Outline

 The popular questions

 The 2008 Crisis: causes and triggers
 Effects on the Third World Generally
 Distinctiveness of the Indian experience
 India: A potted history of the Indian economy
 1947-69 Planned Development and its Abandonment
 1969-1984: Liberalization by Stealth
 1984-1991: Domestic liberalization
 1991-2001: Global Opening?
 2001 to present: Mini Credit Fuelled Industrial Boom
 The Present Financial Crisis:
 Financial Transmission Mechanisms for India
 Recession Transmission to India
 A Turning Point in Indian Economic History too?
 Sources and Acknowledgements
Inquiring Minds want to
know...
Decoupling or Contagion (Financial and/or Real)? Growth slowdown?
Protectionism versus Globalization?
End of growth-producing ‘Reforms’?
Fate of Outsourcing?
Inflation?
End of Indian M&As?
Assumptions: Neoliberal policies fuel recent ‘tiger’ like growth
‘Strong Fundamentals’ and the Impending Elections (May 2009)
Recessio
n 2008
Adv. Financial
countries Financializatio
Crisis
n
Return of the 1970-2007
postponed?
Sub-
Prime
Housing
Bubble Stock
Market
The Long Bubble
Downturn Debt
1970s  bubble Emer
ging
Revers Mkts
e bubb
Capital le
Flows
2008: A Historical
Turning Point
The Financial and the Real
 Financialization postpones long downturn effects on
Decelerating First World Economies thro increased capital
inflows creating ‘Anglo-Saxon capitalism’
Increasing state role thro neoliberal-ization of
(predominantly financial) markets
Declining US hegemony through growth competition thro A-
S model with IW and growth repression in IIW and IIIE
End of all three as focus shifts to production, state and
‘Rise of the Rest’
2008’s effects on the
Rest
Immediate loss of trade and finance
But long run gains in policy options, new terms of trade?
Financial contagion greatest in most liberalized markets
Least liberalised most successful = demonstration effect
‘Rise of rest’ not merely artifact of US deficits
Decrease in hot money potentially good
Recession does curtail Western Markets of even less liberalized
economies
Need to
 Focus on internal and/or southern markets
 Re-coup capabilities for economic governance
The Indian Experience...
Big Bourgeoisie at Independence (not Kalecki-an
‘intermediate regime’)
Significant 1st stage ISI in 1930s
Economic Nationalism formative
Growth inevitably largely endogenous (derided as
‘trade pessimism’, autarky, inward-looking,
‘socialism’)
Growth pattern of high Inequality + Poverty
Since mid-1980s enthusiasm for Neo-liberalism,
‘globalization’ and the US among educated opinion
But 2 major steps up in growth (circa 1950 and 1980)
do not coincide with freer markets of ‘globalization’
... The Indian Experience.
 IMF/WB involvement absolutely large , proportionally insignificant
 Internal pressures for economic liberalization (my date 1969)
 Until recently state leads growth: first, direct state investment, later
demand boost through state salaries and spending
 Reserve Bank of India (RBI)’s conservative: no hyperinflation
 RBI not formally independent but respected (until recent Min Fin
electorally motivated takeover of liquidity injection oversight from RBI)
 Nationalization of major banks 1969.
 Capital Controls slowly and incompletely lifted
 Foreign Financial Institutions’ presence limited
Sectoral GFCF at Current
Prices 1980-2007 (Rs Crore)
1947-69
Planned Development
 Nationalists opposed Drain, Deindustrialization, Colonial not
a national state
 Planned National Development includes bourgeoisie
(Bombay Plan etc.)
 Import Substitution Industrialisation (ISI) + Agrarian
Transition
 Egalitarian agrarian reforms = Higher productivity, surpluses,
market
 Planned industrial development = Large Pub sector + diversified
industrial structure + self-reliance
 Quasi Marxist strategy undermined by agrarian power
 Crisis of planning in Late 1960s = Green Revolution
 Achievements: derided but actually
higher ‘Hindu’ rate of growth; diversified industrial structure,
institutional development
‘Fetters’ and Planning
Corresponding to each state of development, there
tends to grow a certain economic and social
stratification which is conducive to the conservation
of gains from the use of known techniques. Such
stratification has a part to play in social progress.
But beyond a point, it hampers innovation and
change, and its very strength becomes a source of
weakness. For development to proceed further, a re-
adaptation of social institutions and social
relationships thus becomes necessary … The
problem, therefore, is not only of merely
rechanneling economic activity within the existing
framework; that framework itself had to be
remodelled.
p. 7.
The Hindu Rate of Growth in
Historical Perspective
1969-84
Under-cover Liberalization
Prima facie increase in statism: nationalization of
Banks, industrial control increased, substantial 2nd
state ISI, anti-smuggling, FERA, MRTP, etc.
Underlying trend point elsewhere:
 labour repression,
 Green and White Revolutions,
 state intervention pro-capitalist by default
Inflation + middle-class political unrest + emergency
+ 1977 Janata Government
Self-constraining inequitous growth process set
pattern
Agrarian bourgeoisie  Urban and industrial
investment  provincial propertied class  seamless
Indian capitalist class
1984-92
Domestic Liberalization
From late 1970s onwards hesitant but then
accelerating decontrol: various reports (Desai,
1969, Jha, 1981) critical of state intervention
1984 Rajiv Gandhi domestic liberalization with
limited international opening
Accompanied by usual rhetoric about free market
and export-led growth; though exports remain
stagnant
Growth rate picks up circa 1980 not after 1991, as
neoliberals have it
Consumer durables-led boom (mainly vehicles)
Energy/import intensity real cause of Balance of
Payments crisis
Cargo Cult?
Exports and Imports as
%GDP
Growth and the Neoliberal
Story
1991-01
Global Opening?
 Structural Adjustment (but like 1981 IMF loan, paid back early)
 Privatization of parts of very large public sector
 Growth and industrial growth accelerate, however,
 Despite Neoliberal and export led-rhetoric, exports rise only in traditional
categories: textiles, gems and jewellery, leather etc.
 Balance of Payments gap closed by remittances
 Import penetration increases
 Mainly driven by pent-up demand for goods with high import content
 Narrow domestic market easily saturated: industrial recession by 2001.
 Capital Controls remain:
 RBI’s conservatism prevails over Ministry of Finance enthusiasm
 India escapes 1998 Asian meltdown
 Continuing caution about portfolio investments and reserve accumulation
India’s Public Sector
Crown Jewels
 Bharat Electronics Ltd Bharat Heavy Electricals Ltd
 Bharat Petroleum Corporation Ltd Coal India Ltd
 GAIL (India) Ltd Hindustan Aeronautics Ltd
 Hindustan Petroleum Corp Ltd Indian Oil Corporation Ltd
 MTNL National Aluminium Co Ltd
 NMDC Limited NTPC Limited
 Oil & Natural Gas Corp Ltd Power Finance Corp Ltd
 Power Grid Corp of India Ltd Rural Electrification Corp Ltd
 Shipping Corporation of India Ltd Steel Authority of India Limited
Wire Transfer
2002-07
Credit Fuelled Industrial
Boom
 Govt capacity for stimulus lower ; Fuelled by easy consumption credit
 Increase in retail banking
 Inflow of foreign loans + portfolio inv. + foreign financial institutions
 Seemingly lifts historically heavy Foreign Exchange constraint
 India’s reserves in August 2008 $310 bn, third in world
 But accompanied by trade deficit (unlike China and Japan)
 But Trade Deficit > software + remittances  current account deficit
 Covered only by capital movements
 M&As abroad rise, investment income rising but also outflows
 Deficit on business services
 But India begins exporting higher value added products: Chemicals,
engineering goods and pharma.
 Growth concentrated in some sectors
 Slowdown evident since 2006
India’s own credit-feueled
boom
Financial Crisis
Transmission Mechanisms
 Portfolio Investments and Withdrawals by IFIs
 Fall in Sensex
 Depreciation of rupee
 Exposure of Indian banks to toxic assets:
 RBI estimate 450m (90m public + 360 pvt)
 + depositors and investors in foreign banks operating in India (recently
increased operations).
 Exposure of non-bank FIs and corporates to domestic stock and currency
markets.
 Expected to be large, RBI permits banks to provide loans to mutual funds
against certificates of deposit (CDs) or buy-back their own CDs before
maturity.
 Cutbacks on credit to individuals by banks. Marked deterioration in growth of
all consumer loans. Given reliance of growth on this sort of credit, impact on
growth could be high.
Easy Come (US$ m)
Easy Go (US$ m)
Sensex: Halved by Crisis
Rupee Value

1/12/200
8
50.1
Recession: Transmission
Effect on trade with US, EU and developed
countries: already China and UAE/Saudi
Arabia biggest trading partners
Effect of rising dollar on B of P
Commodity Price inflation (?)
Growth slowdown to 7.8% (IMF projection)
Reduction in remittances from US
compensated by Gulf countries (?)
Hit to outsourcing(?)
Oil Hit
India at Crossroads?
 Overall, growth slowdown of Indian making
 Effects of crisis/recession only compound it
 Potential return of ForEx constraints unless reorientation
 No Decoupling without coupling (globalization rhetoric
notwithstanding)
 Real questions:
 Will India accept expansion of home market as the new
imperative? Address inequality and poverty?
 Will its opinion makers give up their destructive worship of the
market and the US?
 Will it address the cultural – religious, caste and gender
dimensions of inequality? Re: esp. Mumbai attacks last week
 In short, will it introduce a new age of Reforms, in the sense the
word conveyed before neoliberalism?
Sources and
Acknowledgements
Indian progressive economists
 See esp. www.macroscan.org
 www.networkideas.org
Reserve Bank of India data and analysis at
www.rbi.org.in
World Bank/IMF
My analysis of the dynamics of India’s political
economy since 1947 to appear as
 The Making of the Indian Capitalist Class
 Thanks for support in writing to Zentrum Moderner
Orient, Berlin