Origins of a FragmentedMulticlass State and a

Sluggish Economy
Presented by
Aamir Aijaz Memon (M160032)
Rehan Qurban Shaikh (M160034)
Ranjeet Santwani (M160036)

India Today: An Overview

Experiencing Sluggish growth
Fragmented Multi-class State
Replacement from Colonial Free market to
Interventionist state.
Improvement: Stagnant to Modest Economic
growth and Industrialization
State Inefficiencies: retarded rate and pattern of
industrialization

HISTORICAL BACKGROUND

16 and 17 Century:
Mughal Empire
th

th

Personalistic and Patrimonial state

Control over large parts of northern and central India.
Pre-Modern agrarian bureaucracy, Systematic court
administration
Extraction of heavy taxes from largely agrarian society
Little incentive to invest in Agriculture, low productivity
Fall of Empire: religious wars, court incompetence,
greedy factionalism and traditional invasion.

18 Century: East India

Company
th

End of 17th century: Disguise of East India Company

Conquered through Armies, Technology and organizational
skills
Influence of British crown and British parliament facilitated
by the largest army of Asia
Centralized revenue administration, civil servants
Arrangements with influential Zamindars and local Princes
Development of Infrastructure: Postal system, Telegraph
and Railways

Mutiny of 1857
(War of Independence)
Indian Princes and Soldiers rebelled against British
rule
Turning point in construction of colonial system
Military victory against rebelling Indian princes
Later became Junior partners in the colonial ruling
alliance
Indian formally became a colony as British crown
took over from the east India company

Colonial State (18571947)

Desired Colonial State:
No more mutinies
Understanding limits to despots
Good Governance

Formative Period: Institutionalized Army and Civil

Service
Slow bureaucratic Administration
Late 19th Century: Nationalist Opposition
Political context changed significantly

Exercise of Power
Bureaucratic and despotic state backed by coercive force
Control centralized in London, Implemented by viceroy in India
Non-Liberalism; Courts and legal system introduced
Laissez Fare and Free trade; open economies
No Industrial policy, no industrial technology and no industrial
growth
Limited State control, local allies and fragmented state power
Nationalist Movement: Divide and Rule

Army
The reorganization of the army-aim of avoiding
future mutinies
Proportion of British soldiers to Indian increased,
Concentrated soldiers from regions and social
strata considered to be more loyal to British
Armed Police force, shield away Nationalists
opposition
Ideology and institutions of civilian control over
the military
Today, highly professional army with hierarchies

Civil Service
Indian Civil Service, In 1892 introduced exam based civil
service system
Heart of colonial state, collecting revenues, maintaining order
and executing government policies
ICS was minuscule ruling elite class (mostly British), steel
frame
Indians entry after first world war, limited supply of qualified
British
1922 possibility to take exam in India, 1939: Quota Half-Half
Contribution to State Formation of India

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The Nationalist Movement

Significant Mass Movement against Colonialism
(British)
Indian National Congress (INC) was one of the
strong nationalist groups in India.
INC was against British, and contributed in the
formation of democracy.
Congress fought against the Raj, but it also
progressively becoming Raj.
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The Nationalist Movement

INC changed some of its political context
compared to colonialist India after the pressure
from some nationalist.
Most of bureaucracy. Army, Judiciary etc.
remained same as colonialists.
Most of the members of INC were from Intraelite
and elite classes.
Therefore India became the country with the
combination of modernization (due to nationalists)
and colonialist (due to British influence).

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The Political Economy of

Limited Industrialization
The agriculture productivity of India at the time of
independence was much lower as compared to
Mughal period.
The factory production was merely around 7% of
the total production.
Economic growth in first half of the 20th century.
1% per annum economic growth
Stagnant or even declining per capita income
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The Political Economy of

Limited Industrialization
Half of the British rules budget was spent on
government expenditure, 10% on infrastructure;
and very little on the education.
British discouraged the economy to grow through
its unfair taxation systems.
Indian agrarian elite was exempted to pay taxes.
Along with the Free Markets

British didnt established the industries in India,

although British itself was heavily industrialized.

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The Political Economy of

Limited Industrialization
Industrialization started in the second half of the
nineteenth century.
Most of it was concentrated in Calcutta and
Bombay by Englishmen and Traders.
However, there were a lot of difficulties like:

Scarcity of Capital 3% savings and 7% total capital

Inefficient Labor with no any technical knowledge
Limited transportation
No institutions to channel the funds
Very low growth

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The Political Economy of

Limited Industrialization
Most of the savings was held by Agrarian Elites;
who used to charge high borrowing rate.
The demand for the manufactured goods were
very low (Average per capita)
Most of the products were substituted with cheap
imported goods.
Most of the industries were related to exporting
the raw materials and importing of manufactured
goods from British.

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The Political Economy of

Limited Industrialization
Keeping Indian rupee overvalued deliberately to
keep control on expenditures of GBP also hindered
industrialization.
Reducing Demand and then Reducing Investment
Role of Institutions

No banks were developed

No savings in rural areas
British managing agencies Scottish
No investment in Labour

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The Political Economy of

Limited Industrialization
The local elites like Tata family established the
textile and steel industries in India during world
wars.
The cost of establishing the industry in India was
very low, due to free market and very cheap labor.
Britishers were not setting up the industry,
because the exporters were also their fellow
Britishers.
The tax on Non-British imports also helped in
developing Industrialization in India.

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Protected Industrialism
The overall growth rate of India had been very
volatile
Over 7% to less than 4% from 1965 80

It stabled at 6% from 1980 2000.

The five decades after independence brought the
structural changes in India.
Industrial production contributed one quarter of the
overall GDP.
Service sector contributed one half of overall GDP.
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Three phases of political economy of modern India

Nehru Era
Indias nationalists used to discourage foreign companies
to come to India, while socialists created difficult
relationships with Indian Entrepreneurs.
Nehru Era suggested two conclusions
As discussed that India is the combination of colonialist and
democratic state.
Most of it was colonial at Nehrus time, but Nehru made
alliances with little land owners instead of larger ones.
Second, He placed democracy as high priority, and
gathered power from regional elites, while ensuring
equality for poors.

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Nehru Era
Nehru improved the agriculture of India by
institutionalizing it.
It was done through many land reforms
Education of Peasants and Labor
Redistribution of Land

Soon the focus moved to heavy industrialization at the

expense of agriculture.
This rapidly increased the Public savings and Investment
However, Late profit giving Industries; Private
Investment was not boosting in heavy industry like Steel
and Textile.

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The Indira Gandhi ERA

Populist and deinstitutionalized
The gap between states developmental
capacities and economic goals widen
Slogan Poverty Alleviation
Old elite as enemies of the poor
Personalization of power
Missed economic opportunities
Agricultural revolution
Nationalization of banks
Decline in public investment and corporate
investment

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The Probusiness drift

Emergence of BJP
To liberalize the statist economy
6% p.a growth 1980 to 2000
Growth in private investment
Tax cuts and flexible polices
IMF debt and decline of public investments
Rise of computer industry (Rajiv Ghandhi)

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Emerging Companies
Companies emerging just before independence:

Birla
Dalmia
Walchand
Shri Ram
Thapar
Singhanias

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Thank You
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