Democracy and Development: The Indian Experience

Prof. Deepak Nayyar

I would like to thank the Prem Bhatia Memorial Trust for the invitation to deliver this lecture. And I consider it an honour to be in your midst this evening. The theme that I have chosen for my lecture is democracy and development with reference to the Indian experience. I never knew Prem Bhatia but I think he would have approved of my choice, for he devoted his professional life to writing about polity, economy and society in independent India. More citizens like him would make the Republic of India a better place to live in.


There is a vast literature on the theme of economic development in India over the past fifty years. The literature on the subject of political democracy in India since independence is just as extensive. Both are rich in terms of range and depth. But they constitute two different worlds, divided into the disciplines of economics and political science. The intersections are few and far between. This lecture is a modest attempt to reflect on the interconnections. It situates the process of economic development in the wider context of political democracy to explore the interaction between economics and politics in independent India. This is an ambitious endeavour: in part, because I venture beyond economics into politics and, in part, because I seek to encapsulate the complexity of India into one lecture. Some of you might think of the old proverb: “fools rush in where angels fear to tread”. If I need an alibi, it is simple. Sometimes, painting with bold strokes on a wide canvas might just create a discernible picture. Such an effort is worthwhile in a situation where the reality is a bewildering mosaic.

The narrow confines of, and the dividing walls between, academic disciplines often conceal more than they reveal. In my judgment, market economy and political democracy cannot and should not be separated from each other as if they constitute two different worlds. In every society, economy and polity are closely inter-twined. It is, therefore, essential to explore the interaction of economics and politics which shapes outcomes for people.

The essence of the tension between the economics of markets and the politics of democracy must be recognized. In a market economy, people vote with their money in the market place. But a political democracy works on the basis of one-person-one-vote. The distribution of votes, unlike the distribution of incomes or assets, is equal. One adult has one vote in politics, even though a rich man has more votes than a poor man, in terms of purchasing power, in the market. This tension may be compounded by a related asymmetry between economy and polity. The people who are excluded by the economics of markets are included by the politics of democracy. Hence, exclusion and inclusion are asymmetrical economics and politics. The distribution of capabilities is also uneven in the economic and political spheres. The rich dominate a market economy in terms of purchasing power. But the poor have a strong voice in a political democracy in terms of votes. And there is a mismatch. It is clear that, in reconciling market economy and political democracy, a sensible compromise must be reached between the economic directions which the market sets on the basis of purchasing power and the priorities which a political system sets on the basis of one-person-one-vote. In this context, it is not surprising that successive generations of economic thinkers and social philosophers have stressed the role of the state in this process of mediation. The reason is simple. Governments are accountable to their people, whereas markets are not. In a democracy, of course, governments are elected by the people. But even where they are not, the state needs legitimation from the people, most of whom are not rich or are poor. The task of reconciliation and mediation is obviously difficult but clearly necessary.

In my lecture on the Indian experience with democracy and development, I shall divide the period of five decades since independence into three phases. Any such periodisation is obviously arbitrary but it serves an analytical purpose. In the first phase, 1947-1966, the strategy of development was shaped by a political consensus and characterised by a long-term perspective. The spirit of nationalism meant that there was less need to manage conflict, but there was a conscious effort to accommodate the poor even if it was long on words and short on substance. The second phase, 1967-1990, witnessed a qualitative change in the interaction of economics and politics. Economic policies and economic development were strongly influenced by the compulsions of political democracy. Those with a political voice made economic claims on the state. But the process of mediation and reconciliation had long-term economic and political consequences. In the third phase, 1991 onwards, characterised by an absence of consensus and a presence of short-termism, the economics of liberalization and the politics of empowerment seem to be moving the economy and the polity in opposite directions. The need for conflict resolution is greater than ever before. But the task has become more difficult. And, strangely enough, the effort is much less.


The conception and the birth of political democracy in independent India was unique in its wider historical context. For democracy did not follow but preceded capitalist industrialization and development. What is more, democracy came to India neither as a response to an absolutist state nor as the realisation of an individualist conception of society. In each of these attributes, it provided a sharp contrast with the experience elsewhere particularly in Europe. In fact, it was not even an obvious outcome of the nationalist movement. The struggle for independence was much more about autonomous space for the nation than about freedom for the individual. Indeed, the Gandhian notion of a just state was premised on the idea that the collective interest must take precedence over individual interests. Yet, the constitution adopted by independent India created a democratic republic and pledged to secure justice, liberty, equality and fraternity for all its citizens. Universal adult franchise was provided at one stroke. The republicanism of the western world was perhaps the role model. This was, in a sense, India invented. A liberal democracy was constructed by an enlightened elite in accordance with its conception of a modern nation state. It was democracy from above provided to the people. And not democracy from below claimed by the people. This is perhaps an oversimplified view. The reality was, obviously, more complex. For the nationalist movement meant a dialectical relationship between the provision from above and the claim from below. In this construct, the state was the essential mediator. It had to perform a critical role in reconciling the conflict between political democracy and economic democracy as also in mediating between economic development and social needs.

In this milieu, the strategy of economic development was shaped by the colonial past and the nationalist present. For one, there was a conscious attempt to limit the degree of openness and of integration with the world economy, in pursuit of a more autonomous, if not self-reliant, development. For another, the state was assigned a strategic role in development because the market, by itself, was not perceived as sufficient to meet the aspirations of a latecomer to industrialization. Both represented points of departure from the colonial era which was characterised by open economies and unregulated markets. But this approach also represented a consensus in thinking about the most appropriate strategy for industrialization. It was, in fact, the development consensus at the time.

The objectives were clear enough: to catch up with the industrialized world and to improve the living conditions of the people. So were the perceived constraints. The scarcity of capital was seen as the fundamental constraint on growth but the low capacity to save limited the rate of capital accumulation, and even if savings could be raised there were structural constraints on transforming savings into investment. It was believed that primacy of the market mechanism would lead to excess-consumption by the rich and under-investment in sectors critical for development. At the same time, it was assumed that agriculture was subject to diminishing returns whereas industrialization promised not only increasing returns but also productive employment for surplus labour from the rural sector. These perceptions shaped the contours of economic policies: the lead role of public investment, industrialization based on import substitution, the emphasis on the capital goods sector, industrial licensing to guide the allocation of investible resources in the private sector, or even the relative neglect of agriculture. And state intervention was meant to create the conditions for the development of industrial capitalism. It did so. Large doses of public investment created a physical infrastructure and set up intermediate goods industries, which reduced the cost of inputs used by the private sector and increased the demand for goods produced by the private sector. Import substitution, implemented through protection, not only guaranteed existing markets for domestic capitalists but also ensured a future insofar as the excess demand attributable to import restrictions would continue to provide markets. This modus operandi of fostering industrialization, a state-led capitalism, was no different from state capitalism elsewhere in the world.

At this juncture in independent India, industrialization was thought of as synonymous with development while it was presumed that national interest and the people’s interest were the same. There was not only a consensus about the strategy of economic development that was adopted. There was also a political consensus on what was attempted. This was attributable in part to the legacy of nationalism which emphasised unity in diversity and in part to the nature of the Congress Party which represented a composite coalition of interests. It was not as if there was no conflict of economic interests. There was. And it was recognised. Some steps were debated but ruled out. It was decided, for example, not to expropriate foreign capitalists or local landlords. Similarly, even though economic inequalities posed a problem, a redistribution of assets was not seen as desirable because it would be detrimental to savings while a redistribution of incomes was not seen as feasible because India, Nehru said, could only redistribute its poverty. Other steps were taken in a half-hearted manner. Land reform legislations were passed. However, these were either replete with loopholes or simply not implemented. The abolition of absentee landlordism was a significant outcome. But these reforms did not give land to the cultivators. Instead, they forced owners to turn into cultivators. Some steps were devised to address the exclusion of the poor and the exploited. The community development programme was introduced to create an infrastructure in rural India. A system of panchayats was created to facilitate institutional change at the village level. Social legislation, which introduced reservations in educational institutions and government employment for the scheduled castes and scheduled tribes, made for affirmative action.

The consensus of the time meant that there was less need for conflict resolution. Yet, there was a conscious attempt by the state to reconcile economic policies with the compulsions of the political process, to minimise the conflicts in the interaction of economics and politics. But this was possible only within limits. For the state was substantively an alliance of the industrial capitalist class, the land owning class and the educated elite. There were, also, the people of India whose interests could not be set aside altogether, or forgotten, in a democracy. The solution was found in a politics of accommodation among the dominant economic and social classes, the rulers, on the one hand, and with the multitude of people, the ruled, on the other. The accommodation among the rulers was a complex process because there were conflicts and tensions, particularly between the rural oligarchy and the industrial bourgeoisie, which were resolved through mediation by the state in the form of mutually acceptable trade-offs in the economy or in the polity. This was inevitably based on a sharing of the spoils. The accommodation of the poor, who were the ruled, however, was long on words and short on substance. The strategy of economic development was given a statist orientation, epitomized in the phrases `commanding heights of the economy’ and `socialistic pattern of society’. The building of industrial capitalism was combined with the radical rhetoric of a political democracy as a means of reconciling economics and politics. It was no surprise, then, that the language of political discourse in this phase came to be strongly influenced by a virus of socialism without substance’ across the ideological spectrum of political parties.

All the same, it must be recognised that this strategy of development was characterised by a long-term perspective. In this phase, there was a vision, however imperfect, about the future of economy, polity and society. In the economy, the object was to eradicate poverty of the people and put the country on the road to industrialization. In the polity, it was believed that democracy was an alternative to revolutionary class struggle in equalising society. For political democracy would, ultimately, endow the poor with the strength to exert strong pressures on the ruling classes for moving towards economic democracy. It is worth noting that this perception reversed the sequence observed elsewhere, as economic development mounted pressures on the ruling classes for moving towards political democracy. In the society, it was hoped that affirmative action would make caste wither away, secularism would dispense with religious identities and modernisation would reduce the significance of linguistic differences.

The reality, as it turned out, belied these expectations. Yet, at the beginning of this period, in the early 1950s, India was a role model. And the optimism extended beyond those who had a dream about India. For some, its mixed economy was an answer to the challenge posed by communism in China. For others, its strategy represented a non-capitalist path to development. For yet others, who recognised the problems of industrial capitalism, India was on the road to their ideal of a social democracy and a welfare state. It is another matter that, towards the end of this period, by the mid-1960s, there was a drastic change in perceptions. India ceased to be a role model in the outside world.


The economic consequences and the political implications of the development process over the two decades that followed independence also surfaced at about the same time inside India.

The economic reality that unfolded did not conform to the expectations and the promises. The benefits of economic growth accrued mostly to the rich, while the process of development largely bypassed the poor. Indeed, available evidence suggests that there was a sharp increase in the incidence of poverty during the 1960s as both the number of the poor and the proportion of the population below the poverty line registered a substantial rise. And, matters were brought to a head by the crisis in the economy in the mid-1960s. Successive droughts which necessitated large-scale imports of food from the United States under PL 480 created images of a `basket-case’. The devaluation of the rupee, in June 1966, made a dent on autonomy in economic decisions as the government came under the influence of foreign donors. The industrial sector was caught in a persistent recession. Savings and investment rates dropped. Economic planning was suspended for an interregnum of three years.

The political scenario that emerged was characterised by two discernible changes. First, the ideology of nationalism had begun to wane. This was partly a consequence of the passage of time as the second generation came to the fore in the Congress Party. It was also related to the regionalisation of politics that surfaced because the central leadership, after Nehru, was weaker. At the same time, politics in India witnessed the first revolts of the young, manifest in the Naxalite movement and the stirring among Dalits. Second, there was a slow but steady erosion of the political consensus. The heritage of nationalism began to fade from memories and the compulsions of political democracy came home to roost. It became clear that governments were elected by the people and the mandate to rule had to be renewed at election time. But winning elections depended on the votes from the poor who constituted the vast majority of the people. The general elections of 1967 established that electoral outcomes could no longer be taken for granted and that the Congress Party could no longer assume the support of the people.

The rise of the rich peasantry, sometimes described as capitalist farmers, provides a powerful illustration of the economic and political changes set in motion by the process of development. Semi-feudal landowners lost their economic strength and social dominance in the countryside. This power was captured by a class of farmers who cultivated their land, reinvested their surpluses in agriculture and engaged wage labour. It was this rich peasantry which captured the benefits of the land reform legislation, the community development programme, the panchayati raj system and the network of cooperatives. As a new entrant, it began to place demands on the ruling political coalition. Unsatisfied by what the ruling elite was willing and able to do for it, this rich peasantry deserted the Congress Party to join or to create coalitions of opposition parties. It was this that led to the defeat of the Congress Party, in almost every North Indian state, in the general elections of 1967.

It must be said that 1967 represented a watershed in an evolving situation and a continuum of developments. In retrospect, however, it is possible to discern a qualitative change in the interaction of economics and politics in independent India which surfaced around that time. It is difficult to understand, let alone analyse, the complexities of the development process in India over the next two decades or so. For an understanding, it is perhaps necessary to distinguish between two periods in this phase : the first from 1967 to 1980 and the second from 1980 to 1990. Such periodisation is, in a sense, arbitrary but serves an analytical purpose.

A. Co-option and Mediation : 1967-1980

The crisis in the economy and the political setback to the Congress Party, at the very beginning of the first period in this phase, led to rethinking in economics and politics. There was a recognition of two realities. For one, the rich peasanty had emerged as a new force demanding its due share in benefits derived from economic policies and seeking an upward mobility in the political process. For another, the poor, who had not seen any improvement in their living conditions, did exercise their right to vote in a political democracy. The system responded in accordance with its perceptions of this reality. This response can be characterised as a politics of co-option.

In the sphere of economics, the response was two-fold. First, there was a strong, new, emphasis on agriculture. The new strategy for agricultural development, which culminated in the Green Revolution, was motivated by the imperative of increasing the output of foodgrains. This quest for food security was driven, in part, by a concern that the nation could not continue its `ship-to-mouth’ existence and, in part, by a concern that if there was a shortage of food it was the poor who went without. The end shaped the means. The better endowed farmers and regions were provided extensive support to increase their marketable surplus of food. This came in a variety of forms: mostly as lower (subsidised) prices of inputs whether fertilizers, seeds, water, power or credit, but also as higher prices of output through a system of procurement prices for producers and a manipulation of the inter-sectoral terms of trade in favour of agriculture. Economic benefits of this regime of subsidies, explicit and implicit, accrued to the rich peasanty. It was not without political purpose. Second, poverty alleviation programmes began life in independent India, albeit on a modest scale. Most of these programmes sought to create employment for the poor while a few sought to provide them with assets for self-employment.

In the realm of politics, the response had three dimensions. First, there was a conscious effort to co-opt the rich peasantry into the ruling coalition and, wherever possible, the Congress Party. Second, the dissent and the regionalism in the Congress Party was met by a strategy of `divide-and-rule’, where one faction was pitted against another to be neutralised and then vanquished. Third, populist rhetoric was born in an endeavour to woo the people. The slogan of garibi hatao, even if it was mere words, captured the popular imagination. But the rhetoric went further to the nationalisation of banks and the abolition of privy purses. It was these steps which gave Mrs. Gandhi, who dominated politics in this period through the democratic, populist and authoritarian phases of her rule, a stranglehold on the political process.

These responses led to some expected outcomes in the economy and some unexpected outcomes in the polity. In the economy, rapid growth in the agricultural sector ensured food security. A surge in savings and investment boosted growth. The balance of payments situation surmounted the oil shock. Industrial growth revived. In the polity, the rich peasanty returned to the fold, the Congress Party won a decisive mandate in the general elections of 1971, and Mrs. Gandhi consolidated her control over both the party and the government by reaching out directly to the people. As it turned out, the economic bliss and the political equilibrium did not last long. Crises in the economy led to agitations in the polity. An erosion of the political mandate strengthened the opposition both inside and outside the Congress Party. In response, Mrs. Gandhi sought to control and curb the political opposition, to establish herself as an undisputed leader in the mode of Caesar. The majoritarianism soon turned into an authoritarianism. But this was not consistent with the checks and balances needed in a political democracy. And, it was this, rather than an economic crisis, which led to the Emergency. However, the authoritarian regime did not last even two years. Democracy reasserted itself. There were two reasons. For one, the suppression of dissent and opposition was ultimately not sustainable because political democracy was, by then, embedded in the system. For another, the mediation between the constituents of the ruling elite that sustained the coalition of class interests required an institutional mechanism, which had, until then, been provided by political democracy. Thus, it needs to be said that the Janata government was the beneficiary rather than the cause of the return of democracy in India. In most respects, it was much like the Congress government before 1975. But, towards the end of its regime, the second oil shock and an inept management of the economy led to unprecedented inflation. The management of the polity was not even functional as the coalition failed to provide governance. The people were hurt by inflation and tired of squabbling among political leaders of the Janata regime. And, in 1980, the electorate voted a largely unrepentant Mrs. Gandhi back to power.

B. Populism and Patronage: 1980-1990

The next period in this phase, the 1980s, was in a sense more of the same but not quite. The compulsions of political democracy exercised an even stronger influence on economic policies and economic development. It turned out to be the age of populism in both economics and politics.

In the sphere of economics, this led to some important changes in policies. First, there was a proliferation of subsidies. Some, such as the subsidies on food, fertilizers and exports, were explicit. These meant expenditure disbursed. Others were implicit in under-priced services of public utilities such as irrigation, electricity and road transport, or in under-priced goods produced in public sector such as steel and coal. These meant revenue foregone. There was something for everybody. The rich peasanty, of course, continued to benefit from implicit and explicit subsidies. But the industrial capitalist class was not far behind. The public sector provided them with cheap inputs and carried the losses. The nationalised banks extended loans which turned into non-performing assets. And, in effect, loan waivers for big firms the industrial sector quietly came into existence much before they were announced for small farmers in the agricultural sector. Loan melas, which began life then, were just a more explicit example of such directed lending as patronage. The government took over sick firms from the private sector, which privatized the benefits and socialised the costs. Second, beyond these subsidies, there was a rapid increase in public consumption expenditure, which provided a sharp contrast with the expansion in public investment expenditure during the first phase. Some of it supported an increase in social consumption and, thus, contributed to an inclusion of the poor. However, a lot of such public expenditure, particularly that on salaries of those employed in the government and in the public sector, supported increases in private consumption. All of it contributed to an increase in aggregate demand and, to the extent that supply constraints were not dominant, an increase in output. Third, there was a massive expansion in poverty alleviation programmes. This was a systematic attempt at creating a safety net for the poor, who experienced exclusion. It needs to be said that this effort at the inclusion of the poor was far more extensive and substantive than it had been in the 1970s. Yet, it must be recognised that economic development did not create social opportunities for people at large. There were transfer payments to sustain minimum levels of consumption. But the provision of basic education, health care and social security was simply inadequate.

In the realm of politics, there were two discernible changes. For one, electoral compulsions, which required the support of the people through their votes, unleashed a competitive politics of populism. Political parties and political leaders across-the-board sought to woo the people with sops. In this quest, no group with a political voice was left unsolicited or untouched. And there was not much difference between the centre, where one party ruled for most of the time, and the states, where different parties ruled at different times. The number of promises made multiplied but the number of promises kept dwindled. For another, a state that was increasingly unable to mediate between conflicting interests and competing demands resorted more and more to a politics of patronage. This patronage, which came to be extended in a bewildering variety of ways, was a means of sharing the spoils among the constituents of the ruling elite.

These changes led to some visible, as also some invisible, economic and political consequences. The rate of growth of the economy during the 1980s was unprecedented. In real terms, national income increased at a rate of more than 5 per cent per annum and per capita income increased at a rate of more than 3 per cent per annum. At the same time, there was a substantial reduction in the incidence of poverty. In economics, this was attributable to rapid growth, moderate inflation and the spread of anti-poverty programmes. In politics, this was attributable to the compulsions of democracy for, after a time, elections could no longer be won by slogans alone. But there was also the other side of the coin. The seeds of the fiscal crisis and the debt crisis were also sown during this period. There were no obvious dividends in politics, except that this period represented a concerted attempt at reconciling the distribution of gains from economic growth with the context of political democracy. There was, however, a visible consequence in the political process. The arena of conflict shifted from the rich versus the poor to the centre versus the states. Dissent in democracy took the form of regional movements which turned to militancy and terrorism in Punjab, Assam and Kashmir. There was also an invisible political consequence in the consolidation of the subaltern classes who recognised that their political identity made their right to vote that much more potent.

C. The Solution as a Problem

In retrospect, it is clear that in the second phase as a whole, from 1967 to 1990, conflicts of interests were that much sharper and the need for resolution that much greater. This was attributable partly to the eroding consensus and partly to the development process. It was also inevitable given the essential tension between the economics of markets and the politics of democracy. The exclusion of the poor by market had to be reconciled with the inclusion of the poor by democracy. There was, indeed, a conscious attempt by the state to reconcile the process of economic development with the compulsions of the political democracy. That the mediation did not lead to a resolution is another matter.

During the first period of this phase, from 1967 to1980, the intervention was purposive. There was an attempt to build new coalitions in terms of economic interests and sustain them through a consolidation of political power. This process was laced with a dose of electoral populism. But the economics remained within limits of prudence. The macro-management of the economy by the government was conservative. Inflation remained within limits of economic and political tolerance. The balance of payments situation was not allowed to get out of hand. It is not as if there were no hiccups. There were. But the system had the ability to cope with shocks, whether the oil price increases in the economy or the Emergency in the polity. In other words, the economy and the polity both had a resilience.

The solutions, however, became a part of the problem. The management of the political process in this period had profound consequences with long-term implications. First, even though the government became stronger, the centralisation of authority and power at the apex weakened the institutional base of the pyramid, so that the ability of the government to mediate between conflicting interests was much reduced. Second, the same culture spread rapidly to institutions and structures in the political process so that there was no room for dissent or debate within political parties. In this situation, the choice was to stay but accept authority without question or to leave the mainstream and strike out on your own. Third, the politics of co-option meant inclusion for some but, at the same time, exclusion for others. This did lead to a tyranny of majorities which is always a possible danger in a democracy. It needs to be said that each of these changes in the political process was to have a lasting impact.

There was, also, an interaction between economics and politics which, slowly but surely, transformed the solution into a problem. It surfaced at the beginning of the first period in this phase, gathered momentum through the 1970s, and was established practice by the end of the second period in this phase. It was also to have a lasting impact, as the role of money extended beyond the economics of markets to exercise a profound influence on the politics of democracy. To begin with, votes were purchased at election time, not everywhere but in close contests or important constituencies. The practice spread. Those with money progressively acquired an advantage, over those without money, in the battle of the ballot. This created barriers to entry in politics, which are, by now, formidable. The process did not quite stop there. It was soon realised that, after elections, even legislators could be bought and sold. If the price was right, a legislator conveniently forgot the mandate on which he was elected and crossed over to support a programme, a party or a government, in direct conflict with the interests of those who elected him in the first place. It did not take very long for such practices to spread from legislators to parliamentarians.

The consequences are no surprise and are observable in the reality of contemporary India. Election season is about mobilising gigantic vote banks. This is often based on money power. There are, of course, vote banks mobilised on the basis of caste, religion or ethnicity, but these can also be swayed in this or that direction, at critical moments, by the lure of money. Similarly, the scenario after elections, if there is no decisive mandate, is predictable as `money-bags’ descend upon state capitals, or even the national capital, to make or unmake coalition governments. It needs to be said that these attributes now almost characterise the political system in India. And, it should be clear that once profit maximisation becomes an important motive for political acts or deeds, the conflict between the economics of markets and the politics of democracy is neither reconciled nor resolved. It is side-stepped or circumvented.

During the second period of this phase, from 1980 to1990, the politics of co-option relied almost entirely on a politics of patronage. It was neither supported nor supplemented by an effective political mediation. The co-option during the first period of this phase, from 1967 to 1980, was based on an understanding, even if imperfect, of the interaction between economics and politics. It had a clear objective. The drift to an overwhelming reliance on patronage in the 1980s, however, simply represented a path of least resistance and a strategy of survival in state power. It was a means of buying time. This populist politics and cynical economics, taken together, translated into soft options, which had the most serious consequences for the economy. It was possible for the government and the country to live beyond its means, on borrowed money, for some time, but it was not possible to postpone the day of reckoning for ever. The inevitable crunch did come at the end of this phase.


The external debt crisis, which surfaced in early 1991, brought India close to default in meeting its international payments obligations. The balance of payments situation was almost unmanageable. The fear of an acceleration in the rate of inflation loomed large. The underlying fiscal crisis was acute. This juxtaposition was neither an accident nor a coincidence. It was man-made and policy-induced.

In response to the crisis situation, the government set in motion a process of macro-economic stabilisation combined with fiscal adjustment and structural reform. This strategy was nothing new. In conformity with orthodoxy of the IMF and the World Bank, it replicated broadly the response of several developing countries in Latin America and sub-Saharan Africa to the debt crisis in the 1980s. But it constituted a fundamental departure from the past in independent India. First, economic growth combined with economic efficiency became the objective function. The object of bringing about a reduction in poverty and inequality was not set aside but such concerns about equity were subsumed in the pursuit of growth on the premise that it is both necessary and sufficient for an improvement in the living conditions of the people. Second, there was a conscious decision to substantively reduce the role of the state in the process of economic development and rely far more on the market. Public investment, seen as a catalyst if not a leader until then, it was argued, pre-empts scarce resources at the expense of private investment and leads to inefficient resource utilization which constitutes a drain on the exchequer. Third, the degree of openness of the economy was increased significantly and at a rapid pace. The object was not simply to enforce a cost-discipline on the supply side through international competition, but also to narrow the difference between domestic and world prices. Foreign capital and foreign technology were assigned a lead role in the process. Every aspect of this quest for integration with the world economy provided a striking contrast with the development consensus four decades earlier. In sum, India moved from a quest for state-led capitalism to a world of market-driven capitalism.

It is clear that economic liberalization in India began on a dramatic note with sudden and fundamental changes in the strategy of development. In the context of a democracy, it is essential to understand the political foundations of such economic change. There are two obvious questions which arise. First, why did a relatively minor crisis in the economy evoke this response while decades of persistent poverty had so little impact? Second, how were such far-reaching changes introduced by what was then a minority government while predecessor governments with overwhelming majorities were unable to do so? These complex political questions seem to have a relatively simple economic answer. The change was dictated by the immediate economic compulsions of crisis management. The external debt crisis which erupted in 1991 meant that the fear of default hung as the Sword of Damocles. There was a sudden realisation that governments can and do become insolvent even if countries do not go bankrupt. The problem was accentuated by a change in the international context at about the same time. The collapse of communism meant that competing ideologies gave way to a dominant ideology, while the collapse of the erstwhile USSR removed the countervailing force, an important prop for India in the past, from the international system. It is not as if there were no other underlying factors. The emerging concerns about efficiency and productivity – even if not about poverty and inequality – had led to a debate and some rethinking in India about development strategy through the 1980s. This had permeated vaguely through the political system inasmuch as the manifesto of every political party for the 1991 elections, across the ideological spectrum, talked about the need for restructuring the economy. In sum, it was a combination of the reality in the national context and the conjuncture in the international context which provided the impetus for sudden change. But there can be no doubt that the response was driven even dictated by the crisis. It was not planned.

It would seem that 1991 was a watershed much more for the economy than for the polity. The economic liberalization introduced as a big bang was crisis-driven and not strategy-based. Yet, it was superimposed on a process of economic development and political democracy that had evolved in independent India over a period spanning four decades. It was, therefore, bound to influence the interaction of economics and politics.

Given the complexity of India’s economic development experience, it would be idle to pretend that everything it did was right but it would be naive to suggest that everything it did was wrong. A discussion of this issue would mean too much of a digression. Suffice it to say that there were both successes and failures. In a long-term perspective, the most important success was the significant step up in savings, investment and growth, which provided a sharp contrast with the near-stagnation in the colonial era, particularly during the first half of the twentieth century. The most important failure, situated in a long-term perspective, was that this process of development did not improve the living conditions, or the quality of life, for the common people. Persistent poverty and absolute deprivation remained the reality for a large proportion of the population. It needs to be said that, despite the significant reduction in the incidence of poverty during the 1980s, the number of the poor circa 1990 was larger than the total population of India at the time of independence. In retrospect, it is clear that the objectives of eradicating poverty of the people and placing the country on the path of sustained industrialisation were not quite realised. Economic liberalization, however, is no panacea. It is limited in both conception and design. At one level, it is concerned with the economic problems of the government such as the balance of payments situation, the rate of inflation and the fiscal crisis. At another level, it is concerned with the efficiency of industrialisation. But it is not concerned with the economic priorities of the people such as employment and poverty, agriculture and the rural sector or physical and social infrastructure. Long-term development objectives, such as education and human resource development or the acquisition of technological and managerial capabilities, are simply neglected.

The story of the evolution of political democracy in India, spanning the first four decades of the republic, is as complex but somewhat more positive. The real achievement is that democracy has taken roots at the level of the people. There is a political consciousness among voters who judge political parties and their performance. It is also possible to discern an increasing, almost silent, participation in the political process, combined with an emerging mobilisation on some issues. In this respect, the expectations of the founding fathers of the republic have been more than realised. For one, there is an absolute institutionalisation of adult franchise which is irreversible. For another, democracy which was provided largely from above is now being claimed increasingly from below by the people. Taken together, these two attributes reflect an increasing empowerment of the people in the political process. In other respects, however, the expected did not happen. Polity did not transform society. Caste did not wither away. In fact, reservations ultimately led to a politicisation of caste. Secularism did not dispense with religious identities. If anything, religion became an increasingly important factor in politics. The significance of linguistic or cultural differences did not diminish. It persisted as ethnic identities and regional movements became an important form of dissent in politics. If the main vocabulary of politics turned out to be caste and religion, or other forms of social identity, rather than class, democracy did, in a sense, bring politics to the people. The irony is that, although democracy struck roots among the people, it was not so embedded in political parties. Indeed, intra-party democracy diminished slowly but surely with the passage of time. Thus, dissent did not lead to debates or factions within parties. It led to splinters. In this world, politics in political parties became more and more personalised so that ideology was less and less a point of reference. The economic liberalization which was introduced in 1991 and gathered momentum thereafter, was simply not related to the institutional framework of political democracy. It was, therefore, neither shaped by political processes nor rooted in social formations, which could have provided constituencies in polity and society.

It is always difficult to analyse the present without the benefit of distance in time. It is, however, plausible to suggest that the 1990s witnessed an accentuation of conflict both in economic interests and in political interests. The former is implicit while the latter is explicit. This is bound to make the interaction of economics and politics even more complex.

The retreat of the state, which is almost a corollary of economic liberalization, hurts the poor in a material sense. And India is no different. The soft options in fiscal adjustment lead to cuts in public expenditure in social sectors, as the resources allocated for poverty alleviation, health care, education and welfare programmes decrease, or do not increase as much as they should, in real terms, so that there is a squeeze on social consumption. Cuts in subsidies are often at the expense of the poor. So are many of the increases in user charges for public utilities. The story does not end there as the state withdraws from investment in infrastructure. It is the poor who go without. But that is not all. Globalisation has introduced a new dimension to the exclusion of people from consumption possibilities. Exclusion is no longer simply about the inability to satisfy the most basic human needs in terms of food, clothing and shelter for large numbers of people. It is much more complicated. For the consumption patterns and the lifestyles of the rich associated with globalisation have powerful demonstration effects. People everywhere, even the poor and the excluded, are exposed to these consumption possibility frontiers because the electronic media has spread the consumerist message far and wide. This creates expectations and aspirations. But the simple fact of life is that those who do not have incomes cannot buy goods and services in the market. Thus, when the paradise of consumerism is unrealisable or unattainable, which is the case for the common people, it only creates frustration or alienation.

This process is juxtaposed with a politics of segmentation arising out of conflicts in the political process. For one, religion has become a major factor in political mobilisation, reflected primarily in the rise of the Bharatiya Janata Party. For another, caste identities are now crucial in political parties and the electoral process, reflected not only in Dalit mobilisation by the Bahujan Samaj Party but also in the co-option of backward castes into most political parties sometimes referred to as the `Mandalisation’ of politics. At the same time, the decline of national political parties is leading to a regionalisation of politics, reflected in the fact that regional parties now rule a large proportion of the states in India. Indeed, these regional parties now exercise a profound influence on who rules India. This politics of segmentation means that there is no dominant political party and no stable coalition. The reality is constantly shifting coalitions or unstable governments. Yet, there is a functional stability in political democracy because each of these segments have a stake in the system and aspire to a share in state power. It is not about empowerment alone. There are the material spoils of office, with or without corruption.

These tensions are compounded by conflicts between the sphere of economics and the realm of politics. The people who are excluded by the economics of markets are included by the politics of democracy. Hence, inclusion and exclusion are asymmetrical in politics and economics. The distribution of capabilities is also uneven in the economic and political spheres. The rich dominate the economy now more than earlier, but the poor have a strong voice in the polity now more than earlier. And there is a mismatch.

It is, then, plausible to suggest that this third phase in independent India is characterised by an intensification of conflict in the economy, in the polity and in the interaction between economy and polity. There can be little doubt that the need for conflict resolution is much greater than ever before. But the task has become more difficult. And the effort is much less.

It is more difficult to mediate in the conflicts between economic development and political democracy for two reasons. First, there is no consensus. In the sphere of economics, the old consensus has broken down while a new consensus has not emerged. The oft-stated view that there is a political consensus on economic reforms in India is not quite correct because such a consensus exists only among the rich, the literati and the influential. It extends to most political leaders, whose discourse on the economy has come to be strongly influenced by a `virus of liberalization without understanding’ although not to the rank and file of most political parties. But it does not have an acceptance at the level of the people, most of whom are poor or silent and thus unheard. In the realm of politics, too, the old consensus has turned into a new dissensus, as divisive issues such as caste, religion, language and regionalism have multiplied. Second, a short-termism has replaced the long-term perspective of yesteryears. In the sphere of economics, the pre-occupation with adjustment or reform leads to confusion between tactics and strategies or means and ends in the minds of governments. In the realm of politics, where governments are no longer sure about their tenure, a visible myopia has crept in. In this milieu, political parties and political leaders can think only about the next month or the next year or, at most, the next election. The next quinquennium or the next decade are simply irrelevant. Such short-termism leads to a neglect of long-term development objectives.

The effort to mediate in conflicts between economic development and political democracy is also much less. Curiously enough, the willingness and the ability of the state to mediate is not quite there. Its willingness to mediate is dampened by the use of money power to influence or to use the state apparatus for particular purposes. In most democracies, governments can be sectarian in their actions as they seek to protect or promote the interests of classes, or groups, whom they represent. The apparatus of governments is often need deliberately to promote the interests of the ruling elite. This does not surprise anyone. In India, however, the governmental system is increasingly being used to further, sometimes crudely and openly, the interests of powerful individuals through corruption and nepotism. In this milieu, people with money lobby hard and exercise influence in pursuit of their interests. But people without money do not have the voice or the resources to support their cause. Thus, the desire of the state to mediate surfaces only in election season. Its ability to mediate is constrained by the spread of markets and the march of globalisation. This process is not only eroding the autonomy of the nation state in the international context, but is also creating a situation where the political process is losing control over the economy in the national context. The credibility of the state as an institution has eroded and the government, it appears, is abdicating its role in reconciling economic and political democracy.

In sum, the economics of liberalization and the politics of empowerment represent an unstable, if not volatile, mix. Ultimately, empowerment is a more potent force than liberalization. At present, however, it would seem that these forces are moving the economy and the polity, for the first time in independent India, in opposite directions, without any concerted attempt at a reconciliation or a mediation. This is fraught with risk. And, if the state cannot perform this role, the mediation would have to come through citizens and civil society.