A reinforcing two?sided process. On the one hand the

A close cooperation between the state and Indian big
business has developed under liberalization through a mutually reinforcing
two?sided process. On the one hand the state for its own imperatives has
calibrated the liberalization process to safeguard national economic interests
particularly of Indian capital. On the other hand, as private capital’s role in
the economy became larger and more dominant, its influence over policy making
also increased. Hence, in India, though there has been no ambiguity regarding
its direction, liberalization has been a comparatively slow and gradual
process.   Instead of a one?shot adoption of free trade
protection levels were brought down in stages. Even today, despite significant
tariff reductions the Indian market is still amongst the most protected in the
world. India has also repeatedly taken recourse to anti?dumping measures to
protect a range of domestic industries, and in fact leads the world in this
regard. While India has signed free?trade?agreements with many countries, it
has remained reluctant to have such an agreement with China, a major source of
imports into India. Capital controls in general, and specifically the policy
towards foreign investment, have also been progressively liberalized rather
than at one go. Caps on foreign investment, some still existing and others
gradually raised, have been used. In addition, some foreign exchange earning
obligations were imposed in the earlier stages of liberalization. These, it has
been argued, contributed to the development of automobile component exports
from India which has continued even after the obligations were phased out.

Where liberalization measures resulted in significant threat
to Indian business from foreign capital, the state also showed a willingness to
take countervailing measures. One prominent example of this is the virtual
killing of the ‘market for corporate control’ that was sought to be established
in the initial flush of liberalization. Indian big business argued that it was
unfair that while foreign firms were being allowed to hold large blocks of
shares in companies, they were still subject to restrictions on inter?corporate
investments. This made their companies apparently vulnerable to takeovers by
big foreign firms. The state responded to big business lobbying and eased these
restrictions and introduced other measures which would enable them to increase
their stakes. As a result, a situation emerged where incumbent managements of
most large companies in India, domestic or foreign controlled, became virtually
immune to hostile takeover. The retreat from state monopoly in many key sectors
has also been undertaken in a manner that has supported domestic capitalist
development. In almost all the major sectors that have been de?reserved and/or
opened up for increased participation of the private
sector ? telecom, power, mining, petroleum and gas, banking,
insurance, airlines, etc. ? the state has had to set up mechanisms
for regulating them. The withdrawal of the state in one form has therefore
necessitated its reappearance in another. While creation of new public
enterprises has virtually completely ceased and some old ones have been
privatized, a significant public sector survives in India today in many of
these sectors. In most of them there was virtually no Indian private sector
presence before liberalization. A swift wholesale privatization of these
sectors would most likely have handed over these sectors to MNCs. Instead, a
high degree of national ownership has been maintained not only through public
sector firms but also by enabling domestic private sector firms to set
themselves up in these sectors. Each of these sectors now has important Indian
(or part Indian) private firms – for example Reliance and Essar in Petroleum
and Gas; HDFC and ICICI in banking; and Bharti, Tata, and Idea  in telecommunication. This private sector
development has been achieved in various ways. In the insurance sector
virtually every private firm is a joint venture between an international firm
and a prominent Indian business group. A foreign investment cap in this sector
has played a crucial role in creating this situation. In telecommunications a
combination of foreign investment caps, managed competition, an initially
restricted licensing of private service providers which was gradually
liberalized, and sale of a major state firm to an Indian group, achieved the
result of creating Indian firms. In banking, while more foreign banks have been
licensed than domestic private banks, regulations governing expansion of
operations have favoured the latter.   The gradual and in some
respects restricted nature of Indian liberalization has checked foreign
acquisition of Indian assets and facilitated the adaptation and adjustment of
Indian big business to the new competitive context. Domestic capitalists have
also been able to leverage their strengths such as deep familiarity with local
conditions because policy protected them. The relatively limited success of
India in attracting FDI, often attributed to policy not being sufficiently
friendly, may therefore be interpreted as a success as much as a failure of
Indian economic nationalism under globalization. The implied favouring of
domestic capital has been critical for generating a rapid capitalist expansion
in India that foreign capital could not have produced even with more FDI
friendly policies.    Even in the development of the private
sector dominated and export?oriented IT sector, the state’s role has been
important. The state has sponsored the development of software technology parks
from 1991 and provided other infrastructural support to the sector. The
software sector has been the greatest beneficiary of fiscal incentives like an
extended tax holiday. The state has also politically supported the sector’s
efforts to gain and maintain international market access, including in the recurrent
controversy over outsourcing. Above all, the critical need of the IT sector of
a skilled workforce has been met to a great extent by public tertiary education
institutions. Some of these institutions may be a legacy of the past, but they
have been maintained along with efforts to expand their number. Continued
public sector presence in many spheres indicates that the forms of state
support to private capital characteristic of old economic nationalism have not
entirely disappeared in India. Such support has also assumed new forms
beneficial to private capital. For instance, public?private partnerships in
infrastructure development have institutionalized state engagement with private
capital in what was originally primarily the state’s domain. Similarly, the
state has sponsored infrastructure development by private capital through
promotion of Special Economic Zones (SEZs) and the granting of numerous fiscal
concessions. The state has also been actively involved in the process of
private capital acquiring land on a vast scale for industrial projects, special
economic zones, and real estate projects. Mining rights to private firms are
granted by the state. Liberalism has not eliminated the state as an important
factor in the economy, but it has meant ceding of the commanding heights of the
economy to private enterprise which has structurally increased its leverage
with the state. Constrained in its ability to drive the economy’s growth
process through public investment, the state has had to induce the private
sector to play that role. Policy has therefore had to be oriented towards
encouraging private investment. In a liberal regime, this often has meant ?concessions? and ?incentives?.  In
a federal set?up like India’s, the leverage of private capital over the state
has been enhanced by the competition for investment between states that
liberalization has forced them into. The ability of capital to extract tax
concessions and other benefits like provision of land at low cost has been
enhanced by liberalism. The implications of these measures for state revenues
have further reinforced the dependence on private capital. At the same time
large business firms which have established themselves in key sectors have
increased their clout and thus influence on regulatory policy in many of these
sectors.   Economic nationalism under globalization has also
reinforced the power of Indian big business. Indian enterprises that can
succeed and be players in the global economy have come to symbolize ?successful? integration.
Big Indian business firms have successfully set themselves up as the principal
instruments of national economic achievement, champions of ‘national interest’
and the symbols of national pride and success16. The tendency to view national
success as something that coincides with business success has been actively
promoted by Indian capital, and has also gained wide currency in the socially
influential Indian middle class. This process first began perhaps with the
success story of India’s information technology sector but has become now more
widespread. The status enjoyed by corporate capital and its voice and influence
over policy making process, have perhaps never been greater than what they are
today. Using this, Indian big business enterprises have been able to secure
significant individual and collective benefits and dictate policy priorities.
Economic nationalism therefore survives in India after liberalization but in a
form where it is more exclusively tied to advancing the interests of Indian big
business. Directed towards strengthening the ability of Indian capital to
compete at home and abroad it has also increased their stranglehold over policy
making. This has made it more difficult for the development of India’s
capitalists to be the means of a wider process of development. Indian capital
has been proactively supported by the state and this has been crucial to its
competitive strength and enabled it to lead a rapid process of capitalist
expansion in India.   However, the interests of other claimants to the
state’s attention – industrial labour, the urban and the rural poor, the
agricultural and unorganized sectors – have consequently been hurt and remain
at best addressed in a limited way.

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