India’s and China’s Political Economy

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By the mid late 1970s, Indian development slowed down significantly. Bardhan attributes India’s weak performance in the 1970s and 1980s to the governments need to placate contending dominant groups. What were the dominant groups? What were their interests? How did the government policy advance these interests?

The dominant groups included the rich farmers, the industrial capitalists and the professionals.

The industrial capitalist class consisted of top business families, mainly from western India (Barhan 40). They controlled a larger share of the national capital and sales (Bardhan 42). They emerged dominant from the colonial period. They needed to be protected from foreign firms. It resulted in the protective policies that protected local enterprises from international competition. The businesses targeted import-substituting products, which were supported by the government. As a result, their interest shifted to lower excise duties, tax exemption, and government subsidies. Some of the dominant firms registered small firms to allow them the benefits that targeted small-sized enterprises.

The industrial institutions had an interest in loans. The loans were provided by public financial institutions (Bardhan 40). The government policy was to increase the availability of capital for private enterprises. The loans became the main source of private firms’ expansion. Firms that were unable to repay were set to be taken over by the government or the loan was converted to equity. Bardhan (40) states that the policy resembled a risk absorption policy for private firms. Firms that performed well were retained by private owners. Those that performed poorly were passed over to state ownership.

The industrial classes were also interested in the allocation of import licenses. The government protectionist policy was to issue a few import licenses (Bardhan 41). The end result is that the large companies violated government protective policy, which aimed at protecting emerging industries. They also made oligopolistic profits because few import licenses were issued. Oligopolistic profits are higher than the profits made in a free market. The sales of a few industries also multiplied several times within a decade (Bardhan 43).

The private industry groups were also interested in acquiring technology. Initially, they collaborated with foreign firms. Later, the government facilitated complete purchases of technological rights that allowed local firms to be self-reliant (Bardhan 44). The government policy is to promote private firms’ independence from licenses, which require regular payments. The purchase of rights allowed multiple private firms to make similar products.

The rich farmers are the second dominant group. The rich farmers emerged from the colonial period through the passing of colonialists’ land to local farmers. Local landlords also shifted to mass production, once there was a labor market emerging from displaced workers (Bardhan 46).

The rich farmers’ interest was to ensure that the minimum wage was lowered and agricultural produce was sold at higher prices. They also wanted lower tax rates and higher subsidies (Bardhan 47). They used middle-scale farmers, peasant farmers and laborers to pressurize the government to increase benefits to farmers. The government subsidized power used in irrigation, credit rates were lowered, and farm input prices (Bardhan 47). The rich farmers had conflict with the laborers because they were the minimum wage-earners as well as the net buyers of farm products (Bardhan 48). The rich farmers continued to have lower tax rates than other sectors.

The professionals formed the third dominant group. The professionals came mainly from the higher caste groups. Later, group interests emerged that required the reservation of quotas for lower caste groups in schools and public jobs (Bardhan 51). The main interest of the professionals was to strengthen their power within the work positions. An increase in regulation resulted in bribery. As a result, the main beneficiaries of increased regulation were the wealthy industrial classes. The professionals gained more power through the bureaucratic process that were meant to protect the poor (Bardhan 58).

The main weakness of these interests to the economic growth is that they drive resources from optimal alternative uses. The government could have provided better health care, education and rural infrastructure that could have supported economic growth better than lower taxes and subsidies for the wealthy.

In chapter 7 of the Awakening Giants, Bardhan attributes some of improvement in social indicators in both China and India to advances made in the pre-reform era. Explain his reasoning. Based on the data in An Uncertain Glory by Dreze and Sen, chapters 2 and 3, provide a general overview and a comparison of the state of poverty and social well-being in India in recent years.

Some of the social indicators that Bardhan (90) identifies include literacy levels, health care standards, and income distribution. Bardhan (91) examines the reduction of poverty in India and China. The rate of decline is higher in China than in India mainly because China had operated in socialists conditions that encouraged the distribution of income. In China, half the number of those lifted up from poverty occurred between 1981 and 1985 (Bardhan 93). It happened before the pre-reform period.

In both countries, the decline in poverty is attributed to the growth of the agricultural sector. Bardhan (97) elaborates that agriculture has a higher rate of reducing poverty than other industries. There is less income inequality in the agricultural sector compared with other sectors. High growth in the industrial sector and slow growth in the agricultural sector is what followed the reform period. It caused increased income inequality (Bardhan 97). The agricultural sector was significant in improving the real wages in both countries in the pre-reform period. In China, poverty reduction was more progressive because of the equal land distribution reform in the 1980s.

India and China vary greatly in the literacy levels, which include child literacy, adult literacy, and gender-based literacy levels. In China, the social indicators were better before the globalization reforms than after the reforms. The government supported education for all individuals before the reforms (Bardhan 111). In India, expenditure was biased towards higher education resulting in a higher percentage of graduates than in China (Bardhan 111). Overall, literacy levels in India are lower than in China. In China there was a great improvement of literacy levels in the pre-reform period.

In China, the healthcare sector was supported by a national insurance policy that covered the majority of the poor (Bardhan 105). There were paramedics who worked in the villages increasing access to affordable health care. The health care conditions deteriorated after the post-reform period. In 2003, only 6% of the Chinese population was covered by private insurance after the rudimentary insurance policy had collapsed (Bardhan 106). In India, funds were always misused. It resulted in little improvement in the health care sector (Bardhan 109).

In India, some of the regions perform better than others on social indicators. Drèze and Sen (46) discuss that some regions in India have performed poorly similar to poor countries in sub-Saharan Africa. There are regions in India whose indicators match the improvement in per capita income, such as Kerala (Drèze and Sen 80). On one hand, female literacy levels are lower in India than in poorer countries. On the other hand, male literacy levels are higher than in most Asian countries, including Bangladesh (Drèze and Sen 60). However, Bangladesh performs better on other social indicators than India.

Among the BRIC countries (Brazil, Russia, India and China), India performs poorest in all social indicators analyzed by Drèze and Sen (66). India is different from other countries because poverty reduction happens at a lower rate than economic growth. Between 1993 and 2005, Brazil had a higher poverty reduction rate despite having a lower economic growth rate than India (Drèze and Sen 70). Bardhan (95) also expounds on a similar factor between India and China. India alleviates fewer people from poverty for the same economic growth rate.

In India, Dutt and Rao (10) show that the trade deficits in the post-reform period (1991-1993) declined before increasing. The net foreign capital inflow has also been unable to support a big proportion of capital formation in India (Dutt and Rao 14).

The government has remained the main supporter of private enterprises in the post-reform period. In India, the growth rate in sectors shows that there was a higher growth rate in most sectors before the globalization reforms than after the reforms. The primary, secondary and tertiary sectors developed at a higher rate in the period 1986-96 than in the period 1992-96 (Dutt and Rao 18). The total productivity growth has not reached growth rates levels experience prior to the reform period.

Most factors indicate that India and China has benefitted from globalization in unexpected ways. Both countries were trying to rejuvenate economic growth in the period of a reduced growth rate. Increased trade deficits indicate that India has not benefitted fully from increased openness to international trade. India may appear to be performing poorly in relative terms. However, in absolute terms, there is an improvement in social factors after the reforms.

The only difference that India has from its counterparts is the slow rate of improvement in its social indicators performance. Other countries in Asia and the BRIC countries are improving at a higher rate. They are able to outperform India in areas that India was leading. In China, social indicators became worse immediately after the reform period. They regained an upward trend as the benefits of economic growth are redistributed. China has a higher rate of income mobility, which started from the land redistribution policy and higher literacy levels compared to India.

Works Cited

Bardhan, Pranab. Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India, Princeton: Princeton University Press, 2010. Print.

—. The Political Economy of Development in India, New Delhi: Oxford University Press, 1992. Print.

Dutt, Amitava, and Mohan Rao. “Globalization and Its Discontents: The Case of India.” CEPA Working Paper Series 1.16 (2000): 1-55. Print.

Drèze, Jean, and Amartya Sen. An Uncertain Glory: India and Its Contradictions, Princeton: Princeton University Press, 2013. Print.

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India’s and China’s Political Economy

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