A close cooperation between the state and Indian bigbusiness has developed under liberalization through a mutually reinforcingtwo?sided process. On the one hand the state for its own imperatives hascalibrated the liberalization process to safeguard national economic interestsparticularly of Indian capital. On the other hand, as private capital’s role inthe economy became larger and more dominant, its influence over policy makingalso increased.
Hence, in India, though there has been no ambiguity regardingits direction, liberalization has been a comparatively slow and gradualprocess. Instead of a one?shot adoption of free tradeprotection levels were brought down in stages. Even today, despite significanttariff reductions the Indian market is still amongst the most protected in theworld. India has also repeatedly taken recourse to anti?dumping measures toprotect a range of domestic industries, and in fact leads the world in thisregard. While India has signed free?trade?agreements with many countries, ithas remained reluctant to have such an agreement with China, a major source ofimports into India.
Capital controls in general, and specifically the policytowards foreign investment, have also been progressively liberalized ratherthan at one go. Caps on foreign investment, some still existing and othersgradually raised, have been used. In addition, some foreign exchange earningobligations were imposed in the earlier stages of liberalization. These, it hasbeen argued, contributed to the development of automobile component exportsfrom India which has continued even after the obligations were phased out.
Where liberalization measures resulted in significant threatto Indian business from foreign capital, the state also showed a willingness totake countervailing measures. One prominent example of this is the virtualkilling of the ‘market for corporate control’ that was sought to be establishedin the initial flush of liberalization. Indian big business argued that it wasunfair that while foreign firms were being allowed to hold large blocks ofshares in companies, they were still subject to restrictions on inter?corporateinvestments. This made their companies apparently vulnerable to takeovers bybig foreign firms. The state responded to big business lobbying and eased theserestrictions and introduced other measures which would enable them to increasetheir stakes. As a result, a situation emerged where incumbent managements ofmost large companies in India, domestic or foreign controlled, became virtuallyimmune to hostile takeover. The retreat from state monopoly in many key sectorshas also been undertaken in a manner that has supported domestic capitalistdevelopment.
In almost all the major sectors that have been de?reserved and/oropened up for increased participation of the privatesector ? telecom, power, mining, petroleum and gas, banking,insurance, airlines, etc. ? the state has had to set up mechanismsfor regulating them. The withdrawal of the state in one form has thereforenecessitated its reappearance in another.
While creation of new publicenterprises has virtually completely ceased and some old ones have beenprivatized, a significant public sector survives in India today in many ofthese sectors. In most of them there was virtually no Indian private sectorpresence before liberalization. A swift wholesale privatization of thesesectors would most likely have handed over these sectors to MNCs. Instead, ahigh degree of national ownership has been maintained not only through publicsector firms but also by enabling domestic private sector firms to setthemselves up in these sectors. Each of these sectors now has important Indian(or part Indian) private firms – for example Reliance and Essar in Petroleumand Gas; HDFC and ICICI in banking; and Bharti, Tata, and Idea in telecommunication. This private sectordevelopment has been achieved in various ways. In the insurance sectorvirtually every private firm is a joint venture between an international firmand a prominent Indian business group.
A foreign investment cap in this sectorhas played a crucial role in creating this situation. In telecommunications acombination of foreign investment caps, managed competition, an initiallyrestricted licensing of private service providers which was graduallyliberalized, and sale of a major state firm to an Indian group, achieved theresult of creating Indian firms. In banking, while more foreign banks have beenlicensed than domestic private banks, regulations governing expansion ofoperations have favoured the latter. The gradual and in somerespects restricted nature of Indian liberalization has checked foreignacquisition of Indian assets and facilitated the adaptation and adjustment ofIndian big business to the new competitive context. Domestic capitalists havealso been able to leverage their strengths such as deep familiarity with localconditions because policy protected them. The relatively limited success ofIndia in attracting FDI, often attributed to policy not being sufficientlyfriendly, may therefore be interpreted as a success as much as a failure ofIndian economic nationalism under globalization.
The implied favouring ofdomestic capital has been critical for generating a rapid capitalist expansionin India that foreign capital could not have produced even with more FDIfriendly policies. Even in the development of the privatesector dominated and export?oriented IT sector, the state’s role has beenimportant. The state has sponsored the development of software technology parksfrom 1991 and provided other infrastructural support to the sector. Thesoftware sector has been the greatest beneficiary of fiscal incentives like anextended tax holiday. The state has also politically supported the sector’sefforts to gain and maintain international market access, including in the recurrentcontroversy over outsourcing. Above all, the critical need of the IT sector ofa skilled workforce has been met to a great extent by public tertiary educationinstitutions. Some of these institutions may be a legacy of the past, but theyhave been maintained along with efforts to expand their number.
Continuedpublic sector presence in many spheres indicates that the forms of statesupport to private capital characteristic of old economic nationalism have notentirely disappeared in India. Such support has also assumed new formsbeneficial to private capital. For instance, public?private partnerships ininfrastructure development have institutionalized state engagement with privatecapital in what was originally primarily the state’s domain.
Similarly, thestate has sponsored infrastructure development by private capital throughpromotion of Special Economic Zones (SEZs) and the granting of numerous fiscalconcessions. The state has also been actively involved in the process ofprivate capital acquiring land on a vast scale for industrial projects, specialeconomic zones, and real estate projects. Mining rights to private firms aregranted by the state. Liberalism has not eliminated the state as an importantfactor in the economy, but it has meant ceding of the commanding heights of theeconomy to private enterprise which has structurally increased its leveragewith the state.
Constrained in its ability to drive the economy’s growthprocess through public investment, the state has had to induce the privatesector to play that role. Policy has therefore had to be oriented towardsencouraging private investment. In a liberal regime, this often has meant ?concessions? and ?incentives?. Ina federal set?up like India’s, the leverage of private capital over the statehas been enhanced by the competition for investment between states thatliberalization has forced them into. The ability of capital to extract taxconcessions and other benefits like provision of land at low cost has beenenhanced by liberalism. The implications of these measures for state revenueshave further reinforced the dependence on private capital. At the same timelarge business firms which have established themselves in key sectors haveincreased their clout and thus influence on regulatory policy in many of thesesectors.
Economic nationalism under globalization has alsoreinforced the power of Indian big business. Indian enterprises that cansucceed and be players in the global economy have come to symbolize ?successful? integration.Big Indian business firms have successfully set themselves up as the principalinstruments of national economic achievement, champions of ‘national interest’and the symbols of national pride and success16. The tendency to view nationalsuccess as something that coincides with business success has been activelypromoted by Indian capital, and has also gained wide currency in the sociallyinfluential Indian middle class. This process first began perhaps with thesuccess story of India’s information technology sector but has become now morewidespread. The status enjoyed by corporate capital and its voice and influenceover policy making process, have perhaps never been greater than what they aretoday.
Using this, Indian big business enterprises have been able to securesignificant individual and collective benefits and dictate policy priorities.Economic nationalism therefore survives in India after liberalization but in aform where it is more exclusively tied to advancing the interests of Indian bigbusiness. Directed towards strengthening the ability of Indian capital tocompete at home and abroad it has also increased their stranglehold over policymaking. This has made it more difficult for the development of India’scapitalists to be the means of a wider process of development. Indian capitalhas been proactively supported by the state and this has been crucial to itscompetitive strength and enabled it to lead a rapid process of capitalistexpansion in India. However, the interests of other claimants to thestate’s attention – industrial labour, the urban and the rural poor, theagricultural and unorganized sectors – have consequently been hurt and remainat best addressed in a limited way.