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Liberalization of Indian Economy in the 1990s and its major impact on the politics of India

As is well known, India as a country, has amazing diversity which makes any means of developing a comprehensive understanding of it an exercise fraught with difficulties. The task of explaining the country’s functioning, its governance and more importantly how its politics are played out is complex.  Indian Politics has the unfortunate habit of throwing up exceptions to any rule that might appear, thereby nullifying the rule immediately.  The only way to beat this problem is to not believe that there necessarily are a set of rules playing out in every situation.
In fact, one can assert that this is probably true not just of politics but of other areas such as business as well. It is a well-known fact that captains of various industries making statements about the difficulty that is associated with understanding the Indian consumer preferences and the dynamics of the market process itself.
Much of what will constitute this article will be about capitalism and what it has done in the case of India. In fact, expressions such as liberalization, integration into the global economy, structural reforms are all in more ways than one concerned with India openly giving up the socialist rhetoric that it once used to describe itself and embracing global capitalism whole heartedly. 
Usually, in India, even among the social scientists there is a tendency to use globalization and liberalization inter-changeably. At a basic level, this is not a problem, it however does come in the way of accuracy when one wishes to make specific arguments.
Globalization as a process probably started with the European countries looking out for new markets and subsequently new colonies. If this is the first phase of globalization the second phase is more in evidence in the 18th and 19th centuries where populations could move across the world with very few impediments. The story of the USA both in terms of the settling white population and also the black slaves by the whites is testimony to this.
The third phase of globalization is perhaps a late 20th Century phenomenon that emerged with the growth of various forms of technology, especially technology that facilitated the rapid movement of money, which was hitherto not possible. One saw the emergence of the term “Hot Money” in the 1990s which signified that money could be made to move from one market to another depending upon which market offered greater returns on investment. The third phase is more to be seen as the easy movement of money globally. It is in this period that India opened its economy to the world; a process which is termed “liberalization”.
It would be legitimate to raise a question here.  Why did India give up its socialist rhetoric and embrace global capitalism?  How voluntary was this decision?  The answer is relatively straightforward. A bit of background into world history and Indian history is required.
One of the biggest occurrences of the late 20th Century was the collapse of the erstwhile USSR.  The USSR collapsed into its original independent sixteen republics as a result of the pursuing of the Cold War policy of arms build race with the USA. While USA and the Western European countries did not suffer from shortage of money, the Soviet Union and the Eastern European allies that it had, suffered from acute shortage due to overspend on defence technology.  No intervention from outside was required to engineer the collapse of the Soviet Union. 
The Indian story is similar but different. India’s ambitions were not to become a Superpower and though it had its own small problems with Pakistan and China and a certain amount of over spend on military hardware, its main problem stemmed out of a total mismanagement of its economy in the name of Socialism. 
It is important to note that till 1989 the Congress party was dominant and hence it became home to a number of factions vying for power within the Congress party. This peculiar phenomenon was mainly due to the fact that there were no opposition parties that could stand up to the might of the Congress party.
The understanding of factions and factionalism is important for understanding Indian Politics. When the Indian National Congress Party still had the towering oligarchs who were seen as selfless and dedicated to the growth of the nation, opposition to them or their leadership was negligible; this did not mean that there were no disagreements within the party.
Usually the party relied upon using the services of senior leaders to broker peace and bring “unanimity” in decision making.  After the death of Lal Bahadur Shastri, there was a vacuum created due to the absence of leaders who were considered to be above selfish agendas. The Congress became a party of squabbles among different leaders. There were many claimants for the Prime Minister chair.
At this time Kamaraj Nadar formed what is today called the Syndicate and sometimes also as the Kitchen Cabinet in order to prop up, Nehru’s daughter Indira Gandhi as the Prime Ministerial candidate. While Kamaraj Nadar saw Indira Gandhi as a pawn that could be moved around by the Syndicate, the lady herself had a different ambition. She wanted the Prime Ministership with all the powers in her hand.
It was this ambition that led to the inauguration of populist policies and emphasis being laid on “socialism” which was perhaps the first big transformation in Indian Politics. Mrs. Gandhi took up programmes such as Nationalization of Banks, easy and low interest based credit to farmers, launching of schemes of daily savings by the poor and increasing employment by expanding the public sector undertakings and opening new ones as well. Though the nationalization of banks was well received, the problems began with many farmers being unable to service the loans that they had taken and Indira Gandhi taking up loan waiver schemes.
The employment in the public sector also increased but the patterns of employment saw more people employed in the upper echelons of companies rather than in the lower echelons.  Line workers were far fewer than staff supervisors and this meant that most of the public sector companies had become top heavy and over a time were primed to collapse.
The realization that the top heaviness of the public sector companies and their being ready for collapse was noticed by Rajiv Gandhi who became the Prime Minister post the assassination of his mother.  Rajiv Gandhi was young, dynamic and also had a vision of the future for India. He was also the first to usher in economic reforms in a limited manner by opening up some of the sectors of the Indian economy. The sale of badly managed public sector undertakings was also mooted and investment up to 49% by foreign companies was allowed in some of the sectors.
This process was slow, since Rajiv Gandhi faced opposition within and outside his party for allowing the entry of foreign capital and sometimes the pushback was so severe that forward movement slowed down to a snail’s pace. The net result of this was that Rajiv Gandhi went from hero to zero and his party, the Indian National Congress lost the elections in 1989 and from then on stopped being the dominant political party in Indian politics.
In more ways than one the year 1989 is very significant for Indian politics. India ushered in the era of coalition governments with coalitions being formed after the electoral verdict was delivered.  One of Rajiv Gandhi’s trusted lieutenants Vishwanath Pratap Singh who had abandoned the ranks of the Congress to join the newly formed Janata Dal became the Prime Minister.  V P Singh had to deal with not only the problem of forex reserves but also with the rising ambition of his deputy Prime Minister Devi Lal.  Devi Lal was keen to wrest the Prime Ministership from V P Singh on the grounds that the latter was a Congressman and that he himself was always the main opposition.
Devi Lal’s party was called the Bharatiya Kisan Dal and Devi Lal embarked upon a tour of many parts of Rural India (especially in the North) rousing the passions of the farmers and highlighting the fact that farmers were getting a raw deal under V P Singh. When it began to look as if the sentiment against V P Singh was reaching the critical mass, the coterie that advised V P Singh asked him to counter Devi Lal by introducing the Mandal Commission based OBC reservations at the National Level. It must be stated here that only Tamil Nadu and the erstwhile undivided Andhra Pradesh (under the leadership of N T Rama Rao in 1985) introduced OBC reservations. Interestingly enough OBC stood for Other Backward Classes but in usage it was just BC or Backward Caste.
It is important to recognize that while class is an economic category, caste is a social division. Tamil Nadu and the undivided Andhra Pradesh were implementing the system on the basis of caste and V P Singh also decided to take the same route. Though it was being called OBC for all practical purposes it was BC. 
It can argued as SC leader Chandra Bhan Prasad did that there was a consensus among the people of India about the necessity for those low caste people who once were untouchables and were deprived of all the social goods that were available to others. But the creation of reservations for OBCs (from now referred to as BC or Backward Caste) disrupted the consensus. This disruption happened for a good reason. Unlike the Scheduled Castes or SCs, many of the BCs were not deprived of social goods. In Tamil Nadu, the Mudaliars and the Nadars are quite powerful, as are the Vokkaligas and Lingayats in Karnataka. The Yadavs and the Gouds in Telangana and Andhra Pradesh are also powerful enjoying the patronage especially of the Telugu Desam Party but also that of the Telangana Rashtra Samithi and even the Congress Party.
In Northern India despite the existence of dominant Brahmins (called Bhumihars) decades the Yadavs and the Khurmis are becoming more powerful than the Brahmins and Rajputs. To go back to the argument of the disruption of the consensus on reservations, the anti-Mandal commission agitations that spread across the length and breadth of the country with many students immolating themselves. This was countered by the BCs and the country’s education system came to a stand still for a few months while both the sections sparred with each other.
What is important to be noted here is the abandoning of categories such as farmers, factory workers, north Indians, south Indians, Aryans, and Dravidians which were used to essentially to camouflage the language of caste.  Now caste came out into the open and political groups and parties started to be formed along caste lines.
The most obvious part of this exercise (probably better described as the nadir of Indian politics) is when the V P Singh government was forced to face a no confidence motion, one of the MPs Ram Vilas Paswan gave a clarion call to members of the Lok Sabha not to vote along party lines but along caste lines. This was also the time when the BCs decided that like the SCs they too required an icon around whom they could rally.
B. R. Ambedkar was the leader of the SCs and starting with Maharashtra and going on to many of the southern states, Ambedkar was deified. This deification of Ambedkar led to the usage of the term Dalit (a Marathi word signifying the oppressed) to describe the SCs. Around this time some of the BC intellectuals dug out the history of Joti Rao Phule and found that he had worked for unity of all people through his Satya Shodhak Samaj and strove for the creation of a “Bahujan Samaj” or society comprising of different people all of whom enjoyed equality.  When the Maharashtra Government included the caste that Phule belonged to in the list of BCs, the BCs made Phule a BC icon and started calling themselves “Bahujans”.
In Uttar Pradesh, Kanshi Ram who was a small time leader started the Dalit-Bahujan Party which was supposed to be a show of unity of the BCs and the SCs. This unity really did not happen but Kanshi Ram’s protégé Mayawati an SC woman became the Chief Minister while the Yadavs of Uttar Pradesh came together as Samajwadi Party or Socialist party and in Bihar the Yadavs united under the banner of Rashtriya Janata Dal which again was a party led by Lalu Prasad Yadav. 
Both UP and Bihar came under the leadership of the so called BCs; the Yadavs. It is time yet again to insert another parenthesis for clarity since there was a parallel development happening in the northern part of India with an otherwise fringe political party called the Bharatiya Janata Party using an opportunity to build itself into a viable party. Later history has shown that the BJP did succeed in this endeavour. The success of this endeavour is more to be attributed to V P Singh and his cohorts rather than the BJP itself. So here is the parenthesis.
While this was the main act, a side show also was being enacted by one of the small but deadly players in Indian Politics. The CPI-ML groups (also called the Naxalites since this group took its birth in a place called Naxalbari) believed in the violent overthrowing of the Indian State which according to them was “semi-feudal; semi-colonial”. This rather unusual description was due to the fact that the CPI-ML groups (now called the Maoists since the palace coup in Nepal which was supposedly engineered by this group and in India all the different CPI-ML (Marxist, Leninist) groups came under this one banner of Maoists) attributed private capitalism to those who were in cohorts with multinational capitalism and therefore they were called colonial and the northern parts of the country where feudalism was rampant (according to them) made the Indian State semi-feudal; semi-colonial. 
This needless to stay is a description that cannot stand any serious scrutiny and therefore would be as meaningless as saying “this also; that also”. Yet a mention of this has been made albeit in the form of a parenthesis for a reason. Even during the pre-Independence times, specifically in the 1930s Indian Marxists had argued that the most important category of social analysis in India was caste, since it was not only unique to India but it also lent itself to being used in conjunction with other categories. For example upper caste also signified being the more moneyed segment of society, more educated segment of society and being the dominant or ruling segment of society. D. D. Kosambi famously argued as did his followers that Caste in India plays the role of a Class. But the actual politics on the ground were veiling caste with some other name. It could be race, colour or region. The CPI-ML groups were claiming that some of the upper castes had become capitalist and therefore friendly with colonialism the highest form of capitalism (as described by Lenin) and some of them remained rooted in feudalism and therefore semi-colonial; semi-feudal had to be seen as upper caste dominated society.
Another important point to note is that the V P Singh strategy to survive in power was to talk of unity of SC, BC, ST and Muslims as being those that were deprived of power (a revival of an argument that Ambedkar had originally made) and that they had to come into power in order to experience the goods of democracy. This strategy instead of strengthening V P Singh led to his downfall and gave impetus to the BJP that was arguing that Hindu were all one and problems of caste could be tackled within the family.
The BJP was emphatic that Muslims were outsiders and suppressors of Hindus for centuries and therefore the idea that all these people could come together was preposterous. The ground reality of the SCs and BCs also was very different. BCs had proximity to power if not power itself, something which the SCs who were always the heathen never had. The BCs were not very happy to be lumped with the SCs. The fascinating part of the caste system is that its logic runs through the hierarchy where everyone believes that they are superior to someone else. The BCs see themselves as superior to the SCs and even within the SCs the Mahars see themselves as superior to the Chamars.
The BJP coopted the BC groups into the important areas of the structure of the organization and was thus able to break the model that V P Singh had created. V P Singh was out of Indian politics for good and the BJP who was a peripheral player rose to become a contender and a power that could not be ignored. The elections that followed the fall of the VP Singh government after an extremely short tenure saw that no party had the required majority and the Congress with 240+ seats and with some support of smaller parties formed a minority government in 1990, with P V Narasimha Rao as Prime Minister. After a very long time someone from outside of the Gandhi-Nehru family became the Prime Minister of India.  In his appearance P V Narasimha Rao looked like a mild man who could possibly not be assertive. In reality however, the man proved not only to be assertive but also someone with gumption.  When he took over the forex position of the country was in doldrums with reserves just about sufficient to last a few weeks. Narasimha Rao pulled out Prof. Manmohan Singh from his position as the Chairman of the University Grants Commission of India and made him the Finance Minister of the country. Narasimha Rao’s greatest achievement is the fact that he was able to, with the help of Manmohan Singh, to run a minority government which pulled the country out from the economic quicksand that its various previous administrations had slowly dragged it into.  Narasimha Rao completed the full 5 years of his tenure and by 1995, the country was well out of the problems and on the road to not just recovery but to development as well. It should also be noted that when P V Narasimha Rao was Prime Minister, the BJP and the Sangh Parivar were successful in demolishing the Babri Masjid.  Noted Political Scientist Rajiv Bhargava argued that the demolition of the mosque was not just to be seen as the demolition of a structure but as a demolition of the discourse of secularism that existed in this country. The Congress which was favoured by the Muslims crucially lost their support in the northern states of Uttar Pradesh, Bihar, Haryana and Rajasthan.
After 1995 when the Congress under Narasimha Rao lost the elections and the NDA or the National Democratic Alliance came into power, with a large number of constituents in its ranks.  By now the reforms process initiated by the Narasimha Rao government under the active guidance of the World Bank and the IMF saw India become a country based completely in capitalism and politics too were played out to support the further growth and proliferation of capitalism and its requirements. The stock exchange became a barometer of the efficacy of governance and in fact the language of politics started talking more about governance (which is a process) rather than government (which is an institution). This time also signified the emergence and growth of politics of coalitions instead of one power party being in control at the national level. This meant that the Union government was in more ways than one enervated since it constantly had to keep its own member parties who represented myriad interests, happy.  In the absence of a strong and powerful Union Government regional parties assumed national significance and the then Chief Minister of the Undivided Andhra Pradesh, N Chandra Babu Naidu was taking loans from the IMF and soon his example was followed by Karnataka and Tamil Nadu as well.
There has always been one question that has never found a satisfactory answer in the history of Indian Politics and this pertains to federalism.  Many thought that the existence of two levels of government automatically meant that it was a federal State.  But the constitution of India does not see the usage of this term at all. It calls India a “Union of States” without implicitly or explicitly stating the nature of the union. This led the famous scholar K C Wheare to describe India as a quasi-federal system.  But some of the enlightened leaders of the country such as Nehru wanted to build the federalism component into politics to ensure that even the bottom levels of governance in the country would have sufficient powers to set agendas of development based upon their own peculiar needs.  In fact it was for this reason that even the grass root level institutions were created in the constitution in the name of Panchayat Raj institutions that represented the third and bottom level of governance.  These institutions were ignored largely for a long period of time but the introduction of coalition politics and a weak union government led to the revival of these institutions through Constitutional Amendments numbered 73 and 74. Those who were supporters of federalism wanted to see the governance of the country to be built on the principle of cooperation. However, a weak union government and strong State governments under regional parties or under caste based parties ultimately managed to minimize the cooperation aspect and turned federalism into competitive federalism as opposed to cooperative federalism, where States competed with each other by taking loans directly from the Bretton Woods institutions such as the IMF.
The Southern States along with the two Western States of Maharashtra and Gujarat had the wherewithal to compete with each other and therefore the manufacturing and service sector grew in them at a good pace. The Northern part of the country just did not have the human resource to compete with these states and therefore were falling backwards. In the days of cooperative federalism the north Indian states reaped most of the benefits of development but when federalism turned competitive they simply did not stand a chance. This led to the widening of the gap in developmental terms between the North and the South and the Southern part was and is way ahead of the northern parts. In all this the old problem of capitalism aptly described by Jean Jacque Rousseau as the problem of “poverty amidst plenty” came to the fore for the first time in India, since by now India had become a completely capitalist economy. The election results of 2004 showed that while the stock exchange was booming the lower echelons of Indian society were whimpering and refused to vote the NDA back into power. The expanding gap between the rich and the poor ensured that the United Progressive Alliance would come to power. The second term of the UPA was a disaster characterized by policy paralysis and it culminated in the loss of the UPA in 2014.  Interestingly the BJP was able to get a majority of 272 seats on its own but continues with the NDA. Whether this is a one-time exception or a future trend, only time will tell.
As things stand today there is a clear division between social and political processes in India.  Socially, there is a reduction in the importance attached to caste but politically there is a greater divide along caste lines. But there is no universality to this principle either. In the north where levels of education are very low and prospect of employment still tied to the UPSC, the emphasis on caste is firm both socially and politically. In the south there is a movement away from government employment to work with multinational corporations who have dropped anchor in cities like Bengaluru, Hyderabad and Chennai. In the West apart from the traditional commercial hub Mumbai, Pune has also started emerging as a manufacturing hub. Narendra Modi has been doing his best to attract investments to Gujarat.  Does this mean that caste is not an important factor socially and politically in the south? The unfortunate answer is that it is still very important. Local businesses and industries are still the preserve of caste groupings and the desire to possess political power is very much steeped in caste though now like in the past the caste name is replaced by say a name of region like in the case of Telangana.  Telangana has always been the fiefdom of the Reddy and Velama castes but with the rise of Kamma (from coastal Andhra) caste in the business sector the Reddys and Velamas have found themselves dispossessed of the power that they once held. The separate Telangana agitation therefore signifies the desire of the Reddy and Velama caste groupings to repossess the power that once belonged to them. What helped them here is that this was a backward region with huge unemployed population that could be manipulated in the name of providing them employment.
Post 2004 one sees the rise of manipulation in politics to hitherto unknown levels. People are constantly manipulated in the name of caste, creed or religion.  The complicatedness of this manipulations (they are complicated because there are at least two parties playing the game and one does not understand which side is winning) and this is best represented by the division of the State of Andhra Pradesh into two. The creation of the new Telangana State posits an interesting situation.  At a time when federalism has been the centre piece of political discourse in India, it was the invocation of the article 3 of the Indian constitution which empowered the centre to dismantle, reorganize or create a new State, which led to the creation of the Telangana State. What is even more indicative of the politics of manipulation is that the exercise was carried behind closed doors and away from the spotlight of cameras which are allowed in the Lok Sabha. It should also be pointed out that this motion for the creation of a new State was carried through by a voice vote.
It is possible to see the involvement of corporate money power in Indian politics today, and that perhaps is the biggest take away that emerges as a result of the liberalization of the Indian economy twenty five years ago. This is not to be understood as money power is the only variable that drives the politics of the country.  Perhaps it is more pertinent to say money power will keep out of politics if it does not see any ill effects of those politics on itself. But if the corporate interest is involved then it is the most important one and all other interests will be set aside.  The corporatization of Indian politics can also be seen in the post liberalization phase which led to the abolition of the “License Raj” and in the phenomenon of States falling over each other to bring investors on to their side.  Narendra Modi’s “Make in India” has given a fresh impetus to this competitive federalism with the southern states (now including Telangana as a separate entity) and the two western states competing with each other with easier processes of clearances for setting up industries within them.  It also shows politically, (in the Indian foreign policy) India is no contented being the service industry to the world. It wants to compete with China for a piece of the manufacturing price as well. Foreign policy initiatives between India and China are also showing a gradual transformation towards economic cooperation and allowing political issues of the past such as the border dispute to be put on the back burner. This new politics based in the mutual economic interests of India and China could very well inaugurate yet another important development in the post liberalization politics of India.