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reforms of industrial and trade policy, opening them up, even if only a little. We noted earlier the implications of the softening of import restrictions for the price of capital equipment for Indian investors. The consequence of changing political attitudes, of the advent of new business elites, and of the reforms that were implemented, was that by the late 1980s the deals environment had become both more ordered and more open, and this is seen by Kar and Sen as having been ‘the crucial enabling factor behind the increase in private investment in equipment’ (2016: 41).

      These arguments are not universally accepted. Arvind Panagariya, whose analysis of phases of growth we referred to earlier (see table 2.3) argued that only in the three years from 1988–89 to 1990–91 was there a distinctively higher growth rate, and that this was the fruit of the modest, piecemeal reforms that had been pursued to that time. The real break in the growth trend came only with more thorough-going market-friendly reforms that were launched in 1991 (Panagariya 2008). Panagariya, and others too, also thought that the growth of the 1980s depended upon unsustainable fiscal expansion. Large fiscal deficits were run up, government debt expanded hugely through the decade, exerting a big stimulus to demand – but in a way that was held to be unsustainable. Kotwal et al. (2011), from their review of these arguments and the evidence for them, reach the judicious conclusion that all of the factors that are referred to may have played a part. None of the other explanations, however, addresses the crucial question of how the settlement between business and political elites changed. The more ordered deals environment that Kar and Sen discern in the 1980s was then extended in the 1990s.

2.4 India’s ‘Economic Reforms’ and Growth in 1993–2001

In 1991 Indian economic policy took a new direction, in which the aim has been to promote economic growth through support for private enterprise. Under a minority Congress government headed by P. V. Narasimha Rao (whose own role in the change that took place has often been underestimated), the Finance Minister, Dr Manmohan Singh, embarked on far-reaching policy reforms that took India away at last from the state-led, closed framework established in the early years after independence. The measures that were initiated by Dr Singh, known generally as India’s ‘economic reforms’, and that have been continued with greater or lesser determination under succeeding governments, have been directed at reform of India’s investment regime, its trade policy regime, its tax system and its financial sector – broadly in line with the arguments long advanced by economists such as, notably, the Columbia professor Jagdish Bhagwati and the Yale professor T. N. Srinivasan, following from their criticisms of the licence-permit-quota regime. Their advocacy of liberalizing reform for long had little purchase among policy makers, but at last it took over the mainstream of official thinking on economic policy. Ideas matter. But it is hard to change official mind-sets, and it took a particular moment, even for ideas that had been expressed with vigour over a good many years, finally to shift official thinking (Mukherji 2013).

      The particular moment that made for a tipping point was that of the economic crisis that confronted the Rao government as it came into office. The immediate cause of the crisis was an abrupt fall in remittances, and oil price increases that were brought about by the Gulf War of 1990–91, but it was underlain by the deficit that followed from the expansionary fiscal policies that had been pursued by Rajiv Gandhi’s government, a widening current account deficit, and mounting external indebtedness. By the early summer of 1991, India had sufficient reserves to pay for only two weeks’ worth of imports. There certainly was a liquidity crisis, but it might have been tackled without embarking on structural reform. That it was ‘the harbinger of a significant structural adjustment-cum-liberalization reform’ (Kar and Sen 2016: 46), was the result of the persuasion of the international financial institutions and of the economic liberals in the Indian establishment, in a wider context in which neo-liberalism had become intellectually dominant (Harvey 2005). By 1991, it was widely thought by economists that the Indian economy was in urgent need of further and more radical reform. Even Rodrik and Subramanian (2005), though they thought that the growth surge that revived the Indian economy after 1991–92 was powered very substantially by the productivity growth and manufacturing base put in place in the 1980s, recognized that further reforms were necessary.

      In July 1991 a new Industrial Policy Statement abolished licensing except for 16 industries. The numbers of industries reserved for the public sector were reduced; automatic permission for foreign equity participation up to 51 per cent was granted for a number of high-tech, high-investment priority industries; there was significant trade liberalization in regard to capital and intermediate goods (though little change at this stage so far as consumer goods were concerned); there were financial reforms; and macroeconomic stabilization was achieved with devaluation of the exchange rate and reduction of the fiscal deficit.

Kar and Sen put it that ‘The increase in economic growth that was witnessed in the 1980s was consolidated in the growth episode of 1993–2001 when the growth of GDP per capita accelerated from 1.86 per cent per annum in 1950–1992 to 4.15 per capita per annum in 1993–2001’ (2016: 45). Their choice of the verb ‘consolidated’ is appropriate given that the rates of growth of GDP per annum, and of GDP per capita per annum, increased only very modestly in 1993–2001 over those attained in the 1980s. Private investment responded positively through the 1990s, following the reforms, and there was notably strong growth in private corporate investment. There was strong growth in the private sector, involving especially those whom Kar and Sen describe as ‘magicians’ (working in competitive export-oriented sectors) and ‘workhorses’ (supplying competitive domestic markets). The sectors that saw the strongest growth were communications (at an average of 15.7 per cent per annum through the period); banking and business services (averaging 7.4 per cent per annum, though within this sector IT grew at 15 per cent per annum); and the ‘traditional’ services – trade, hotels and restaurants (6.5 per cent per annum). The growth of manufacturing, too, was solid (an average of 4.9 per cent per annum) – with pharmaceuticals doing particularly well – and manufacturing contributed more to exports than hitherto.

In the political sphere, the long era of Congress dominance had come to an end, and India experienced a series of minority governments (from the 1989 general election, until that of 2014 when the BJP won an absolute majority). Politics became increasingly competitive, with the BJP coming to rival the Congress Party nationally, and taking over at the head of a governing coalition in 1998, while significant regional parties held the balance of power. But the Congress and the BJP subscribed to more or less the same ideas about economic policy – those that had taken over the mainstream in 1991 – so that changes of government had little impact. State–business relations became more inclusive with the entry both of new political actors and of new business elites, in industries such as pharmaceuticals and telecommunications, and often from traditionally non-business communities especially from the south and the west (Damodaran 2008). Atul Kohli writes at length about the ‘pro-business tilt’ on the part of government, from the 1980s, and argues, ‘While business groups in India are not quite “hegemonic” in the Marxist sense of that word, India is by now very much a capitalist market economy in which Indian capital exercises enormous indirect and direct power’ (2012: 42). Pranab Bardhan had argued, influentially, in a book on The Political Economy of Development in India, first published in 1984, that there were in India three ‘dominant proprietary classes’ as he called them – the big bourgeoisie, big farmers, and a white-collar class of bureaucrats and professionals. He showed how the compromise of power between the three classes meant a whole lot of trade-offs that substantially accounted for the frittering away of public resources in subsidies, transfers and rents. What Kohli argues is that there has been a very significant shift in the power relations of the Indian state, and that ‘the commitment to growth via the private sector … has strengthened the position of business groups in Indian politics’ (2012: 59). Certainly, the dismantling of the licensing regime from 1991 meant that the discretionary powers of bureaucrats (an important fraction of Bardhan’s third proprietary class) were substantially reduced, so removing a major source of disorder in the deals environment. At the same time, the relaxation of import controls meant that the deals environment became more open. The further shift towards more ordered and more open

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