August 28, 2022

Towards Self-Reliant Industrial Growth

Sanjay Roy

ONE of the major promises of independent India was to embark upon a path of self-reliant economic development and industrial growth breaking free from the international division of labour imposed by the imperial order. India happened to be one of the countries in the East with some industrial base and until 1938 the average industrial growth rate in India was higher than the world average. In fact, the large-scale industry emerged in India as early as the 1850s and primarily because of the colonial rule India experienced massive deindustrialisation for about a century resulting in a decline in the share of the population involved in the secondary sector.

During independence, factories accounted for only 6.6 per cent of GDP and 1.8 per cent of employment. The challenge immediately after attaining independence from British rule was to build an industrial base and evolve a path of economic development that could reduce the misery of the people and get rid of the structural dependence that perpetuated during the colonial rule. The huge extraction of resources from India for the purpose of industrial growth in the West and the strategic destruction of domestic producers to create markets for goods manufactured in Britain was the hallmark of primitive accumulation pursued by the imperial capital.

Against this backdrop the ruling class of new India could realise that building industrial infrastructure, capital goods sector and human capital required huge investments and they did not have enough resources at their disposal that could be invested in sectors involving long gestation period, high risks and low profitability. Hence the Bombay Plan in 1944, before independence included industrialists also, suggested mobilising public money in building industrial infrastructure and much-needed capital goods sector under public ownership. Enormous progress had been made in mining, producing key inputs for machine building, roads and ports, agricultural implements and key infrastructure of health and education during the plan periods. The growth in GDP and per capita income increased, poverty declined and life expectancy increased significantly. It was a strategy of State guided mixed economy relying on public control over resources and plan capacities according to the priorities of the newly emerged independent India. Rapid industrial growth was experienced till the mid-sixties recording an average annual industrial growth rate of 6.7 per cent followed by a decade-long decline when industrial growth slipped to an annual growth rate of 3.2 per cent and then again recovered in the early eighties. Despite many achievements during the dirigisme, no radical change happened in the life of the common mass.


The planning strategy largely relied on investments mobilised on extracting surpluses from the rural sector by way of imposing control over consumption expenditure. In spite of the fact that prioritising investment over consumption choices was needed in the immediate post-colonial context but such a strategy lost its steam beyond a point, and rural income stagnated eventually causing constraints in demand for industrial goods. In this context, land reform could have led to a redistribution of wealth, particularly in the countryside leading to expanding space for industrial growth. But the agenda of land reform remained grossly unfulfilled. On the other hand, there was a rise in monopoly and industrialists of India amassed massive rent out of a protected market. In many late industrialising countries government policies did provide sector-specific incentives to the industries but the state in those cases could discipline the industrial class such that rents accrued in the process could be used in building sustainable competitive capabilities. In the case of India in many sectors the oligopolies emerged without going through a protracted competitive phase, the way it happened in early industrialised countries, rather thrived through cornering benefits provided by the State.

In fact, the State instead of disciplining the industrial class towards achieving specific goals of industrial development in exchange of State provided incentives, became grossly dependent upon them giving rise to crony capitalism. High Inflation, black marketing, food crisis, rising poverty and so on fueled mass unrest in different parts of the country in post-independence India. Industrial growth suffered as the domestic demand continued to remain weak and the failure to mobilise investment through squeezing consumption expenditure without addressing the pressing issues of rising inequality led to the failure of the planning era. Undoubtedly reforms were necessary to reconcile the emerging contradictions of the Indian economy but instead of addressing the crucial issue of augmenting domestic demand through equitable distribution of income and enhancing greater public control over resources in order to prioritise the needs of the people of India, liberalisation policies, on the contrary, embarked upon a path of global integration that subsequently suffocated the agenda of self-reliant industrial growth.


Economic reforms in India followed the generic recipe of neoliberalism that is instituting the market as the prime mechanism of allocating resources and income. Global capital was pushing for liberalising economies in the South to create new opportunities for investment and the assumption that the inflow of investment would augment growth and employment in developing countries was the critical propaganda behind neoliberal reforms. Trade liberalisation began in the late eighties and the inflow of foreign capital during that period did increase industrial growth but at the same time created the pretext for foreign exchange crisis that finally led to wholesale reforms. Gradually all sorts of protection and tariff barriers were knocked down to ensure the free flow of goods, services and capital. Undoubtedly average growth in India and inflow of foreign direct investment increased in the post-liberalisation period. But the growth process got delinked from employment creation over the years. The inflow of foreign capital in productive sectors was driven by the relocation of manufacturing from advanced countries to the Global South primarily to take advantage of the cheap natural resources and skilled and unskilled labour and also of the growing market in countries such as India and China as a result of the swelling middle class. However, major investments in industries were confined to sectors that are labour intensive according to advanced country standards but relatively capital intensive in terms of resource endowments of host countries. As a result, foreign investment in productive activities did not generate enough employment. More importantly large part of the inflow of foreign funds used to be channelised towards financial markets contributing to speculation and creating new financial assets. Hence financial bubbles seem to have emerged as the key drivers of post-liberalisation growth. The dominance of finance has miserably reduced the autonomy of nation states particularly wherein the ruling class of these countries chose to remain buoyant in a milieu of global competition by way of becoming subordinates of MNCs, together with ensuring freedom of finance in view of riding upon speculative bubbles. This contributes to the delinking of growth from employment and the diffusion of growth remaining limited to the rich and upper middle class, fueling a significant rise in inequality.


The failure of the State guided mixed economy strategy cannot be attributable to any sort of denial of the primacy of collective concern in nation-building over private gains, but such concerns were being hijacked by private monopolies who grew in a protected market amassing rent by shoving government policies towards their private gains. And the ruling class being fearful of the growing radicalism of the working people, who were keen on extending the freedom struggle towards abolishing exploitation and oppression, preferred a path of development favouring the big industrial houses on the one hand and feudal powers of rural India on the other hand. Rising inequality and a chronic shortage of demand led to the slowdown of economic growth.

In the phase of neoliberal reforms, on the other hand, the ruling class not only denies all sorts of collective concern but vehemently argues in favour of transforming public assets into private properties. In fact, the growth trajectory based on asset inflation not only generated inequality but effectively thrived on it. In the past three decades of reforms, India not only failed to enhance its industrial capacity to compete in the global market but the domestic value addition in our exports also fell sharply during this period. Instead of strategising long-term industrial growth, policies are more oriented toward integrating into the global production network as cogs in the new international division of labour imposed by the TNCs.  In the past three decades, the working people of India drastically lost their share of GDP and corporate profits soared. The agenda of self-reliance suffers a huge setback because the self-proclaimed owners of our independence, the ruling combine are deaf to the cause and interests of the people of India and keener to serve the interests of global capital. This has to be reversed to ensure self-reliant growth.