A Draft Not to Be Quoted Political Regimes and Social Institutions: Understanding Diversity of Capitalism in India By Kalaiyarasan A. Economic and political processes differ widely across the states in India. Some states have seen rapid economic growth and development while others are facing economic stagnation. Such differences in performance are being attributed to the nature of state level political regimes and their role in shaping policies of economic growth and distribution (Kohli 1987). The Indian Constitution divides the legislative power between the centre and the states through three subject lists: the union (central government) list, the state list, and the concurrent list. States can enact legislation through the state list and the concurrent list. Thus, the Constitution confers wide powers on the states to legislate in areas such as agriculture, land and labour markets, water supply and sanitation, and most importantly, education and health (Panagariya, Chakraborty and Rao 2014). The states account for about 90 percent of total government expenditure on education and health in India (Mehrotra and Panchamukhi 2006). It has in fact been argued that development expenditure incurred by the state government has an impact on socio-economic outcomes, particularly poverty reduction in India (Dutt and Ravallion 2002). In addition to this, the states are also responsible for the implementation of laws passed and directives issued by the centre. Thus, in both the formulation and implementation of economic policies, the states play a significant role. Further, the process of economic liberalization has opened up the space for the states to directly negotiate with international capital in attracting investments. Today, each state holds separate „investors‟ summits in India to attract inflow of investment. There are regional differences in institutions, rules and styles that also influence the flow of investment (Sinha 2003). Thus, political and social institutions at state level set the path for developmental outcomes in India According to John Harriss (1999), Kerala, Tamil Nadu, and West Bengal are states with political regimes dominated by lower castes and classes – albeit in different ways. Pranab
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A Draft Not to Be Quoted
Political Regimes and Social Institutions: Understanding
Diversity of Capitalism in India
By
Kalaiyarasan A.
Economic and political processes differ widely across the states in India. Some states have
seen rapid economic growth and development while others are facing economic stagnation.
Such differences in performance are being attributed to the nature of state level political
regimes and their role in shaping policies of economic growth and distribution (Kohli 1987).
The Indian Constitution divides the legislative power between the centre and the states
through three subject lists: the union (central government) list, the state list, and the
concurrent list. States can enact legislation through the state list and the concurrent list. Thus,
the Constitution confers wide powers on the states to legislate in areas such as agriculture,
land and labour markets, water supply and sanitation, and most importantly, education and
health (Panagariya, Chakraborty and Rao 2014). The states account for about 90 percent of
total government expenditure on education and health in India (Mehrotra and Panchamukhi
2006).
It has in fact been argued that development expenditure incurred by the state government has
an impact on socio-economic outcomes, particularly poverty reduction in India (Dutt and
Ravallion 2002). In addition to this, the states are also responsible for the implementation of
laws passed and directives issued by the centre. Thus, in both the formulation and
implementation of economic policies, the states play a significant role. Further, the process of
economic liberalization has opened up the space for the states to directly negotiate with
international capital in attracting investments. Today, each state holds separate „investors‟
summits in India to attract inflow of investment. There are regional differences in institutions,
rules and styles that also influence the flow of investment (Sinha 2003). Thus, political and
social institutions at state level set the path for developmental outcomes in India
According to John Harriss (1999), Kerala, Tamil Nadu, and West Bengal are states with
political regimes dominated by lower castes and classes – albeit in different ways. Pranab
Bardhan contrasts “welfare regimes” in West Bengal and Tamil Nadu and attributes the
differences between the two to the divergent nature of regional social movements. He argues
that regional capital in Tamil Nadu is more indigenised and the state has a „culture of wealth
creation as opposed to redistribution‟ (cited in Tillin 2013). In contrast to both Tamil Nadu
and West Bengal, Gujarat has not seen any independent mobilization of lower castes and
classes.
Tamil Nadu, Gujarat and West Bengal have distinct political regimes. For instance,
Tamil Nadu is home to anti-caste movements and political mobilisation of OBCs and SCs for
over a century (Arooran 1980; Chandrababu 1993; Pandian 2006). The DMK that came to
power in 1967, with a broad social base of lower castes and classes, had a huge influence on
the policy regime in the state. West Bengal, since 1977, has been ruled by the Left Front
Government headed by the Communist Party of India – Marxist (CPM). The left coalition
had an uninterrupted electoral triumph for more than three decades. The state has been
credited to have a distinguished record of implementing agrarian reforms in rural Bengal
(Mishra 2007; Bandyapadhyay 2008).
Gujarat has been ruled by various factions of the Congress party since its formation. The
Bharatiya Janata Party (BJP) came to power in the 1990s. Under its aegis, the state has
aggressively pursued policies of economic reform. Such policies have generated considerable
economic growth in the State (Bhagwati and Panagaria 2013). Gujarat is, thus, hailed as a
role model for other states. However, the social outcomes have been far from satisfactory
(Sood 2012; Sen and Dreze 2013). It may well be argued that in Gujarat, the state is tied to
the narrow industrial elite in the sense of the earlier conception of a developmental state
which facilitated capital accumulation.
This paper uses distinct categories to understand the political milieu and policy
regimes; populism in Tamil Nadu, mercantilism in Gujarat and party-society in West Bengal.
Contrary to common understanding, populism need not be negative but can have positive
connotation for the socially and economically disadvantaged sections. Andrew Wyatt (2013),
in the specific context of Tamil Nadu, defines populism as „an ideological construct that
celebrates the importance of the ordinary people, asserts these people should not be divided
by social hierarchy and justifies improvements in their welfare.‟ Bardhan argues that
populism has indeed produced positive results in Tamil Nadu by taking economic growth and
social welfare together (Bardhan 2014).
For Gujarat, the paper uses mercantilism as a prevailing social ethos in the state.
According to Harald Tambs-Lyche (2012) beside purity, non-violence and vegetarianism, the
mercantile ethos also guides trade and business transactions. Though merchant castes such as
Jains, Marwaris and other vaishnavites who have shaped such ethos, it still pervades other
non-trading lower caste groups in the state. Historically such ethos was prevalent even among
Muslim merchant communities. For instance, the Khojas and Vohras share lot more common
traits with merchant communities in Hindu than others with in Islam. The ethos, thus, beside
certain cultural norms, has huge implications for economic development (Ibid). Trade and
business is seen end in itself. It has two implications; first, there is more focus on capital
accumulation than human development. The social sector gets neglected. Second, the non-
trading, lower and marginal caste groups get excluded from development process. They also
stifle the independent mobilization marginal and excluded social groups.
In the case of West Bengal, Dwajpayan Bhattacharya (2010), using Partha
Chatterjee‟s (2004) conception of political society, argues that party-society is a specific form
of political society operating in rural Bengal. Political society is defined as a society made up
of those who are historically disadvantaged and excluded from civil society due to lack of
education, wealth and other forms of capital. It provides the scope for the emergence of
competing political parties and civil organisations which then articulate their concerns with
state and civil society. In a party-society political parties monopolise the social space and
stifle the emergence of civil associations. Even if they emerge for historically contingent
reasons, they are constrained to play a subsidiary role. Thus, Bhattacharya argues that party-
society, by either suppressing these organisations or curbing their relevance to government
and polity, weakens the negotiating power of disadvantaged groups. Whereas populist
political regimes must respond to recurrent political mobilization by different social groups,
party-society does not allow space for such mobilization.
The paper is organised in two parts. Part I provides details of economic growth,
development outcomes in Tamil Nadu, Gujarat and West Bengal. The evidence shows
considerable divergence in outcomes between the states. Part II offers possible explanations
for the differential outcomes between the three states. The explanations are broadly located in
the nature of political regimes in and specific histories of the states.
Part I
1. Dynamics of Economic Growth
Since the 1980s, both Tamil Nadu and Gujarat have witnessed a consistently high
economic growth rate as compared to West Bengal. This has been attributed to the economic
reforms initiated in the early 1990s in these states. The states decisively embraced neo-liberal
policies and have, since, heavily subsidised the corporate sector through various tax
exemptions (Vijayabaskar 2010 and Hiraway 2013).1 While West Bengal has also witnessed
sustained economic growth since the 1990s, the growth rate has been lower than that of Tamil
Nadu and Gujarat. Whether the sustained higher economic growth is due to the policies
initiated in the 1990 or not is beyond the purview of this paper. The paper is concerned with
explaining the difference in economic growth and developmental outcomes among these
GSDP 5.6 6.4 8.0 6.7 5.1 8.3 10.5 6.8 4.3 6.2 6.5 5.7 Note: GSDP at 1999-00 constant prices. Figures in parenthesis show contribution to GSDP Growth.
Source: Central Statistical Organization.
Table 1 gives the sector-wise growth rate and the aggregate growth in both states for the
last three decades. The overall GDP growth of Gujarat for this period has been 6.8 percent
per annum and while that of Tamil Nadu has been 6.7 percent per annum. The corresponding
growth rate in West Bengal has been at 5.7 per annum. Despite an increase in growth rate in
West Bengal in the 1990s, the gap from the other two states persists. While Gujarat‟s growth
rate is better than Tamil Nadu‟s, the gap between them has been closing over the last decade. 1 The authors argue that both states have been giving undue tax exemptions to corporate sectors, at times the
states have been taking blatant pro corporate position with respect to labour laws. This trend prevails in various
SEZ that the two states have supported to build in the last decade.
When disaggregated, the data shows that in both Tamil Nadu and West Bengal the growth
rates of service sectors have been the highest while in Gujarat it is the manufacturing sector
that has experienced highest growth. For instance, the service sectors in Tamil Nadu and
West Bengal have grown at the same rate of 7.9 percent per annum. The corresponding figure
for Gujarat is 8 percent per annum.
Manufacturing has grown at 8.3 percent per annum in Gujarat, while the corresponding
growth rates for Tamil Nadu and West Bengal are 5.9 and 5.3 percent respectively. The
industrial sectors as a whole has witnessed a growth rate of 8 percent per annum in Gujarat,
while they are grown at 6.4 percent per annum in Tamil Nadu and just 5.4 percent per annum
in West Bengal. Gujarat has consistently outperformed both Tamil Nadu and West Bengal in
all sectors but agriculture. Agriculture has grown at 2.9 percent per annum in Gujarat, while
the corresponding growth rates for Tamil Nadu and West Bengal are 3.3 and 3.8 percent per
annum respectively. It is evident that Gujarat has been consistently performing better as
compared to both Tamil Nadu and West Bengal. Another important dimension is that
Gujarat‟s growth pattern is more diversified than that of Tamil Nadu and West Bengal.
Table 2: Sectoral Contribution to Growth
Sector
Tamil Nadu Gujarat Bengal
1980-
1990
1990-
2000
2000-
2010
1980-
2010
1980-
1990
1990-
2000
2000-
2010
1980-
2010
1980-
1990
1990-
2000
2000-
2010
1980-
2010
Agriculture 19 11 3 7 13 3 10 8 28 21 9 15
Manufacturing 21 16 21 20 30 37 29 31 8 10 12 11
Industry 33 27 30 30 39 49 41 43 19 19 20 20
Services 48 62 67 63 48 48 49 49 53 60 71 65
GSDP 100 100 100 100 100 100 100 100 100 100 100 100 Note: GSDP at 1999-00 constant prices. Figures in parenthesis show contribution to GSDP Growth.
Source: Central Statistical Organization.
There is a significant difference among these three states with respect to drivers
(contribution of sub-sectors to aggregate growth) of economic growth (See table 2). The key
drivers of economic growth in Gujarat are the service and manufacturing sectors. In Tamil
Nadu and West Bengal, the service sector alone has contributed the largest share. The service
sector has contributed approximately 65 percent of the overall economic growth in West
Bengal while it is 63 percent for Tamil Nadu. The corresponding figure for Gujarat is 49
percent.
Unlike Tamil Nadu and West Bengal, industry continues to be an equally significant
driver of economic growth in Gujarat. Industry has contributed about 43 percent of the
overall economic growth in Gujarat while the corresponding figures for Tamil Nadu and
West Bengal are 30 and 20 percent respectively. Within industry, manufacturing has
contributed approximately 31 percent to the overall economic growth in Gujarat2, while the
sector has contributed 20 percent to growth in Tamil Nadu and 11 percent to growth in West
Bengal. However, what is significant among these states is the contribution of agriculture to
the overall economic growth. While agriculture sector accounts for 15 percent of growth in
West Bengal in the last three decades, both Gujarat (8 percent) Tamil Nadu (7 percent) have
steadily witnessed a decline in the contribution of agriculture to the overall growth but for
Gujarat during 1990-2000.
Does the consistently high economic growth rate in these states translate into
developmental outcomes at a similar rate? Do these outcomes diverge or converge over time
as the overall growth rates tend to converge?
2. Poverty Incidences 1994-2012:
The incidence of poverty and inequality has been estimated using the unit record data from
three quinquennial rounds of Consumption Expenditure Surveys (CES) conducted by the
National Sample Survey Office (NSSO). These surveys have been conducted in 1993-94, 2004-
05 and 2011-12. This paper uses the methodology recommended by Suresh Tendulkar
committee and the corresponding poverty lines provided by the Planning Commission.3
2 However, Nagaraj and Pandey (2013) argue that manufacturing in Gujarat is not broad-based as export-
oriented petroleum refining alone accounts about a quarter of gross value added in registered manufacturing.
The share of other industries to manufacturing has declined in the state.
3 Tendulkar methodology needs Mixed Reference Period (MRP) series of expenditure to calculate incidence of
poverty. Since the 1993-94 data sets do not have MRP series, the author constructed MRP series. The method
used to construct the MRP series is the following: MRP = 30 days reference period data for all other items +
365 days reference period for low frequency items (cloth, footwear, durable goods, education and medical) –
30 days reference period for low frequency items.
2.1. Rural Poverty
Table-2 gives the estimate of poverty based on Head Count Ratio (HCR) at aggregate level, as
well as for social and religious groups in rural Tamil Nadu, Gujarat and West Bengal. In 1993-
94, the proportion of population who were poor in rural Tamil Nadu was 51.2 percent. It has
drastically come down to 15.8 percent in 2011-12. The corresponding figures for Gujarat are
43.3 percent and 21.5 percent respectively, while the respective figures for West Bengal are
42.5 per cent and 22.5 per cent. Though both Gujarat and West Bengal were better placed in the
1990s, they compare unfavourably with Tamil Nadu in 2011-2012. Tamil Nadu has gained 34
percent points in poverty reduction in rural areas during the last two decade, while Gujarat
gained just 22 percentage points and West Bengal has gained just 20 percent points.
Table 2: The Incidence of Poverty (HCR) for Socio-Religious Groups. (Rural)