Prabhat Patnaik and C.P. Chandrasekhar have written an uncompromising criticism of what they call “structural adjustment” in India. The changes occurring in India, however, are broader than the phrase “structural adjustment” implies and are more akin to systemic change of the type that has been occurring simultaneously in the centrally planned economies of China, Vietnam, Eastern and Central Europe, and the former Soviet Union. The economic reforms in India can be understood in this wider global context, and useful comparisons can be made between the transition in India and that in the centrally planned economies.

Between 1947, when India achieved its independence from British rule, and 1991, when the process of economic reform began, India pursued a development strategy that was state led, inward looking, and nationalist in spirit. Emphasis was placed on industrialization, state enterprises occupied the “commanding heights,” international trade was tightly regulated, inward and outward movements of capital were insignificant and tightly controlled, and private sector capital formation was regulated by investment licenses. There was an elaborate planning apparatus, although it was highly bureaucratic and not very effective. This system did produce some positive results. Growth was faster than during the colonial period, although usually slower than the average of developing countries as a whole. National self-sufficiency was achieved, and even today, after six years of economic reform, the ratio of exports to total product in India is about half that of China.