People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 44

November 04, 2012

In Defence of a “Quota-License-Permit Raj”


Prabhat Patnaik


THE term “quota-license-permit raj” was popularised by C Rajagopalachari, the patron-saint of the pro-big-business Swatantra Party, which had an agenda that largely anticipated the neo-liberal one adopted later by the Congress party under the tutelage of the IMF and the World Bank. Rajaji used the term to describe and debunk the Nehruvian economic regime, and did so with great effect, since the term was highly evocative. It lacked any analytical substance, but its evocativeness camouflaged its lack of substance. Nobody, using the term sneeringly to describe the Nehruvian economic regime, ever bothered to explain what was wrong with a “quota-license-permit” raj, but the term just evoked a set of negative images: the image of bureaucrats lording over the system, the image of palms being greased to “get things done,” the image of an overarching state trampling individual “freedom,” and the image of pervasive state controls stifling enterprise and dynamism.


The fact that what the term evoked was not analytically grounded, the fact that the alternative to the “quota-license-permit” raj, the neo-liberal regime, has every negative attribute that used to be associated with the former, but to an infinitely greater extent, is becoming clearer by the day. Nonetheless, thanks to assiduous bourgeois propaganda, so effectively has the “quota-license-permit” raj been portrayed in a negative light, and neo-liberalism glorified in contrast, that many are still reluctant to tinker with the latter for fear of a return to the former.




But let us just ask the question: who is it who felt harassed under the old regime because he or she needed a quota or a license or a permit? The agricultural worker, the peasant, the dalit labourer, or the industrial worker in the factory or the workshop, did not ever need a quota or a license or a permit. And if perchance he or she ever needed some official document, e.g. a ration card, then, far from being a source of harassment, that document was almost invariably a source of succour to him which had been denied earlier: its abandonment in favour of the free market would have squeezed him greatly. The aggrieved entities under the “quota-license-permit” raj therefore were not the mass of the working people but the capitalists who had to get the clearance of the state for making inroads into the nation’s foreign exchange and other resources. The “quota-license-permit” raj per se basically restricted not the “freedom,” such as it was, of the peasant or the agricultural labourer or the industrial worker, but that of the capitalists, especially the large capitalists, to do as they liked.


The state that ran the “quota-license-permit” raj, correspondingly, though a bourgeois-landlord state essaying the development of capitalism in the country, was not exclusively controlled by the large capitalists: as the legatee of the anti-colonial struggle, it appeared to stand above classes, appeared to look after the interests of “all,” appeared to represent the “nation” as a whole, and for that purpose even put restrictions on the activities of monopoly capitalists, despite the fact that it was pursuing a capitalist path of development.


The “quota-license-permit” raj, in short, was reflective of a reality, where the state, even while pursuing capitalist development, had a relative autonomy vis-a-vis imperialism and was not exclusively appropriated by the large capitalists. The “quota-license-permit” raj was not just an economic regime conjured up by a bunch of bureaucrats or policy-makers: it was grounded in a certain class reality. The Swatantra Party under Rajaji wanted to change this class reality but failed. And when the transition to neo-liberalism finally did occur, that was because a change in the class reality was taking place at home and abroad (with the collapse of the Soviet Union, the ascendancy of international finance capital, the removal of any challenge to the hegemony of US-led imperialism, and the desire of the Indian big bourgeoisie, owing inter alia to all these developments, to integrate itself more closely with international capital, rather than be part of any attempt to develop a capitalism in India in relative autonomy from imperialism).


Neo-liberalism replaced the regime of controls, the so-called “quota-license-permit” raj that characterised the dirigiste economic strategy, with  consequences that we all know, viz acute distress for the peasantry and petty producers; growing hunger and malnutrition reflecting absolute impoverishment of vast masses of the people; an extraordinary increase in inequalities in income and wealth in society; an increase in the relative size of the reserve army of labour, accompanied, expectedly, by a decline in the real wage rate (compared to the late 1980s) of even the better unionised, organised sector workers; and the transformation of the nature of the state into an entity committed to promoting, almost exclusively, the interests of the rich, the corporate, and globalised finance. At the same time, however, it appeared to have succeeded in ushering in high GDP growth, a degree of dynamism in the export sector, especially with regard to IT-related services, and hence in obtaining the social support of a segment of the affluent middle class for itself. In short, the abandonment of the “quota-license-permit” raj and the adoption of neo-liberalism, while hurting the working people, as expected, seems also to have unleashed a certain dynamism, whose beneficiaries may have been only a few, but which is no less real for that. It is this latter aspect that needs to be analysed.




Underlying it is the fact that India’s transition to neo-liberalism occurred at a time when the world capitalist economy was on an upswing. For the US, for instance, the period of the nineties has been described by well-known economist Joseph Stiglitz as “the roaring nineties.” Of course this upswing was based on a bubble, the “dot-com” bubble in the US, and hence was utterly fragile; and the upswing of this decade or the one following, was nowhere near what capitalism had experienced during the heyday of Keynesian demand management (the so-called “Golden Age of capitalism”), either in terms of growth rates or in terms of average unemployment rates. It was nonetheless an upswing; and the collapse of the “dot-com bubble” at the turn of the century was followed by the artificial stimulation of a “housing bubble” in the US, which kept the growth rate in that economy, and hence by implication in the capitalist world as a whole, going for almost another decade, until the crisis broke in 2008.


India benefited from this upswing in several ways: first, the demand for Indian exports was kept up, especially of services, where it happened to enjoy a certain advantage. Secondly, the fact that the upswing entailed comparatively lower domestic unemployment rates in the US and elsewhere in the advanced capitalist world, also meant that domestic opposition to “outsourcing” by big US and other corporations was relatively muted, which also permitted large-scale outsourcing, and hence larger exports for this reason from India and other similarly-placed economies. And thirdly, the “euphoric expectations” among capitalists, typically associated with an upswing (which after all is what causes bubbles), also meant a willingness on the part of finance to pour into countries like India, rather than being only metropolis-bound. Put differently, a period of crisis typically encourages a “strong-currency preference” (“dollar preference,” or if even the dollar is under pressure, then outright gold preference); by contrast a period of upswing is marked by a preference for even relatively weaker currencies like the rupee. True, since India had remained out of bounds for global finance for a long time, owing to its pursuit of the dirigiste strategy, the sheer “opening up” of its economy to financial flows would have brought in some financial inflows for a while anyway; but the upswing in the world capitalist economy kept the momentum of financial inflows going for quite some time.


India, in consequence, experienced the stimulus of an export upsurge in some sectors, and the stimulus of a domestic expenditure upsurge in others, the latter made possible by burgeoning bank credit that could become available because of the accretion to foreign exchange reserves, arising from the inflow of international finance. The Indian growth acceleration in short was closely linked to the upsurge in the world capitalist economy, made possible by the ongoing bubbles during the nineties and the early years of this century. This phase has now ended.




Neo-liberalism necessarily hurts the working people, even when the economy pursuing the neo-liberal strategy experiences a high growth rate. But when its growth rate slackens, then in addition to the working people, even the segments of the middle class, that benefit from periods of high growth, also suffer. And the squeeze on the working people becomes greatly intensified, since the burden of the crisis also, additionally, gets passed to their shoulders.


The Manmohan Singh government is currently engaged in intensifying the squeeze on the working people, under the impact of the world capitalist crisis. The crisis has meant on the one hand a widening of the current account deficit on the balance of payments, because of reduced export demand; on the other hand the inflow of finance has also tended to dry up. In other words precisely when the economy has needed larger foreign financial inflows to meet its current account deficit, the actual flows have tended to shrink. Under the neo-liberal regime, the government therefore has had no other options but to bend over backwards to provide even more attractions to international capital, to create even more of a hospitable climate for it in the country, to lure it to these shores. And every such attraction, every such sop, every such blandishment, is at the expense of the working people, be it a further curtailment of welfare expenditure, or a further hike in diesel prices, or a further round of privatisations and a further opening up of the economy to the depredations of unfettered capitalism.


As long as the economy remains dependent upon the caprices of a group of international financiers to meet its widening current account deficit, no alternative economic policy to the benefit of the people is possible. Two conclusions follow: first, to believe that the Manmohan Singh government, or even any successor government wedded to neo-liberalism, can provide relief to the people within the framework of such a strategy, is a pipedream. Even if such a thing could have been possible to some limited extent during the world economic upswing (which could have taken the people one step forward after they had been pushed two steps back), it is no longer possible today in the midst of the world crisis. Secondly, for any pro-people policy to be at all possible today, the whole direction of economic strategy has to be changed. This requires not just controls on capital flows into and out of the country, so that the economy experiencing a widening current deficit is not additionally burdened with capital flight, but also other ways of managing the current deficit, without having to depend upon financial inflows.


The latter requires selective trade controls. And even if selectivity takes the form not of a complex array of controls but of some simple mechanism, like a dual exchange rate system, even then some controls will have to be put in place. There is thus no alternative to putting in place some version of the “quota-license-permit” raj, if the well-being of the people is not to be further sacrificed in attempts to entice financial inflows for meeting the current account deficit.