Paul Krugman once described how a better cartographic description of Africa led to a decrease in the world’s ‘knowledge’ about the continent. In the 15th century, maps of Africa were densely populated with cities, rivers, fantastic animals and beasts and more. Thus, even with a widely inaccurate outline of the continent – one that was finally set right only in the 19th century – explorers knew a lot. But as knowledge improved, the map was hollowed out: the coastline and cities around it were well known but the interior became one big, blank space. As standards for acceptable knowledge rose, statements like ‘city X is five days from the left bank of river Y’ ceased to have value. It was only at the end of the 19th century that maps of Africa acquired finality.

Krugman was using Africa’s maps as a metaphor for the fall of development economics as a ‘respectable’ branch by the end of 1960s. The discipline could not build mathematical models of what it observed and described. That was its end, until it revived after acquiring the lacking intellectual apparatus.

It is tempting to speculate if a similar process can be discerned for Indian development especially about the relationship between the state, capital and the private sector. A bare bones story – that is accepted history now – can be told in this fashion. By 1947, when India gained Independence, British colonialism and the policies it put in place had led to a huge drain of wealth from Indian shores. When combined with the imposition of free trade and ‘investments’ made by Britain over a century, the weakening of India’s economic fibre was substantial, if not disastrous. Against this historic background, India lost its appetite for free trade, foreign investments and export-led growth. This was the intellectual legacy of 190 years of British colonialism in the subcontinent.

 

India chose the path of promoting local industry for everything, a process that came to be known as Import Substitution Industrialization (ISI). The domination of ISI as an idea and as a policy lasted until the early 1980s when the first tentative steps were taken towards liberalizing foreign trade and opening India to foreign investments. By 2001, a decade after the Indian economy received its single biggest liberalizing push, India was well on its way to becoming one of the fastest growing economies of the world.

The filling and blanking of the ‘map’ in this story comes from three scholarly books that have been written in the last two decades. Vivek Chibber’s Locked in Place: State-Building and Late Industrialization in India (Princeton University Press, 2003), Adnan Naseemullah’s Development after Statism: Industrial Firms and the Political Economy of South Asia (Cambridge University Press, 2016) and Atul Kohli’s Imperialism and the Developing World: How Britain the United States Shaped the Global Periphery (Cambridge University Press, 2020). Each offers a part of the story from the onset of colonialism to the present day. They offer a mix of revisionist takes from the settled historical narrative and re-emphasizing parts of that story. Each, in turn, is a subject fit with the observed trend seen over the course of the 20th century.

The overall matrix – the settled narrative, the three scholarly studies and the actual trend – make for a complex tapestry that goes some distance in furthering our understanding of India’s relative successes and failures in capital accumulation and the relation of the state with industrialists.

In terms of its material, Kohli’s book deals with the earliest period of the story. Conceived as a comparative study of Imperialism, the book contrasts the British and American varieties and their attempts to tame the global periphery. His divisions are neat and largely tally with the observed history: informal versus formal control. In the former category fall countries like Argentina, Egypt and China while India and Nigeria, among others, were subject to formal colonization. The American variant, that developed roughly a century later faced complexities that were absent in the heyday of British Imperialism. Tilted largely in favour of informal control (with notable exceptions like The Philippines), the US waged wars and undertook regime change where informal control was not possible. Iran, Vietnam and Chile are the examples.

 

What is interesting in Kohli’s book is its synthetic overview of the East India Company and its run in India. Here Kohli’s narrative conforms to the standard set by nationalist historians in India: each of the different phases of Company’s rule represented a different phase of British imperialism. From a trading concern to a company that acquired territory by wars of conquest and finally, between 1813 and 1857, more an agent of the British government, ruling and administering India.

The statistics pressed in to build the case on India’s impoverishment have been culled from a variety of sources and amplify the point. ‘Home charges’ – the dues levied on revenue from India – dividends to East India Company shareholders, interest on public debt accumulated by the Company in India, and administrative charges – are part of nationalist folklore even if they are undeniably true. An increasing part of the Indian revenue was used to meet military expenditures buttressing the nationalist claims about the evil effects of British rule. This much is known to every school child.

 

Where this history falls short is a different domain. The Company’s rule did not come about on the body of the decaying Mughal Empire but because of the rulers the Company had to deal with in its trading ventures: from Siraj ud Daulah to the Nawabs of Carnatic, the East India Company realized that without armed might, it could not survive the rough and tumble of Indian politics. The Carnatic Wars (1743-1763) are very good examples of how wars become ‘profitable’ because Indian rulers vied for the Company’s army against their rivals. The power to gather revenue became a more profitable venture over trade in goods not because the Company wanted it but because the local rulers gave it away, step-by-step.

With the passage of time, these historical claims and counter-claims are largely the domain of subject specialists. They provoke an ideological controversy now and then, but interest in them is mainly academic.

The effects, apart from the colonization of India, were far more consequential in what India chose to do with its understanding of British rule in India. Vivek Chibber’s Locked in Place is an interesting and revisionist work of understanding economic policymaking just after Independence. By 1947, the nationalist leadership was very clear in its economic vision for India. Private enterprise was to be brought under the purview of ‘disciplinary planning’ while the state carried out the bulk of investment activities. In Chibber’s telling of the story, this failed even before it took off. By 1950, business and industry had gained an upper hand and they nullified any meaningful attempt at socialist, ‘disciplinary’, planning.

 

The upshot of big business closing its ranks against planning was an emasculated Planning Commission that was left with no teeth; it was merely an advisory body whose recommendations the Cabinet could dilute or reject. The second piece of disciplinary planning that was distorted way beyond its original intent was The Industries (Development and Regulation) Act, 1951. On paper, the act armed the government with extensive powers of licensing and taking over virtually any industry.

Whatever be the law on paper, the deck was loaded against any effort at successful planning. The licensing regime was subverted as inquiries later showed. This made nonsense of any effort at planned investment as the private sector continued to ‘defy’ the larger scheme of investment planning in capital goods and other key areas identified by planners. The 1951 Act, in turn, had development councils that were designed to keep the private sector in the loop.

In Chibber’s diagnosis, the combination of a business that brooked no interference in its plans and the weakening of the labour sector, at the hands of the nationalist leadership when it split the unified labour union soon after Independence, broke the back of disciplinary planning. With labour divided the one bulwark that could have challenged the private sector and helped the government give teeth to the planning process, was destroyed.

The watered down planning system and the mixed economy that resulted from it effectively precluded a Korean-style economy where credit, resources and government help were incumbent on private firms meeting targets set by the latter. Chibber writes that, ‘That was the dilemma for the business class in India: it did not want, and therefore could not demand, an economy run on the principle of laissez faire. State support and access to public funds in the form of subsidies, credit and state procurement were absolutely essential to its future development. It could not, therefore, attack the commitment to ‘planning’ per se. Indeed, the most prominent organs of the class heartily endorsed the principles when presented in their most abstract form in party pronouncements and reports’ (p. 147).

 

Analytically, of course, this is just one part of the story. Taming the private sector was just one part of socialist planning. The story of the other part – the government’s attempts – muddles the picture considerably. By mid-1960s, the falling savings/income ratio – blamed by key planners on the worsening terms of trade for industry in favour of agriculture – took capital accumulation to a dead end. It may sound unfair but the assumption made by planners was one of a clean slate or a machine working in a clockwork fashion: investment planning was, in this vision, an ‘engineering’ exercise that just had to get the various ratios right.

By mid-1960s, when wage goods became a key bottleneck, diverting resources to secure food output from rich – today’s middling – farmers became unavoidable. In its wake, it set in motion a series of choices and events that halted planning in its steps. For one, the food-growing class acquired political power and, in turn, power to dictate prices at which they sold their output. For another, the agriculture sector began resisting its status as a ‘bargain sector’: Henceforth resources had to be devoted to it to get hold of sufficient quantities of food for workers and people living in urban areas. The change in flow of resources – two-way instead of just unidirectional – changed the basic parameters of planning. Finally, political survival for any ruling party now dictated considerably greater expenses for purchasing support among different classes in India. There was hardly any surplus left for investment.

One cannot indulge in an apples and oranges comparison of reasons for planning failures in India. Business resistance is chronologically prior to the actual failures of the planning exercise. There is no way one can say factor X is more important than Y in derailing investment planning. The issue is that there is more than one candidate for blame. And it is the nature of the second candidate – government – that is important from the perspective of keeping ideological balance. One can pick one’s favourite villain but history shows something else.

 

In the end, high growth (say sustained GDP growth rates in excess of 7%) had to wait the end of the planning era and it came when India was fairly well-knit with the global economy, in the 21st century.

The final part of the story is told in Adnan Naseemullah’s book. He has two puzzles that he seeks to answer. He writes that, ‘The fact that Indian manufacturing has nearly doubled in the last decade, largely unsupported by their government’s rather feeble industrial policies and regulatory frameworks, thus begs for an explanation’ (p. 27). His second puzzle is with respect to the very different practices of firms in the same industries and the same regions with respect to acquisition of capital and recruitment of workers among a set of other challenges faced by these firms.

This Naseemullah feels arose because, ‘…the contemporary Indian state has not the inclination, resources, or capacity to implement the full, integrated framework of industrial governance that had characterized statist industrial regulation and promotion before liberalization.’

Naseemullah’s landscape is thus one where each firm has been left to its own devices supported, very minimally, by specific industry organizations. Ironically, the absence of support that he rues has probably helped many industries survive the extremely harsh competition to which these firms were exposed in an open global environment. It has, as he notes, helped propel industrial growth in India.

 

Perhaps that is how it was supposed to be. India’s inability to produce global winners after Independence had to do with business resistance to disciplinary planning as much with a weak Indian state, wholly unsuited to wield the stick and beat industry into shape. It may sound harsh but this had much to do with the differences in the South Korea (1948-1960) of Syngman Rhee and the India of Jawaharlal Nehru (1947-1964). You cannot wield a big stick, for any purpose, in a democracy unless it is a very special kind of democracy.

Might this change now, well into the 21st century?

In recent years there have been plenty of noises about ‘Make in India’ and, more recently, ‘Atmanirbhar Bharat’ (self-reliant India). What is worth noting is that the first round of Import Substitution Industrialization – a term that no one wants to use today even if that is exactly what many wish for – arose against the backdrop of a colonial legacy and the fear of political consequences of foreign investment. That round ended only when India ran out of money: a balance of payments crisis and, in general, exhaustion with statist industrialization. The desire for another attempt at ISI has been met with worried noises and fears of a very different kind, those inspired by the pathologies of mid-1960s to 1980s: rent-seeking, pervasive shortages of consumer goods and, in general, the economic chaos of those decades.

It is hard to say whether the second attempt at ISI is justified on economic grounds (going by Ricardian logic, it isn’t) let alone if it will succeed. But two things should be noted: The structural conditions for such an attempt – a closing, re-nationalizing world with fragmented markets – and the far greater capacity of the Indian state to enforce discipline. Finally, the private sector does not suffer from the ideological disadvantages of the earlier age. Whatever be its end results, should such an attempt at ISI be made again, it will be an interesting experiment.

 

Can things change for the better in that India has a less stunted industrial landscape? It is hard to say anything with certainty here. India’s manufacturing landscape is fractured among firms that display acute disparity in size and structure. The overwhelming number of units is so small as to make any notion of economies of scale a laughable idea. It took a pandemic for the government to wake up and realize the mess that India’s MSMEs are in. The sector that employs roughly 120 million people and contributes around 31% of output in goods and services has been hobbled for a very long time. For ideological reasons the sector has indeed been kept ‘small’. The moment the size of a firm in the MSME sector – in terms of investment and turnover – crossed a certain level, one that was puny by any reasonable standard, a firm stood to lose financial and other incentives on offer.

Finally, this is being changed as detailed in the Atmanirbhar announcements issued on 13 May. A set of credit guarantees, loan moratoriums and other assorted measures for the sector were announced on that day. While these measures are welcome, they are a small droplet of help. The sector, if it is ever to be an incubator for strong manufacturing units that can withstand global competition and churn out innovative products, requires a very different approach.

 

The contrast with industrial behemoths that have the necessary resources for investment in developing new product lines and market them is glaring. MSMEs have none of these resources. On paper, there have been attempts by government institutions to provide help. The operative expression here is: on paper. It is interesting to note that while one hears frequent news about Foreign Direct Investment (FDI) proposals into India, these usually pour into big firms, Greenfield ventures by foreign companies or the few crumbs thrown at ‘start-ups’. There is virtually no systematic investment in MSMEs. They lack the scale that will interest foreign investors.

In their own way, Kohli, Chibber and Naseemullah have sketched a map of industrial India. But unlike a physical space where adding of detail imparts finality at some point to a map, India’s industrial landscape is yet to be fully explored. In part this is due to the changing landscape itself. The story is yet to acquire finality more than seventy years after India’s modernizers launched their quest to make the country an industrial power.