Pacific Affairs: An International Review of Asia and the Pacific

Volume 73, No. 3

 

India's Aborted Liberalisation — 1966
By Rahul Mukherji

 

Abstract

This article argues that a crisis of foreign exchange and consequent pressure from the international donors, in the absence of a favorable domestic economic environment, may not be adequate to generate a policy shift in a pro-trade direction.

I explain the political economy of a reversed liberalization in this paper. India was faced with a foreign exchange crisis in 1966, after having weathered two droughts and a war. It devalued its currency and initiated some trade reforms in return for foreign exchange. This pro-trade policy orientation was reversed by the end of 1966, and, by 1969, India had turned to unprecedented levels of economic nationalism. The aborted liberalization of 1966 highlights the role of executive orientation in killing pro-trade initiatives. Prime Minister Indira Gandhi's need for political support in 1966, and, the ideational consensus in favor of import-substitution in the Indian Parliament and the policy community, account for this retreat from trade liberalization.