Investment in Fixed capital in Industry 152 5E Small Registered Factories: Employment, Output and Investment 158 5F Sector wise Direct Project Assistance by IDBI between June 1964 161 to June 1975 6A Concentration of Assets and Capital Formation by Major Business 177 Houses 6B Sectorwise Sanctions from All India Financial Institutions 191 6C State wise Assistance Sanctioned and Disbursed by IDBI 192 7A Drugs and Pharmaceutical Production Units 200 7B List of Reserved Drug and Pharmaceutical Products for Small- 201 scale Production, 2003 7C Number of Drugs under Price Control 217 7D Contingent Liabilities of Alembic Pharma 218 7E Estimates of Retrenchment of Factory Workers 220 5 List of Figures Figure Title Page 4.1 Percentage Share o f GDP 113 4.2 Gross Capital Formation at Current Prices 114 5.1 1950-51 - 2000-01: Transformation by Mapping Sectors Shares 139 5.2 Average Five-Yearly Growth Rates: 1950-51 - 2000-01 142 5.3 Regulated Manufacturing 144 5.4 Regulated Manufacturing: 1950-51 -2000-01 144 5.5 Sector Share of Trade in GDP 145 5.6 Trade Output since 1950-51 146 5.7 Capital Formation in Trade 146 5.8 Hotels and Restaurants: GDP at 1993-94 Prices 147 5.9 Sectorwise Capital Output Ratios 159 Note: 1 Crore =10 Million 6 Introduction This thesis focuses on the relationship between state and capital in the post­ independence period in India from the perspective of political economy. It begins with an examination and subsequently a rejection of the ahistorical but conventional neoclassical assessments of post-Independence India, which are based on a ‘false dichotomy’ between the state and the market. The arguments that form the core of the enormous body of literature on India based on neoclassical economics and its expansion into ‘new political economy’ and ‘new institutional economics’ are reviewed. A critique is offered based on a brief assessment of the sociology of knowledge across disciplines in social sciences that scrutinises important debates on the relationship between state and society in India.