India — The Political Economy of Growth, Stagnation and the State, 1951–2007

Matthew McCartney , India — The Political Economy of Growth, Stagnation and the State, 1951–2007 . : Routledge Taylor & Francis , 2009 . xxvii + 278 pp. £85.00 hardback .
Ever since India launched economic reforms in 1991 and 1992 — articulated in the budget by Manmohan Singh — there has been a growing body of literature emerging from scholars of rival schools of ideology about the fate of India's reform process, what led to it and how it has unfolded. This discourse, however, is led mostly by economists, who often use various econometric analyses to study India's political economy. The book under review is one of the few titles in recent times that seeks to explain India's political economy by looking at the transformations occurring in the state as an institution, as well as the behaviour of the state.
McCartney offers a convincing argument that the trajectory of India's political economy is determined by a number of factors in which the state plays a decisive role, such as the mobilization and allocation of the economic surplus to those wishing to invest productively, particularly in the finance arena. He also discusses the role of state as institutions that are necessary for overcoming the conflicts inherently associated with economic development.
One of the peculiarities of India's political economy is that the country has been ruled by the Congress Party for decades (since 1947) and it has remained a major player in the current era of coalition politics. Its dominance in India's democratic politics is such that scholars describe the Indian party system as the Congress system. McCartney attempts to explain India's political economy in terms of the rise and fall of the Congress party in the electoral arena, and the related transformations unfolding within. According to him, the Congress Party previously played the role of conflict management by incorporating dissent, providing mediation and allocating (political rents) relatively efficiently. The Indian state continued to be successful in mobilizing resources — but after the mid-1960s was increasingly unable to allocate them productively, and India became locked in a political economy of stagnation. But the claim that the Congress Party played a complementary role is not new; there was a study by Myron Weiner which made a similar argument.
The author describes one episode of stagnation and three episodes of growth during the period. The various ways of categorizing an episode of growth/stagnation are considered. The book considers both quantitative and qualitative factors. The definition is not made purely on the basis of average rates of GDP growth. He also describes the complementary roles for the state in promoting economic development for which the state must: (1) mobilize and allocate the economic surplus to those wishing to engage in productive investment (finance); (2) ensure that the surplus is invested productively (production); (3) utilize institutions to overcome the inherent conflicts that exist during the process of development (institutions). One of the arguments the book advances is that the Indian state was able to overcome the conflicts associated with industrialization because it contained within itself an inclusive institution — the Congress Party. The Party worked as a mechanism to absorb dissent. Why it was able to do this — but other parties were not— is another legitimate question that needs incisive analysis and is ignored in this book.
McCartney analyses stagnation during the period 1965 to 1980 and challenges the argument that there was a problem of mobilization because the Indian state was unable to tax property and income from profit. He shows that the state was successful in mobilizing, but the pattern of mobilization was different compared to the previous era. He also discusses how sharp falls in both public and private corporate investment after 1965–66 illustrate that the state became less efficient in allocating resources to projects essential for development. Thus, the major argument is that the stagnation after the mid-1960s was not due to the failure of resource mobilization but to the fact that the surplus was being consumed and invested less productively. If that is the case, then the blame lies on the shoulders of the policy-making community and not on the institution of the Indian state.
McCartney shows that between 1979–80 and 1991 the state was unable to overcome the conflicts associated with development. The Congress Party, although dominant electorally during the 1980s, was no longer the inclusive institution it had been in the 1950s. Congress in the 1980s was unable to incorporate dissident groups other than through broad and expensive fiscal transfers; its local level organization had disappeared. The party was unable to accommodate local factions or provide opportunities within the party for local elites. But the author seems to have missed the argument that such incapacities of the Congress Party were not of its own making. Rather it was the massive democratization processes that generated awareness among people and politicized the citizenry in a manner that crippled old forms of co-option from delivering results.
Next follows an analysis of how the Indian state influenced several areas between 1991 and 2007, which were key to mobilization and allocation of resources. These areas were: mobilizing domestic savings; creating institutions to mobilize private sector savings; influencing retained earnings and profitability. The state was also able to draw people into its project through an ideological appeal, even though people were not gaining from reform. One would like to ask why the state was able to do this at this point in time but not before, as there had been efforts to liberalize, particularly in the early 1980s.
Without doubt the book shares interesting insights on many issues of the Indian political economy, state and party politics; yet the absence of any analysis regarding the role and nature of non-Congress parties remains one of its major shortcomings. All in all it is refreshing to read a book whose research is non-conventional in many ways. It will assist scholars who hope to learn what is right and what is still wrong about the Indian economy.