The Economics and Politics of Transition to an Open Market Economy

The paper analyses economic and political causes as well as outcomes of the sudden reversal of Indian economic policies in 1991–93, after four decades of autarky and interventionism. It argues that a changing political landscape and the emergence of new interest groups, coupled with a severe balance–of–payments crisis, left little choice to the governing party but to break with the legacy of a patrimonial state. More competition, at political and economic levels, forced the hand of politicians to remove direct quantitative controls on industrial production, imports and access to capital. These reforms remained, however, partial and did not fundamentally change the politico–economic equation. Systemic opposition to reform remained strong enough to capture or neutralise some of the gains of liberalisation. Thus, the reform movement faltered and eventually ceased ...