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Capitalists and Industrialization in India

Surajit Mazumdar

Historically industrialization has had a strong association with capitalism and profit-oriented

capitalist firms have been its important instruments in many parts of the world. Britain was

the pioneer nation in this regard. Many other countries have successfully followed her toachieve an 'industrialized' status. Such success, however, has been far from universal andthere have been other sides to that process. he !ndian case serves to highlight the significance

of the concrete internal and e"ternal con#unctures in determining whether and to what e"tent

does a process of capitalist development produces industrialization.

I

!n $urope, a period of time separated the initial emergence of capitalist relations of

production and the advent of the !ndustrial %evolution. &apitalism emerged out of a process

of transition from feudalism whereby the dominance of capital over the production processtoo the form of the emergence of a new ind of capital - industrial capital. he pre-condition

for the emergence of this industrial capital was the availability of wage-labour which made itdistinct from the historically older form of capital, namely merchant capital, which re(uired

only the e"istence of trade and commerce as its basis. !t is the advent of capitalistproduction

and the subordination of commerce to production rather than the other way around thatprovided the setting, as vividly described by Mar" in )olume ! of &apital, for the gradual

revolutionising of production that eventually e"pressed itself in the transition from handicraftproduction to machinery-using modern industry.

&apitalism*s emergence in !ndia in a colonial conte"t, however, did not have a similarly

revolutionising effect. &olonialism itself played the ind of role that in Mar"*s view merchantcapital did in $urope when it established its sway over production + e"panding commerce but

preserving and maintaining the pre-e"isting mode of production as a precondition for a

surplus appropriation process. !ndia*s agrarian sector under colonial rule provided theprominent e"ample of this phenomenon. he surplus appropriated from that sector, a ind of

primitive accumulation, in addition fed not capitalist accumulation in !ndia but insteadformed the basis for tribute transfer to Britain from its !ndian colony. he destruction of

!ndia*s traditional handicraft industry fostered by colonialism on the other hand had little to

do with the e"pansion of modern industry in !ndia, facilitating instead industrial e"pansion inBritain. !t gave rise to a process of deindustrialization rather than industrialization + whose

effects were only partially reversed by the import-substitution process that too place towardsthe later part of colonial rule. !n addition to these was the absence of any consistent support to

industrialization from a state guided by the imperatives of maintaining !ndia as an appendage

of the British imperial system.he emergence of the capitalist class in !ndia also reflected the lac of capitalism*srevolutionary character. &apitalist production was more or less synonymous with modern

industry from the very beginning. his emergence of modern industry was initiated by pre-

e"isting merchant capital maing use of the availability of machinery in the form of imports.!t was thus an e"tension of commercial activity rather than a process of industry coming to

rule commerce. !n addition was the fractured development of the industrial capitalist class, itsoriginally dominant component being a $uropean segment tied to and dependent on colonial

rule and inhibiting the development of its native component. his reinforced the effects of the

fact that it was not their mastery over production or technological innovativeness but insteadaccumulations through trade and commerce and their connections and sills in that sphere

that had formed the basis for the emergence of !ndia*s industrial capitalist class. hiscombined with the colonial bacground to shape an attitude towards technology of long-term

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significance. echnology was not something to be developed but simply something to be

ac(uired in the maret and from foreign sources. !ndia*s industrial capitalist class never fullyshed this attitude ac(uired as a result of its specific origin.

he development of modern industry in the period of over nine decades preceding

independence was hardly spectacular. hen the process began, most of the world e"cludingBritain did not (ualify to be called industrialized. By /0, however, all the advanced

countries and regions had e"perienced their industrial tae-offs. !n !ndia, the modern

industrial sector remained very small and narrow. he real historical significance of itsdevelopment under colonialism lay not in the great economic transformation it produced but

in it creating the future ruling class and its immediate antagonist, the woring class.

II

he historical bacground of colonialism also meant !ndian independence laced thecharacter of a full-fledged bourgeois revolution. !t meant the end of direct foreign rule and

that was of critically important significance insofar as it opened up the possibility for the useof the state to promote capitalist industrialization. However, the transfer of power associated

with independence did not represent a decisive episode in the transition from one social

formation to another. he end of colonialism did not mean fundamental changes in theeconomic and social structure created under its aegis. !t brought !ndia*s capitalist class to power

but only in alliance with dominant landed interests. he limits to the agrarian reformprogramme and the conse(uent persistence of an enduring agrarian constraint on

industrialization stood testimony to this.

&apitalist industrialization under the dirigiste regime after independence had to thus tae

place in a constrained internal and e"ternal conte"t. !n such circumstances, the achievementsof !ndia*s import-substituting industrialization between independence and were limited

along many different dimensions. he average pace of industrial growth was far more rapid

than in the colonial era but was mared by instability. 1et an industrial sector considerablylarger and more diversified than at independence came into being by the end of the 23s

even as per capita levels of industrial production remained low. he industrial sector*s sharein aggregate output, including the part contributed by its informal component, crept up very

slowly to #ust over a (uarter by the end of the 23s. !ndustrial e"pansion and even servicesgrowth, however, contributed very little to the e"pansion of non-agricultural employment and

shifts in the occupational structure. he large part of the worforce remained rural and

employed in agriculture. 4n the foreign trade front, !ndia ceased to be a mainly primaryproduct e"porter but did not succeed in becoming a significant e"porter of manufactured

products. hatever limited e"ports happened were also dominated by low-tech labour-intensive products. !mport-substituting industrialization did not also generate sufficiently

strong incentives for !ndian industry to invest in development of its own technologicalcapacity. !nstead, the diffusion of technology from abroad formed the basis for theappearance of new products, industries and processes.

he growth and diversification that !ndia's industrial structure e"perienced was part of a

larger story of the diffusion of industrialization to the hird orld in the second half of thetwentieth century. his diffusion brought the industrial structures of hird orld economies

closer to that of advanced countries, though the latter continued to account for adisproportionate share of manufacturing value added. However, in comparison to some of her

other hird orld counterparts in 5sia, !ndia*s long-term trend of industrial growth as well as

its transformative impact were more limited. !ndustrial development nevertheless did enable a

significant development of !ndian big business whose significance was to be fully revealedonly after liberalization.

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he private corporate share in the economy*s output remained relatively stable at around or

below 6 per cent till the end of the 23s after some initial increase in the 63s. &apitalaccumulation in the corporate sector was largely 7e"ternally* financed and there was a trend

to shift from e(uity to debt and from individual to institutional financing. However, the

private corporate sector*s e"pansion was not based on a net transfer from outside the sector as

the outflows from it in the form of ta"es, dividends and interest remained in e"cess ofe"ternal funds raised.

he relative stability of the private corporate share in output reflected the combined effect oftwo factors + the limited e"tent of industrialization and the redistribution of economic activity

between the private corporate, public and unorganized sectors. 5 feature of the post-independence development was the tendency for the narrowing down of private corporate

activity to the manufacturing sector, as sectors lie mining, electricity, transport,

communication, and the large financial sector became virtually the e"clusive preserve of thepublic sector. $ven in manufacturing activities, the public sector share increased, though private

corporate capital remained the dominant component in the organized manufacturing sector.

However, there was a massive redistribution of the weaving segment of the te"tile industryfrom the organized mills to the unorganized power loom sector.

5s the corporate sector became more concentrated in a diversifying manufacturing sector

even as it ceded space in what was the largest manufacturing industry at independence, theindustrial spread of private corporate capital changed considerably. 5ssociated with this were

a number of other important changes.

5t independence, large private corporate capital was heavily concentrated in industries liethe cotton and #ute te"tile industries, mining, tea manufacture, etc. By the end of the 23s

private corporate capital in these was limited or absent. !nstead big businesses were oftenbuilt around presence in one or more of a range of other industries that had grown over

different time periods such as steel and steel products, chemicals, cement, automobiles andautomobile products, industrial and other machinery and consumer electronics. hese industrieswere also technologically more 'modern' industries. !n the process of being agents of their

development, private capitalist firms learnt how to to find, source, handle and adapt forprofitable use technologies available internationally and gained this ability and production

e"perience across a whole range of industries. hey, however, moved away from producing

for a mass maret to focusing on narrower maret based on higher average incomes. hechange in the industrial spread also meant a retreat of private corporate capital from large

direct employment and the management of large worforces. he newer industries into whichcorporate capital had spread by the end of the 23s were also inherently more oligopolistic

in nature than the te"tile industries had been.

he ac(uiring of industrial features by the capitalist class through the process of import-substituting industrialization should of course be seen alongside its limits. he leaders ofcapitalist industry achieved or sustained their status not on the basis of an ability to be

technologically innovative but by their successful manoeuvring of the regime of controls andsecuring technology from abroad. hese abilities had a generic character and fostered a

tendency towards business groups e"panding wherever opportunity presented itself + thus

inhibiting both a widening of the class as well as the development of abilities associated withspecialization. his ability to be mobile across industries, however, enabled many of the older

constituents of the !ndian capitalist class to survive the transition associated with industrialdevelopment. 5t the same time, the growth of new constituents on a similar basis meant that

changes in the composition that did happen produced very little independent effect on the

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process of !ndian capitalists shedding some of the features they ac(uired due to the peculiar

circumstances of their origin.

8otwithstanding the above, import-substituting industrialization did contribute to !ndiancapitalists gaining strengths they did not have at independence, enhancing their general

ability to confront international competition. 5t the same time it had increased the scale andfre(uency at which technological advances needed to be introduced, which increased

technological dependence. &atching up with the structure of industries at the international

level had reduced the scope for industrial e"pansion through a successive diffusion ofindustries. &ontinued e"pansion had to be based primarily on e"isting industries rather than

on new ones, and that too under conditions of a narrow domestic maret. Such an e"pansionhad to follow the international pattern or constitute a niche within it. $ither way, the

technological re(uirements were different from those of the past. $"pansion on the basis of

e"isting industries meant that all firms re(uired recurrent technological advances in allindustries. he strengths and weanesses of !ndian capital thus wored in tandem to move

!ndian capitalist opinion towards favouring a greater degree of integration with the world

economy.

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III

!ndia*s transition to liberalization and the opening up of the economy did not produce any

overall growth depressing tendencies. !nstead, the story of !ndia*s growth being faster thanthat of the rest of the world, which had emerged in the 23s, continued and the first decade

of the current century saw a further acceleration in growth. !ndia*s weight in the worldeconomy measured in terms of its share in world 9:; therefore has increased considerably. 5

new trend that appeared after liberalization, however, was that of the growth of the corporate

sector being more rapid than that of the rest of the economy, more so in periods of highergrowth. his was accompanied by a persistent trend of redistribution of the income generated

within that sector in favour of profits and other surplus incomes, which cornered the entiregain in the sector*s increased share in national income. :espite the opening up, it has not

been foreign capital but !ndian capitalists who have been the principal beneficiaries of this

unprecedented corporate e"pansion. Moreover, !ndian capital has also managed in this periodto itself internationalize to an e"tent. %apid aggregate growth and the success of !ndian

capitalist firms have thus provided the basis for the story of !ndia*s 7emergence* under

globalization.!ndustrialization has, however, not been at the heart of the post-liberalization capitalist

accumulation regime in !ndia. !ndustrial growth has tended to fluctuate with spells of high

growth tending to be very short. he share of the industrial sector in 9:; and that ofmanufacturing in particular have stagnated at the comparatively low levels achieved by the

mid-3s. 4n the e"port front, while !ndia*s share in world e"ports has grown and there hasbeen some diversification of manufactured e"ports, imports have grown much faster leading

to a significant increase in the trade deficit.

%ather than manufacturing, it is services and construction activities that have contributed thebul of the aggregate growth as well as that of the corporate sector. !t is also in services that

!ndia has achieved its greatest e"port success and this has combined with large remittanceinflows to compensate somewhat for the ballooning trade deficit.

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very little. hus, even in the organized factory sector real wages have been flat or creeping

downwards for two decades during which !ndian per capita income has nearly tripled.:espite high aggregate growth, therefore, a large segment of the population remains caught in

a low-income or low-wage situation.

he holding down of wages, along with growth that is more productivity rather thanemployment driven, has contributed to moving private corporate sector distribution of income

in favour of surplus incomes, even after accounting for the e"istence of a small segment of

high-salaried white-collar employment within the sector. ;artly this gain has tended to beretained by companies and has underlain the rapid rise in corporate savings seen in the last

two decades. $ven when distributed, however, its beneficiaries are inherently few in number.

he income distribution pattern of !ndian growth, the parallel ini(uities in access to credit,and the fiscal restrictions imposed on the state by liberalization have meant that it is the

consumption and asset demand emanating from a small high-income group and from the

private corporate sector which has shaped the overall pattern of movement of !ndian demand.4ne implication of this has been that the increasing share of e"penditure on services rather

than on manufactured goods has characterized private consumption e"penditure. hile thelarge ma#ority with low incomes has been ept out of the maret for non-agricultural

products, the increasing incomes at the top have produced a greater diversification of their

demand. %elative to industry and manufacturing, however, these services have limitedcapacity to absorb investment. &orporate investment, therefore, tends to still go largely into

manufacturing. his has made industrial demand more dependent on corporate investment inmanufacturing and e"penditure on real estate by high-income groups. &orporate

manufacturing investment then faces the perpetual ris of creating capacity in e"cess of

demand and has therefore shown great volatility and simultaneously generated instability inindustrial growth. 5ggravating this problem is the fact that the pattern of demand being

generated maes it more biased towards relatively more import- and capital- intensive or high

productivity production. he former combines with limited e"ports to aggravate the maretconstraint as well as balance of payments difficulties while the latter eeps employment

growth down. Moreover, if productive investments lie in manufacturing face a barrier itgenerates a tendency for asset demand to shift towards more unproductive and import-

intensive forms lie gold.

he success of !ndian capitalist firms in the liberalization era has not been achieved byeliminating the old weaness in the technological sphere, but despite it. &onse(uently, their

tendency has been to e"pand in directions where limited ability to develop technology does notconstitute a serious barrier. his has reinforced the growth pattern because relative to many

manufacturing activities in a number of services and construction activities the role of self-

development of technology as a source of competitive strength tends to be limited. !ncreasedtechnological sophistication in these has been facilitated by technical e(uipment suppliers

and software service providers. his has combined with the process of privatization of manysuch sectors to create the tendency after liberalization for big business groups to move into an

array of non-manufacturing activities lie mining, power, construction =real estate and

infrastructure>, financial services, trade, information technology and telecom, etc. !n theprocess, even as the technological sophistication of the production process has increased,

!ndian capital has in more senses than one e"perienced a process of losing its already limitedindustrial character.

IV

Modern factory industry and a corresponding industrial capitalist class have had a consistenthistory in !ndia of over one and a half centuries. 1et capitalist development in !ndia has failed

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through its different phases to produce anything more than what at best can be described as a

stunted industrialization and limited the industrial nature of the capitalist class. !n the currentphase of !ndian capitalist development, the relationship between capitalist accumulation and

industrialization has not only become weaer but this weaening has also become more

entrenched over time. 5s the capitalist class has managed to grow as never before through an

e"pansion in non-manufacturing activities, its stae in an industrialization process has tendedto get eroded. 5t the same time that very e"pansion has reinforced the capitalist demand formaintenance and strengthening of the neoliberal economic policy regime that enabled it. he

economic policy regime in turn has increased the pressure e"erted by this capitalist demand

because of its effect of increasing the leverage of capital over the state which has reinforcedthe ruling class status of capitalists. &apitalist priorities press down harder on a state

constrained to rely on private capital to drive the growth process and to generate revenues.

4f course the current accumulation regime is not without its contradictions and has facedserious difficulties from time to time. 5t the current #uncture in fact it faces a serious crisis

that is its direct outgrowth - the combination of a large current account deficit, high rates of

inflation particularly of food, and slacening growth and investment. Such a crisis alone,however, does not produce any tendency for change in course. !ndeed, if anything it generates

the opposite + as e"emplified by the series of 7reform* measures announced in recent times. !tis only, therefore, a change in the correlation of class forces that can compel any change. he

basis for such a change may be created by the current accumulation regime and its crisisthough of course it will never be their automatic product.