In the years after colonial rule ended (1947), the Indian state recast theinternational element in its economy. India steadily withdrew from foreign tradeand investment. Labor migration flows slowed for about twenty years, beforereviving from the 1970s. India also emerged as one of the world’s largestrecipients of foreign aid, and this aid had a well-defined role in thenation’s strategy of development.

Before independence, a main current of intellectual thought within the IndianNational Congress stressed the need for state control of productive resources toensure a more equal distribution of income and wealth. This socialist strand wasinspired by the Soviet developmental model. The accent was on state ownership,redistribution, and planning. Between the 1950s and the 1980s, these ideasbecame part of an informal consensus among Indian intellectuals. In this way,the communists and the mainstream came to a compromise. The country’sfirst prime minister, Jawaharlal Nehru, represented this conjunction of twopolitical traditions of interwar India.

The state established industries and nationalized some of them. Expansion in steeland heavy machinery was almost entirely in the state sector, whereas civilaviation was nationalized. The government retained for itself privileged accessto imported capital goods. The government also became the main vehicle forbilateral technical collaboration agreements. Much foreign aid came in ascapital goods and as an adjunct to these agreements. The private sector acceptedthe arrangement. In the division of labor between the state and the market, themarket was allocated the task of supplying consumer goods. The restrictionsimposed on foreign trade and foreign capital were an incentive. In return,employers had to swallow a legal regime that protected manufacturing jobs. Onceagain, a compromise was reached between the leftist and the centrist traditionsin nationalism.