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The New Delhi Consensus

NEW DELHI – One of the more remarkable (though largely unremarked) developments in recent Indian politics has been the startling shift in the country’s discourse about capitalism. As in many developing countries, “self-reliance” and economic self-sufficiency were India’s national mantras after independence – and, in India’s case, remained so for more than four decades. Whereas most Westerners axiomatically associate capitalism with freedom, India’s nationalists associated it with slavery. After all, the British East India Company, that harbinger of capitalism, had come to trade and stayed to rule.

One of the lessons that history teaches us is that history often teaches us the wrong lessons. For India’s nationalist leaders, this meant that every foreigner with a briefcase should be viewed as the thin edge of a neo-imperial wedge.

This had serious implications for India’s role in the world economy. Instead of integrating India into the global capitalist system, as only a handful of post-colonial countries – for example, Singapore – chose to do, India’s leaders (and those of most former colonies) were convinced that the political independence that they had fought for could be guaranteed only through economic independence.

As a result, self-reliance became the official credo, protectionist barriers went up, and India spent 45 years largely divorced from global trade and investment flows. Bureaucrats, not businessmen, controlled the “commanding heights” of the economy, and India shackled itself to statist controls that emphasized distributive justice over economic growth, stifled free enterprise, and discouraged foreign investment. While the “Asian tigers” roared ahead, the Indian economy sputtered along, growing at a 2-3% annual rate. Economists spoke derisively of a “Hindu rate of growth.”