The Long March to Capitalism: Embourgeoisment, Internationalization and Industrial Transformation

The Long March to Capitalism

Also by Anthony P. D’Costa:

India in the Global Software Industry: Innovation, Firm Strategies and Development(co-editor with E. Sridharan)

The Global Restructuring of the Steel Industry: Innovations, Institutions andIndustrial Change

The Long March toCapitalismEMBOURGEOISMENT, INTERNATIONALIZATION,AND INDUSTRIAL TRANSFORMATION IN INDIA

ANTHONY P. D’COSTAComparative International DevelopmentUNIVERSITY OF WASHINGTON, USA

© Anthony P. D’Costa 2005

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Library of Congress Cataloging-in-Publication DataD’Costa, Anthony P., 1957–

The long march to capitalism : embourgeoisment, internationalization, andindustrial transformation in India / Anthony P. D’Costa.

p. cm.Includes bibliographical references and index.

1. India–Economic conditions–20th century. 2. Capitalism–India–History–20th century. 3. Industrialization–India–History–20th century. 4. Automobile industry and trade–India–History–20th century. 5. India–Politics and government–20th century. I. Title.

HC435.D36 2005330.954–dc22 2005043282

10 9 8 7 6 5 4 3 2 114 13 12 11 10 09 08 07 06 05

Softcover reprint of the hardcover 1st edition 2005 978-1-4039-3647-9

ISBN 978-1-349-51867-8 ISBN 978-0-230-50203-1 (eBook)DOI 10.1057/9780230502031

To Janette for her love and understanding

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Contents

List of Tables viii

List of Figures x

Acknowledgements xi

List of Companies Cited xv

Acronyms xvi

Map of India xviii

Chapter 1 Introduction: Capitalism, Markets, and Industrial 1Change

Chapter 2 One Capitalism or Many? Interpreting Indian 16Industrial Development

Chapter 3 State, Embourgeoisment, and Market Development 46 in India

Chapter 4 Embourgeoisment, Internationalization, and 70Auto Market Evolution

Chapter 5 Capitalist Regulation, Flexible Production, and 105Auto Market Evolution

Chapter 6 Uneven Development and the Changing Regime of 142Accumulation in West Bengal

Chapter 7 Capitalist Competition, Consumption, and 169Contradictions of Industrial Transformation

Chapter 8 Concluding Remarks on Capitalism, Markets, and 199 Development

Appendix 208

Notes 213

References 221

Index 239

vii

List of Tables

Table 3.1 Expansion of Selected Indian Industries, 1950–2000 51Table 3.2 Structural Changes in the Indian Economy, Sectoral 53

Contribution to GDP (%) 1950–2004 (1993–94 prices)Table 3.3 Number of Educational Institutions for Selected 60

CategoriesTable 3.4 Three Estimates of the Size of the Indian Middle Class 64

(based on household income)Table 4.1 World Motor Vehicle Production, 1950–2000 74Table 4.2 World Motor Vehicle Production by Manufacturers 75

(2000) (Top 24 Firms)Table 4.3 India’s Changing Balance of Payments Profile 79Table 4.4 Changing Market Structure of Car and Utility Vehicle 86

Production in India (1955–2001)Table 4.5 Changing Structure of Commercial Vehicles 87

Production (1950–2001)Table 4.6 Major Foreign Collaborations in the Automobile 94

(Four-Wheeler) SegmentTable 4.7 Internationalization, Diversified Output, and Market 100

SegmentationTable 5.1 Maruti Udyog’s (MUL) Relative Performance 112

(circa 1994)Table 5.2 The Co-Location of MUL’s Suppliers 116Table 5.3 Intra-Firm Flexible Arrangements for Mass Production 120

(Early 1990s)Table 5.4 Recent Changes in the Indian LCV Market by Firms 131Table 5.5 Expanding Market for the Indian Component Industry 136

(Rs. and US$, in millions)Table 6.1 Percentage Distribution of Net Value Added Across 145

Selected Indian StatesTable 6.2 Statewise Sale of Passenger Cars 147Table 6.3 Profitability of Hindustan Motors in the 1990s 163Table 7.1 Excess Capacity in the Indian Vehicle Industry 172Table 7.2 Increasing Competition and Product Variety in the 174

Indian Car IndustryTable 7.3 Competition and Tendencies Toward Excess Capacity 175

in the Indian Automobile IndustryTable 7.4 Excess Capacity by Firms 176Table 7.5 Estimated Distribution of Households by Income 179

Group in India

viii

Table 7.6 Number and Annual Growth Rate of Wealthy 181Households (1993–94 and 1995–96)

Table 7.7 Purchases of Selected Consumer Durables in India 183 (millions) and Rural Share (%)

Table 7.8 Prices of Two-Wheelers and Distribution of Household 184Income

Table 7.9 Prices of Selected Cars and Household 187Income

List of Tables ix

List of Figures

Figure 2.1 An Alternative Conceptualization of Capitalist 39Industrialization

Figure 2.2 The Dynamics of Capitalist Industrialization 42in India

Figure 3.1 India’s Food Grain Production, 1951–2002 (mt) 54Figure 3.2 Net Additions in Vehicle Populations by Category 65Figure 4.1 India’s Net Trade Balance 76Figure 4.2 General Motors and the Internationalization of 97

the Indian Auto IndustryFigure 5.1 Industrial Governance Under Changing 109

Capitalist RegulationFigure 5.2 Cooperation Within and Outside MUL 111Figure 5.3 Sona’s Evolution of Product Variety 118Figure 6.1 Net Value Added in Manufacturing by States 146Figure 6.2 Increasing Lockouts in West Bengal, 1979–1997 153Figure 6.3 HM’s Accumulation Strategy and Capital Flight 158

from West BengalFigure 7.1 Growing Divergence in Car and Two-Wheeler 185

Production (1971–2001)Figure 7.2 Commodity Balance in Crude Oil 189Figure 7.3 Changing Energy Consumption Ratios 190

(1971–1994)

x

Acknowledgements

This book is the second of a trilogy of research studies on globalization,industrial change, and development. The first, titled The Global Restruc-turing of the Steel Industry: Innovations, Institutions and Industrial Change,(Routledge 1999) examined how the role of states and technology-drivencapital accumulation shaped the global reorganization of a largelynational industry. The third examines the dynamics of informationalcapitalism, its impact on the changing global division of labor in hightechnology development, and economic development at the nationallevel. The second volume investigates the evolution of contemporaryindustrial capitalism in India by showing how state-led economic andsocial change and business responses contributed to market developmentand subsequent integration with the world economy. The study situatesthe restructuring of the Indian automobile (and other consumerdurables) industry in the wider capitalist context. The entry of Japanesecapital into the Indian auto industry in the early 1980s radicallychanged the industry. The literature on Japanese development and itsdeployment of flexible practices raised a host of new questions on theheterogeneity of capitalism and its varied institutional underpinnings.Moreover, India’s gradual economic reintegration with the worldeconomy added another layer of complexity to the trajectory of Indiancapitalism, which paralleled global developments in a limited way. Tofully appreciate the nature of capitalist development in India I felt it wasimportant to capture the macro-national social forces influencing theexpansion of the Indian auto industry. Not only are industry-leveldynamics important for increasing output but, from the demand side,the larger social change in motion since Indian independence is crucialto explaining the turning point in India’s auto industrial development.

In extending my earlier work, I argue that this structural transfor-mation, which has been state engineered, is the foundation for marketgrowth, a quintessential feature of capitalism. With increasing demandthere are supply responses, spearheaded largely by multinational corpo-rations and their Indian partners in a liberalized market environment,attempting to cash in on the growing Indian middle class. Market deve-lopment from the supply side is witnessed in terms of increasing volumeof output using best-industry practices. The two sides of cumulative cap-italist development in India are thus comprised of embourgeoismentfrom the demand side and internationalization of the Indian industryfrom the supply side. However, the story does not end there. There are,on the one hand, unfavorable social and economic consequences of

xi

embourgeoisment, industrial expansion, and the working of capitalistmarket dynamics in India’s particular institutional context. On the otherhand, there are also social responses to these emergent contradictions. It is through this comprehensive appreciation of the evolution of in-dustrial capitalism, as seen through the internationalization of the autoindustry, that the highly ambiguous contemporary process of economicdevelopment and social change in India can be brought out.

This study has its initial roots in a plant visit I made in 1987, almostfive years after India’s flagship auto company Maruti Udyog Limited waslaunched by the government of India and Suzuki Motors of Japan.Subsequently, two organizations financially sponsored my field research. A fellowship from the US Department of Education under the Fulbright-Hays Faculty Research Abroad program (1991) and a Senior Fellowshipfrom the American Institute of Indian Studies (1992) allowed me tocollect primary data in India and Japan (see Appendix A.1). Since then Ihave visited India several times to update information on a rapidlychanging industry and follow through with additional interviews offirms that seemed poised to make a mark on the industry. Four of thesetrips were partially supported by small grants from the Founders’Endowment Fund (1994, 1996), University of Washington in Tacoma,the Graduate Research Fund (1994) and the Center for Labor Studies(1995) (now Harry Bridges Center), University of Washington in Seattle.As a Royalty Research Fund Scholar of the University of Washington, Imade two more trips to India in 2001 and 2002. The financial supportallowed me to hire a research assistant in India and work on severalchapters full-time for a quarter. Without the financial help from theseinstitutions and organizations it would not have been possible to get toknow the industry at the shop-floor level.

There have been many individuals from the industry, government, andacademic establishments who have been generous with their time. Some ofthem organized the logistics of plant visits, most of which were locatedaway from city centers. Two individuals in New Delhi deserve particularmention: Mr. R. C. Bhargava, the Chairman and Managing Director ofMUL for many years, and Mr. N. Srinivasan, the former Executive Directorof the Automotive Components Manufacturers Association. In the 1990s,both of them helped me with plant visits and industry publications andallowed me to obtain primary data from individual firms and variousdepartments within them. I am especially grateful to the many employeesof MUL who enthusiastically shared their work and helped me make senseof the larger transformation taking place. There were other individuals, toonumerous to mention, who went out of their way to help me understandthe industry. The firms they represented are listed in Appendix A.1.Additionally, I would like to thank Mr. Hirofumi Nagao of Suzuki Motorsfor making my Hammamatsu visit professionally productive. Various

xii Acknowledgements

Acknowledgements xiii

government departments and officials also extended their assistance. Thenow defunct Directorate General of Technical Development, which evalu-ated industrial investments, opened up for me the byzantine dimensions ofIndian bureaucracy and economic administration. Senior officials, with anacademic bent, such as Bimal Jalan, Rakesh Mohan, Ashok Desai, andPronab Sen in various ways introduced me to the complexities of Indianeconomic reforms. Biman Basu of the Communist Party of India (Marxist)in Kolkata provided an interesting analysis of changing industrial relationsand politics in West Bengal and introduced me to labor leaders and unionsin the state. The leaders of major trade unions, located in Delhi, also narrated their versions of industrial democracy in capitalist India. I wouldalso like to thank my friends E. Sridharan, M. R. Anand, and GautamMazumdar, all from Delhi, for acquiring and sending research-related pub-lications to me and sharing their particular knowledge of Indian politicaleconomy, administration and planning, and the auto industry. RakeshBasant in Ahmedabad helped arrange the General Motors plant visit inHalol. Cherian Samuel, at the World Bank, has been always eager to helpwith data and research contacts.

The basic materials in this volume have been previously presented inseminars and conferences; some have been published in academic journalsand the popular press. I am grateful to the individuals and institutions thathosted my visits. In no particular order I would like to thank RamprasadSengupta and his colleagues for hosting two of my presentations in Delhiat the Center for Economic Studies and Planning, Jawaharlal NehruUniversity; Amiya Kumar Bagchi of the Center for Studies in SocialSciences, Calcutta; Makoto Kojima of Chiba University of Commerce (nowwith Takushoku University), Japan; Harukiyo Hasegawa of University ofSheffield (now with Doshisha University in Kyoto); Tony Shorrocks andTony Addison of World Institute of Development Economics Research,Helsinki; and Rob Tulder of Erasmus University, Rotterdam. Other institu-tions and organizations that invited me or acted as presentation outletsinclude Tokyo University of Foreign Studies, Duke University, Associationof Asian Studies, Social Science Research Council (New York), HallymUniversity (Chunchon, Korea), South Asia Colloquium of the PacificNorthwest, National Tsing Hua University (Taiwan), University of Calgary(Alberta, Canada), University of Hawaii, the India Association of WesternWashington, the University of Washington, and the Eindhoven Centre forInnovation Studies, Eindhoven Technology University, the Netherlands.Publication outlets include World Development, Contemporary South Asia,Journal of International Development, Asian Business and Management,Industrial and Corporate Change, Ekonomisuto (in Japanese), and Business Line(India).

There have been a few individuals who have either read some of thesepapers or who shaped some of the arguments and ideas. I would like

to thank Gary Hamilton for unwittingly being my professional mentor. His kindness and seasoned advice were always a source of inspiration. Rick Doner and Fred Deyo provided useful comments on some of the ideason flexible production. Debdas Banerjee read Chapter 6 on West Bengaland provided useful feedback, while Saikat Sinha Roy compiled manu-facturing data from the Annual Survey of Industries of the Government ofIndia. Amiya Kumar Bagchi, in addition to his sustained interest in mywork, helped me find Bhubanes Misra, who carried out a part of the datacollection process in West Bengal. At Palgrave Macmillan it has beenalways a pleasure to work with Amanda Watkins, the Senior Commiss-ioning Editor. Thanks also to Jen Nelson at Palgrave for seeing the projectthrough. But there is only one person who has read not only all the pieces I have written but the entire manuscript itself. Janette Rawlings, as always,meticulously combed through the book and enthusiastically offerednumerous editorial and substantive suggestions. More importantly, hergenerosity, at a time of extreme family circumstances, allowed me toundertake research travel for over five months. For this and more I will bealways grateful. As a small token of reciprocity, I dedicate this book to her.

A.P.D.Tacoma, Washington 2004

xiv Acknowledgements

List of Companies Cited

xv

Allwyn-Nissan IndiaAsahi India IndiaAsahi Glass JapanAshok-Leyland IndiaBajaj Auto IndiaBharat Seats IndiaBMW GermanyBrakes India IndiaC.K. Daikin IndiaC.K. Birla Group IndiaCaparo Industries UKCitroën FranceClimate Systems IndiaDaewoo Motors South KoreaDaimler-Benz GermanyDCM Engineering IndiaDCM-Daewoo IndiaDCM-Toyota IndiaEicher Tractors IndiaEicher-Mitsubishi IndiaFiat ItalyFord India IndiaFord USAGeneral Motors USAGM-Daewoo Auto South KoreaTechnologyHindustan Motors IndiaHonda JapanHyundai South KoreaInd Auto Ltd. IndiaIndia Piston IndiaIndian Iron and IndiaSteelInfosys IndiaIsuzu JapanJay Bharat Maruti IndiaKoyo Seiko JapanKrishna Maruti IndiaLeyland UK

Lucas Engineering UKMachino Plastics IndiaMahindra & IndiaMahindraMark Auto IndiaMaruti Udyog Ltd. IndiaMatsuda JapanMazda JapanMercedes Benz GermanyMG Rover UKMikuni JapanMitsubishi Motors JapanMitsubishi JapanNippon Denso JapanNissan JapanPeugeot FrancePremier Automobiles IndiaPurolator India IndiaScooters India Ltd. IndiaSEAT SpainSipani Automobiles IndiaSomic Ishikawa IndiaSona Steering IndiaSona Somic IndiaSona Koyo IndiaStandard Motors IndiaSubros Ltd. IndiaSundaram Fasteners IndiaSundaram-Abex IndiaSuzuki Motors JapanSwaraj Mazda IndiaTata Iron and Steel IndiaTELCO IndiaToyota JapanToyota-Kirloskar IndiaTVS IndiaUCAL IndiaVauxhall UKVolvo Sweden

Acronyms

ACMA Automotive Components Manufacturers AssociationAIAM Association of Indian Automobile ManufacturersAL Ashok-LeylandBIFR Board for Industrial & Financial ReconstructionBJP Bharatiya Janata PartyBMW Bavarian Motor WorksBOP Balance of PaymentsCII Confederation of Indian IndustryCITU Centre of Indian Trade UnionsCKD Completely Knocked DownCNC Computer Numerically ControlledCNG Compressed Natural GasCPI Consumer Price IndexCPM Communist Party of India (Marxist)CV Commercial VehicleEOS Economies of ScaleEOSC Economies of ScopeFDI Foreign Direct InvestmentFERA Foreign Exchange Regulation ActG-7 Group of SevenGATT General Agreement on Tariffs and TradeGDP Gross Domestic ProductGM General MotorsGNP Gross National ProductGOI Government of IndiaHCV Heavy Commercial VehicleHM Hindustan MotorsIDA Industrial Dispute ActIMF International Monetary FundINTUC Indian National Trade Union CongressISI Import Substitution IndustrializationIT Information TechnologyITI Industrial Training InstituteJIT Just in TimeJLCV Japanese Light Commercial VehicleKVA Kilo Volt AmperesKWH Kilo Watt HourLCV Light Commercial VehicleM&M Mahindra & Mahindra

xvi

MES Minimum Efficient ScaleMISH Market Information Survey of Householdsmt million tonnesMNC Multinational CorporationMRTP Monopolies Restrictive Trade PracticesMUL Maruti Udyog LimitedMUV Multiutility VehicleNCAER National Council for Applied Economic ResearchNCR National Capital RegionNOIDA New Okhla Industrial Development AuthorityNRI Non-Resident IndianOBC Other Backward ClassesOECD Organization of Economic Cooperation and DevelopmentOEM Original Equipment ManufacturerPAL Premier Automobiles LimitedPCI Per Capita IncomePMP Phased Manufacturing ProgramPPP Purchasing Power ParityPSU Public Sector UnitQC Quality CircleR&D Research and DevelopmentRs. RupeesRTV Rural Transport VehicleSAL Sipani Automobiles Ltd.SC Scheduled CasteSIAM Society for Indian Automobile ManufacturersSMC Suzuki Motor CorporationSMP Standard Motors Private Ltd.SSA Social Structure of AccumulationST Scheduled TribeTELCO Tata Engineering and Locomotive CompanyTNC Transnational CorporationTVS TV Sundram Iyengar and Sons Ltd.UNCTAD United Nations Conference on Trade and DevelopmentWB West BengalWBIDC West Bengal Industrial Development CorporationWTO World Trade Organization

Acronyms xvii

xviii

Source: Compiled by Author.

India’s Principal Automotive Clusters

1Introduction: Capitalism, Markets,and Industrial Change

1. Introduction

The 2004 general elections in India produced some dramatic outcomes. Theincumbent government, led by the Hindu fundamentalist Bharatiya JanataParty (BJP), was unexpectedly thrown out and the Congress Party wasreturned to power. In forming a government the mildly left-of-centerCongress party secured the alliance of India’s communist parties. Neitherdefeating the incumbent party nor forming unusual political alliances areunfamiliar in India’s anti-incumbent voting behavior and coalition politics.What was jolting, however, was that the BJP could not cash in on the good-will it had generated during its five-year tenure marked by a high economicgrowth rate, the rapidly emerging information technology sector, andIndia’s larger presence in the global economy. The class revolt indicatesthat a large segment of Indian society has not benefited from economicgrowth and India’s integration with the global economy. At the same time,India’s long-established Communist Party of India (Marxist) (CPM), whichwon its sixth consecutive victory in the state of West Bengal, has beenenthusiastically embracing globalization and its attendant capitalist imper-atives such as multinational investments, shopping malls, and middle classconsumerism. Recently the Chief Minister of West Bengal, who is also asenior politburo member of the CPM, argued that “globalization is a must”and proceeded to meet with several multinational business leaders (Rohde2004).

This brief exposition of Indian elections raises a number of interrelatedquestions on the nature of recent Indian economic development and socialchange. For example, why is it that high growth and high technologyindustries are not benefiting the population as a whole? What is behindIndia’s high growth rates, given its historical low growth performance?What explains the coexistence of India’s growing class of consumers andpersistent poverty? Why is the CPM, traditionally hostile to business, espe-cially multinational firms, openly courting them? What can we say about

1

the functioning of the contemporary world economy and how is theIndian economy articulating itself with this larger system?

While there are many ways to approach these questions, I believe askingthe larger question about how capitalism is unfolding in India is likely toprovide a more comprehensive answer to the nature of the process of eco-nomic development and social change. The challenge, of course, is how todelimit the parameters of capitalism and its workings. Much has beenwritten about Indian and global capitalism and their interactions invarious historical phases (see D’Costa 1995a). However, there are fewstudies that integrate the contemporary Indian capitalist trajectory withmarket development; bringing out not only the recent turning point inIndian capitalism but also the co-evolution of social, economic, and insti-tutional shifts in a dialectical way.1 The associated changes in the direc-tion of Indian capitalism warrant a greater engagement with the globaleconomy. This has been duly acknowledged, but the underlying socialforce behind this turning point in contemporary capitalist developmenthas been underplayed. Intellectually engaging postmodern critiques ofeconomic determinism, emphasizing capitalist transition in India, havenot adequately accounted for heightened industrial capital accumulationin India (Chakrabarti and Cullenberg 2003).

This study aims to capture some of the salient dynamics of capitalist evolution and social change in contemporary India by limiting the analy-sis to the Indian automobile market growth with some references to thelarger consumer durables industry. The automobile industry has been usedextensively as a vehicle for discussing social, economic, political, environ-mental, and ethical issues (see Luger 2000). This study similarly situatesthe industry in the larger political economy of Indian development inboth historical and institutional terms, thus providing a comprehensivelook at contemporary Indian capitalism. The automobile and the broaderconsumer durables industry represent quintessentially capitalist commodi-ties that reflect market growth, industrial deepening, and technologicalmaturity on the one hand and on the other, a growing class of high-income consumers and thus social differentiation. There are some similar-ities between the Brazilian auto industry in the 1970s and the Indianexperience of the 1980s. The key difference is the regime under whichsuch industrialization has taken place. In the Brazilian case, multinationalauto firms entered early on under the import substitution industrializationstrategy, while in India the presence of foreign firms is due to neoliberalpolicies (Addis 1999, Shapiro 1994).2 The “rupture” for India’s auto indus-try has been more sudden than Brazil’s and hence India’s turning point islikely to reveal pronounced industrial and social transformations. Theindustry’s evolution is likely to reflect complex production and institu-tional systems, designed ultimately to cater to an ever more personalizedand individualized form of consumption.

2 The Long March to Capitalism

2. Capitalism, markets, and institutions

It is common knowledge that markets are integral to capitalist develop-ment. In addition to the significance of markets there are several key characteristics that render capitalism a unified system. It is a class-basedsystem with the separation of direct producers and owners of the means of production. Wage labor constitutes the principal form of productionwork. Owners pursue production for profit, which is realized in themarket. Market prices increasingly act as signals for production and con-sumption. Capitalism is a competitive system in which both suppliersand buyers respond to changing prices. It is increasingly global in scopebut the major sources of growth remain national. In reality not all char-acteristics of capitalism are likely to be present in all places, at all times,though the spread of wage labor, the formation of price-driven markets,commercial motives behind market production, and ensuing competi-tion are now routine. The issue here is less over what constitutes capital-ism and more over what contributes to its heterogeneity and thusvarying market development.

There is nothing natural about markets. They are social institutions by which economic activities are coordinated (Lindblom 2001). They areinfluenced by other institutions such as private property laws, corporategovernance systems, and the legal framework, among others (Rosenbergand Birdzell 1986). Perhaps the most important institution that has beenresponsible for the expansion of capitalist markets is the state. Whilemuch has been written about the state and its role in the wider eco-nomic and political system, much less has focused on the changing char-acter of the state as a consequence of social and class differentiationbrought about by the state itself. This process of embourgeoisment, inwhich an emergent middle class with increasing purchasing power is aproduct of the state, itself creates the political and economic pressure onthe state to deregulate the economy and facilitate market expansion.Embourgeoisment in the Indian context means the upward mobility ofthose already in higher social and economic ranks, with the added condition that parliamentary democracy provides some space for lowerranked social groups to experience limited mobility (Stern 2003). Widen-ing embourgeoisment is expected to translate into structural changes inthe composition of demand, thereby reinforcing the process of marketgrowth in a cumulative and path-dependent way. In this non-linearprocess with increasing returns, two issues come to the fore: the mecha-nisms by which markets grow and the coalescing of factors that con-tribute critically to the turning point of capitalist evolution in whichmarket expansion itself takes off.

This study posits that India is undergoing a capitalist transformation by which markets in India are expanding in a systemic way. This is not a

Introduction: Capitalism, Markets, and Industrial Change 3

novel argument. A cursory examination of basic economic data suggestsrelatively high rates of market growth and structural change in the Indianeconomy. There is a recognizable Indian middle class today, which isdriving the Indian economy, and the business press is gung-ho aboutIndia’s prospects. However, the institutional basis for this market expan-sion remains relatively unexamined. In the affluent countries the institu-tional underpinnings of capitalist development have been well recognized,especially those that facilitate the smooth functioning of markets. Con-versely, the lack of such institutions in developing countries are oftenargued to retard the development of markets. Excessive regulation by thestate over private sector activity is said to constrain market growth, andweak private property laws and underdeveloped financial markets limitcapitalist development. It is true that institutions are important to marketdevelopment and it is also undeniable that the Indian state has con-strained the private sector through over-regulation. However, it is alsoconceivable that state intervention has led to social and economicchanges, which, under a reformed role reinforced further changes such asthe establishment of novel flexible industrial practices to cope withheightened competition in a deregulated environment. Business responsessuch as these to deregulation can have a profound effect on the organiza-tion of production, the nature of inter-firm relationships, industrial rela-tions, the technology adopted, that is, on the very workings of capitalistmarkets in fundamental ways.

My objective here is to demonstrate that, irrespective of the inefficacy ofthe state at an earlier period, the Indian state has contributed to marketdemand at the macroeconomic level through embourgeoisment. At themicroeconomic industry level businesses in a more deregulated environ-ment have responded creatively to meet hitherto suppressed demand. The perceptions of both businesses and the middle class about the role ofthe government are changing due to the twin processes of globalizationand embourgeoisment (see Bardhan 2002: 131). This institutional approachdiffers from others as it does not rely on the identification of a particularfactor purportedly contributing to market development over the long haul.Rather it deploys an approach that attempts to bring out the dynamic inter-active processes behind market development including the contribution ofthe state in altering the structure of Indian demand attended by supplyresponses of capitalist firms, their transnationalization, and consequentadjustment in a deregulating, market-friendly environment.

I argue that at the larger political economy level, the state-led developmentstrategy from India’s independence in 1947 until roughly the mid-1980s contributed to the growth of the Indian middle class, that is, to the embour-geoisment process. In the Indian context “middle” is not the statisticalmiddle or the mean, rather it refers to the upwardly mobile, more affluent,consumer groups who can afford to participate in the growing industrial


markets. This is the demand side of the market story. There is also the supplyside to this market growth. Indian businesses are responding to capitalistexpansion in new ways, while the Indian government and Indian businessesare cultivating cooperative arrangements to increase profits. They are notonly adopting modern methods of production and technologies but alsoinstituting organizational changes within and between firms to enhanceefficiency and competitiveness. Industry associations and governmentdepartments are interacting to create more competitive industries. Theseinstitutional responses to changing market conditions are designed to handleeconomic coordination better as markets have become more volatile anduncertain.

How can we explain the turning point at which India began to experi-ence higher industrial growth? Here concepts such as path-dependence,cumulative causation, and dialectical outcomes are useful. As the middleclass experiences economic and social mobility, there are rising expecta-tions from this class in terms of income growth, consumption norms, and demonstration effects. Market reforms and deregulation become aninevitability accompanying social differentiation. This contrasts with theexpectations prevalent under the state-led model where competition waslimited and the availability of good quality, inexpensive products highlyconstrained.

The turning point is also a result of macroeconomic instability, which islinked to India’s state-led capitalist project. For example, the political com-pulsion of transfer payments in the form of subsidies to a variety of urban,rural, industrial, and agricultural constituencies (all part of the broaderIndian middle class) contributed to unsustainable budget deficits. Thechronic balance of payments deficits, due to import substitution policies,also contributed to instability. Such structural preconditions, in the contextof embourgeoisment, are argued to reinforce middle class sentiments to-ward market-friendly policy reforms. It is therefore not coincidental thateconomic reforms that facilitate expanding output are likely to be favoredby social classes that expect to benefit the most from such policy shifts. Indoing away with unnecessary regulation of business, the Indian middleclasses have been well positioned to reap the benefits of market growth. Butcapitalism is global in scope and contemporary markets transcend nationalboundaries (Sklair 2002). Increasing domestic demand and the greater eco-nomic space created by reforms are likely to attract global capital as well.Consequently, the national economy becomes integrated with the globalsystem through trade, foreign direct investment, technology transfers, andthe broader financial movements. Therefore, it should come as no surprisethat Indian firms are found to be integrated with multinational onesthrough mergers and acquisitions (see Conybeare 2004). All of these devel-opments in a virtuous cycle are conducive to market expansion in newdirections, with demand translating into new investment opportunities


and profitability, leading to further accumulation, embourgeoisment, andmarket growth in India.

If market development is successful, as evidenced by embourgeoismentand subsequent economic reforms, does this mean that Indian capitalism isconverging with capitalist successes found elsewhere? At one level marketdevelopment suggests a degree of convergence in that the imperatives ofcapitalist market forces will dictate various favorable economic outcomessuch as higher growth rates, investments, and increased competitiveness.However, market development is contingent on institutions and how theyregulate the functioning of such markets (Lange and Regini 1989: 5). Thesevere challenges faced by the former Soviet Union in transitioning to amarket system and reproducing core capitalist institutions is reflective ofthe evolutionary and heterogeneous character of global capitalism (Keaney2002). Since varied national histories, impact of colonialism, social andpolitical institutions, policy interventions, and historical accidents all havea bearing on market growth, it is inevitable that convergence, if any, islikely to be partial at best. The existence of varying institutional processesor (national) business systems, designed to cope with the complexities ofeconomic coordination, suggests that the organization of capitalism differsfrom one national environment to another.

This heterogeneity of capitalism, however, does not invalidate the fundamental dynamics and characteristics of market capitalism shared bydifferent countries. In essence, capitalism is about accumulation, whichmeans businesses are circumscribed by investment requirements to main-tain existing markets and capture new ones. They are expected to produceefficiently and adopt modern technologies to cut costs or else face extinc-tion. They are receptive to various kinds of handouts and economic in-centives from governments, which socialize their risks and reduce costs.Ensuring industrial peace with attractive wages and benefits but alsoreining in workers to enhance profitability are expected to ensure favorableaccumulation. In a hyper-competitive era businesses are also expected tofoster cooperative relationships with other businesses, including competi-tors. It is the different configuration of these institutions and their arrange-ments with each other that give rise to varying business systems andeconomic outcomes. Hence, even if these systems are all subject to theimperatives of capital accumulation, convergence is likely to be confinedwithin the narrow workings of an industrial sector and not necessarily forthe economy as a whole.

Consistent with the heterogeneity argument then, Indian capitalism and itscorporate business system, is likely to diverge from more advanced countryforms, whether Anglo-American, German-Japanese, or East Asian versions.Nevertheless, some Indian industries, especially those that are tied to transna-tional networks, are likely to display capitalist dynamics that are not very dis-similar from their rich country counterparts. This is despite the structural


tendency of advanced capitalist countries to dominate global production(United Nations Conference on Trade and Development (UNCTAD) 2004,Amoroso 1998). Expansion of capitalism means the integration of nationaleconomies in the wider architecture of international markets. Hence, we canexpect India’s market growth to lead to greater integration with global capital-ism. In the end, it is the reach of markets, both territorial and sectoral, bywhich individual economies expand and become globally enmeshed. It alsogives capitalism its unifying and systemic character despite the nationalembeddedness of capitalism in general.

If it can be shown that markets are expanding in India does this meanthat India is on its way to becoming a successful capitalist economy? Criticsfrom both the right and the left are of course wont to point out the failingsof Indian capitalism based on past anemic growth, persistent poverty, andeconomic and technological relegation compared to East Asian societies,including China. In this sense they correctly identify the limited transfor-mation India has witnessed in the last half century and would hold eitherstate intervention or the particular form of capitalist class domination asthe culprit for limited transformation. However, in this interpretation thereis also an implicit understanding that capitalism means successful eco-nomic and social transformation. There is nothing in capitalism per se, orin its workings, that suggests such an outcome. For example, capitalism inLatin America, despite its early imposition, has not worked well (Sheahan2002: 25). While capitalist markets are superior to feudal markets in termsof efficiency and volume of production, the actual distribution of thebenefits of such growth is a matter of politics and social policy.

There is also a built-in sentiment among proponents of an unbridledmarket system that should the state get out of regulating business, capi-talism (read markets) would thrive in a favorable way. This too is correct in that the retreat of the state from unproductive forms of regulationcreates more space for capitalism to unleash its productive forces.However, it is a leap of faith to expect that the resurgence of market capitalism is necessarily sustainable over the long haul or that it could ina reasonable way address social problems of inequality, poverty, andunemployment. Moreover, the presumption behind this kind of reason-ing that capitalism as a social system is bereft of states is naive at best(see Ohno 1998). Capitalism, in the end, is fundamentally about accu-mulation, which is expansionary in a systemic sense and subject to classconflict (Heilbroner 1985: 36–38, 183, Landes 1966). It is an open-endedsystem, hence capitalist growth could be inclusive but need not be.Much would depend on pre-existing class distributions of income andwealth (Bhaduri 1990), social policy, and regulation of the accumulationprocess itself. Hence, capitalism in India must be seen for what it is, amarket system that is evolving in an uneven way, geographically, sec-torally, and socially. In its wake capitalism in India is creating increasing


pockets of social and economic mobility but also bypassing many others,suggesting the ambiguous nature of capitalist development.

3. Accumulation, regulation, and the Indian auto industry

To best understand the evolution of contemporary capitalism in India, it isnecessary to not only demonstrate how markets are developing from thedemand and supply side but also to account for the turning point at whichIndian capitalism appears to have moved to a higher plane. It is also impor-tant to demonstrate that while Indian capitalism differs from other cases itis also subject to the imperatives of capitalist production, competition, anduneven development. Furthermore, if the automobile is the quintessentialcapitalist commodity, it is also necessary to bring out the industrial dynam-ics that shed light on the accumulation process by the deployment of newproduction techniques, labor control, and other institutional arrangementsat the sectoral level. While there are several theories and frameworks withinthe broader political economy of development field, such as neoclassicalindustrial organization, historically sensitive evolutionary economics, andthe sociologically-inspired business systems approach, the multilayered,inter-temporal nature of capitalist evolution calls for a more eclectic, meta-level approach. The French regulation framework, rooted broadly inmarxian analysis, is a useful starting point to situate the broad trajectory ofIndian capitalism. The framework is adapted for the Indian case as there areshortcomings in directly applying this framework to late industrializingcountries (see Chapter 2). However, it provides a broad canvas by whichthe turning point in Indian capitalism can be captured.

The turning point can be discussed as the change in the accumulationregime, from one of state-led industrial development to that of a neo-liberal, market driven regime of capital accumulation. Accompanying theshift in accumulation regime is the mode of capitalist regulation, wherebyinstitutional arrangements are devised to cope with economic coordina-tion. Capitalist regulation is a system of rules and norms, formal and infor-mal, tacit and otherwise, that purport to control, direct, promote, andsometimes thwart economic transactions. Institutionally-based regulation,whether conducted by the state, private industry associations, or buyer-supplier networks is necessary to stabilize capitalist development (Boyer1990). Under the state-led model bureaucratic intervention regulated capi-talist production, propped up by a Keynesian-type demand managementsystem and Fordist mass production systems at the industry level. Underthe new mode of regulation markets are the driving force, which is institu-tionally accompanied by flexible production systems at the industry level.The Indian case only loosely fits these two regimes and modes. First, thisunderstanding of capitalist evolution has been empirically based on the experience of the US and other advanced capitalist countries. Second,


the transition from mass production to flexible production must be inter-preted cautiously since India did not really have mass production as con-ventionally understood by the regulation framework (Mascarenhas 2002:135–225). Nevertheless, the utility of this framework is that it can accountreasonably well for the contemporary phases in global capitalism andprovide the intellectual space to articulate specific country experiences withthe broader shifts in capitalist production. Furthermore, the regulationframework has been heavily influenced by the empirical evidence sur-rounding the global restructuring of the automobile industry. The shiftfrom mass production to flexible production within the auto industry hasentailed numerous institutional innovations designed to regulate a morevolatile capitalist system. Hence, the framework has the added advantage ofunderstanding capitalist evolution involving the transformation of theIndian auto industry.

The regulation framework, however, is unable to capture the specifics ofIndian capitalism. In fact it not only has little to say about peripheral capi-talism in general but it also underestimates capitalist maturity in India.3

Furthermore, the regulation framework, in seeing developing countries asappendages to the global division of labor, fail to adequately account for the internal dynamics of developing countries such as India. For example,the Indian economy today is less reliant on agriculture, is endowed withconsiderable entrepreneurial skills and administrative capacity, and pos-sesses significant technological capability. There is also a growing class ofconsumers in both rural and urban areas. Hence, the framework is useful inproviding the backdrop to capturing the evolution of capitalism in Indiabut it must be complemented by other perspectives to account for socialchange.

The regulation framework is useful for appreciating the processes behinduneven development, which is an intrinsic feature of capitalist expansion(D’Costa 2003a, Chakrabarti and Cullenberg 2003). However, the spec-ificities of the Indian situation characterized by uneven regional develop-ment, endemic poverty, illiteracy, and persistent (worsening) inequalitycalls for a more India-centered approach. Western secular systems of management, law, and administration coexist with nepotism, religious factionalism, and a non-secular caste-based affirmative action program (or a system of reservations). Globally integrated high-tech and low-wageexport-oriented firms, family-owned businesses, professionally-managedlarge enterprises, and primitive small-scale workshops serving local marketscharacterize the industrial map of India. There is also an adjustmentprocess by which industries and firms must cope with the demands of thenew regime of accumulation. Not all industries and firms are able to suc-cessfully make the transition. There is uneven development of nationalcapitalism even as India adjusts to the new regime of accumulation and the mode of regulation. To account for these historical and institutional


developments in a larger global context calls for a political economy of development framework that incorporates cumulatively both the state-led embourgeoisment process and subsequent responses by industrial capitalists to new market opportunities.

Any commentary on capitalist development in India cannot restwithout an assessment of some of the contradictions of such changes(Gupta 2002, Saunders 1995). After all, capitalism for all its redeemingfeatures in creating wealth is also riddled with political and ethical issuesof distribution and equity. Such questioning is not unusual even in suc-cessful capitalist transformations such as in South Korea (Kim 2004).This study presents some of these dilemmas as India transitions to a newregime of accumulation and a mode of capitalist regulation. As marketsexpand in a deregulated environment and incomes rise, questions ariseas to whose incomes are rising and who is becoming the quintessentialconsumer? What is the class character of automobile production andconsumption in India? Is this process of industrial development sociallyinclusionary, as embourgeoisment suggests, or are there social and eco-nomic groups that are excluded from the benefits of such industrializa-tion? Markets have been argued to be exclusionary because initialeconomic inequality is reproduced in the asymmetric relations charac-terizing market functioning (Nayyar 1998). There are other emergentconcerns such as whether this form of industrialization is sustainable in India, as evidenced by the growing dependence on imported fossilfuel. Capitalism and the environment have become unmistakably inter-twined as increases in output (engendered by market processes) depleteabsolutely more natural resources (Foster 2002, Saunders 1995: 52–76,Norgaard 1994: 44). Hence, an appreciation of the nature of contempo-rary Indian industrialization cannot be divorced from a critical inquiryof the consequences of capitalism itself.

This study is designed to identify the principal ways by which India isincreasingly marching toward capitalism. It is about social change, busi-ness responses, and global enmeshments. More pointedly it is aboutindustrial capitalism, a system that is global in scope but with specificnational characteristics. The development of the Indian automobileindustry is situated in the larger Indian institutional and global contextsto bring out some of the salient features of late capitalism and its variousmanifestations in particular locales. Admittedly one industry does notmake capitalism. But the historical context of capitalism is the industrialcontext (Bhaduri 1990: 4, author’s emphasis). Hence, by critically inves-tigating the industry’s evolution in the broader institutional, politicaleconomy canvas, I believe specific features that would reflect capitalistdevelopment, its deepening, and its variation from other experiences canbe captured. More importantly, by identifying some of the contradic-tions intrinsic to the process of capitalist development in India this


study will hopefully contribute to not only a better understanding of theprocess of economic development but also point to social policies thatwill make economic growth and industrial change serve national societalinterests (Preteceille and Terrail 1985: 79).

4. A note on methodology and data sources

To analyze the sources of India’s industrial transformation and appreciatethe process of capitalist development in India I cover the following fiveareas:

• the social (class) foundations of state-led capitalist development andstructural transformation in creating market demand;

• the macroeconomic basis for the shifting regime of accumulation andthe emerging new capitalist mode of regulation, mainly as a response tothe exhaustion of state-led development and the impending economiccrisis;

• changing institutional arrangements under the new mode of regula-tion such as state-business relationships, the role of foreign capital in internationalizing the automobile supply system, and increasedoutput;

• the backward integration of the automobile industry with the diffusionof best industry practices in India, reflecting the second layer of supplyresponses to new market opportunities;

• the social consequences of capitalist industrialization such as unevenregional development, social and economic exclusion, excess capacity,and environmental challenges.

Capitalism is a historical system and hence evolutionary. It is also adynamic system, ceaselessly expanding in terms of output, efficiency,technological sophistication, and geographical and product markets. It isglobal in scope. It is also subject to failure, ushering in slower growth,unemployment, and poverty, and bypassing many. To account for thesefeatures, notwithstanding the ambitiousness of the task, it is necessary toask questions that go beyond narrow academic disciplines to a moreinformed appreciation of the larger process of transformation itself. Thisis no easy task. However, by limiting the study to India and its automo-bile industry, it is possible to tease out why and how the industry is changing at this particular juncture, and the consequences of thischange on the industry and society. To appropriately frame these ques-tions it is necessary to account for a more generalized analytical frame-work that can situate the turning point in India’s recent industrializationexperience. A simple economic analysis of supply and demand is in-adequate to understand the more historically-derived social change and


consequent market development. The regulation framework along withthe political economy of development approach are best suited for thispurpose. However, Indian industrialization, as reflected by the dynamicauto industry, is not solely an endogenous process. External factors arealso at work, especially with the participation of multinational firms, thetransformation of industrial practices, and the global neoliberal environ-ment. The study is also historical as it is designed to capture the turningpoint in India’s economic and industrial development process. It is alsoa comparative study in an inter-temporal sense. This study covers thepost-independent pre-reform (1950–1990) and the post-reform (1991 tothe present) periods, mapping the changes in the auto industry since the mid-1980s. Documenting the interaction between the nuts and boltsof existing capitalism lies at the heart of this study.

Notwithstanding the pitfalls associated with one-country, one-industrycases studies, the analysis is aimed to be comprehensive. Throughout thediscussion, the analysis is thus conducted at several levels to capture notonly the larger political economy of India but also the intrinsic dynamicsof capitalism such as the nature of competition, product variety, and business strategies. The first is the national level, emphasizing the eco-nomic system, social change in the form of embourgeoisment, industrialdevelopment, and the changing role of the government. The second is theindustry level, accounting for the changing structure of the Indian autoindustry and the adoption of novel business practices. The ongoing inter-nationalization of the industry also situates India and the Indian industryin a global context. The third level involves an investigation of specificfirms which have spearheaded India’s auto industry transformation. Anempirically-rich description of the auto industry thus provides the plat-form to disentangle some of the institutional reasons for the success andthe challenges facing the industry. These challenges are not confined tothe industry alone. The emerging contradictions such as uneven regionaldevelopment, inegalitarian industrial outcomes, and excess capacity arealso addressed. The auto industry thus provides a window to the unfoldingof contemporary industrial capitalism and India’s immutable marchtoward it.

A wealth of data is presented to uncover industrial transformation andsocial change in India. Both published data as well information gatheredsince 1991 through interviews of industry officials, policy makers, jour-nalists, union leaders, and researchers have been used. Some firms werevisited several times over the years, complemented by auto plant visits in Japan and India (Appendix A.1). A total of nine field trips were madeto India of varying duration. The data were collected to understand why and how the auto industry was changing from a political-economicand production point of view and how it articulated with the globalindustry.



5. An outline of chapters

By reviewing the literature on the institutional bases of capitalism,Chapter 2 develops an alternative framework to capture the process of capitalist transformation in India. It presents a stylized account of the singular logic of capitalism embedded in a variety of institutional con-texts. The chapter adapts the French Regulation framework to discuss thecapitalist transition process in India. It combines this framework with the more India-centric understanding of the embourgeoisment process,leading to market growth. Demand is also matched by new kinds ofsupply responses of businesses in a deregulated, internationalized environ-ment. The chapter also outlines some of the contradictions inherent inthis type of capitalist industrialization.

Chapter 3 develops the embourgeoisment process and market growth by discussing the class-making role of the Indian state under import substitution industrialization. By using a historical and sociological un-derstanding, the chapter empirically demonstrates the extent to whichthe Indian economy and class structure has changed. Estimates of the size of the Indian middle class is presented to underscore market develop-ment, growing consumption of high-value goods, and the mounting pressures on the state to deregulate and internationalize the economy.

In Chapter 4, the evolution of the Indian auto market is linked to theembourgeoisment process. It begins by outlining the exhaustion of the pre-vious regime of accumulation as manifested in macroeconomic imbalancessuch as budget and balance of payments deficits, and microlevel industrialinefficiencies and technological backwardness. The ensuing disequilibriumis resolved by gradual deregulation, effectively leading to a new regime ofaccumulation. This turning point, over several years, is best seen in termsof the transformation and transnationalization of the automobile industry.Such a shift enables the industry to meet the demand for consumerdurables, which was hitherto suppressed by the logic of national industrial-ization. A detailed account of the interaction of Japanese firms and the Indian state is presented. Data are presented on key Indian and foreignauto firms and their strengths and weaknesses. The chapter ends bydemonstrating the increasing maturity of the Indian market and productdiversification along with the accompanying systemic tendency of capital-ism to generate excess capacity.

Chapter 5 delves into the heart of the auto industry to show howIndian businesses and their foreign partners have responded to the morederegulated environment associated with the new regime of accumula-tion. It presents data on the auto supplier industry and the particularforms of institutional arrangements consistent with the new mode of reg-ulation. The backward integration of the industry is a clear manifestationof industrial deepening and capitalist maturity. It is also an appropriate

business response to changing economic circumstances. A wide range ofactual industrial practices introduced at the enterprise as well as in the shop-floor level are documented to suggest expanded capital accumu-lation. These non-market relations highlight the institutional bases ofmarket development. However, the transition process is not smooth. The challenges facing the light commercial vehicle segment is also highlighted to reflect that industrial success under deregulation is notautomatic, nor are multinationals always successful. However, the growthof the Indian supplier industry, resting on domestic demand, clearlypoints to greater participation in global production networks.

Chapter 6 takes up the theme of capitalist contradictions by specificallyexamining uneven regional development. What happens to older firms andtheir locales within the context of overall economic and industrial expan-sion is examined for the state of West Bengal, the home of India’s first autocompany. However, West Bengal’s industrial fortune is also examined inlight of India’s differential regional endowments, a federated politicalsystem, and the particular legacies of colonialism and state-level politics.Details of industrial change, local politics, firm strategy, class conflict, andmounting pressure to accept the new regime of accumulation are docu-mented. The chapter underscores the notion that the long march to capi-talism entails painful adjustment to the new flexible, hyper-competitiveenvironment and an ideological shift to cope with uneven development.

The seventh chapter returns to political economy questions about the nature of Indian industrial capitalism. Extending the contradiction ofuneven development, this chapter examines three additional forms of con-tradictions of capitalist industrial transformation. The first is systemic innature, that is, the nature of capitalist competition and consequent excesscapacity. The new mode of regulation, privileging the market over society,creates the dilemma of idle resources in a context of poverty. The secondcontradiction quintessentially reflects the ambiguous nature of capitalistdevelopment. It presents data on the embourgeoisment process by demon-strating that upward mobility among Indian households is real but thedegree of mobility is still quite limited. Large segments of the Indian popu-lation are outside the orbit of market development, especially when con-sumer durable goods are concerned. This poses a serious dilemma of notonly the sustainability of future growth but also the protracted issue ofsocial equity. The third contradiction is the increasing dependence of theIndian economy on imported fossil fuel, creating additional challenges forthe Indian economy and the quality of life. The chapter ends by exploringsome countervailing measures to cope with environmental concerns andsuggests that some form of re-regulation of capitalism under the newregime of accumulation will be necessary.

The final chapter briefly presents some of the key issues confronting capitalist industrialization in India and by extension the developing coun-


tries. It highlights the significance of capitalist logic and its dynamics and the importance of placing them in concrete institutional contexts. Itestablishes the heterogeneity of capitalism on the basis of particular endoge-nous processes of change. The chapter ends by reflecting on the contempo-rary process of capitalist transition, industrial transformation, and economictransnationalization in India. In the end, capitalism, as a system of markets,generates ambiguous outcomes. It is an expansionary system based on accu-mulation and hence on its own it cannot equitably distribute the benefits ofgrowth and efficiency and prevent the social and environmental contradic-tions integral to the expansion process. If the new mode of regulation hasdeepened industrialization in India, then capitalism as a whole needs to bemanaged and not left unregulated as neoliberal policies would suggest.Notwithstanding the retreat of states to unleash greater market forces, thestudy suggests that capitalist development, to be inclusionary, must besocially regulated.


2One Capitalism or Many?Interpreting Indian IndustrialDevelopment

1. Introduction

The objective of this study is to capture the process of capitalist transforma-tion in India. The starting point is a theoretical account of why the singularlogic of capitalism, namely, market exchange for profit based on mainlywage labor, in reality takes many institutional guises. An examination ofthe “heterogeneity” of capitalist “models” allows us to capture the institu-tional variety underpinning capitalist evolution. However, these accountsusually describe advanced capitalist economies or their newly successfulEast Asian counterparts. In the search for institutional variety in theseeconomies, considerable emphasis is placed on agency-based non-marketsocial arrangements for economic coordination or capitalist regulation atboth the macro and sector-specific levels.

I take a complementary, albeit different approach to capturing capitalisttransformation in India. Relying on the concept of capitalist regulation, I use a more structural, political economy framework for analyzing marketdevelopment. I bring in the state to demonstrate how its regulatory, class-making role leads to embourgeoisment, which is a process of social differ-entiation. This structural change constitutes the demand side of marketformation and a foundation for further industrial expansion. With differ-ent business systems behind economic coordination in capitalist markets,such as contemporary flexible production systems, I develop the supplyside of the market equation. Out of these forces an alternative structuralframework is generated whereby capitalist transformation results from the interaction of an endogenous embourgeoisment process with externalforces of neo-liberalism and increasing international economic integra-tion. Changing demand at home and externally generated market compe-tition induce new kinds of institutional arrangements at the national,industry, and firm levels to enhance efficiency and cater to larger andmore diversified markets. As these outcomes are contingent on a host ofsocial-structural factors, there is no presumption that market development

16

will be smooth or that production systems will be successful. Several con-tradictory outcomes are possible even with the widening and deepening of markets. For it is precisely the ambiguities of capitalist evolution thatwarrant a greater scrutiny of India, a country that is at once capitalist andmodern and peripheral and primitive as well.

The chapter is divided into four main sections. The first presents a com-bined synthesis of heterogeneous “models” of capitalism approach and thecapitalist “regulation” framework. Section two examines those studies thatgo beyond capitalist diversity by examining the social networks in eco-nomic organization. These studies investigate how such networks helpcoordinate the many facets of capitalist dynamics and cushion instabilitiesarising from them, especially at the enterprise and industry levels. Mostsuch studies focus on endogenous processes such as business systems inadvanced capitalist and successful East Asian societies. Hence, in sectionthree, I discuss an alternative institutional framework to capture the evolu-tion of the more ambiguous Indian industrial experience. In this approach,I link the endogenous process of embourgeoisment with externally-driveninstitutional arrangements for flexible production. The context for thesetwo interrelated developments is the changing regime of accumulation anda new mode of capitalist regulation. Empirically I show that as state-leddevelopment in India yields to market-driven economic expansion, newinstitutions for production coordination evolve to cope with market uncer-tainty and the opportunities associated with an increasingly “globalized”context. Section four outlines an alternative framework to study Indianindustrialization and bring out some of the contradictions associated withcapitalist development.

2. Heterogeneous models of capitalist regulation

At a fundamental level capitalism can be interpreted as a total system inwhich economic production is driven by the imperatives of capital accu-mulation. By organizing production for markets, capitalists invest, hireworkers, and earn a profit (Heilbroner 1996: 36, 52, Saunders 1995, Bhaduri1990: 4–5, Landes 1966). The cycle of reinvestment of profits and the resul-tant ever-expanding stock of capital constitutes the process of accumula-tion. Institutionally, firms accumulate on behalf of owners of capital,governments support them by socializing private investment risks, and citizens participate in the process as workers, consumers, and voters.Accumulation is facilitated by favorable supply conditions, such as thedeployment of new cost-saving, efficiency-enhancing technologies, innova-tions in organizational structures, and the availability of a skilled work-force. On the demand side, the state tries to encourage accumulationthrough both Keynesian-type demand management income policies or amore monetarist approach toward macroeconomic stability by reining in

One Capitalism or Many? Interpreting Indian Industrial Development 17

inflationary pressures. Ideological props for accumulation include the sanc-tity of private property, profit-making, and economic well-being as integralto national interest. This total system of accumulation is typically anational one but its workings can be located at sectoral, regional, andglobal levels.

Beyond these universal attributes of capitalism and a generalized pro-cess of accumulation, there is a wide variety of capitalist forms, classifiedby geography or institutional arrangements. Coates (2001) labels them asmarket-led (liberal), state-led (trust-based), and negotiated or consensual(corporatist). Roughly these correspond to Anglo-American, Japanese, and German/Swedish models. Similarly, Hall and Soskice (2001) view theUS and German variants as “liberal” market and “coordinated” marketeconomies respectively. Developing countries as a group fall under“peripheral” capitalism, which is not a model at all, but rather a condi-tion that is integral to the structure and processes of the world economy(Wallerstein 1984).

There are many reasons for the heterogeneity of capitalism. Broadly,institutional variation due to different histories explains divergent capital-ism. In a larger sense and long-term view, advanced capitalism as capturedby “models” indeed represents a fundamental shift in the way particularsocieties are organized. They are materially highly developed and containinstitutions that serve capital accumulation well. The problem is that these“models” are unable to capture post-colonial capitalist societies. Capitalismcannot be assumed to mean the complete dissolution of feudalism in developing countries or well-developed markets. Consider for example thediversity of Indian capitalism as captured by Bagchi’s (1999) metaphor of “bungalow-chawl-haveli” capitalism representing the western-inspiredmodern dwelling, the urban shanty, and the mansion of the landed (semi-feudal) gentry. Once history and institutions are introduced in the evolu-tion of capitalist societies the vestiges of feudal attributes are not replacedwith “pure” capitalist forms but rather these “residues” in composite waysbecome integral to capitalist social formations. The Veblenian institutionalperspective argues that “inertia” and “habits of thought” are difficult tochange (Hodgson 2001: 63–64), suggesting that capitalism takes on myriadforms by retaining as well as discarding elements of an older system. Thusprofit maximization or price-driven market relations, both hallmarks of“pure” capitalism, could be subordinate to the strategy of maximizingmarket shares or socially-embedded stable business partnerships based onethnic solidarity.1 While economic motivations define and drive capitalismas a whole, non-economic parameters, such as social change, politics, andculture wield considerable influence on economic processes in differentnational and regional contexts, demonstrating the significance of institu-tional variation within which the contours of capitalist parameters arelocated.


Capitalism, notwithstanding its general features, thus takes on nationalcharacteristics. Different initial conditions, subsequent evolution of institu-tions, and exogenous forces shape the varying trajectories of capitalism.The collapse of feudalism in Western Europe, the colonial subjugation andindependence of the non-western world, state-sponsored economic devel-opment nearly everywhere, and increased, albeit selective, interconnected-ness of national economies at the global level provide the cumulativecontext in which diverse capitalist formations are taking place today. Aseach nation is imbued with its own history, cultures, politics, and linkswith other nations, the institutions underpinning the development ofnational capitalism display considerable variation.

The distinctive feature of full blown capitalism is the formation of price-making markets (a la Polanyi). Markets are said to coordinate supply anddemand via prices for the system as a whole. Competitive markets areargued to be the best way to organize economic activities as impersonalrelations between buyers and sellers efficiently allocate a society’s resources.Capitalism is then defined in terms of liberal markets with all the attendantinstitutions supporting capital accumulation, such as a legal system thatenforces voluntary contracts (Rosenberg and Birdzell 1986). Where marketsare inadequate, alternative institutional arrangements such as firm hierar-chies are established to overcome economic coordination problems(Chandler 1990). However, this liberal market interpretation of capitalismhas been both theoretically and empirically challenged (Best 1990, Zukinand DiMaggio 1990). It has been shown that non-competitive markets havebeen deployed effectively to solve coordination problems. For example,firms can resort to long-term collaborative relations in lieu of short-termmarket-based contracts to ensure reliable supplies in economies of scarcity(Hall and Soskice 2001: 8, 9). Relatedly, rather than leave production tomarket forces, the state may deliberately intervene through planning to coordinate unregulated market forces. Even within the OECD, countrieswith large agrarian sectors and interventionist states have been groupedunder “Mediterranean type of capitalism” (Hall and Soskice 2001: 21), suggesting the importance of non-market forms of capitalism.

As markets (or lack thereof) are a defining feature of capitalism, it isimperative to identify the institutional settings underpinning such devel-opment. For example, capitalism has been argued to be anchored aroundthe institutions of economic coordination and market stability (Williamson1985, Lazonick 1991). Most economists suggest that well-established institutions of private property and arms-length transactions allow markets to coordinate economic activities efficiently (North 1990). While this is an important feature of advanced capitalism, economic coordination is alsoconducted outside of the market. For example, Japanese capitalism has been engineered significantly by the state (Johnson 1982). The stateenforces contracts, thus allowing markets to function but it also stabilizes


markets through macroeconomic management. States in this way also contribute to national competitiveness (Porter 1990). Firms counter marketinstability through informal interactions with business groups, the state,and through formal relationships between firms, such as long-term subcon-tracting arrangements, joint-ventures and the like (Dore 2000). Thesetogether constitute national business systems, influenced significantly by“proximate” and “background” social institutions (Whitley 1992).

In the twentieth century the dominant form of industry organizationfor economic coordination has been the Chandlerian vertical integrationof big business (Best 1990). Eschewing pure market forces, the hierarchywithin organizations is created to offset the uncertainty of arms-length economic transactions between two independent contracting parties.Coordination is easier as external market transactions are internalizedwithin firms. However, the rigidities associated with vertical integrationdemand large, stable markets, which have been historically propped up byKeynesian demand management (Aglietta 1979). Large-scale, undifferenti-ated output allowing firms to attain economies of scale (EOS) provided rel-ative market stability. As mass production became technologically andorganizationally feasible on the supply side, Keynesian policies institu-tionally propped up mass consumption on the demand side. The ensuingmarket expansion (with falling unit costs) ensured a “Fordist” coordina-tion system in which both business and the government came to playconsiderable roles in sustaining capitalist development in the advancedindustrialized economies (Jessop 1992, Marchak 1993).

At a theoretical level, the French Regulation approach, empiricallybased on western capitalist economies, has attempted to capture institu-tional changes accompanying phases of capitalist development (Aglietta1979, Boyer 1990).2 Each phase is characterized by stability and histori-cally specific socio-institutional structures that shape the nature anddirection of capital accumulation.3 These include wage-labor-capital relationships, inter-capitalist rivalries, and varying forms of state inter-vention. As the uncoordinated nature of market-based economic transac-tions and technological developments introduce instability anduncertainty, the entire edifice of Fordist institutions is challenged (Smith2000: 6–8). Alternative institutional arrangements are devised to governeconomic coordination. In addition to firm hierarchy, coordination iscarried out by outright monopoly control, cartels, oligopolistic competi-tion, and state intervention (Best 1990). Other arrangements include collaborative, long-term outsourcing arrangements, joint-ventures,strategic alliances, active industry associations, and effective govern-ment-business partnerships (Hatch and Yamamura 1997, Dore 2000,Nooteboom 1999). Also, conflictual labor-management relations, charac-teristic of Fordism, are replaced by cooperative arrangements as found in the Italian Emilia-Romagna industrial districts (Tolomelli 1990,


Pyke 1992, Cadène and Holmström (eds) 1998) and in Japan (Best 1990,Smitka 1991, Hollingsworth and Boyer 1997).

Collectively such large-scale institutional transformation attempts torenew capital accumulation on a grander scale both as a consequence ofand a response to intensified competition and market fragmentation. Massproduction is eschewed as the associated economies of scale is no longer aviable strategy. Instead, economies of scope (EOSC) based on “diversifiedquality mass production” becomes the new system of production(Hollingsworth and Boyer 1997: 21 Kotha 1995, Pine 1993: 44–50), vari-ously labelled “flexible specialization” (Piore and Sabel 1984), “innovation-mediated production” (Kenney and Florida 1993), and “new competition”(Best 1990).

Markets and states are not the only institutions for governing capitalistdevelopment. Other institutional arrangements based on trust-basedcooperative relationships also govern economic coordination. They are especially designed to reduce transaction costs through increasedinformation flow (Cusumano 1985, Aoki 1987, Best 1990, Williamson1990, Langlois and Robertson 1995, Morales 1994, Tauile 1995: 32).Accordingly, the “anatomy” of capitalism is best understood by lookingat national business systems influenced by national cultures, ideologies,politics, and macroeconomic policies (McCraw ed. 1997: 12) with con-siderable heterogeneity of institutional practices among advanced indus-trialized economies.

There are several shortcomings to both the models of capitalismapproach and the regulation framework. Of course there are significantproblems in any classification scheme, especially one categorizing entireeconomic systems based on a limited number of criteria. These models arealso arrived at from an understanding of capitalist development largelybased on the experience of affluent societies. For example, in an otherwiseexcellent discussion, Coates (2001), confines models of capitalism to theUK, US, Germany, Japan, and Sweden. The successful spawning of capital-ism with relatively well-functioning markets and other supportive institu-tions implicitly equates capitalism with economic success. This approach isintellectually constraining, given that there are far more capitalist blundersthan successes. It also raises a slew of rhetorical questions. Is economicfailure a result of the absence of capitalism, given that much of the world iscapitalist? How do we classify failures? Will the imposition of markets byway of deregulation and privatization of state assets, as proffered by BrettonWoods institutions, lead to successful capitalism? Can markets be simplywilled to prod capitalist development, as say, in contemporary Russia? Inthe end what are some of the forces that shape the formation, functioning,and expansion of capitalist markets?

The regulation framework is also not immune from shortcomings. First,it relies on “middle-range” methodology and “stylized facts” to come up


with a periodization of capitalist history, particularly since World War II(Mavroudeas 1999). For example, the period roughly between 1950 and late1960s has been classified as Fordist, displaying certain organizational andtechnical aspects of the labor process. Since then another period oftendubbed post-Fordist has been identified and associated with flexible pro-duction systems. The absence of a unified, generalized theory informingthe regulation framework has condemned it as crude empiricism, lacking in “dialectical abstraction” (Mavroudeas 1999). Even Robert Boyer (1990),one of the leading exponents of the regulation framework, acknow-ledges several flaws identified by both neoclassical and marxian scholars (Boyer 1990: 78–97).

Aside from the difficulty in attributing specific features to characterizecapitalist history as whole, the regulation framework is unable to accountfor economies that are not part of the advanced capitalist group or are lateindustrializers.4 Therefore, it is not surprising to see that regulation discus-sions are still confined to advanced economies and at best treat developingcountries as mere adjuncts to the changing international division of labor(Aglietta 1998: 62–66). This interpretation suggests that developing coun-tries as a general rule do not have an endogenous dynamic for capitalistdevelopment. Such an interpretation is not all together misplaced, giventhat the engine of the world economy is largely confined to the triadeconomies of the US, Western Europe, and Japan. However, Boyer (1990:98–100) is acutely aware that “peripheral Fordism,” the regulation frame-work’s reference to developing countries does not contribute much totheory and “suggests more case studies to enrich the theory” in general (p. 99). At the same time his caution against mechanistic application of theregulation framework to developing countries is valid. After all there is afundamental disjunction between the absence of mass consumption indeveloping countries and the international division of labor, which oftenincorporates peripheral economies into the global mass production system.

However, it still begs the question of how to place former colonies andnon-western societies that appear to have endogenously driven capitalistdevelopment, even if these economies do not display mass consumption.Rather than apply the regulation framework post hoc, as some critiquesargue the regulation scholars do, why not anticipate the turning points interms of both consumption and production? The question is how tocapture this capitalist dynamic if indeed it can be demonstrated that adeveloping country is witnessing new levels of consumption and produc-tion. It is in this spirit that the Indian case is investigated. Consumerdurables industries, mainly the automobile industry, are used as empiricalevidence to examine changing production and consumption norms inIndia.

A historically sensitive, institutional interpretation of capitalist dynamicssuggests that developing countries and especially post colonial societies are


no doubt on a different trajectory from that of their affluent counterparts.From this point the regulation approach is limiting. The mere existence ofcapitalist markets does not generate successful economic transformationnor are these economies likely to fit the “models” of successful capitalism.Yet they are undoubtedly part of a unified logic of global capitalism,namely that of market growth, ongoing proletarianization (of peasants),and participation in the global division of labor, however constrained.Capitalist development in the “periphery” is thus consistent with eco-nomic diversity found in a variety of national “models” and regional set-tings. Also, assuming that there is an endogenous capitalist dynamic, theregulation framework could anticipate institutional shifts in select develop-ing countries for sustaining capital accumulation. Rather than identifymodels of capitalism that best fit developing countries or simply rule themout as not integral to the workings of capitalism, as implied by the regula-tion framework, an alternative approach would be to devise an understand-ing of how markets develop in particular places without presuming these tobe successful ones. Before undertaking such a task it would be prudent to explore those cases, which are neither western nor advanced capitalistcountries, to see why they have successfully fostered capitalist markets.

3. Moving beyond capitalist heterogeneity

The diversity of capitalism, particularly in its non-western East Asianvariant, has been also examined through the lens of institutions of eco-nomic organization (Orrù, Biggart, and Hamilton 1997). The merit of thisapproach is that economic action, resting on “institutional logic” (Biggart1997: 21), is seen as socially embedded. In this account both modern eco-nomic organization and traditional practices are intertwined to producehybrid forms of capitalism that are distinct from those of the west. Thediversity of national contexts suggests a variety of business systems(Whitley 1999, Holmström 2001), a trait found even among state-domi-nated transition economies, such as Russia, Eastern Europe, China, andVietnam. While a one to one correspondence between a country and itsnational business system might overstate the institutional variations ofcapitalism, nevertheless the diverse sources of economic transformationcannot be ignored.

The recent focus on institutions and their transformation in different con-texts is a significant contribution to our understanding of the dynamics ofcapitalism. This approach dissects the working of capitalism in non-westernsocieties, not by adapting one particular “model” but by identifying a multi-tude of governance structures for economic coordination. These include butare not limited to selected attributes of capitalism, namely, the fundamentalmechanisms of the price system, the socialization of private risks by the state,the minimization of transactions costs through cooperative arrangements,


and facilitating the maximization of profits and market shares. However, thisapproach also has several shortcomings.

First, as most of the scholarship on institutions is focused on advancedcapitalist, mainly western, societies, the focus here also tends to be on suc-cessful cases of capitalist development. It is understandable that the mostdeveloped forms of capitalism are likely to draw greater academic scrutiny.However, such a provincial view of capitalism betrays the global reach ofthe system and greater diversity. The preoccupation with economic gover-nance and business systems, while necessary for establishing capitalistdivergence, suggests a bias toward evaluating those systems that havebroken the western industrial monopoly. Redding’s (1993) Weberian andcultural analysis of rationality is a fruitful approach and is consistent withinstitutionally-derived interpretations. However, his focus on Chinese net-works and their “spirit of capitalism” steers him away from less successfulcases of capitalist development. Capitalism is unwittingly equated witheconomic and industrial success. Because systems different from an “ideal”market-based British form have produced spectacular economic transfor-mation, as in Germany, northern Italy, Japan, South Korea, and Taiwan(and now China), their business systems have drawn pronounced scholarlyand corporate attention (Deyo, Doner and Hershberg (eds) 2001, Whitley1999, McCraw ed. 1997, Orrù, Biggart, and Hamilton 1997).5

Second, institutional approaches tend to view economic governance aslargely a product of endogenous processes. While this is a good correctiveto the convergence thesis implied by the protagonists of globalization, orthe unwitting admission of the limited role of developing countries incapitalist dynamics by the regulation approach, institutional approachestend to downplay the exogenous influences of ideas and industrial prac-tices. Their concern with diversity of capitalism accentuates national-institutional arrangements and detracts them from linking the on-goingcreative tension between local-national and external-global processes.Some studies recognize the importance of external pressure to changingproduction systems (Deyo, Doner and Hershberg (eds) 2001) but there isno explicit attempt to theorize about “capitalist” development. Fewstudies of capitalist development have gone beyond the usual economiclinks, such as technology transfers, trade, foreign investment, and macro-economic coordination among G-7 and OECD economies. China, a quin-tessential transition economy, offers interesting insights into the state-ledprocess of “constructing markets” (Guthrie 1999). Businesses are adjustingto this transformed environment by inducing organizational changes andreducing dependence on more traditional guanxi (interpersonal) connec-tions. Yet the internally-driven process of change is also accompanied by exogenous forces, compelling Chinese businesses to create capitalismby relying on older institutions of ethnic connections. Taiwanese busi-nesses, responsible for the massive flow of foreign direct investment into


China, are certainly more market savvy than their mainland counterparts.However, they capitalize on guanxi to reap the rewards of their investmentin China (Hsing 1998). In this case, economic coordination for capitalistdevelopment transcends local-national institutions to encompass moreflexible, decentralized border-crossing networks.

Third, where external influences are treated, little attention is paid tothe adaptive process of institutional change and industrial practices. Thisis especially the case where business systems are concerned. Whitley, forexample, does not think that international firms through FDI will changekey attributes and practices of home business systems (Whitley 1999:125–129). While this may be true for strong “national” business systemsfound in the dominant capitalist countries such as the US, Germany, and Japan, developing countries, for better or worse, are likely to be in-fluenced by foreign capital dominant in specific sectors. Exogenouslydeveloped “new” industrial practices are likely to be adapted to local con-ditions. It is unlikely that all the elements of cooperative arrangements ofthe flexible system of production will be present when the mode of capitalregulation shifts away from Fordism. Such a shift may be superficial or bea fusion of old and new institutions at the sectoral level. Thus teamwork(of the new system) could be combined with cost reducing pressures (ofthe old mass production system). Institutions governing business systemsundergo change as they adapt to new circumstances. At the macro levelstate ineffectiveness in transforming the economy could generate societalpressures to transform its role. Here too we have an institutional adapta-tion, whereby states do not completely yield to markets but they becomethe initiators of market reforms or forge a new regime of accumulation(growth) by reducing their role in the economy.

There is no doubt that the socially-embedded interpretations of sociolo-gists and anthropologists are very useful in investigating economic organi-zations and the evolution of business systems in a wide variety of culturalcontexts (Zukin and DiMaggio (eds) 1990). Economists, such as Abramovitz(1994), refer to “social capability” to indicate a wide array of nationalsocial, political, economic, and cultural attributes. Such socially-groundedexplanations as to why myriad forms of capitalist development coexist andwhy convergence of economic systems is not possible despite narrowingproductivity gaps in many cases are more persuasive than simple economicor technological ones. However, because of their focus on social agency,such as social networks and organizational responses in the construction of capitalism, less emphasis is given to macrodynamics and structuralprocesses (Boyer 1996).

Biggart’s (1997: 14–15) critique of the political economy approach asbeing overly structural, economically deterministic, and inherently westernin conception is reasonable. But the focus of the approach is on businesssystems and their embeddedness in the social and cultural milieu. These


enhance our understanding of firm behavior in a different way from, saymarket-based impersonal interactions, but they also detract us from thelarger canvas of the capitalist process of economic and social transforma-tion reinforcing each other in a dialectical, cumulative way. To analyzethese changes in a holistic way within the parameters of a capitalist frame-work demands that the evolution of institutions be made part of the expla-nation. Specifying business systems is one important part of the capitaliststory, the larger context in which they evolve is another. Questions such as what are the sources of these business systems, how and why theychange, and how they contribute to capitalist development in its variegated form call for a structural analysis, balanced by agency-basedinstitutional analysis.

Also, capitalist heterogeneity is a product of the fusion of modern marketsystems with culturally-determined social institutions. Hence the state doesnot have to be conceptualized in western terms, even if its secular traits arederived from western influences. But non-western capitalist evolutionshould not be viewed as bereft of any agency. Clearly, if states are seen asarenas of conflict and negotiation, particular outcomes can be traced tosocial agency. What is important then is to recognize the ways by whichthe project of building a national system of industrial capitalism is initiatedby the state but increasingly shared with the bourgeoisie and influenced by contemporary global forces. However, the relationship binding the state and the national bourgeoisie is not an immutable one nor is the statealways hegemonic. The shared nature of the capitalist project suggests thatthe bourgeoisie can often exercise considerable clout in shaping economicchange. When the role of the state is organically viewed in terms of the capitalist project we can bring out both its changing structural relation-ship to society as well as its responses to the exegesis of social forces, localpolitics, and global imperatives.

Even when critiques of capitalism are in abundance, there are fewexplicit attempts to link the institutional underpinnings of capitalist devel-opment with inequality and uneven development in a dialectical way.Capitalism as an elaborate market system is assumed to have positive exter-nalities, as exemplified by the western experience and more recently bytheir East Asian counterparts, or it is a system that has practically failed inmost developing countries. This binary outlook toward understanding cap-italism is flawed. Capitalism is a class-based system with differentialrewards of economic growth and development. While inequality is struc-turally inherent in capitalism, politically negotiated social policies such aseconomic redistribution and education for the masses could act as counter-vailing forces. Consequently, whatever social and economic mobility isassociated with capitalism could become a structural precondition forfuture economic and social transformation. While uneven development in capitalist evolution is routine, the task is to identify the dynamics of


capitalist growth. Thus uneven development suggests that some regionsgrow faster than others and some social groups benefit more than others(Nayyar 1998). Hence, the failure of economies to experience marketgrowth cannot be attributed to the absence of capitalism but must be seenas integral to it. Nor can failure be seen as complete for there are manyindicators of capitalist success even in places of wrenching mass misery.The coexistence of affluence and poverty suggests that capitalism systemi-cally generates its own set of contradictions, whose resolution calls for avariety of social policies.

Lastly, the process of capitalist development must be seen as contingentand hence open-ended. This suggests that on-going social change, in acumulative and dialectical fashion, can be a harbinger of future change,despite severe structural impediments and contradictions of capitalistdevelopment. The global context is one source of contingency. In an era ofeconomic integration, states by liberalizing, deregulating, and privatizingtheir national economies are unleashing global economic forces domesti-cally. Why such self-inflicted policies are introduced and how businesses,states, and workers cope with these external influences are likely to have abearing on the trajectory of capitalism. Just as each country’s pre-existinginstitutional arrangements filter, harness, and adapt external impositions,so do domestic firms and their workers in different locations adjust to the forces of increased competition (Candland and Sil 2001). For example,the availability of and receptivity to foreign investment capital and tech-nologies in conjunction with domestic resources and capability willinfluence the extent to which domestic production systems are articulatedwith foreign ones (Dicken 1998, United Nations Conference on Trade andDevelopment 2001).

4. Examining capitalist industrialization in India: An alternativeframework

Divergent capitalism as elaborated under “models of capitalism” corre-sponds to specific nation-states. Given that these models and businesssystems are based on advanced capitalist systems and the more successfulEast Asian countries, an alternative political economy approach for other,more ambiguous cases, must be developed. This framework must be able tocapture the complexities of capitalist evolution in terms of accumulationand industry development, the changing institutions underpinning suchdevelopment, and some of the systemic contradictions associated with capitalist industrialization. Such a framework accounts for endogenousdynamics and accommodates exogenous forces impinging on the accumu-lation process and institutional change. For example, the changing role ofthe Indian state in the capital accumulation process and the industryresponses to economic opportunities and challenges are likely to bring out


the dynamics of capitalist industrialization. In particular, how the statecontributes to the embourgeoisment process and thus to market growth isdiscussed. This (macro) demand side of market growth is linked to the(micro) supply side of the market in terms of new institutional practicesthat are designed to increase output. That there is a transnational aspect tothe development of Indian capitalism from the supply side is brought outin the discussion of market growth and the contingent nature of thatgrowth. The Indian consumer durables industry, principally the automobileindustry, is used here as an empirical referent to bring out the process ofmarket development.

Notwithstanding the shortcomings of the regulation approach presentedearlier, the overall discussion of capitalist evolution in India is looselyframed with the two intermediate concepts advanced by this approach asthey capture the broader tendencies of capitalist development in India.These are the “regime of accumulation” and the “mode of capitalist regula-tion.” While a “regime” refers to the essential conditions of the nationaleconomy geared toward capital accumulation, for this study “regime” refersto a “growth” regime or a strategy of capitalist development.6 Thus forIndia the shift from a state-led economy to a more market-driven, neolib-eral one is interpreted as a changing regime of accumulation. The “mode”of capitalist regulation “designates the necessary institutional forms andsocial compromises for the reproduction of the regime…” (Mavroudeasn.d.: 2). Among other things, a “mode” refers to the nature of competitionand inter-firm institutional arrangements for economic coordination. Forthe purposes of this study, “mode of capitalist regulation” is used to denotethe various types of inter- and intra-organizational relationships associatedwith flexible systems of production. This suggests a more competitive formof global capitalism in which economic coordination becomes vital.7 Whileit is not clear as to what exactly is the new (post-Fordist) mode of regula-tion, for our purposes the changing capitalist regulation in the Indiancontext refers to new institutional arrangements incorporated under flex-ible production systems. It is consistent with the changing (neoliberal)regime of accumulation. While institutions behind neoliberalism need notlead to higher growth and neoliberalism does not really represent a newphase in capitalism if there is not accompanying growth rate (Kotz 2001),some countries such as India and China are witnessing considerable growthsince launching various kinds of market reforms. In this sense there clearlyhas been a change in the “regime” of accumulation, although its perma-nency cannot be predicted. Thus “regime” refers to the macro-nationaleconomy, while the “mode” refers to institutional arrangements at theindustry/firm levels.

The obvious question is what drives regimes and modes to change. Theregulation approach suggests instability and capitalist crisis in the form ofinstitutional shortcomings for maintaining production and consumption.


Again this is a highly contested interpretation and it is not the object ofthis study to reject or validate the regulation approach. Rather the purposeis to adapt some of the conceptual apparatus of the regulation frameworkto examine capitalist evolution in India. The shift in the regime of accu-mulation can be argued to be a result of exhaustion of the older state-leddevelopment strategy and the emergent external crisis associated withsuch a strategy. In parallel fashion, the changing mode of capitalist regula-tion in India reflects the industry-specific institutional changes that arecommensurate with the more market-driven, competitive regime underglobal capitalism.

The selective application of the regulation concepts, while limited in itswider applicability, is well-suited to analyze the evolution of Indian indus-trial capitalism displaying nascent as well as mature attributes of capital-ism. The framework is consistent with the logic of institutional diversity,the associated variety of capitalism found in the contemporary world, andthe changing institutional arrangements vital to economic coordination.Furthermore, at a basic level contemporary Indian industrialization mirrorsthe fundamental tendencies of global capitalism. To develop this alterna-tive framework more fully we focus on the endogenous dimension ofIndian capitalist development, namely state-led embourgeoisment andcapital-led industrial expansion. The Indian auto industry is used as theempirical referent. This sector has been significantly influenced by exoge-nous factors, namely, transnational corporations. In addition, this studyalso brings out some of the systemic contradictions of capitalist industrial-ization as they relate to market dynamics based on a competitive globaleconomic system.

4.1 State and embourgeoisment as sources of market growth

As capitalism is primarily a system of markets, conditioned by the institu-tional environment, growth of markets implies not only greater productionbut also consumption. Capitalism can be conceptualized in terms of thelarge-scale processes behind structural change such as marketization, deep-ening industrialization, and a growing consumption base. It is primarily asystem of accumulation, legitimized by social policies and political ideolo-gies, but nonetheless premised on unequal property ownership. Capitalisteconomic progress also produces unequal consumption, exacerbating thelegacies of persistent social inequities already found in post-colonial soci-eties. Thus the system must be also seen in its inegalitarian manifestationfor there is nothing inherent in capitalism that guarantees equality.

In developing countries markets are circumscribed by the presence ofstrong vestiges of pre-capitalist institutions and practices (Rudra et al. 1978,Baran 1957). Their subordinate structural position in the world capitalistsystem also constrains market growth (Wallerstein 1984). Colonial legacies,such as bloated bureaucracies, absentee landlords, low productivity in


agriculture, raw material dependence, and uneven infrastructure drag themdown in the quest for national economic transformation (Larrain 1989).Bureaucracies designed for colonial administration are generally ill-equippedto pursue economic competitiveness (Evans 1995). Post-colonial societies atlarge suffer from the economics of scarcity, a constrained culture of acquisi-tiveness among the elites, and narrow markets. In addition, patronage politics, supply bottlenecks, and competitive pressures from foreign sourceslimit capital accumulation. For these countries fostering efficient marketswith favorable developmental outcomes has been difficult. Rather than relyon markets alone for coordinating economic transactions state interventionhas been a significant institutional instrument for economic transformation(Amsden 1989, Evans 1979, Bardhan 1984, Byers ed. 1994, Vanaik 1990,Wade 1990, Johnson 1982). Where businesses are more developed, market-based economic transactions have been internalized by vertical integrationand complemented by joint-ventures and long-term subcontracting arrange-ments (Whitley 1999). Modern state-led economic coordination also hasbeen complemented by social networks and communitarian ideologies basedon ethnic solidarity and regionalism (Redding 1993, Orrù, Biggart, andHamilton 1997).

Post-colonial states followed this basic institutional framework to fosterindustrialization and create national markets through coordinated in-vestments. Until recently private investment remained an appendage ofstate capital and confined itself to more lucrative, less capital-intensive,consumer industries (Waterbury 1990). This is the formal institutionalarrangement of the import substitution industrialization strategy wherebythe state planning apparatus regulates private domestic and foreign business to engineer capitalist markets (Evans 1995). State intervention for coordination includes setting price controls, mediating industrial relations, and protecting local business from foreign competition. Thenational economy is regulated to promote orderly market development. In this context, a diverse range of institutions such as business associa-tions, small firm networks and particular ethnic communities and family-owned businesses characterize developing countries (Deyo, Doner, andHershberg (eds) 2001). However, as the collective experience of post-colonial societies attests, state intervention and institutional diversity arenot necessarily decisive in offsetting the shortcomings of narrow nationalmarkets. Market growth is limited by a spoils system, entrenched by deepsocial divisions in a system of scarcity (Hoogvelt 2001). Understanding thesocial-structural basis for changing markets in a particular institutionalcontext, or conversely, why markets are slow to expand is one avenue forappreciating contemporary capitalism in developing economies.

There are numerous economic factors, endogenous and exogenous, thatcan be marshalled to explain expanding markets in general. Relevant vari-ables include high rate of investment, liberalization of trade, human capital


development, technological capability, and agricultural productivity(Cypher and Dietz 2004, Griffin 1991, Nafziger 1997, Todaro 1997). How-ever, the march of capitalism cannot be fully captured without an under-standing of social change. As markets are arenas of commercial exchangeinvolving production and consumption, the changing class compositionbrought about by state intervention will have a bearing on capitalist development. This socially-derived foundation for market expansion is inessence the process of embourgeoisment.

Embourgeoisment is synonymous with the rise of the “middle class,” a heterogeneous group that experiences rising incomes and educationalattainments (Stern 2003, Frankel 1988). It also proceeds from increasingproletarianization. The middle class in former colonies is not a statisticalartifact of income distribution. It reflects increasing but gradual economicand social mobility, with an elite segment assimilating foreign (western)life styles and consumption patterns, and sharing certain modern values(Robison and Goodman (eds) 1996, Shurmer-Smith 2000, Dubey 1992).The purchases of consumer durables increasingly takes center stage in theeconomy and contributes to social differences as revealed by the con-sumption of such goods. There are several types of goods under thisbroad category and hence demand for them also corresponds to incomes.Inexpensive consumer electronics such as cassette players and televisionsare relatively accessible; refrigerators and two-wheelers are less so. Carpurchases, on the other hand, remain prohibitive in a country such asIndia. Education rather than inherited wealth per se contributes to socialmobility, although wealth and education typically reinforce the hege-mony of upper classes in developing economies. The state, in its nation-building efforts, also supports capital accumulation by educating andtraining its citizens. The incipient middle class is the primary beneficiaryof the government’s education policies (Carnoy 1984). The bourgeoisiethus created remains at the helm of capitalist matters, not only asemployers of workers and owners of capital but also as conspicuous consumers of the increasing output of capitalist enterprises. The social-structural interpretation of capitalist development as offered hereincludes two interconnected, temporally sequenced processes behindexpanding markets: one, the institutional foundations of market expan-sion, such as state-led development, leading to class differentiation, andtwo, the changing social composition itself, namely embourgeoisment,becoming the harbinger for further market expansion.

The first process is consistent with the “models of capitalism” approach inthat the institutional foundation of development, such as the role of thestate, can be brought out. The second process, while intuitively predictable,has not been empirically linked to capitalist evolution, even though the logicof the process has been theorized as path-dependent development (Arthur1994, Cypher and Dietz 2004). The empirical workings of path-dependent


development was best understood by Myrdal’s (1968) “cumulative causa-tion.” While Myrdal demonstrated how certain institutions held back capi-talist development (backwash effects), we can hypothesize that changinginstitutions, such as the changing role of the state can drive market develop-ment. Identifying the sources of such change and delineating their extrinsiclinks to the wider political economy is expected to offer a window to theunfolding of capitalism in India.

Two sources of change can be broadly identified. One is the cumulativeendogenous process of embourgeoisment led by the state. This is thedemand side of market formation. The second source of capitalist develop-ment is selective shifts in business systems, often bench-marked at theglobal level. This is the supply side of market growth. The two are inti-mately connected, with embourgeoisment spurring changes in productionsystems in a virtuous loop. Rising demand generates opportunities for newsupplies in a synergistic way. However, since entire systems are hard to dislodge, given their durability and the inertia of institutional practices,responses to new market opportunities are likely to be selective and subjectto changing objective conditions. Furthermore, the tension between the inertia of local business systems and rapidly changing global industrialpractices is not easy to resolve. On the one hand, the confluence of secularexpansion of global markets with nationally-derived embourgeoismentgenerates a local (latent) demand that is out of sync with local productioncapability. On the other, the “triumph” of the neoliberal model of capital-ism creates global abundance relative to effective demand, compellingderegulation and economic openness (Biersteker 1992). Both forms ofexternal influences – tangible global markets and the ideology of neoliber-alism – condition local markets. There are demonstration effects on localconsumption and diffusion of best industry practices on local production(Sklair 1995, 2001). In the end, national market development is a self-reinforcing, cumulative process, contingent on embourgeoisment at homeand systemic developments abroad.

With embourgeoisment the state-led model of capitalist regulation isstructurally strained, internally and externally. On the one hand, the verygrowth of the economy suggests a growing, mature capitalist class thatlimits the boundaries of state intervention. On the other hand, the com-petition among firms for hitherto untapped markets compels global eco-nomic integration and relatedly national economic liberalization andderegulation. While the emergence of a new model of capitalism is notinevitable, there is creative tension between the vestiges of the old systemof accumulation and the elements of a new model. For example, the statedoes not wither away but its reach is circumscribed by the growing powerof private capital, domestic and foreign (Grieco and Ikenberry 2003,Berger and Dore (eds) 1996, Dicken 2003). Growing incomes could leadto rising, albeit unequal consumption, while external competition could


prompt a “nationalist” response, forcing the state to not completelyabandon its bourgeoisie. More favorable institutions backed by support-ive infrastructural and fiscal policies could be offered in lieu of simpleimport protection of national capitalists, while social policies may bereduced to more growth-oriented outcomes.

4.2 Transnational sources of capitalist transformation on the supplyside

With hyper-competition in the global economy the chances of excesscapacity and overproduction are high. Consequently, governments andbusinesses are subject to tremendous market pressures to downsize, diver-sify, and innovate relentlessly (Ugarteche 2000, Boyer 1997). It also gener-ates varieties of disequilibria, such as persistent trade deficits, indebtedness,and creeping currency revaluation (Brenner 1998). Instabilities in turndemand responses that often call for neoliberal solutions, even amongstates that are examples par excellence of state-led capitalist transformation(Gao 2001). As the rules of global competition and transnational practicesbecome consolidated with the diffusion of western liberal values and theimposition of neoclassical economic doctrine, strong states such as Japanand Korea are compelled to rethink their role in economic governance. Intimes of economic crisis these states, too, must adjust to the demands ofneoliberalism (D’Costa 2001). Whether this will actually ward off economicmalaise cannot be adduced (see Stretton 2000). What can be said is thatunder crisis, at a particular capitalist juncture, even strong states must carryout their own slow execution and/or reinvent themselves.8

This transition of neo-mercantilist states to neoliberal ones needsexplaining. How does this process of “internalization” occur? Rather thansee internalization as resulting from this or that factor, a more systematicunderstanding of the process can be accounted for from the systemicdynamics of capitalist evolution. To understand why states give up theircoveted place in the management of national economic development, it isnecessary to account for the changes in capitalism, for both material trans-formations and ideological shifts. It is at this level that we can identify thesources for states that are averse to market-driven economic governance toembrace (reluctantly or enthusiastically) neoliberal policies. For example,economic globalization has enmeshed states in “webs of power” promptingan “ideational” proclivity toward international competitiveness (Cerny2000: 22). Market competition influences transnational flows of capital,goods, services, and technologies, while the hypermobility of finance areeffectively deterritorializing states in their ability to govern nationaleconomies (see Grimes 2000; Pieterse 2000: 8–13).

As national markets become insufficient for expanded accumulation, worldmarkets become necessary complements to national ones. Also, as costs ofproduction (read wages) rise with economic transformation, capitalists are


compelled to find cheaper, alternative sites for investment. More knowledge-intensive activities continue to remain in infrastructure-rich locales. Withincreasing flows of FDI, new regions are brought under the orbit of global pro-duction networks (Castells 2003). However, not every country is a participantin this process of integration and not all of these are necessarily on the highroad to accumulation, as many labor-intensive export-oriented countriestestify. Nevertheless, there are considerable economic and technologicalbenefits from global participation, if domestic capability is well-utilized forinternational production. Those countries that have pursued some version ofa national industrialization program have fostered local technological capabil-ity. These are also the countries with more developed markets and a maturecapitalist class, making them attractive centers for capital accumulation. Withtransnationalization, some segments of the local bourgeoisie join the transna-tional networks and begin to erode the national-ideological basis for stateintervention (Scholte 2000: 34–35). The mantra of a liberal economic order isincreasingly echoed internally, complementing the externally-generated“coercive liberalism” (Woods 2000: 11).

Transnationalization and liberalization are two sides of the same process,namely the extended reach of capital via global markets into correspond-ingly open national markets. As India gradually alters the entrenched colo-nial structure of production and trade, a viable domestic bourgeoisie hasinitiated its transnational integration.9 The intensity of international economic integration adds a further complication to the question of eco-nomic coordination. Older models of production, such as vertical integra-tion within firms, are no longer feasible in a hypercompetitive economy.Institutional arrangements, such as subcontracting on a long-term basisand horizontal links among national firms, yield to the internationaliza-tion of business and its corresponding governance systems.10 Businessescompete on the basis of a variety of alliances with other businesses, such astechnical collaborations, joint-ventures with foreign equity, outsourcingfrom international firms, and cooperative, long-term buyer-supplier sub-contracting relationships. Businesses also seek pliant workers by encourag-ing more cooperative industrial relations systems, enterprise unions, andgovernment intervention.

These changes in the business system, echoing institutional restructuringat the macroeconomic level, can be observed at the sectoral level. They area general response to growing embourgeoisment and structural change inthe economy, whereby international best-industry practices are adopted tomeet changing demand and its composition. This is akin to the new“regime of accumulation,” which according to the regulation frameworkresults from the macro institutional crisis associated with the older arrange-ments (see Amin ed. 1994). To meet rising domestic demand existingsystems of production designed under an earlier set of institutions arestrained. Just as the state must reinvent its economic role, the institutions


governing industry are also modified to account for increased and divers-ified demand. Some of the shortcomings of the older system are resolvedwith selective adoption of best industry practices (Abo 1998). Due to insti-tutional legacies and sunk costs, large switching costs associated with thesepractices become inevitable. While older institutional arrangements cannotbe completely dispensed with, firms are compelled to adopt new ones toavoid economic losses or not forego opportunities offered under new com-petitive conditions (Kenney and Florida 1993, Hollingsworth and Boyer1997). For example, in the auto industry older firms are more prone toFordist forms of industrial relations and shop-floor organization comparedto newer ones. In the latter a flexible, often non-union workforce atgreenfield sites with cellular production processes are deployed to copewith new demand and competitive pressures (Rubenstein 1992, Howes1993, Parker and Slaughter 1988, D’Costa 1998). Consequently, the indus-try as a whole is likely to display a mix of industrial practices both old andnew (D’Costa 2004).

Given narrow markets in developing countries, mass production and hencethe gains from economies of scale (associated with large-scale standardizedoutput) and economies of scope (associated with high-quality diversifiedoutput) are limited. Furthermore, with high fixed costs, entry barriers aredaunting in developing economies (see Alcorta 1998). However, as embour-geoisment expands markets and transnationalization of production easesaccess to new technologies, production risks are lowered. Economic coordina-tion takes place outside the market through “networked” relationships amongfirms (Kenney and Florida 1993; Best 1990). Networks permit informationsharing, giving rise to “collective efficiency” (Schmitz 1999). This is similar to Japanese flexible arrangements designed to reduce transaction coststhrough increased information flow (Cusumano 1985, Aoki 1987, Best 1990,Williamson 1990; Langlois and Robertson 1995; Morales 1994; Tauile 1995:32). As supply bottlenecks are overcome, output can be expanded continu-ously and product variability realized through economies of scope (seeSchmitz 1990). With risks reduced, mass customization or diversified qualitymass production could follow output expansion (Hollingsworth and Boyer1997, Kotha 1995, Hollingsworth, Schmitter, and Streeck (eds) 1994, Pine1993: 44–50).

Firms of course do not pursue exclusively a single strategy but rathersome combination of mass production and mass customization. With suc-cessive cycles of output expansion and cost reduction, it becomes easier toestablish and consolidate institutional arrangements, such as subcontract-ing and teamwork, associated with flexible output. These are alreadypresent in India as joint-ventures between foreign and local firms, thedeployment of programmable machinery, kaizen or continuous improve-ments in process, quality circles, and more peaceful industrial relations bynegotiating more “cooperative” management-labor relations.


There need not be a perfect fit between embourgeoisment and thetiming of the shift in production systems. There is far too much contin-gency to allow for a neat articulation. But shifts in the global industrialmap suggest not only an unprecedented expansion in economic outputbut also new ways of producing it. This quantitative and qualitative shiftreflects both changing composition of demand and concomitant devel-opments in the supply system. In the context of heightened economicintegration and embourgeoisment, it is logical for local supply responsesto keep abreast of global practices. The details of actual responses at the industry and firm levels will depend on who the change agents are, the timing of entry, the corresponding policy environment, and theobjective economic conditions.

4.3 Market expansion, transnationalization, and excess capacity

The Great Depression of the 1930s proved that the capitalist economicsystem is unstable and vulnerable to major cyclical downturns for lack ofadequate demand. The disjunction between consumer and producergoods, with producer goods outpacing consumer goods, not only createddisequilibria in a systemic sense but the inequality associated with suchcapitalist dynamics generated excess capacity (Aglietta 1979: 94). At themacroeconomic level, Keynesian-style public spending is able to restoresome semblance of equilibrium by raising aggregate demand. However,the stability associated with such Fordist mass production systems issignificantly challenged by the new regime of accumulation and the newmode of regulation in which open, highly competitive markets, ratherthan state orchestration, become the self-organizing process of capitalistdevelopment. In this scenario, under new institutions, markets expandrapidly but become once again subject to instability (Dowd 2000).Economic integration at the global level facilitates the widening anddeepening of markets just as it creates the basis for intensified competi-tion (Castells 2002). In this hypercompetitive environment, states arecompelled to liberalize their economies for fear of being left behind eco-nomically. Furthermore, embourgeoisment implies that the dominantclasses are likely to pursue their economic interests with more gusto thanbefore by relegating the state to more risky activities and cornering asmuch of the social surplus as possible through their accumulation strate-gies. Consequently, there is considerable unplanned investment (in a sys-temic sense) by the private sector as individual businesses try to capture apiece of the new market. As a result production capacity is often ahead ofdemand (Grieder 1998).

This excess capacity is mirrored by the national industrial structure,whereby certain sectors display a rapid rate of investment as newmarket opportunities are perceived.11 While competition drives theinvestment pattern, leading to rapid expansion in capacity, excess


capacity also results from economies of scale, involving increasingminimum efficient scales (MES) (D’Costa 1999). Admittedly, the greaterpossibility of niche marketing under flexible production systems, whichis integral to the new mode of regulation, suggests descaling in alimited way. As the global division of labor becomes more detailed andas technology facilitates outsourcing worldwide, production becomesmore fragmented (Dicken 2003, Held, McGrew, Goldblatt, and Perraton1999). Open markets permit the imports of parts, components, andtechnologies; hence building complete products in a given location isno longer a technical necessity. As a result, smaller production capaci-ties, consistent with flexible systems of production, become commer-cially viable. However, not all imports are price competitive and not all governments permit unbridled imports. Under these circumstancesas long as firms can absorb production losses they can import majorcomponents and still produce on an uneconomic scale. This contributesto excess capacity as individual firms follow the same logic in a herd-like manner. However, the expectation is that the market will expandand capacity will come into line with demand. If that materializes,investments in more cost-efficient local output, rather than imports,could be justified in the future. It is the ongoing mismatch betweenexpected demand and current capacity that sustains the excess capacityproblem.

Notwithstanding descaling effects, whereby the MES is reduced, withnew technologies and global outsourcing possibilities, excess capacity at the industry level remains persistent. As niche markets emerge, pro-ducers not only aim to specialize but due to competitive pressure also tryto capture shares of different market segments. Thus, even as individualfirms contend with smaller volumes of output, the number of firms inthe industry tends to increase with market expansion. The typical neteffect is larger installed capacity than the market will bear as each firmtries to cater to different segments of the same industry. This is espe-cially the case in the automobile industry where companies strategicallytry to serve several markets in order to reap the benefits of economies ofscope (D’Costa 2004).

It is evident that capitalist diversity cannot be explained by the varia-tions in economic organization and business systems alone but must becomplemented by the structural dynamics unleashed by global capitalismin a systemic way (Mittelman 2000, Brenner 1998). In particular, the com-petition among capitalists, entailing global excess capacity, compels foreigndirect investment in search of new markets or production sites. Theseglobal shifts are internalized by changing the “model” of capitalist regula-tion and accommodating them through economic deregulation. In the endthe march of capitalism is a cumulative process of the interplay of globalforces and national structural factors.


5. Outlining the analytical framework for Indian capitalistdevelopment

From the above discussion we can map several interrelated dimensions tothe process of capitalist development (Figure 2.1). Capitalist developmentis seen first as market expansion, in which the role of the state is consid-ered to be paramount in late industrializing societies. Here we have bothnational endogenous and global exogenous influences on market develop-ment. Second, nationally the state has been able to play its class-makingrole, namely engendering embourgeoisment. The latter is inherently a process of social differentiation. Third, embourgeoisment structurallyand ideologically contributes to further market development throughincreased consumption and through neoliberal economic policies. At thisjuncture there is a transition to a new regime of capital accumulation, theold regime having outlived its usefulness in a changed environment. Morespecifically, the inability of state-led development strategy to fundamen-tally alter the structure of the Indian economy combined with emergingexternal financial and internal demand pressures calls for a reassessmentof the old regime and the mode of capitalist regulation. For example, the state abandoned its rigid protectionist stance and deregulated theeconomy. Globally, capitalist competition and changing market demandat home encourage the adoption of new business practices such as flexibleproduction systems, aimed at lowering production costs and increasingproduct variety. The changes in the Indian auto industry described herenicely capture these developments.

The adjustments to a new regime of accumulation and mode of capi-talist regulation via neoliberal policies and flexible production systemsprovide a reinforcing feedback loop for further capitalist expansion.However, the transition to a new regime and adoption of market-basedregulation is contradictory in at least two ways. First, the process ofadjustment is painful and lengthy. Not all businesses and workers areable to cope with the challenges of deregulation. Established firms andindustries in old locales are particularly vulnerable. Socially, embourgeo-isment is associated with inequality and polarization as high incomegroups tend to capture most of the benefits even as economic growthdue to market expansion pulls lower segments of society up above acertain threshold (D’Costa 2003a, 2003b). The Indian consumer durablesindustry is likely to exhibit such ambiguous characteristics. For example,casual observations show that an increasing share of Indian householdsare able to consume typical household white goods such as televisions,refrigerators, consumer electronics, and two-wheeled vehicles, whereasthe production and consumption of cars is still relatively limited, withonly the high income groups able to purchase such products. The fruitsof capitalist industrialization and transformation are hence expected to


39

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be both socially inclusive and polarizing. Spatially, too, capitalist devel-opment is likely to be uneven as older regions and firms yield to themore dynamic newer regions and modern enterprises (Noponen,Graham, and Markusen (eds) 1993, D’Costa 2004). Hence any commen-tary on capitalist evolution in the “periphery” must acknowledge theseuneven and inegalitarian development outcomes.

Second, unequal consumption itself is contradictory not only in social distributive terms but it also generates a variety of negative externalities. For example, the expansion of the auto industry is related to traffic congestionin cities, high rates of emissions and pollution, and excessive reliance onimported fossil fuels with accompanying international debts (Dowd 2000:190–204). While it is industrialization rather than capitalism per se that gener-ates environment-related contradictions, the absence of alternative forms ofeconomic development in the global economy renders capitalism as thesource of systemic contradictions (Dowd 2002). For example, as capitalism inAsia, including India, deepens and it becomes the world’s manufacturing site,there is considerable anxiety that Asia will become environmentally toxic,while rich societies as consumers are likely to avoid the problem (Chapman,Agras, and Suri 1999: 268–71). The problem is exacerbated by an associatedundercurrent of individualized transportation and a shift in social expendi-tures away from public transportation. While embourgeoisment bothpromises and results in upward mobility, the vast majority of the poor are leftto rely on deteriorating public services. These contradictions are integral tothe process of capitalist development in India. They illustrate the conse-quences of the transition to a new regime of accumulation and a new mode ofcapitalist regulation, signifying the cumulative and path-dependent nature of economic and social change in India. There is of course nothing stableabout this mode of regulation as originally theorized in the regulation frame-work. As embourgeoisment induces class differentiation and markets becomemore volatile, the systemic expectation is not stability but rather ongoingchanges in institutional arrangements to cope with the new demands of economic coordination.

There are five interconnected, temporally reinforcing processes and out-comes dialectically associated with capitalist industrialization in India.First, there is an ideological internalization of capitalist imperatives by thegrowing middle class. This directly corresponds to the process of embour-geoisment, in that the beneficiaries of economic development prefer thosepolicies that produce market efficiencies, better products, etc. The statereinforces this ideology either by failing to intervene effectively, deregulat-ing capital, or by playing a facilitative role in the overall accumulationprocess. Relatedly, embourgeoisment also springs from social differentia-tion in that there are large swathes of people structurally excluded fromeconomic development. Market expansion pulls in segments of society thatare already better placed than those that are marginalized (Shurmer-Smith


2000). This process has been dubbed “middle up” rather than “trickledown” (Stern 1993). Here too the state plays a class-biased role, promotingtertiary education for the middle class while not providing enough primaryeducation for the masses.

The second outcome is the pressure for institutional change, especially onthe regulatory role of the state. This is a feedback loop that arises from thelarger political economy in a cumulative way to bring about adaptive institu-tional change. As market production displays its benefits for those activelyparticipating in it, there is greater proclivity to carry out economic coordina-tion through markets. Consequently, there is an ideological pressure on thestate to abdicate some of its regulatory responsibilities that is consistent withthe neo-liberal agenda (Kohli 1992). Here business associations and individ-ual firms play greater roles under the new regime by establishing a variety ofinstitutional arrangements to cope with market shifts.

The third outcome is the impact on business systems, especially at thesectoral level. With increased access to foreign capital and technology, but-tressed by regulatory reforms, new methods of production and industrialpractices are adopted. Those sectors that are the principal recipients offoreign capital and technology from globally dominant firms are likely toexperience adaptive changes in sector-specific business systems. This, too,acts as a feedback loop to reinforce the deployment of new elements of anew mode of capitalist regulation.

Fourth is a set of contradictions. Some pre-date the new regime of accu-mulation such as uneven regional development, but the process becomesaccentuated due to the new economic forces unleashed by the changingaccumulation regime and the new mode of regulation. Some are systemicas capitalist competition and market development lead to excess capacity.In other cases, capitalist industrialization is both inclusive and exclusive,that is, there is social and economic mobility consistent with embourgeois-ment and market growth and ensuing polarization. The basic consumerdurables industry is likely to display this basic economic mobility. Butthere is also a form of industrialization, which selectively captures theglobal best practice production systems with intended global norms of con-sumption patterns, but does not match the objective economic reality ofperipheral capitalism. The car industry presents a case of exclusionary andpolarizing development in which the majority of the population are notconsumers. It is this contradiction that presents both an opportunity toredress social inequality and acts as a barrier to fundamental transforma-tion due to constraints on market demand. Related to capitalist industrial-ization there are other negative externalities. For the Indian case, theseinclude oil dependency and environmental problems, areas that demandimmediate social regulation.

A fifth outcome relates to the social responses to both the changingregime of accumulation and the emergent contradictions. As a process,


42

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capitalist industrialization imposes new structural requirements, com-pelling the political acceptance of accumulation. It also sets off con-sequences that are inconsistent with economic and social stability andthe quality of life. Thus growing class polarization, within and betweenrural and urban sectors, generates considerable political tension as aspi-rations are unmet, but the environment spares no class. Consequently,social responses to reduce oil dependency, regulate the air quality, andother urban problems can be expected to mount. Development of capi-talism is not a unidirectional process. Rather it is dialectical, cumulative, non-linear, and open-ended. It has its systemic dynamics, some progres-sive and others regressive. The social outcomes it produces will have to be matched by appropriate social regulation to resolve the emergent contradictions.

The alternative framework developed here is designed to capture someof the fundamental as well as specific features of capitalist industrializa-tion in India (Figure 2.2). It does so by examining the following:

• endogenous source of Indian market development, namely state-ledembourgeoisment as a source of market development such as the rise ofan Indian educated middle class in urban and rural areas;

• India’s balance of payments problems as a reflection of the exhaustionof the previous regime of accumulation and thus a change in the regimeof accumulation with deregulation, liberalization, and privatization;

• the entry of Japanese firms such as Suzuki to create government-ownedMaruti Udyog Limited (MUL) and other transnational corporations tofundamentally reorganize the Indian automobile industry and establisha modern market supply system;

• the variety of institutional arrangements associated with flexible systemsunder the new mode of regulation to cope with economic coordinationthat emerge as a response to developing a new supplier system for themodern auto industry and the ensuing adjustment process;

• a specific example of capitalist contradiction, namely, uneven develop-ment, illustrated by the experience of the Indian state of West Bengaland its adjustment to the new regime of accumulation;

• other forms of contradictions, both systemic and social, such as excesscapacity and some social responses to the economic, political, and environmental problems associated with fossil fuel dependence.

6. Conclusion

The unfolding of national capitalism comprises the stories of market develop-ment and production capabilities, of heightened consumption and inequality,of global integration and regional variation, and of system and social contra-dictions and social responses. Capitalist regulation in India has come full


circle: to incubate it, police it, and now to unleash it, and perhaps re-regulateit. However, capitalism is not just a national affair. There is considerableregional variation in economic development in India. In a federated system ofgovernance it is inevitable that different states are likely to produce varyinglevels of economic and social change. While particular regional histories andinstitutional settings explain this internal divergence, contemporary capital-ism can accentuate regional variation even more, with some locales beinginstitutionally more receptive to global integration than others. For example,states where local governments are more pro-business and avoid rancorousindustrial relations are likely to be better placed in attracting investment, bothforeign and domestic. Consequently, in a transnationalizing world, pro-nounced pre-existing regional and social inequality is worsened by forces ofmarket expansion.

Rather than try to fit models of “advanced” capitalism to late industrial-izers in a mechanical way, identifying particular links between institutionalchanges and market formation is heuristically more appealing. Capitalistsuccess is not presumed even if market attributes take on greater signifi-cance in economic coordination. In fact the reorganization of firms at theindustry level suggests a protracted adjustment process whereby some firmsare prone to marginalization due to organizational and institutional inertia.Though this is typical of competition, markets are still regulated, less bystates and more by businesses themselves. The state best manages themacroeconomic environment, which is so vital for economic stability, butbusinesses increasingly self-regulate for economic coordination via inter-firm and intra-firm institutional arrangements. For example, long-term subcontracting arrangements through joint-ventures provide supply relia-bility with price stability, while teamwork among workers through qualitycircles reduces costs and enhances productivity. Neither of these arrange-ments conforms to arms-length market transactions but both are gearedtoward enhancing market output and efficiency.

Capitalist development is path-dependent and cumulative, as dis-played by the embourgeoisment process. Understanding how embour-geoisment sets the stage for institutional arrangements consistent withthe new mode of regulation and how the new regime of accumulationstructures economic production offers an alternative framework tocapture the march of contemporary capitalism in India. The coterminousprocess of economic development and social change paves the way forincreased auto production and consumption. The technological andorganizational counterpart accommodating the larger regime change for accumulation requires an adaptive flexible production system at thesectoral level, which is matched by the new mode of capitalist regula-tion. Just as the state begins to deregulate to accommodate greatermarket forces, auto firms also selectively induct more flexible organiza-tional and industry practices. These include long-term buyer-supplier


relationships, new flexible technologies, and cooperative industrial rela-tions, among others. The likely consequence of these industrial practicesis enhanced industry performance through reliable supply systems,improved quality of products, and competitiveness (lower relative costs).These are industry level institutional responses to economic deregula-tion, bringing supply systems in line with changing macro demand con-ditions. The overall effect is market expansion that sows the seeds ofmass production, increasing diversified output, uneven and inegalitariandevelopment, and systemic and social contradictions.


3State, Embourgeoisment, and MarketDevelopment in India

1. Introduction

In this chapter the process of embourgeoisment in India and its contribu-tion to market development is presented. While an incipient capitalist classhad already emerged under the British, in post-independent India the statesignificantly contributed to its further development. The state itselfpursued a national capitalist project, which was cloaked under a social-democratic form and circumscribed by the vestiges of non-capitalist socialrelations. Adhering to the then popular tenets of Keynesianism and struc-turalism, the government of India attempted to transform the Indianeconomy through public investments as well as insulating the domesticeconomy from the forces of global capitalism.

Politically, capital accumulation in India was managed by a coalition ofdominant proprietary classes (Bardhan 1984), whose share of the spoilsensured their dominance. However, state-led industrialization with a massivepublic sector meant that the source of embourgeoisment was not the typicalurban-based, entrepreneurial bourgeoisie but one based on middle class, pro-fessional, white-collar employees.1 The government’s economic strategy wasimport substitution industrialization (ISI), aimed at developing the homemarket and national technological capability (Sridharan 1995). A combina-tion of policies included public investments in capital goods industry andinfrastructure, protection of domestic business from foreign capital, the regu-lation of domestic businesses to avoid excess capacity, and populist policiesfavoring small-scale industry. Government policies also speeded up the on-going commercialization of agriculture. Agricultural subsidies and the state’sfailure to weaken the power of landlords and money-lenders further con-tributed to landlessness, proletarianization, and the expansion of a rural bour-geoisie. The net result of this accumulation strategy has been considerablesocial differentiation. I refer to this as the process of embourgeoisment, where-by a relatively small but numerically growing segment of the society is able tocapture the benefits of national economic development.

46

Below I describe some of the changes in the Indian economy, society,and polity brought about initially by state intervention and an autarkicstyle of capitalist development. First we examine capitalist regulation bythe Indian state in altering the social structure. Next the process of embour-geoisment in India along with some indicators of social and economicchange are presented. Rural economic change, growth of education, andthe political mobilization of the masses in an economy of scarcity are seenas integral to state-led embourgeoisment. The third section highlights theimportance of embourgeoisment to market growth for consumer durables.It suggests, in path-dependent fashion, the formation of an ideologicalspace for ushering in global economic forces and the general retreat of the state from the helm of economic affairs. The resulting output and con-sumption increases with their attendant technological spinoffs have rein-forced market-driven capitalist regulation. Embourgeoisment leads to thequintessential internal constituency for accommodating global capitalistdynamics.

2. The national capitalist project

2.1 State-led industrial development

Independent India, from 1950 to roughly 1985, pursued national indus-trialization by a strategy of self-reliance, whereby foreign capital wasrestricted and international economic engagement limited. Several inter-related social forces justified the ideology of self-reliance. Anticolonialfervor, Keynesian thinking, Soviet industrialization, structuralist eco-nomic arguments against global dependence, and national aspirations allplayed a part. The economic and political foundations of nationalism inIndia had its origin in Europe. Following Frederich List, who argued thatin the absence of a national productive base Germany would succumb tothe forces of free trade orchestrated by the English, it was evident thatfree trade imposed a Ricardian pattern of international specialization.Like their German counterpart, excolonies also expressed a similar position regarding economic dependence on foreigners. Nationalism as expressed through industrialization was aimed at transforming “economic backwardness” (a la Gerschenkron). It attempted to eliminateinternal social and economic structures (read non-capitalist) andpromote capitalist exchange relations. As in Germany, the Indian state,motivated by anti-imperialist sentiments, tried to resist the classicalinternational division of labor or global capitalism. In India, state-led capitalist regulation thus had the onerous tasks of destruction andgeneration of old and new economic structures respectively.

There was little internal resistance to such a nationalist project since theIndian industrial bourgeoisie found it convenient to renew private capitalaccumulation under state tutelage (Bagchi 1984: 227–236). Prior to Indian

State, Embourgeoisment, and Market Development in India 47

independence in 1947, the industrialists wholeheartedly supported thestate’s transformative role. The Bombay Plan of 1944 ensured this alliancebetween the state and private capital (Chattopadhya 1992: 144–148).Enlightened Indian individuals, such as Nehru, accepted industrializationto combat economic peripheralization and military marginalization in theglobal system (Sen 1984), and underdevelopment and poverty. This strat-egy served the incipient bourgeoisie’s interest in playing out its historic roleof accumulation in post-colonial India. The state acted as the institutionalunderwriter of national capitalism. Thus, the development of the capitalgoods sector was targeted rather than a consumer durables industry to facil-itate the capital accumulation process (Griffin 1991: 117–121). Resistanceto global capitalism therefore was not autonomously expressed by the state,as the model of self-reliance ostensibly indicates, rather it was a response ofnational capital to imperialism. Resisting the international division of laborimplied a public-private division of labor within Indian national capital.

By most social and economic criteria, state-sponsored national capitalistdevelopment in India has been a failure. A high proportion of the popula-tion is still engaged in agriculture eking out a precarious existence. In theabsence of any major redistributive program in the rural sector the Indianeconomy as a whole has remained demand-constrained.2 Consequently,private Indian capital, nurtured under administrative fiat, became undulydependent on the narrow domestic market, producing internationallyuncompetitive products. The coalition itself, based on patronage politics,undermined public investments and contributed to a slow growing eco-nomy (Bardhan 1984). The Indian bureaucracy and politicians intervenedin the industrialization process, while the Indian industrial bourgeoisiecleverly accommodated their accumulation strategies. The urban-industrialbias inherent in the national capitalist project contributed to the process ofembourgeoisment. The state-led industrialization program required a large,educated, salaried class of government employees, a cadre of engineers andadministrators to run the administrative and development machinery. As the economy expanded, the Indian capitalist class under a protectiveenvironment matured considerably, as evident by the changing composi-tion of the Indian corporate sector (D’Costa 2003c). More importantly,state-led industrialization has not been immune from the numericallystrong and politically-influential rural rich. Both the industrial bourgeoisieand the state had to share the national economic surplus with the rurallobby, thus contributing to rural change.

The “dominant coalition” or a “centrist state” (Bardhan 1984; Rudolphand Rudolph 1987) with a nationalist, anti-imperialist face limited eco-nomic dynamism (Ghosh 1990: 191). As property rights tilted in favor of the state, the nexus between state bureaucrats, big capitalists, and largefarmers resulted in a non-Schumpeterian bargain. Under this arrangementthe state unproductively consumed a large share of the social surplus while


private capital expanded in a sheltered environment. Concentration ofwealth increased with the growth of private and state enterprises (see Chat-topadhya 1992: 147–148; Chaudhuri 1975: 1–66). The state often bailedout privately-owned “sick” companies and supplied subsidized industrialinputs. The ensuing massive financial losses incurred by state-owned enter-prises were exacerbated by mismanagement, undue “privilege” of secureemployment and rising salaries for organized workers.

2.2 The public sector, structural change, and the salaried class

The Indian public sector has been a significant contributor to a growingsalaried class. Part of the ISI strategy, the creation of a large public sector,was enshrined in the pre-independence “Statement of Government’sIndustrial Policy” of 1945. This was followed by post-independence legisla-tion in 1951 (Industries Development and Regulation Act), which estab-lished the basis for state intervention and the public sector (Marathe 1989).Five-year plans were established, the first beginning in 1951. The idea ofplanned industrial development was rooted in the Fabian tradition.Regulation, creation, and expansion of industrial capacity by the state wasaccepted as promoting the national interest. Subsequently, the IndustrialPolicy Resolution of 1956 carved out industrial sectors specifically for thestate. Consistent with statism, but resulting from domestic politics, allcommercial banks in 1969 were nationalized and regulations enacted tomonitor large domestic business houses under the Monopolies andRestrictive Trade Practices Act (MRTP). Foreign capital was controlled bythe Foreign Exchange Regulations Act (FERA) of 1973. Statist ideologyremained paramount, entry barriers were erected and the public sectorexpanded. Private capital ambiguously accommodated itself to this regula-tory environment as segments of national capital benefited from statecontrol.

Indian industrial regulation through ISI included a pre-eminent positionfor public sector enterprises (PSUs). Public sector enterprises increased fromfive to 214 during the 1950–84 period, reaching 241 units in 1994–95.Investment in PSUs multiplied by more than a thousandfold. The stateremained the model employer, expanding employment through state-owned enterprises, the bureaucracy, and general administration. By nation-alizing steel, machinery, railways, and the banking and insurance sectors,the Indian state became a major player in the economy. Many local statesown and operate road transportation, thereby contributing to assets ownedby the state sector. Between 1961 and 1981, while private sector employ-ment increased by 45%, public sector employment jumped by nearly 120%(calculated from Government of India, Ministry of Finance, various issues).In absolute terms in the total organized sector, the public sector employedmore persons than the organized private sector. In 1981 total organizedemployment stood at 23 million, with 67.7% under the public sector.


Interestingly, in an era of state retreat of the 1990s, the state share in Indiain 1997 increased to 69.2%.

India’s economic growth rate has been quite unremarkable since thelaunching of five-year plans. The Second Five Year Plan (1956–61) targetedthe heavy industry sector, averaging 4.2% annual growth during theperiod. However, from the Fifth Plan (1974–79) onward, barring 1979–80and 1990–92, India’s economic growth has been 5% or more. From1980–85 onward India seems to have moved on to a higher growth path,with the annual growth rate touching 6.8% during 1992–97. Industrialgrowth since 1956 (except for the Fourth Plan period) increased by 6% ormore. Engineering industries equalled or exceeded these growth rates(Confederation of Engineering Industries, 1991: vi).

The results of the import substitution model, with the public sector at theforefront, have contributed to the growth of India’s salaried class. Overallpublic sector wages have been higher than private sector. The salaries ofpublic sector employees increased by 141% during 1971–81, far higher thanthe Consumer Price Index (CPI) of 109% (Government of India, Ministry ofFinance, 1990–91: S–52). During the 1971–97 period, average per capitaemoluments for public sector employees increased by nearly 2,000% com-pared to 779% for the CPI. This sustained increase in the purchasing powerof government employees was accompanied by considerable increase in thehousehold savings rate. The rate more than doubled from 1950 to 1980,reaching 15.2% in 1979–80 and 18.3 in 1997–98 (Government of India,Ministry of Finance, various issues).

State-intervention has altered the material basis of Indian society.Structurally the Indian economy now is very different from its colonialroots. From simple to complex industrial products, there has been consid-erable industrial deepening and diversification, encompassing mining,metallurgical, mechanical engineering, electrical, chemical, textile, andfood industries. Since the 1950s, virtually all heavy industries such assteel, machinery, and transport equipment, and chemical sectors havemultiplied several times (Table 3.1). For example, between 1950–51 and1980–81 coal, finished steel, commercial vehicles, nitrogenous fertilizer,and man-made fiber increased by 3.7, 6.8, 8.3, 240.5, and 4.5 times respec-tively. Over the next two decades these industries expanded further, withsome industries like machine tools and man-made fiber growing rapidly.Large-scale investments accompanied by local learning deepened thecapital and intermediate goods sectors. Many of these industries are back-wardly linked to the upstream automotive segment. The Indian economynow has a modern industrial foundation with a numerically large edu-cated population. The political coalition behind state-sponsored develop-ment no doubt constrained capital accumulation as a whole but its fruitsaccrued to the members of the dominant proprietary classes and urbanconsumers.


3. Embourgeoisment and social change

The significant departure of Indian capitalist development from the experi-ences of other late developing countries is the nature of its social mobility.In general embourgeoisment is a process of social differentiation, producinga large middle class with purchasing power several times that of legislatedminimum wage. This differentiation is also reproduced in rural areas, withselected segments experiencing growth even as vast swathes of the ruralsector remain destitute. Thus embourgeoisment is also consistent with ahigh incidence of poverty. For example, the poor in India, who are alsofrom lower caste groups, have not experienced significant shifts in their economic standing. Nevertheless, private accumulation, the growth ofpublic sector enterprises, and the expansion of the state bureaucracy at thecentral and local levels have provided some space for low caste groups. Forexample, a sizeable portion of government employment and publiclyfunded educational opportunities are reserved for some of the low castegroups. The politicization of caste and its attendant demands for reserva-tions in higher education seats and employment in government institutionshave contributed to embourgeoisment.


Table 3.1 Expansion of Selected Indian Industries, 1950–2000

Units 1950–51 1980–81 % 2002–03 %change change

Coal million tons 32.3 119.0 3.7 367.3 3.1Petroleum million tons 0.3 10.5 35.0 33.0 3.1Finished Steel million tons 1.0 6.8 6.8 34.4 5.1Aluminium thousand tons 4.0 199.0 49.8 467.0 2.4Machine Tools Rs. million 3.0 1,692.0 564.0 21,794.0 12.9Commercial thousands 8.6 71.7 8.3 199.0 2.8VehiclesAgricultural thousands na 71.0 na 192.2 2.7TractorsPower million KVA 0.2 19.5 97.5 74.4 3.8TransformersNitrogenous thousand tons 9.0 2,164.0 240.5 10,559.0 4.9FertilizerCement million tons 2.7 18.6 6.9 116.3 6.3Cotton Cloth million sq. m 4,215.0 8,368.0 2.0 18,989.0* 2.3Man-made million sq. m 300.0 1,350.0 4.5 13,725.0* 10.2FabricElectricity billion KWH 5.1 110.8 21.7 480.7 4.8Generated

Source: Government of India, Ministry of Finance (2004: S–31–S–33).Notes: * for 1996–97, % change is change from the previous data point.

As elsewhere the right mix of social connections, class background, andeducation attained have an important bearing on social and economicmobility. However, caste dynamics mediated by class and ethnicity com-pound the process of embourgeoisment. In addition, the rise of the Indianmiddle class followed a path different from the classic bourgeois revolutionof the west. First the colonial state and then the post-independent Indianstate nurtured a local bourgeoisie. The protection of domestic producers bythe “self-financed” British government in India and the resistance to globalcapitalism by the Indian state generated both capitalists and a class ofsalaried workers. As I have argued, considerable public investment was inte-gral to the national capitalist project. Hence, a substantial part of theIndian bourgeoisie comprises white collar employees in both public andprivate sectors (see Rosen 1988: 107–111). However, embourgeoisment inIndia is more than white collar employment. Middle class aspirations, suchas modern education and formal employment, are inducing social changeof mammoth proportions. Both urban and rural households pursuemodern occupations and modern education for their children. They alsorespond to economic stimuli with greater predictability than before. Theconsequence of this change is the pragmatic accommodation of non-secular, caste-based ethos with economically-driven middle-class valuesthat are integral to capitalist development.

India’s primordial forms of social identity, such as caste-based jati(an endogamous group), which are based on a non-secular ethos, areincreasingly taking on secular demands, such as access to higher educa-tion and government employment in both rural and urban areas. Inactual practice caste-based social organization in India is jati-based socialidentity. They are associations based on shared identity of community.While caste, as generally understood, is a ritually-based hierarchy ofpurity and pollution, jatis are based on certain hereditary occupationsascribed by caste position. Members of a particular jati are equal.Occupational differences, however, render some jatis higher ranked thanothers. In a rural setting, for example, typically priests rank higher thanfarmers. However, with economic development traditional rankings basedon ritual purity is giving way to more class-based distinctions. Thus alandlord, economically more powerful than a priest, today could enjoygreater social status than a priest; in the past, the social status would havebeen reversed. Furthermore, while jati identity is ritually-defined, con-temporary jati demands pertain to secular needs, such as access to credit,irrigation, reservations in engineering schools, and so on. Increasingly jatiidentities coalesce around class issues, responding to market-based stimulias a class. The landlord jati mobilizes itself as a class to resist state-spon-sored land reforms, while the landless rural residents from lower jatisorganize themselves to secure a livelihood. In the Indian context it isevident that class relations are mediated by jatis (Stern 2003: 89–94).


3.1 Structural changes in the countryside

State-led industrialization has not been divorced from rural embourgeois-ment, even if the slow growth of agricultural productivity has limitedoverall national growth. Rural economic and social change has been led bycommercially-oriented farmers. They successfully secured state subsidies onvarious agricultural inputs such as fertilizers and have been exempt frompaying income taxes on agricultural income. They also received generousprice supports for agricultural commodities. Consequently, rural embour-geoisment has been reinforced by the emergence of capitalist farmers, theirsubsequent diversification of assets, their children’s education and pursuitof professional careers in urban areas, and continued state patronage due totheir electoral majority.

Changes in the countryside are mirrored by structural changes ensuingfrom state-led industrialization (Table 3.2). The share of agriculturedeclined from nearly 60% in 1950–51 to 42% in 1980–81. Currently itstands at a little under one quarter of the GDP. Manufacturing grew fasterthan agriculture and its contribution to national income today is similar toagriculture. The service sector expanded throughout the post-independenceperiod. It now comprises over 50% of GDP. While transportation’s share, asa subsector of services, is large, the direct involvement of the state inIndia’s GDP is noticeable. Public administration, defense, and other ser-vices, representing already quite high shares of national income, increasedfrom about 10% in 1950–51 to over 13% currently.


Table 3.2 Structural Changes in the Indian Economy, Sectoral Contributionto GDP (%) 1950–2004 (1993–94 prices)

Agriculture Manufacturing Transportation Finance Public Administration

1950–51 59.19 13.29 11.95 6.69 9.411960–61 54.75 16.61 13.74 6.11 9.171970–71 48.12 19.91 15.55 5.94 10.691980–81 41.82 21.59 18.41 6.53 11.651990–91 34.92 24.49 18.73 9.69 12.182000–01 26.25 24.90 22.80 12.59 13.462003–04* 24.43 24.58 24.75 12.83 13.41

Source: Government of India, Ministry of Finance (2004: S–5).Notes: GDP at factor cost by industry of origin* advanced estimatesAgriculture includes forestry, logging, fishing, mining, and quarrying.Manufacturing includes construction, electricity, gas and water supply.Transportation includes trade, storage and communication.Finance includes insurance, real estate, and business services.Public administration includes defence and other services.

The relative decline in agriculture was accompanied by increased foodgrain production, suggesting rising agricultural productivity and ruralembourgeoisment. From under 50 mt in 1951 net production increased to 96 mt in 1980 (Figure 3.1). For 2000, production has been estimated at180 mt. Output has increased with the commercialization of agriculture,leading to an increased reliance on chemical fertilizers and mechanization.Total consumption of fertilizers increased from a mere 292 thousand tonsin 1960–61 to 5,516 thousand tons in 1980–81, a nineteen-fold increase(Government of India, Ministry of Finance, 2001: Table 1.21). In 2000–01consumption stood at 19,368 thousand tons. In addition to fertilizers, irrigation has played an important role, especially for growing a secondcrop. Of the total area devoted to food grains, only 24% was irrigated in 1970–71. In 1996–97 that figure was estimated at 40.6%. The Indianstate has played an important role in providing rural infrastructure, such asirrigation, for increasing food production.

Rural embourgeoisment has led to both economic prosperity and im-poverishment. The commercialization of agriculture and the adoption of capitalist methods of production has created large landowners andincreased rural landlessness (Patnaik 1992). The absence of major landreform programs exacerbated class polarization in the countryside.3 Not-withstanding considerable progress in agricultural development, per capitagrain availability has not changed markedly in half a century – from 395 grams per day in 1951 to 466 grams in 2000.4 Capitalist agriculture inIndia has increased output and efficiency but has not necessarily enhanced


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1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

mill

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Net Prod.3 year Mov. Avg. (Net Prod).

Figure 3.1 India’s Food Grain Production, 1951–2002 (mt)Source: Government of India, Ministry of Finance (various issues).

equity. In this rural transformation, the class-making role of the state isquite evident. The development of rural infrastructure favoring the largelandowners and the sponsorship of modern agricultural practices supportedby industrialization contributed to a rural bourgeoisie. This is also evidentfrom the increasing share of gross capital formation in agriculture fromprivate sources, from 65% in 1960–61 to 75% in 1990–91 to 84% in1996–97 (Government of India, Ministry of Finance, 1999: 126).

Class polarization in the rural economy can be seen from income andland holding distribution. Based on Bardhan’s (1984: 107) 1975 estimatesof farm income and land holding size distribution, we find that the top 8%of rural agricultural population operated 40% of the land, while one half(53%) had less than 19% of land. Another 12% of the rural population waslandless. The rural land ownership structure by 1975 looked highly inegali-tarian, with 19% of the large and very large land owners controlling 60% ofthe total land, while the bottom 40% a meager 3%. The middle broader category of marginal, small, and medium size land holdings comprised51% of the rural population with 36% of the land. On an income basis, thepolarization is less stark, with the top households obtaining 34% of farmincome and 28% of livestock income. Based on this data, Stern (1993: 91)refines the incomes of households by adding income from non-farmsources, such as urban remittances, interest income, and so on. These pro-duce a similar rural class structure in terms of land ownership and income,with about half the rural population in the middle category securingroughly half the income, while the small-owner and large-owner categoriesearning disproportionate incomes relative to population.

More recent figures from the Indian Ministry of Agriculture (2004) areconsistent with capitalist polarization in the countryside. In general, due toinheritance customs in India, land holding size is subject to increasing fragmentation, as evident by the increase in the total number of land hold-ings and a steady increase of the area under small holdings (under twohectares) and corresponding steady decrease in the area of large holdings(above ten hectares). However, the number of small holdings have in-creased absolutely and relatively since the mid-1970s, from 73% to 78% by1990–91. Conversely, the number of large holdings has declined, alsoabsolutely and relatively, from 3% to 1.6% over the same period. Even themiddle category changed from 24.4% to 20.5% during the same period,suggesting worsening land distribution. Though the average size of opera-tional landholding has not perceptibly changed, output figures by each cat-egory of holding suggest considerably more income for large landowners,even after accounting for higher efficiency of small farmers (Griffin 1991:141–151). Adding non-agricultural income as per Stern’s (1993) refinementsuch as income from rural trade, transportation services, and remittancesfrom urban-based relatives, class differentiation in the Indian countryside isgreater than what might be generally acknowledged.


Capitalist development and subsequent class polarization in the coun-tryside has been also responsible for rural-urban migration. While India,unlike many Latin American and East Asian societies, is still largely agrar-ian, with nearly 75% of the population living in rural areas, the motivesfor migration are not dissimilar. Poverty, indebtedness, declining fertilityof land, forcible eviction, and mechanization have contributed to bothrural landlessness and destitution. Although much debate persists withrespect to poverty figures, recent statistics show a declining trend. Theincidence of poverty in India has been steadily falling, from 51.3% in1977–78 to 36% in 1993–94 (Government of India, Ministry of Finance,1999: 146). Rural poverty ratio, much higher than the urban poverty ratio,also declined from 53% to 37.3% during this period and has been esti-mated to be around 26% in 1999–2000 (Government of India, Ministry ofFinance, 2001: 193). However, the absolute number of the poor is stagger-ing, roughly 260 million at the current population level. When juxtaposedwith India’s caste and class dynamics, the rural untouchables have had araw deal. Lacking land, education, social status, and facing violent oppres-sion, many of them have migrated to urban centers (Dandekar 1997,Bandyopadhyay 1990). Cities by themselves have not eliminated casteidentities, in fact, they often reproduce them if the untouchables areunable to escape from their hereditary occupations, such as sweeping andcarcass handling for leather tanneries. Nevertheless cities provide theanonymity that untouchables cannot find in relatively self-contained,village settings. The socialization process in urban areas is wider and notas restrictive as in rural areas.

Though data are hard to come by, many studies on the informal urbansector point to limited economic and social mobility of those at the verybottom of the social ladder. In the course of two generations it is possiblefor children of some of these migrants to place themselves into mainstreamsociety by way of formal education and employment. Both modernizationand urbanization provide a demonstration effect, weakening primordialties such as jati identity in favor of social and economic advancement inthe contemporary economy. As shown below, with the political mobiliza-tion of lower castes (Omvedt 1994, 1995; Jaffrelot 2002), the chances ofsecuring government jobs and publicly funded education in institutions ofhigher learning increase. Consequently, the probability of joining the ranksof the Indian middle class also increases.

3.2 Vernacularization of democracy

Unlike many former colonies, India adopted a parliamentary frameworkof democracy. While liberal and social-democratic in its conception, theactual functioning of democracy in India has been subject to vernacular-ization, a process by which democracy has been internalized in localterms (Yadav 1999). For example, non-secular social forces such as caste,


class, and ethnicity have politically mobilized various communities andhas heightened competition for economic resources, government jobs,and access to education in public institutions of higher learning (Sheth1999). The state has had to respond to these demands out of bothgenuine development concerns and political expediency.

Inequality notwithstanding, state-led economic transformation is con-tributing to social and economic mobility in an environment of politicalmobilization. This is especially salient for communities historically lowon the social ladder and subject to economic domination by the propri-etary classes. However, capitalist development in the countryside andindustrialization in urban areas are creating occupations not found inthe typical roster of hereditary occupations. Besides, increased communi-cations, social interactions beyond the village society, and nationalsecular ideologies are increasingly gnawing at some of the more rigidaspects of jati-based practices, such as commensal rules. However, lowerranked jatis, such as the so-called untouchables or Dalits, do not easilyescape their low social status. In fact their low caste position structurallylimits their social mobility. Conversely, those of upper castes, such asBrahmins, landlords, and traders are better placed to take advantage ofopportunities arising out of economic modernization and increasinginternational economic integration. It is not atypical to find that thebulk of the men and women entering reputed institutes of higher educa-tion come from the upper castes. As anywhere, social background,wealth, parents’ education, and political connections are important for social mobility in India. However, it would be misleading to thinkthat embourgeoisment is completely an upper caste process. The Indianpolitical system is open enough to accommodate certain lower casteinterests, especially when they are mobilized around jati-based economicdemands. Two state-sponsored avenues for mobility – access to highereducation and government employment – have been significant factorsin the upward mobility of lower castes.

Indian democracy is western in origin and has been elitist in its earliermanifestation. Over time it has been indigenized and vernacularized(Yadav 1999). Today the language of democracy, at least in terms of eco-nomic expectations, is understood by most. Parliamentary democracy asStern (1993: 184) points out “is not an ideology nor an immutable ‘rulesof the game’ but rather a workable modus operandi for resolving conflicts.”What this suggests is that there is political space for a wide variety of dis-parate interests to be worked out within the parameters of a democraticframework, leading to colorful compromises and coalitions. It is now pos-sible for upper caste landlords to seek the support of their low casteworkers to fight a particular government policy. At the same time, the par-liamentary framework, as enshrined in the constitution, permits the reser-vation of government jobs and seats in state-run professional schools,


such as engineering, medicine, and business for the historically underpriv-ileged groups. They include the Dalits, referred to by the government asthe scheduled castes (SC) and scheduled tribes (ST), in reference to a listthat was drawn up by the British in identifying such groups. Rising liter-acy rates indicate that reservations and other forms of government inter-vention in favor of such groups has met with some success. Literacy ratesamong SC and ST have increased from 10.3% and 8.5% in 1961 to 37.4%and 29.6% in 1991 respectively. The urban shares in 1991 stood at 55%and 57% respectively.

As a matter of policy the government of India has reserved 22.5% of thejobs and education seats for SC and ST (Chatterjee 1996: 304). As scheduledcastes and scheduled tribes number in the hundreds of millions, only asmall fraction of them benefit from government preferential treatment.Those SC/ST already better placed than their peers with formal educationand income are better able to take advantage of such reservations comparedto their less well-endowed peers. In an economy of scarcity one spin-off ofthis highly controversial policy has been the political mobilization of jatisto press for secular demands (Chatterjee 1996). Since the 1950s the variousIndian government commissions have examined the merit and feasibilityof reserving jobs and seats for other backward castes (OBCs). OBCs areneither high nor very low on the ritual hierarchy and hence in the pastcould not effectively secure the benefits of a modernizing Indian economy.They did not have the necessary SC/ST identity nor the social, economic,and political standing of the upper castes to take advantage of the secularbenefits of the government’s reservation system and the emerging eco-nomic opportunities associated with a modern, capitalist economy.5 Theirsustained politicization, spearheaded by the communities themselves andsupported by the state, led to the formal implementation of the MandalCommission Report in 1992 that recommended government reservationsfor OBCs. Close to 50% of all public sector jobs and seats in state-sponsoredhigher education are now reserved for SC/ST and OBCs. One estimate inthe mid-1990s placed reservations of both government jobs and highereducation seats at five million (Chatterjee 1996: 311). This is relativelysmall progress, given that the “elites” of the OBCs corner the bulk of theseseats (see Shurmer-Smith 2000: 122), but it is indicative of the process ofembourgeoisment of a certain strata of the marginalized groups, in whichthe government has played no small role. When the rural rich, the urbanprofessionals, business owners, traders, and unionized workers are added,the relatively small bourgeoisie surpasses the critical threshold necessary todrive the capital accumulation process.

3.3 Expansion of education in India

The British had already inculcated the value of formal education on itsIndian minions running the colonial enterprise. Inheriting a skewed


pattern of education, the Indian government, in its quest for rapid industri-alization, reproduced this social inequality. In seeking to modernize India,particularly under its elitist political leadership, tertiary technical educationwas favored. Consequently, India’s overall record on education remainspoor, especially when compared to similarly sized China (Drèze and Sen(eds) 1998). Nearly 40% of India’s population remains illiterate, includinghalf of the females. There is still a very high school dropout rate at the ele-mentary stage, over 50% at the national level. On a longer time frame,post-independent India has made considerable progress since colonialtimes. The literacy rate in the first half of the twentieth century increasedfrom a paltry 5.35% in 1901 to 16.67 in 1951. Today it stands at over 62%.This is no small achievement, given that the Indian population more thantrebled since 1901, currently at over one billion. As we have noted, eventhe historically discriminated communities have made some progress on the literacy front. However, it is not the relative magnitudes, no doubtimportant for tracking social progress, that matter for understanding capi-talist development. Embourgeoisment is about rising incomes in thecontext of social differentiation, with some groups earning considerablymore than others. This inegalitarian outcome is integral to capitalist devel-opment, whereby a process of market growth is led by a virtuous circuit of production and consumption. The absolute numbers of educated, asconsumers and producers, are large enough to sustain growing markets.Hence, such growth is not inconsistent with unequal education and resulting social polarization.

Disproportionately more public resources have been allocated to highereducation and professional programs, such as engineering and medicine.While 79% of the education budget in 1995–96 was allocated to elementaryand secondary education, 16.4% went to higher and technical education(World Bank 2000: 50). In 1998, nearly 108 million students were enrolled,compared to 5.7 million general education post-secondary graduates. Usingthe 1995–96 education budget, roughly an annual average expenditure ofRs. 2,875 and Rs. 11,307 was incurred for a school and college graduaterespectively. Technical education is likely to be more expensive. What isnoteworthy and consistent with the state-sponsored embourgeoismentprocess is the subsidization of education in general and higher education in particular. For students in public institutions, course fees vary from amere 2% to 7% of operating costs (World Bank 2000: 50), with the statesubsidizing the rest.

In a state-led economy of scarcity, formal education at the college levelthus is a vital link to social and economic advancement. The huge Indianbureaucracy and the public sector rely on a steady supply of such person-nel. Those with technical professional training have been rewarded withremunerative, secure employment in public and private enterprises. A self-reinforcing dynamic facilitated the internalization of the ethos of higher


education by Indians. Education became a gateway to well-paying jobs, toprestigious nuptial arrangements, and social advancement. Those bestplaced socially and politically, namely the bourgeoisie, reaped the eco-nomic benefits of higher education, leading to the expansion of this sector.As Indian politics gravitated toward the issue of access to higher education,especially by the marginalized groups, more and more Indians began toappreciate the utility of and clamor for formal tertiary training. Hence,what is relevant is the absolute numbers of people experiencing improvedsocial and economic status even as many are structurally excluded from thefruits of social development.

In the post-independent period the number of educational institutionshas expanded considerably (Table 3.3). As literacy and basic education hasspread, there has been also a disproportionate growth in institutions ofhigher learning beyond the high school level. This is consistent with thestate-sponsored industrialization strategy, demanding technically qualifiedpersonnel for domestic market development. Both economic imperativesand the social penchant for higher education contributed to substantialgrowth in post-secondary educational institutions. For example, there arenearly 10,000 schools (compared to less than 1,500 in 1961) that wereabove the high school degree level. Seventy percent of these comprisedgeneral education, while the professional and technical schools accountedfor about 20%. The Ministry of Human Resource Development (in World


Table 3.3 Number of Educational Institutions for Selected Categories

1961 1971 1981 1991 2000

Primary/Junior Basic 330,399 408,378 494,503 560,395 638,738High Schools 17,257 36,738 51,006 79,796 102,721Universities, Institutions, 45 100 132 184 254etc.Degree Standard and 967 2,285 3,421 4,862 7,929above General Education InstitutionsAgriculture, Forestry, 52 81 83 107 *122Veterinary ScienceEngineering, Technology & 111 134 171 351 880Architecture@Medicine@# 133 179 249 346 **474Below Degree Professional/ 4,145 4,401 4,808 5,739 6,561Vocational

Source: Government of India, Ministry of Human Resources and University Grants Commissionin World Bank (2000); Institute of Applied Manpower Research (2002:43).Notes: @ Degree Standard above Professional and Technical Institutions.* for 1998, ** for 1997# medicine includes allopathy, homeopathy, ayurveda, and unani.

Bank 2000) estimates show that in 1998 there were 5.65 million studentsenrolled in the arts, sciences, and commerce compared to 1.65 million in1971, nearly a three-and-half fold increase. Post-baccalaureate enrolment(including doctoral research), about 10% in these fields, expanded bynearly two-and-a-half times during this period.

The prospects for economic and social mobility are best ensured by professional training. In addition to the Indian administrative and otherservices for the bureaucracy, engineering and medicine have tradition-ally enjoyed considerable social prestige, including a ticket to well-placed spouses. In 2000 over 74,000 degree-earning engineers wereproduced compared to less than 3,000 in 1951. Engineering diploma(shorter-term, less academically-oriented programs) holders numberedclose to 160,000 (Institute of Applied Manpower Research 2002: 70).6

The total stock of qualified scientific and technical personnel in 1997was estimated to be 6.5 million, of which 0.73 and 1.1 million wereengineering degree and diploma holders respectively (World Bank 2000:43). About half a million information technology (IT) related workerswere estimated to be employed in 2002 with anticipated needs at 2.2 million by 2008 (National Association of Software and ServicesCompanies (NASSCOM) 2002: 92). Nearly 15,000 medical doctors weretrained in 1997, gradually raising the availability of doctors from 15 per100,000 to more than 50 per 100,000 (Government of India, CentralStatistical Organisation 2002: 91). Given the urban bias of industrializa-tion, greater purchasing power of urban residents, and the urban loca-tion of medical schools, the urban availability of doctors is expected tobe far higher than the rural availability. Again, the point is not really amatter of distribution, for embourgeoisment is a process of social differ-entiation, regional disparities, and class inequities.

There is one other aspect to technical education relevant to the discus-sion of embourgeoisment and capitalist industrialization, that is, the cre-ation of an industrial workforce vital for the development of the Indianautomobile industry. The British and the nascent Indian capitalist class hadalready initiated the process, especially in the early part of the twentiethcentury. However, given the colonial arrangement, such a workforce was atbest peripheral to the Indian economy. The state’s pursuit of industrializa-tion called for expanding the supply of technically-trained personnel basedon apprenticeship programs. These are diploma programs with two years oftraining beyond the high school level. Like other educational institutionsthey were plagued with poor quality facilities and limited opportunities forgraduates in a slow growing economy. However, their gradual expansionwas consistent with economic development goals. Between 1961 and 1981,the combined number of professional, vocational, and technical institu-tions increased by 20% to 4,808. By 2000, their number stood at 6,855, a43% increase since 1981 (Institute of Applied Manpower Research 2002:


43). Of these, about 17% (1,088) are polytechnics; nearly 60% are govern-ment-run or government-aided institutions. This segment of the technicaleducation system produced about 95,000 diploma holders in the mid-1990s(World Bank 2000: 46). They form the core of the Indian industrial work-force in the formal sector, and, as we will see in Chapter 5, contributesignificantly to the development of India’s auto industry.

4. Embourgeoisment and market growth

If the process of embourgeoisment or social differentiation parallels capital-ist economic development, then self-reinforcing market growth, not neces-sarily all inclusive, appears inevitable. As more people experience social andeconomic advancement, there is a greater tendency toward increased con-sumption. Without income it is not possible to participate in the market,hence embourgeoisment is by definition a selective process. India’s persis-tent high incidence of poverty indicates the structural barriers to mobility.But the Indian political system does allow for some mobility, certainly lessfor those who are at the bottom and more for those who are already highup in the social and economic hierarchy. There is considerable social differ-entiation, on the one hand, and demonstration effects, on the other. Whatis pertinent is the shift of a peripheral, peasant-based economy to a moreindustrialized, market-based economy. Both in historic and absolute terms,the extent of embourgeoisment in India is significant enough to warrantthe formation of markets and the widening of the consumption basewithin this middle-up segment. In popular parlance this has been inter-preted as the rise of the Indian middle class. In this section we present abrief discussion on the size of the Indian middle class and the maturity ofthe Indian capitalist class to demonstrate not only market growth but alsothe ideological constituency for ushering in market reforms for capitalistexpansion.

4.1 Size of the Indian middle class

The origin of this class is significantly different from that of the advancedcapitalist countries and rather small by western standards. Neverthelessembourgeoisment in India suggests a growing class of rural and urban con-sumers, capitalist entrepreneurs, and the proletariat. There are of course noobjective criteria by which the Indian middle class can be determinedbecause of its heterogeneity. Its evolution does not mirror the rise of the bourgeoisie in Europe (Frankel 1988). This class comprises principallythe urban professionals, civil servants, petit-bourgeoisie, and the rich peas-antry (Kohli 1992: 328–329, Nayar 1990: 88, Bardhan 1984). For all practi-cal purposes these groups exhibit consumption habits increasingly similarto each other and certainly deviate from India’s poor (Dubey 1992). Thisclass displays facets of westernized consumption and behavior patterns but


not necessarily western values of secularism and the attendant social char-acteristics based on individualism and modernity found in the west (Dubey1992: 160–162). Social tension in modernizing India is apparent. Withinthe middle class there is a segment that is thoroughly western in itsoutlook and tastes and there is another that resembles western modernitymainly in terms of consumption but is still ensconced in a less secularsystem.

The middle class comprises anywhere from 10–30% of the Indian popula-tion, depending on what criteria are used to identify them. Measuring theincome of this class in terms of US dollars or purchasing power parity (PPP)also influences the size of this class and hence the composition of the con-sumption basket. By simply converting rupee incomes to US dollars, the Indian middle class income is low by advanced capitalist countries(Table 3.4). For about 37% of the Indian population annual householdincome in 1989–90 ranged from Rs. 12,000 to Rs. 40,000 ($721 to $2,403).This restricts proportionately the consumption of capital-intensive con-sumer durables and internationally branded goods that typically commandinternational prices. Using PPP, Indian incomes are much higher, indicat-ing that the standard of living is not as low as might be suggested byincomes based in US dollars. Furthermore, there is a large undergroundeconomy, whose size has been variously estimated to be anywhere from18–30% of the national economy (Dubey 1992: 147). As class is sociallydefined, it is more fruitful to see the Indian middle class on India’s terms.Embourgeoisment entails rising selective prosperity and the potential to sustain a range of industries from which the poor, though declining relatively, is effectively kept out.

There are different ways to determine the size of the middle class;income, purchases of consumer goods, the number of university graduates,etc. In the Indian context, and pertinent to the embourgeoisment process,a good indicator of social differentiation is the increasing ownership oftwo-wheeled vehicles – motorcycles, scooters, and powered cycles. Theprocess of economic differentiation with respect to markets was alreadywell underway before the economic liberalization of 1991. In 1951 the totalregistered number of two-wheeled vehicles was only 26,860. It crossed the one, two, and three million mark in 1976, 1980, and 1982 respectively.However, in 1997 it was nearly 26 million. In 1984–85, the price of apopular scooter represented roughly 25% of the annual salary of a publicsector employee (calculated from Association of Indian AutomobileManufacturers (AIAM) 1985: 225, Government of India, Ministry ofFinance, 1991: S–52).

The increasing ownership of two-wheelers, given their high price relativeto average incomes, reflects growing class segmentation and the corre-sponding demand for a relatively expensive consumer durable. Similarly,the passenger car segment also displays social differentiation even as the


64

Tab

le 3

.4T

hre

e E

stim

ates

of

the

Size

of

the

Ind

ian

Mid

dle

Cla

ss (

bas

ed o

n h

ou

seh

old

in

com

e)

NC

AER

(19

89–9

0)O

RG

(19

89–9

0)N

CA

ER (

1995

–96)

Inco

me

Inco

me

% o

f In

com

e G

rou

p%

of

Inco

me

Gro

up

*R

ura

l U

rban

%

of

Cat

ego

ryG

rou

pPo

pu

lati

on

Pop

ula

tio

n(m

hh

)(m

hh

)h

h

Low

R

s.12

–25,

000

27.0

–R

s. 1

6,00

1–22

,000

7.1

36.9

26.7

Mid

dle

($

721–

1,50

2)($

478–

658)

Mid

dle

R

s. 2

5–40

,000

10.0

Rs.

18,

012–

30,0

0013

.4R

s. 2

2,00

1–45

,000

16.8

37.3

32.8

Inco

me

($1,

502–

2,40

3)($

1,08

2–1,

802)

($47

8–1,

345)

Up

per

R

s. 4

0–56

,000

2.6

Rs.

30,

012–

48,0

004.

7R

s. 4

5,00

1–21

5,00

016

.615

.919

.7M

idd

le($

2,40

3–3,

364)

($1,

803–

2,88

3)($

1,34

5–6,

428)

Hig

h

Rs.

56,

000+

1.4

Rs.

48,

000+

2.0

Rs.

215

,000

+0.

80.

40.

7In

com

e($

3,36

4+)

($2,

883)

($6,

428+

)

Sour

ce: N

CA

ER 1

989–

90, i

n S

tern

(19

93: 6

); O

RG

198

9–90

, in

Du

bey

(199

2: 1

45);

NC

AER

in

In

dia

on

esto

p.c

om

(19

98).

Not

es: N

CA

ER =

Nat

ion

al C

ou

nci

l o

f A

pp

lied

Eco

no

mic

Res

earc

h, N

ew D

elh

i; O

RG

= O

per

atio

ns

Res

earc

h G

rou

p, N

ew D

elh

i.*

1994

–95

pri

ces

Th

e ex

chan

ge r

ates

use

d t

o c

on

vert

ru

pee

in

com

es i

n 1

989–

90 a

nd

199

5–96

wer

e R

s. 1

6.65

an

d R

s.33

.45

per

US

do

llar

res

pec

tive

ly.

m =

mil

lio

ns;

hh

= h

ou

seh

old

sIn

dia

’s p

er c

apit

a in

com

e (p

ci)

in 2

000

was

$46

0; t

he

pu

rch

asin

g p

ow

er p

arit

y (p

pp

) p

ci w

as $

2,39

0.B

ased

on

pp

p, I

nd

iast

op

.co

m e

stim

ates

wer

e as

fo

llo

ws:

up

per

mid

dle

cla

ss, m

id-m

idd

le c

lass

, an

d l

ow

er m

idd

le c

lass

ho

use

ho

lds

at

40 m

illi

on

(w

ith

$60

0,00

0 a

year

), 1

5 m

illi

on

(w

ith

$20

,000

a y

ear)

, an

d 1

10 m

illi

on

(w

ith

un

kno

wn

in

com

e es

pec

iall

y fo

r th

e af

flu

ent

rura

l bo

urg

eois

ie)

resp

ecti

vely

.

production of two-wheelers expanded much faster than passenger cars. Atfirst, car ownership was higher than two-wheelers but over time the ratio ofcar registrations to two-wheeler registrations declined rapidly. For example,in 1956, the ratio was 495%, given that two-wheelers were not being produced in the country and cars were confined to the national elite. Theratio dropped to 202%, 74%, 28%, and 18% in 1966, 1976, 1986, and 1996respectively. We can interpret this change as follows: not only were in-comes above a threshold level increasing but higher income groups wereexperiencing even more rapid expansion. Social differentiation via risingincomes is displayed by increasing stock of vehicles of all types (Figure 3.2).The stock of buses has not increased as much, indicating the low priority of public transportation. But the increasing private ownership of trucks(and buses) outside of the corporate sector suggests embourgeoisment. Busand truck owners form an increasingly important segment of the petitbourgeois. Many of them hail from semi-rural areas having diversified theiragricultural assets from cultivation to warehousing and transporting agricultural output.

Within this upwardly mobile group, there is a smaller, more affluentsegment, that tends to differentiate itself from its peers, as evidenced by the declining vehicle registration ratios. Overall, even as the base of the middle class is widening with dramatic increases in the stock of two-wheelers, the pyramidical structure is persistent with fewer cars registered


–1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

1961 1971 1981 1983 1985 1987 1989 1991 1993 1995 1997 2000

thou

sand

s

Two-WheelersCarsTrucks

Figure 3.2 Net Additions to Vehicle Populations by CategorySource: Automotive Components Manufacturers Association (various years).

relative to two-wheelers. Cars are far more expensive than two-wheelers,anywhere from ten to twenty times that of a scooter. There are then struc-tural limits to embourgeoisment, given that a critical threshold income isnecessary to sustain an expanding car industry. It has been pointed out by industry officials that the expanding population of two-wheelers is agood indication of potential car demand (Personal Interview, HondaMotors, Tokyo December 1991). If this assessment is accurate then theIndian automotive segment fits that profile, given that India’s two-wheelermarket is only second to China’s and India boasts the largest producer oftwo-wheelers in the world.

4.2 Embourgeoisment, capitalist maturity, and transnationalization

Capitalist development in India has been a multifaceted and complexprocess. Influenced by colonial rule and state-led development, today it isno longer insulated from the contemporary global economy. The incuba-tion of new capitalists during the state-led phase of industrialization sus-tained the old guard and contributed to India’s global standing. Forexample, the Tatas and the Birlas, established business families, built upconsiderable expertise in engineering industries. The Ambani family withits Reliance Corporation, on the other hand, was a newcomer. Politicallywell connected, the Ambanis began their modest operation in 1966 andhas grown severalfold since then. Strategically, they have integrated back-wards from synthetic textiles to petrochemicals for making fibers. TodayReliance is a diversified company, with the world’s largest ethylene crackerplant, and a potential Fortune 500 entrant. Capitalist development in Indiahas been also spurred by the remarkable expansion of an entrepreneurally-driven Indian IT sector. Firms such as Infosys and Wipro have becomehousehold names even though they are mainly exporters of software services (D’Costa 2003a). Increasingly entrepreneurs of Indian origin com-mand many high-tech firms of Silicon Valley and many of them are return-ing to India to start new ventures (Saxenian 1999). A New York Times articleciting IndUS Entrepreneurs, a group of US-based Asian entrepreneurs, esti-mates that 30% of the software engineers in Silicon Valley are of Indianorigin (Glanz 2001). The maturity of business families and the new entre-preneurs represent a new breed of Indian capitalists. They are also productsof state-led embourgeoisment.

Consequently, not only is the Indian economy undergoing transforma-tion but its external economic relationships are also being altered. For example, the Indian government no longer plays the same kind ofdirigiste role as it did during the ISI phase. It has adopted a more neo-liberaleconomic strategy by deregulating the economy. The gradual reforms initiated in the late 1970s were speeded up in the 1980s. By this timeembourgeoisment was already recognizable and the Rajiv Gandhi govern-ment began a major overhaul of economic policies to take India into the


“Twenty-first Century.” Trade controls, foreign investment, and technologyimports were all liberalized to cater to middle class demand. This led tomacroeconomic imbalances, such as international debt and a run onforeign exchange reserves, ultimately culminating in the economic crisis of1990–91. The crisis itself led to the 1991 market reforms, whereby theIndian economy was thrown open to the international economy.

Deregulation is also facilitated by an internal constituency for neo-liberalpolicies. There are a number of interrelated ways by which such a market-based approach is gaining momentum: First is the migration of Indian pro-fessionals to advanced capitalist centers. Second are investments by Indianfirms abroad; and third is the return of some foreign-based Indian entrepre-neurs. As the Indian economy becomes more internationalized with theoffering of “global” goods and services and the diffusion of best-industrypractices, many non-resident Indians (NRIs) return permanently or elsemove back and forth between India and foreign markets. These profession-als abroad and their counterparts at home serve as the catalyst for pro-market reforms, for these are the very groups which in the past benefitedfrom market mechanisms.

Embourgeoisment has created a vested interest in keeping the economyopen. There is a conviction expressed by the middle class on the appropriate-ness of the neo-liberal order for India. For example, professionals can be con-sidered the most successful in their fields, having gone through a rigorousscreening process in Indian and American higher education systems. Theyhave also worked for big global firms and many of them, like their US coun-terparts, have begun their own operations in the US. This repeated success, interms of economic mobility and entrepreneurial achievements, distanceswhatever collective, publicly-supported solutions they might have enter-tained for Indian development. Consequently, economic reforms are pursuedby those who gain the most from market participation. Embourgeoismentcumulatively contributes to market development. It also provides the ideo-logical ammunition to sustain market reforms and engineer internationaleconomic integration.

5. Conclusion

It is evident that the process of embourgeoisment, while selective, is alter-ing the social structure in important ways. The declining share of agricul-ture to national income, the commercialization of agriculture, and theincreases in food grain output are manifestations of this transformation.While its industrial record has been mixed, the state has played an impor-tant role. The public sector and public investments in general incubated anindustrial infrastructure and a salaried class. The intertwining of politicaldemocracy with caste-based politics of higher education has allowed somesocial and economic advancement among the lower classes. Consequently,


embourgeoisment has created a class of consumers that is increasingly par-ticipating in markets, hitherto undeveloped. By resisting global capitalismthe Indian national capitalist project has been established.

While there is no guarantee that these markets will be self-sustaining in the future, the process of embourgeoisment has its own momentum, orat least built-in supporters.7 As the self-reliant model had its problems ofshortages, lethargic technological development, bureaucratic inefficiency,and corporate corruption there was little possibility of continuing in thesame mode. Additionally, the global interconnectedness via economic inte-gration, emigration, overseas education and employment, and the diffusionof popular culture heightened the “rising expectations” of the Indianmiddle class. As the national productive structure could not meet thechanging demands of an increasingly differentiated Indian society, pres-sures to change the political course for economic development mounted.Some segments of the differentiated capitalist class demanded the disman-tling of regulations. Also a new breed of capitalists, within and outsideIndia, challenged the more traditional Indian bourgeoisie. They were moreinternationally-oriented, technologically more savvy, and less risk averse.The Indian middle class and its non-resident counterpart (see Appadurai1992), sought “luxury” consumer goods which were either scarce, outra-geously priced, or of inferior quality. Given that the “foreignness” of agood itself was perceived as a middle class status symbol, an ideology of themarket was more or less internalized.

As we will see in the next chapter, it is in this context of embourgeoismentthat the development and the turning point in the Indian automobile indus-try can be examined. The model of national capitalist development wasshelved in favor of a more market-oriented model that sought greater interna-tional economic integration. In 1982 for the first time, a foreign firm, SuzukiMotors, was allowed equity in the auto industry. By the mid-1990s virtuallyall major global auto companies had entered the market. The adoption of aneo-liberal model, while influenced by the immediate macroeconomic imbal-ances of 1990–91, was socially in the making in the post-independenceperiod. The state-led capitalist development model transformed the Indianeconomy and induced social differentiation. The ensuing embourgeoisment,accompanying economic and social advancement, engendered formation ofmarkets and their deepening. Rising incomes and social mobility of theIndian middle class sought to retain those privileges just as other less mobilegroups clamored to secure some of those benefits through competitive politicsand employment and education reservations.

Deregulation of the Indian economy became part of urban middleclass household ideology for it promised cheaper and wider variety ofmanufactured goods. The rural rich, though less tied into the neo-liberalmodel, were indirectly participating in it through their consumption of industrial goods, made possible by state support. In the wake of the


macroeconomic crisis, the international pressures from the IMF and theWorld Bank to liberalize the Indian economy reinforced this market ide-ology. Globally capitalism itself was transforming. The collapse of theSoviet Union and the rapid emergence of an East Asia-based new bour-geoisie demanded a thorough re-evaluation of the Indian model. Thedebunking of the Keynesian welfare state gave way to a market-driven,individualized, neo-liberal order. India’s march to capitalism cannot bedivorced from these external developments, though we know that theprocess of embourgeoisment was definitively set in motion by the Indianstate itself.


4Embourgeoisment,Internationalization, and Auto Market Evolution

1. Introduction

By pursuing the national capitalist project the Indian state contributed toembourgeoisment and the material basis for market demand. Regulation ofthe economy – through public investments, five year plans, subsidies, andinfant industry protection promoted home-grown capitalism. The resultswere by no means a runaway success and by some accounts disastrous(Bhagwati 1993). Indian demand was constrained by low incomes, endemicpoverty, and persistent inequality. By the late 1970s the Indian economy asa whole exhibited signs of exhaustion. Declining public investments andinternal political turmoil fundamentally challenged the state-led nationalcapitalist project (Bardhan 1984). Excessive regulation, prompted by politi-cal expediencies, led to bureaucratic inefficiency, corruption, criminaliza-tion of politics, and corporate technological lethargy (see Ahluwalia 1989).Inter-party rivalry, militant trade unionism, the centralization of power bythe ruling party, and radical insurrectionary movements in various parts ofthe country severely undermined political stability. Exogenous shocks,such as the tripling of world oil prices and the associated worseningbalance of payments (BOP) position, exposed the overall vulnerability ofthe Indian economy.

These developments occurred at a time when profound shifts were takingplace at the global level. Structurally, US companies had already transna-tionalized their production operations, Western Europe had been recon-structed, while Japan and East Asia had emerged as new challengers to USeconomic hegemony. The new competition was both a cause and conse-quence of state regulation of capitalist markets, increased trade, foreigndirect investment, and microelectronics-based innovations (Best 1990,Dicken 1998). To coordinate and control global operations, new flexibleorganizational arrangements became best-practice standards. Subsequently,considerable industrial restructuring was foisted on mature capitalist coun-tries in adjusting domestic production to global competition. Both labor-

70

intensive industries such as textiles and garments (Grunwald and Flamm(eds) 1985, Bonacich et al. (eds) 1994, Fröbel, Heinrichs, and Kreye 1980)and later heavy industries such as steel, auto, and machine tools were reorganized at a global level (Dertouzos et al. 1989, D’Costa 1999). State-sponsored social welfare and full employment policies gave way to greaterreliance on markets for growth and job creation. Increased competitionresulted in excess capacity and consequently industry restructuring(Brenner 1998, Crotty 2000). The institutional foundations of contempo-rary capitalism also underwent significant changes. Instead of states regu-lating capitalism, markets led states to deregulate, reform, and privatize theeconomy. Keynesian demand management was discredited in favor of tightmoney policies (Marchak 1993, Brenner 2002). Such institutional flexibil-ity, a necessary response to hypercompetition, had also become the neweconomic orthodoxy for inducing market growth nearly everywhere.

In developing countries, such as India, the autarkic economic approachto building national capitalism was discredited and global integrationencouraged (Bhagwati 1993). Like most countries, India was not immuneto these exogenous influences, even if it was able to modulate them in thepast. Its slow-growing economy and balance of payments difficulties,coupled with pressing demographic and political problems, called for a rev-ision of its development strategy in the context of competitive politics.Under state tutelage, the limited social and economic mobility througheducation and employment generated further demands for economicchange. The economic reform process in India was subjected to the vagariesof democratic politics even if embourgeoisment underway facilitated theinternalization and accommodation of global economic forces (D’Costa2001).

In this chapter I introduce the supply side of the embourgeoismentprocess. Specifically, I analyze the evolution of the Indian auto industry toexplore how latent demand associated with embourgeoisment found its fullexpression in new auto production. In discussing the trajectory of theIndian industry we find that the sources of supply shifts have been bothinternal and external. Domestically, embourgeoisment meant demand cre-ation. However, the auto industry was deliberately curtailed for fear of BOPproblems and its association with the rich in India. Furthermore, persistentBOP problems were an intrinsic feature of the autarkic, anti-export biasedmodel of development in India. Hence the disequilibrium associated with aslow growing economy, concurrent BOP problems, and gradual embour-geoisment could be resolved through a new regime of capital accumula-tion. This translated into deregulation through economic reforms, whichwere tentative at first and wholesale in 1991. Insofar as the auto industrywas concerned, there was a corresponding change in the mode of capitalistregulation as market coordination became more challenging in a deregu-lated environment. However, the challenge initially was less due to market

Embourgeoisment, Internationalization, and Auto Market Evolution 71

volatility than due to the opportunities that came after relaxing statecontrol over the sector. The ensuing change in the mode of regulationaltered the Indian auto industry substantively – from restricted, lowvolume output to relatively open, massive output expansion. More impor-tantly, the transformation of supply has been led by foreign auto transna-tional corporations (TNCs), which is consistent with heightened globalcompetition.

The evolution of the Indian auto industry is presented in three parts. First, Idemonstrate the relative isolation of the Indian auto industry from its globalcounterpart. The shifts in global production and India’s changing relativeposition is brought out. Also, India’s relationship with the world economy interms of worsening BOP position and rising external indebtedness is brieflypresented. This is both a legacy of the state-led ISI model, embourgeoisment,and the subsequent rejection of autarky through economic reforms, resultingin increased imports of middle class consumer durable goods. Second, I examine the shifting supply of auto production through transnationaliza-tion in two steps. A detailed account of the interaction of the Japanese TNCsand the Indian state is presented. I show that capitalist development isinfluenced by institutional dynamics, mediated by the Indian state, and circumscribed by national firms. The entry of Japanese firms was largelyinfluenced by their competitive success in the global auto industry. This wasfollowed by a second wave of TNCs. In the third part, two dimensions of capitalist market development are briefly introduced – a greater variety ofoutput and the tendency toward overproduction. The first results from therelationship between ongoing embourgeoisment and capitalist industrializa-tion. As demand rises in the context of internationalization access to foreigntechnologies is enhanced, leading to not only output expansion but also agreater diversity of output. The second feature is the systemic nature of excesssupply in the Indian auto industry unleashed by increased reliance onmarkets to regulate capitalist development.

2. Two sources of supply shifts in India

2.1 The reconfiguration of and India’s entry in the global auto industry

In the post-World War II period there have been three different layers to theglobal shift in automobile production. The first was the decisive US declinerelative to global output due to the expansion of the industry elsewhere.Second, the remarkable ascendancy of Japan, in relative terms, shifted theglobal structure away from the US. The development of the industry in aselect number of developing economies such as South Korea and Brazil alsocontributed to this shift. Third, as national markets expanded and as globalproduction became technically and organizationally feasible, automotivefirms undertook overseas production for both local and third country


markets. Consequently the shifting locus of production, with its attendanttransnational linkages among selected countries, contributed to excesscapacity and heightened competition.

The US has been the largest producer and market for automobiles(Table 4.1). In 1950 it was responsible for over 75% of global production.However, by 1965 US share of production had dropped to 46%, stabiliz-ing around 23%. This relative decline was accompanied by the increasein production in Europe, Japan, and other countries, mainly from Asiaand Latin America. Japan experienced a dramatic increase in productionfrom 1960 onward, exceeding US output during the 1980–1993 period.The US is also a major importer of vehicles. From a share of imports (relative to total market) of less than half a percentage in 1951, the USimported over 30% of its market in 1987 and currently imports roughlya quarter of its total car sales (Ward’s Motor Vehicle 2001: 15). Japan’scontribution to US imports of vehicles stood at 21.3% in 1987, decliningto roughly about 10% in 2000 (Ward’s Automotive 2001: 21).

With international economic integration, production of automobiles is no longer confined to national economies. Firms, for a variety ofreasons such as new markets, resources, and low costs are investing inoverseas manufacturing facilities for both local and export markets. Forexample, there are several Japanese auto firms in the US producing for theUS market. Their American presence has been influenced by the large USmarket, rising costs of production in Japan (both wage costs and appreci-ation of the yen) and US protectionist policies quantitatively restrictingJapanese imports. In a macroeconomic sense, Japan’s current accountsurplus with the US had to be recycled in the form of foreign directinvestment (FDI), leading to establishment of Japanese auto plants in theUS. Japan, for cost and market reasons, also expanded its operations inSouth East Asia. Economic integration of Mexico under the NorthAmerican Free Trade Agreement offered US and Japanese firms the oppor-tunity to manufacture in Mexico for the US market. Mexico’s autoexports were between 68% and 70% in 1999–2000, with a substantialportion aimed at the US market.

The development of the Indian industry, until the early 1980s, wasindependent of the global shifts taking place. India’s share of global pro-duction remained under 0.5% until 1981 (United Nations Centre onTransnational Corporations 1983: 14). However, with gradual deregula-tion, India’s global share has been rising and currently stands at morethan 1%, even as many other countries have expanded their production.The entry of Japan’s Suzuki Motors in India in the early 1980s fundamen-tally reorganized the Indian auto industry, leading to expanded output.As markets materialized other auto firms in India and their foreign collab-orators joined the bandwagon. Consequently, an entirely new supplysystem was incubated with assemblers of vehicles and their suppliers.


74

Tab

le 4

.1W

orl

d M

oto

r V

ehic

le P

rod

uct

ion

, 1

95

0–2

00

0

Yea

rU

nit

ed S

tate

sEu

rop

eJa

pan

Oth

er

mil

lio

ns

% s

har

em

illi

on

s%

sh

are

mil

lio

ns

% s

har

em

illi

on

s%

sh

are

1950

8,00

675

.71,

991

18.8

320.

316

01.

519

559,

204

67.5

3,74

127

.568

0.5

163

1.2

1960

7,90

547

.96,

837

41.5

482

2.9

866

5.3

1965

11,1

3845

.99,

576

39.5

1,87

67.

783

43.

419

708,

284

28.2

13,0

4944

.45,

289

18.0

1,63

75.

619

758,

987

27.1

13,5

8141

.06,

942

21.0

2,21

16.

719

808,

010

20.8

15,4

9640

.211

,043

28.6

2,69

27.

019

8511

,653

25.9

16,1

1335

.912

,271

27.3

2,93

96.

519

909,

783

20.1

18,8

6638

.913

,487

27.8

4,49

69.

319

9511

,985

24.0

17,0

4534

.110

,196

20.4

8,34

916

.720

0012

,771

22.2

17,1

6129

.810

,145

17.6

14,4

9025

.2

Sour

ce: W

ard

’s M

oto

r V

ehic

le (

2001

:12)

.

Some Indian firms responded to heightened competition through entre-preneurial initiatives, allowing two of India’s vehicle manufacturers toenter the top 24 auto companies globally (Table 4.2).

Of Suzuki’s total worldwide production, one third comes from its Indianoperations. It has a joint-venture Maruti Udyog Ltd. (MUL) with the Indiangovernment. Of the top twenty-four globally ranked companies, Suzuki’sIndian operations and the Tatas of India enjoy considerable competitivestrengths. Both have high volume of production, thereby reaping thebenefits of economies scale. Tata vehicles are known for their ruggednessand durability, while Maruti has successfully introduced a wide range offuel-efficient vehicles at affordable prices. The growth of these two firmsindicates not only the embourgeoisment process underway in India butalso illustrates the integral nature of internationalization of production incontemporary capitalist development.


Table 4.2 World Motor Vehicle Production by Manufacturers (2000) (Top 24 Firms)

Manufacturer Country of Passenger Car Total Vehicle Origin Output Output (including

trucks and buses)

General Motors US 5,247,245 8,114,357Ford US 4,038,670 7,206,029Toyota-Daihatsu-Hino Japan 4,655,935 5,897,214Volkswagen Germany 4,859,478 5,106,749Daimler-Chrysler Germany-US 2,043,376 4,666,640PSA Peugeot Citroen France 2,493,980 2,879,422Nissan Japan 2,041,346 2,697,957Fiat Italy 2,183,858 2,639,405Renault France 2,101,855 2,514,897Hyundai Korea 2,023,042 2,488,321Honda Japan 2,250,771 2,469,256Mitsubishi Japan 1,094,357 1,613,253Suzuki-Maruti Japan-India 1,181,929 1,434,345Mazda Japan 822,187 971,676BMW Germany 834,628 834,628Daewoo Korea 758,059 833,735Avtovaz Russia 755,997 755,997Fuji-Subaru Japan 499,738 581,035Isuzu Japan 35,911 571,819GAZ Russia 116,319 227,673Proton Malaysia 212,681 212,681Changan China 100,000 203,127Tata India 90,122 193,580MG Rover UK 174,885 174,885

Source: Ward’s Motor Vehicle (2001: 13).

2.2 Changing external economic relations and the pre-conditions ofmarket expansion

In addition to India’s engagement with the global automobile industry, theshifts in supply have been also a result of the new regime of capital accu-mulation, namely economic liberalization. The latter is a direct response to the persistent BOP deficit associated with an autarkic model of develop-ment. There are of course several interrelated factors responsible for India’spersistent balance of payments problems including colonial legacies,India’s structural position in the world economy, and the changing political economy of external economic relations (Sen 2000). Paradoxically, the dismantling of the autarkic model initially, both on account of itsinternal failings but also its rejection by the middle class, added to the BOPproblem.

India’s self-reliant strategy and its dependence on external sources for oilcontributed to India’s trade deficits and weak foreign exchange reserveposition. Its foreign exchange reserve fell from $2.2 billion in 1950–51 toan average of $736 million during 1957–70 (Government of India, Ministryof Finance 2001: S–69–S70). From the mid-1970s, India’s foreign exchangereserves gradually increased until 1990–91, after which it rose dramatically.In mid-2002 it stood at over $55 billion and over a $100 billion in 2004.India’s trade balance has been persistently negative, despite growingexports (Figure 4.1). The share of oil imports to total imports ranged from 8 to 11% between 1970–73. In 1973–74, after the price hikes, the shareincreased to 19%, rising to 42% in 1980–81. The trade balance with respectto oil doubled in 1979–80 from the previous year, to over $4 billion.Having stabilized at around a third of total imports it is still a heavy drain


–15,000.00

–10,000.00

–5,000.00

0.00

5,000.00

10,000.00

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

mill

ion

US

$

Oil

Non-oil

Total

Figure 4.1 India’s Net Trade BalanceSource: Computed from Government of India, Ministry of Finance (various years).

of precious foreign exchange. India’s mostly negative trade balance couldnot be offset by increased exports partly because of low-value products,partly because of intense global competition in labor-intensive and extrac-tive industries, and partly because of India’s special relationship with the former Soviet Union. Bilaterally arranged barter exchange betweenIndia and the Soviet Union shielded the Indian economy from exchangerate fluctuations and high prices but it did not induce technological com-petence that often arises out of competitive pressures (Mehrotra 1990).Consequently, India’s ability to compete in international markets was seriously hampered.

The increase in and the changing composition of India’s tradereflected Indian industrialization and the embourgeoisment process.India’s main imports were modern industrial inputs, such as “crude”materials, oil and petroleum products, chemicals, and machinery andtransport equipment. In 1970–71 crude materials accounted for 12% ofimports, oil and petroleum products 8%, chemicals 12%, and machineryand transport equipment 24%. In 1980–81, crude material importsdeclined to 6%. Oil and petroleum imports shot up to 59%, while theother two categories of imports slightly increased and decreased to 15%and 20% respectively. Aside from primary products, India competed inlabor-intensive semi-finished manufactures using various materials suchas leather, jute, textiles, carpets, precious and semi-precious stones, andmetals. In 1970–71, nearly 40% of its exports were in such manufacturedgoods, with about 4% in finished goods. By the end of the decade about7% comprised exports of engineering goods such as machinery andtransport equipment, rising from $110.2 million to $554.2 million. Theshare of exports of engineering goods changed gradually over the nextdecade, rising to 12% or about $2 billion in 1989–90, even as manufac-tured goods as a whole rose to $8.2 billion. At the end of the 2000–01financial year, India’s manufactured exports had reached $34.5 billion,representing 20% of manufactured exports and over 15% of totalexports. These exports nearly equalled India’s exports of agriculture andallied products for that year.

Economic reforms in the context of embourgeoisment and international-ization also unleashed an entrepreneurial energy hitherto unseen in India(D’Costa 2003c). Soon after the 1991 reforms, the Indian software industryexpanded rapidly, meeting the global demand for services with an abun-dant supply of highly-skilled but low-cost labor. In 1990, India’s softwareexports were $131.2 million, which by 2002 had reached $7.8 billion, andcrossed the $10 billion mark in 2004. In this frenetic expansion softwareexports became an important foreign exchange earner for the country. In 2003–04 software exports were 21.3 % of total exports and the IT indus-try as a whole represented 3.82% of GDP (NASSCOM 2004). Today theIndian IT industry boasts nearly 1,000 firms, with many of them operating


overseas. In parallel fashion, most global information technology firms arepresent in India, undertaking a variety of development work for their in-house needs. It is clear that software contributes to the diversification ofIndia’s exports and acts to reduce the vulnerability associated with openeconomies.

The increase in India’s trade also has been accompanied by significantfinancial movements. After the oil price hike, trade deficits were financedby worker remittances from the Middle East. Later, private transfers bynon-resident Indians (NRIs), who were largely white-collar professionals,and external loans financed such deficits (Nayyar 1994). India’s inflowsof “net invisibles,” representing remittances shot up from a deficit of$186 million in 1972–73 to $2.09 billion the following year. These in-flows continued rise until 1980–81, reaching over $5 billion and dec-lining steadily thereafter. With the onset of the economic crisis, they fellprecipitously to $615 million and minus $243 million in 1989–90 and1990–91 respectively (Table 4.3).

Total remittances were $134 million in 1972–73 and $2.69 billion in1980–81, of which the shares from the Middle East were about 5% and 57%respectively. Throughout the 1980s over half of the remittances originatedfrom the Middle East (Reserve Bank of India in Nayyar 1994: 46). Depositsby non-resident Indians, initially small compared to worker remittances,picked up in the 1980s. Net NRI deposits were $42 million in 1975–76,rising to nearly $2.5 billion in 1988–89 (Reserve Bank of India (variousyears), Government of India, Ministry of Finance (various years)). They fellprecipitously to $290 million in 1991–92, resulting from the withdrawal of NRI deposits with the onset of the economic crisis (see Nayyar 1994: 52). In the 1990s, net NRI deposits displayed considerable fluctuations. India’scommercial borrowing has been small historically, partly offset by foreignassistance. This changed from the mid-1970s onward reaching a new level in the early 1980s. The average net annual borrowing was less than$130 million during the 1970–82 period (Reserve Bank of India, variousyears). It jumped to an average of $1.37 billion during 1982–92, with amassive decline in the mid-1990s.

These financial movements are both a result and cause of embourgeois-ment. While worker remittances from the Middle East were influenced byNorth–South geo-politics, they also had the unwitting effect of inducingconsumerism beyond what existed among the urban rich in a regime ofcontrolled production. Migrant workers at the end of their contractsreturned home with consumer durables, made principally in Japan, hith-erto unavailable or unaffordable by the Indian middle class. Their earnings,while propping up India’s foreign exchange reserves, also led to conspicu-ous consumption in several ways: directly in villages where such workersoriginated; indirectly, by imports of inputs and finished goods for theindustrial economy; and by government relaxation of import regulations


79

Tab

le 4

.3In

dia

’s C

han

gin

g B

alan

ce o

f P

aym

ents

Pro

file

1950

–51

1954

–55

1959

–60

1964

–65

1969

–70

1974

–75

1979

–80

1984

–85

1989

–90

1994

–95

1999

–00

1. M

erch

and

ise

a) E

xpo

rts

1359

1254

1330

1683

1873

4006

7817

1006

116

955

2685

537

542

b) I

mp

ort

s13

6614

5019

5829

8521

0156

2012

076

1571

524

411

3590

455

383

Tra

de

Bal

ance

–7

–196

–628

–130

2–2

28–1

614

–425

9–5

654

–745

6–9

049

–178

41(a

–b)

2. I

nvi

sibl

es

8820

823

731

9–8

441

535

7432

3861

556

8013

143

(net

)3.

Cu

rren

t A

/C

8112

–391

–983

–312

–119

8–6

85–2

417

–681

4–3

369

–469

8(1

+ 2

)4.

Cap

ital

–2

0–1

4–4

0786

566

960

010

9031

4769

7791

5611

100

Acc

ou

nt

(a +

f)

a) F

ore

ign

8

17–1

0999

3287

860

410

4807

5191

Inve

stm

ent

b) E

xter

nal

–1

1–2

1–3

6811

4362

510

7181

311

8418

5615

2690

1A

ssis

tan

ce, n

etc)

Co

mm

erci

al

00

00

019

555

934

1777

1030

313

Bo

rro

win

gs (

net

)d

) R

up

ee D

ebt

00

00

00

00

0–9

83–7

11Se

rvic

ee)

NR

I D

epo

sits

0

00

00

020

174

024

0317

215

40(n

et)

f) O

ther

Cap

ital

–17

–10

–70

–377

12–7

53–6

528

953

126

0438

665.

Ove

rall

61

–2–1

6–1

1835

7–5

9940

573

013

657

8764

02B

alan

ce (

3 +

4)

Sour

ce: R

eser

ve B

ank

of

Ind

ia, A

nn

ual

Rep

ort

s (v

ario

us

year

s).

due to windfall gains in foreign exchange reserves. Opulent houses withmodern conveniences were constructed alongside village huts. Imports of foreign technology, encouraged by deregulating foreign investment regulations, enhanced the availability of consumer durables, as evidencedby motorized transportation in the form of two-wheelers and cars, pur-chases of air conditioners, refrigerators, and other white goods (Dubey1992: 151, see Chapter 7).

The hard currency deposits of NRIs represent the other side of embour-geoisment. Most of them, well-educated, had emigrated to Europe andNorth America. Unlike workers in the Middle East, NRIs settled abroad,thereby remitting little to the Indian economy. Over time as theirnumbers abroad rose, the Indian government perceived them as a sourceof foreign exchange. Incentives were provided to attract NRI deposits athigh interest rates. NRIs themselves, accustomed to high standards ofliving abroad, introduced new consumption styles in India. Their visitsto India, combined with increasing international travel by professionallymobile Indians themselves, contributed to large-scale demonstrationeffects.

The deteriorating external conditions of the 1980s were a direct result ofrelaxation of import regulations, which in turn was related to embourgeois-ment. Rajiv Gandhi, elected following the assassination of his mother IndiraGandhi, introduced several policy measures aimed to unshackle the Indianeconomy. These actions were consistent with those being prescribed world-wide by the Bretton Woods institutions of the IMF, World Bank, and GATT.However, the wide range of vested interests in an open political system constrained the full implementation of these reforms (see Kohli 1992).Opposition to reforms came from several quarters, many of which com-prised the dominant coalition and, paradoxically, from groups that werealso part of the Indian middle class, such as the more domestically-inclinedIndian industrialists and organized labor, especially under the public sector.These reforms were aimed at higher economic growth, a process that wasperceived to benefit the already well-placed urban middle class in theprivate sector and the rich rural bourgeoisie (Bardhan 1998). Since reformsentailed both domestic deregulation and external liberalization, the stakeswere high for various groups.

Whatever doubts existed on the merits of economic reforms becamemoot with the onslaught of the balance of payments crisis of 1991. Funda-mental changes in India’s economic policies appeared inevitable. Corres-pondingly, the internationalization of the Indian economy was now aforegone conclusion as India’s import capacity became precarious by its heavy dependence on external supplies of oil and the financing of thetrade deficit by depleting foreign exchange reserves (Sen 2000: 63–70). The withdrawal of NRI deposits at this time, along with the complete col-lapse of remittances during the Gulf War, pushed the country to the brink


of insolvency, coinciding with rising imports of consumer durables, tech-nology for manufacturing them at home, and multinational involvementin their production.

Embourgeoisment in India set the stage for India’s global participation.Capitalist regulation had to move away from a state-led model to a greaterreliance on markets as the Indian capitalist class had matured and a con-suming class had become economically viable. The mismatch between therise of the Indian bourgeoisie and a slow growing economy plagued withbalance of payments problems meant reforms were necessary to sustaincapital accumulation. In the 1970s various forms of deregulation weremooted and gradually observable policy changes were initiated in 1977 bythe Indian government. Since then each administration has introducedsome form of economic liberalization, by deregulating at home andopening up the Indian economy to foreign participation. Foreign directinvestment, emphasis on exports (and trade), and foreign technology collaborations became part of the Indian economic environment. SelectIndian businesses themselves had begun making investments abroad, with a few of them gaining considerable international recognition. Thesechanges are consistent with developments in the global economy andimplied that the model of self-reliance had to be abandoned in favor ofglobal integration, a switch that was embraced by China in 1979. It is inthis changing global and national contexts that the transformation of theIndian auto industry must be located.

3. Internationalization and changing supplies in the Indianauto industry

3.1 Toward liberal industrial policies

Based on the alternative framework developed in Chapter 2, the shiftingsupply system of the Indian auto industry can be explained by a change inthe regime of accumulation at the macro level – from state-led develop-ment to market reforms – and by the corresponding change in the mode ofregulation at the industry level – from a mass production system to flexibleproduction arrangements. The pre-independence “Statement of Govern-ment’s Industrial Policy” of 1945, followed by post-independence legisla-tion in 1951 (Industries Development and Regulation Act) established the basis for state intervention in the economy. The idea of planned devel-opment of industries was rooted in the Fabian tradition. Five-year planswere initiated with the first beginning in 1951 (see Marathe 1989). Regula-tion, creation, and expansion of industrial capacity by the state wasaccepted as promoting the national interest. Subsequently, the IndustrialPolicy Resolution of 1956 carved up industrial sectors specifically for thestate. All new capacity in the iron and steel industry for example wasreserved for the state. Assurance was given to existing private firms, such as


Tata Iron and Steel and Indian Iron and Steel, that there would be nonationalization of their industry. In 1969 all commercial banks werenationalized and regulations enacted to monitor large domestic businesshouses under the Monopolies and Restrictive Trade Practices Act (MRTP).By regulating big firms, the government wanted to promote the small-scalesector. India-based companies with more than 40% foreign equity were,under the Foreign Exchange Regulations Act (FERA) of 1973, designed tolimit foreign technology collaborations. Both Acts were counterproductivein a licensed, demand-constrained economy. There were no economies ofscale for large or small firms, the small-scale sector was highly fragmented,big business continued to corner industrial licenses despite the attempt bythe government to reduce their market power, and industries fell farbehind international technological developments.

With respect to the auto industry, in 1949 the government of Indiabanned the import of completely built vehicles and since 1953, under theaegis of the Tariff Commission, has refused permission to Indian manufac-turers to assemble imported vehicles without increasing local content. Thisemphasis on gradual but mandatory increase in local content was termed“phased manufacturing program” (PMP). With this measure the govern-ment reduced the number of assembly firms from twelve to five (Kathuria1990: 2). Unwilling to invest in India, both General Motors and Ford shutdown their operations, while Hindustan Motors of the Birla family andPremier Automobiles of the Walchand Group entered the fray. It was onlysince 1970 that the automotive industry was gradually added to the corelist (under Appendix I) that gave it a strategic status by the government.This list included the FERA/MRTP companies.

While the implication of this inclusion meant that the governmentwould treat favorably the industry’s expansion and modernizationneeds, the car industry remained tightly regulated. Cars were treated as luxury products and price controls on the auto industry were in effectuntil 1975. The industry’s output was controlled by licensing productioncapacity and restricting output to single models so as to minimizeforeign exchange outflows due to imports of components. Auto compo-nent manufacturing was reserved for small-scale industry but in theabsence of economies of scale the industry remained highly fragmentedand technologically underdeveloped.

After the energy crisis of the early 1970s, the Indian government encour-aged unlimited production capacity for “non-luxury” vehicles produced by non-MRTP and non-FERA companies, which comprised commercialvehicles and two-wheelers (Pingle 1999: 99). The market for two-wheelersexhibited considerable growth, reflecting the latent consumer demand thathad already built up. In 1975, imports of capital equipment for replace-ment were allowed as long as the net foreign exchange outflow was zero.This implied an export commitment of some sort. Almost eleven years


later, the government granted nearly a 50% increase in foreign exchange toimporters of capital equipment. In addition to raising the amount of per-missible imports, the bureaucratic process of permits for net imports wassignificantly simplified. This indicated the government’s interest in upgrad-ing technology, promoting exports, and deregulating the business environ-ment. As a general industrial policy the government in 1975 permitted anautomatic capacity expansion of 25% every five years. This was over andabove the 25% that was already allowed by the industrial license of theIndustries Development and Regulation Act of 1951. However, this policyincluded commercial vehicles but not the passenger car segment.

The “Industrial Policy Statements” of 1977 and 1980 marked the begin-ning of the liberalization process. The state’s tight grip was loosened infavor of increased competition at home and greater participation of foreigncapital by relaxing regulations governing production licenses, foreign col-laborations, asset size, and scope of industrial operations. To reap thebenefits of economies of scale the policies aimed to do away with stiflinglimits on capacity. Through delicensing both the large business houses andforeign companies under FERA were also permitted to enter several areasreserved for the state sector. Between 1984 and 1986 the asset limit used to identify and regulate large businesses was raised from Rs. 200 million Rs. 1,000 million. However, other than the 25% automatic increase incapacity, large domestic and foreign firms falling under MRTP/FERA regula-tions were still kept on a tight leash. In the automotive segment, whilethere are only a handful of FERA companies, a large number of them fallunder the MRTP regulations. The liberalization of the automobile industrywas aimed primarily at the components manufacturing segment, for whichthe government had previously reserved a large chunk of the industry forthe officially defined small-scale sector.

Also, very selectively and on a case-by-case basis, the Indian governmentallowed new auto ventures with foreign collaborators, almost all Japanese,to be established in the auto industry. In addition to the four new joint-ventures with Japanese companies in the light commercial vehicle (LCV)segment, the state also created a public sector firm Maruti Udyog Ltd.(MUL) as a joint-venture with Suzuki Motors Corporation (SMC) of Japanin the car segment. In 1985 “broadbanding” was introduced. It did awaywith production licenses for a specific commodity and instead encouragedproduction of a range of related products. A vehicle manufacturer thuscould produce scooters, motor cycles, and three-and four-wheelers, therebyintroducing flexibility to use both economies of scale and economies ofscope. Similarly, components manufacturers could produce a broad rangeof parts and related products. In 1985 even those automotive firms thatcame under the purview of MRTP were granted the freedom to expandcapacity in existing plants or set up new units. Paradoxically, after a burstof opening up, the production of passenger cars throughout the 1980s and


early 1990s remained tightly regulated and controlled through industriallicensing. No other new car manufacturers were permitted until after thereforms of 1991, even though numerous applications for foreign technicalcollaborations had been made and several joint-ventures permitted in theIndian LCV market. The reasons were both political and economic – toprotect MUL and save foreign exchange. Also, erroneous projections of theLCV market and the herd-like behavior of transnational corporationscreated a flurry of international investments in the Indian automotivesector.

The post-independence changes in economic and industrial policies inIndia reflect the tension between state and private capital in pursuing the national capitalist project. They also indicate the institutional learningthat resulted from the mismatch between economic aspirations and per-formance. Policy changes were aimed at enhancing macroeconomic growthbut they were also targeted at improving microeconomic efficiency. Evi-dently, in the context of embourgeoisment, the national capitalist projectalso induced supply bottlenecks, whose resolution demanded significantpolicy shifts. These policy changes also reflect the fundamental shiftsoccurring since the late 1960s in the larger global economy. The new inter-national division of labor brought about by TNCs, while rebuffed by theIndian state, was later accommodated by the increasing embourgeoismentof Indian society The internationalization of the Indian auto industry is the meeting place for transnational and national capitalism. For all themessiness of institutional dynamics, the direction of economic liberaliza-tion in India is telling in its consistency; it is as much a consequence ofendogenous developments as it is of exogenous forces.

3.2 The entry of Japanese capital

The timing of Indian economic liberalization coincided with Japanesefirms’ desire to find new markets. Beginning in the early 1980s, factors suchas the yen appreciation, protectionism in industrialized countries, risingwage costs in Japan, and the importance of proximity to final markets hadalready compelled many Japanese producers to invest overseas (Steven1990, Encarnation 1992, Gwynne 1991, Shaiken with Herzenberg 1987).Riding this Japanese wave of outward capital movement Suzuki MotorsCorporation (SMC) in the early 1980s teamed up with Maruti UdyogLimited (MUL) of the government of India. This joint-venture has been themost important contributor to the nearly fivefold increase in passenger carproduction in India in the 1980s.

In 1982, the Government of India created Maruti Udyog Limited, apublic sector company as a joint-venture with Suzuki Motors Corpo-ration of Japan. The government owned 80% of the equity. For the firsttime the state became an investor in a car project and in a successfulmonopoly.1 At first sight this is inconsistent with economic reforms and


internationalization since neither monopoly nor state dominance isexpected with liberalization. However, this marks the beginning of theinternationalization process in the auto industry. MUL itself emergedfrom a failed enterprise started by Sanjay Gandhi, the second son ofIndira Gandhi. High prices and automobile shortages in the 1970sattracted Sanjay Gandhi to set up a “people’s” car project. However, nota single vehicle was manufactured and with the re-election of IndiraGandhi in 1980 the enterprise was nationalized in 1981 (Pinglè 1999:107).

The selection of Suzuki Motors as a partner, aside from the routine tech-nical and financial criteria, was also based on its specialization in smallcars. In the Japanese market in the 1980s, Suzuki’s total market share wasaround 7%, doubling its output every five years in the decade (JapanAutomobile Manufacturers Association 1991: 16). It was the sixth largestproducer in Japan (Toyota Motor Corporation 1990: 2). The company isknown for its small cars, which form the bulk of its passenger car output.SMC’s successes in South Korea through the licensing of small car technol-ogy to Hyundai, manufacturing in Canada for the North American market,and increasing competition in Japan made it more aggressive than othersto enter the Indian market. Also, with the rising cost of production in Japan, surplus foreign exchange, and domestic market saturation itbecame imperative for Japanese firms to invest outward. The Japanese gov-ernment, still engaged with sector-specific intervention, encouraged firmsto diversify their markets. For smaller firms like Suzuki, it was singularlymore important as the home market had become crowded.

With the entry of MUL the structure of the Indian car market changedperceptibly (Table 4.4). Until the 1960s there were three producers of cars,Hindustan Motors (HM), Premier Automobiles Ltd. (PAL), and StandardMotors Private Ltd. (SMP), each with very small output. Mahindra &Mahindra (M&M) produced utility vehicles (jeeps). All of these producersinitially licensed foreign technologies from the UK, Italy, and the US. Withincreased local content under the phased manufacturing program they pro-duced essentially wholly indigenous vehicles. By the 1970s HM and PALformed a duopoly in the car industry, while M&M was a monopoly inutility vehicles. In 1984, two years after it was established, MUL manufac-tured over 12,000 cars mainly from imported completely knocked down(CKD) kits. In 1990 MUL produced over 50% of all passenger vehicles produced in India, a higher share if only passenger cars are included, whileIndia’s output increased by nearly 400%. By the next decade, India’s outputmore than doubled, while MUL held on to an average of 53% of the carmarket in 2001 (calculated from ACMA 2002: 10).

The internationalization of the Indian auto industry is also evident in thecommercial vehicle segment (Table 4.5). The evolution of the structure ofthis segment differs from that of passenger cars. While the formative stage


86

Tab

le 4

.4C

han

gin

g M

ark

et S

tru

ctu

re o

f C

ar a

nd

Uti

lity

Veh

icle

Pro

du

ctio

n i

n I

nd

ia (

19

55

–20

01

)

HM

PAL

SMP

SAL

M&

MM

UL

TEL

CO

Oth

ers#

#T

ota

l

# o

fM

kt.

# o

f M

kt.

# o

f M

kt.

# o

f M

kt.

# o

f M

kt.

# o

f M

kt.

# o

f M

kt.

# o

f M

kt.

un

its

shar

eu

nit

ssh

are

un

its

shar

eu

nit

ssh

are

un

its

shar

eu

nit

ssh

are

un

its

shar

eu

nit

ssh

are

1955

4,87

437

.93,

581

27.8

1,52

612

.0–

–2,

864

22.3

––

––

––

12,8

6519

609,

217

37.5

6,61

626

.53,

364

13.7

––

5,50

122

.4–

––

––

–24

,598

1970

22,7

0351

.012

,054

27.0

448

1.0

––

9,33

421

.0–

––

––

–44

,539

1980

21,7

5247

.78,

729

19.1

60.

051

0.1

15,0

6833

.0–

––

––

–45

,606

1990

26,2

0412

.042

,737

19.5

––

924

0.4

32,7

0615

.011

6,19

453

.1*2

65–

––

218,

765

1997

24,0

595.

014

,169

2.9

––

––

69,2

7714

.334

9,78

072

.06,

302

1.3

22,5

454.

648

6,13

220

0123

,987

3.5

00

––

––

56,3

808.

335

6,60

852

.782

,195

12.2

157,

076

23.2

676,

246

Sour

ce: A

sso

ciat

ion

of

Ind

ian

Au

tom

obi

le M

anu

fact

ure

rs (

AIA

M)

and

Au

tom

oti

ve C

om

po

nen

ts M

anu

fact

ure

rs A

sso

ciat

ion

(A

CM

A)

(var

iou

s is

sues

).N

otes

: See

lis

t o

f fi

rms

and

acr

on

yms

for

full

nam

e o

f au

to fi

rms,

* f

or

1991

.O

ther

s in

clu

de

Dae

wo

o, G

ener

al M

oto

rs, P

AL-

Peu

geo

t, M

erce

des

-Ben

z an

d 1

999

on

war

d H

yun

dai

an

d F

iat.

In 2

001,

Dae

wo

o, F

iat,

PA

L-Pe

uge

ot,

an

d P

AL

had

sto

pp

ed o

per

atio

ns.

In 2

001,

Hyu

nd

ai a

nd

To

yota

had

57.

3% a

nd

18.

1% o

f “O

ther

s” s

har

es r

esp

ecti

vely

.

87

Tab

le 4

.5C

han

gin

g St

ruct

ure

of

Co

mm

erci

al V

ehic

les

Pro

du

ctio

n (

19

50

–20

01

)

1950

1960

1970

1980

1990

1997

2001

No

s.%

N

os.

%

No

s.%

N

os.

%

No

s.%

N

os.

%

No

s.%

sh

are

shar

esh

are

shar

esh

are

shar

esh

are

HM

1,04

455

.27,

079

26.6

1,68

94.

34,

880

7.1

1,53

81.

14,

247

1.7

760

PAL

847

44.8

6,34

723

.94,

893

12.6

1,23

51.

8–

––

SMP

––

156

0.4

3,49

15.

1–

––

SCL

––

–59

10.

9–

––

M&

M–

1,42

95.

496

62.

53,

617

5.3

4,89

93.

54,

298

1.7

5,64

03.

8B

ajaj

––

1,21

23.

19,

801

14.3

14,5

6910

.416

,354

6.4

2,06

61.

4T

ELC

O–

9,66

536

.324

,671

63.5

31,7

6846

.581

,829

58.2

177,

709

70.0

93,5

7462

.9A

L–

2,07

17.

85,

264

13.5

12,9

2818

.924

,297

17.3

36,3

0514

.332

,036

21.5

Jap

anes

e JV

s13

,538

9.7

15,0

796.

015

,298

10.3

M&

M–

––

–3,

213

2.3

6,01

92.

40

(Nis

san

)Ei

cher

–

––

–2,

377

1.7

6,01

92.

49,

197

6.2

(Mit

subi

shi)

Dae

wo

o

––

––

4,48

33.

242

00.

20

(To

yota

)Sw

araj

–

––

–3,

465

2.5

2,62

11.

06,

101

4.1

(Maz

da)

Sour

ce: A

sso

ciat

ion

of

Ind

ian

Au

tom

obi

le M

anu

fact

ure

rs (

AIA

M)

and

Au

tom

oti

ve C

om

po

nen

ts M

anu

fact

ure

rs A

sso

ciat

ion

(A

CM

A)

(var

iou

s is

sues

).N

otes

: – n

egli

gibl

e

was characterized by a duopoly, by 1960 the industry was already frag-mented. There were five manufacturers, with a combined output of under27,000 units. Of them, HM, PAL, and M&M were also passenger vehicleproducers. Ashok Leyland (AL) and Tata Engineering and LocomotiveCompany (TELCO), with 8% and 36% of the market respectively, special-ized solely in commercial vehicles. By 1990 this segment had undergoneconsiderable reshuffling, with both fragmentation and monopolization.There were eight producers but TELCO had cornered nearly half the market(Kathuria 1990: III–3 and Table 3.6). In the 1990s, three producers hadabandoned this segment, including two car producers – PAL and SMP.Despite the entry of four new firms with Japanese partners, TELCO consoli-dated its position even further with 63% of the market. Its nearest rival wasAshok-Leyland with a share of about 22%.

Unlike the passenger car segment, the government permitted new ventures with foreign collaborations in the commercial vehicle segment.Since this segment catered to public and goods transportation, it did notface the same kind of restrictions placed on car capacity expansion.However, unlike MUL, the Japanese joint-ventures could not dominatethe Indian market. In the mid-1990s four new ventures were permitted:Allwyn-Nissan (subsequently merged with M&M), Eicher-Mitsubishi,DCM-Toyota (subsequently DCM-Daewoo, now Daewoo), and Swaraj-Mazda. They were all in the light commercial vehicle (LCV) segment.Notwithstanding the doubling of commercial vehicle output from 1980to 1990, the Japanese collaborations had a combined share of less than10%. Their total share was under 5% in 1997, though higher if only theLCV segment is considered.

3.3 Some institutional explanations for the structure of the industry

The dominance of two firms in the car and commercial vehicle segmentdemands some elaboration, especially when monopolization was a conse-quence of economic liberalization. Relatedly, why did one of the Japaneseventures succeed while the others failed, given that the Japanese firms as awhole set the global industry’s production standards. Relatedly, how do weexplain the success of TELCO, a wholly domestic firm? To address thesequestions we need to examine both the changing institutional context inwhich these firms engaged themselves, especially the motivations behindjoint-ventures with foreign capital, and the techno-economic factorsinfluencing the contours of the Indian market.

It is not clear whether Japanese or Indian firms took the initiative tocreate joint-ventures in the automotive segment. An extensive industrysurvey reveals a mixed picture.2 Indian capital needed Japanese technologyto exploit rising expectations of the Indian middle class while the Japaneseperceived this as a commercial opportunity to increase their global marketshares. Joint-ventures appeared attractive for all parties: the Japanese found



a way to share risks in a difficult market, the Indian partners had equity inwhat appeared to be a very lucrative business, and the Indian governmentpreferred national ownership. Joint-ventures were very useful to theJapanese who were unfamiliar with the highly politicized and patronage-based market. With some exceptions, Indian partners accustomed to a non-Schumpeterian environment preferred quick and high returns in tradingactivities rather than long-term investments in manufacturing. Hence,importing Japanese-made vehicle parts and components – completelyknocked-down kits (CKDs) – and assembling them in India were attractivepropositions to Indian firms. This fit nicely the Japanese strategy that usedforeign direct investment to increase exports from home (see Encarnation1992). Thus, supplying CKDs for assembly in India for the local market wasequally attractive for the Japanese.

By exporting CKDs to India the Japanese firms hoped to minimize the risks associated with unpredictable state policies, poor infrastructuralfacilities, and poor industrial relations.3 Under these conditions theJapanese did not expect to transplant their manufacturing methods. The low wages of Indian skilled workers could not compensate for theabsence of a pliant labor force, technological backwardness, and the poorindustrial and physical infrastructure. Aside from the small market, theissues of quality of components, delivery schedules, and price remainedforemost in the minds of the Japanese. Yet liberalization amid a growingIndian market compelled the Japanese to seek Indian partners, whilemost established Indian businesses sought to preempt future competitionintroduced by liberalization by seeking Japanese technology and equity.This reversed a longstanding government policy of unbundling foreigntechnology from equity (see Encarnation 1989), a condition that wasperhaps necessary to entice Japanese firms.

3.3.1 The jockeying for entry into India

The jockeying for entry into the passenger car industry was fierce in the1980s. By this time embourgeoisment was firmly ensconced in the Indianmilieu, as evidenced by the growth of the salaried class and the proclivityof the political leadership to foster the consumer durables industry.However, as we have seen earlier, there was a limiting factor: as foreignexchange remittances declined by the mid-1980s, the balance of paymentsposition worsened in the latter half of the decade (Ghosh 1990: 343),thereby exposing the vulnerability of the Indian economy to oil prices.When seeking transnational joint-venture partners, the Indian governmentspecifically mandated fuel-efficiency standards. This way the Indian gov-ernment attempted to meet both challenges, to contain BOP problemswhile it catered to the rising aspirations of the Indian middle class. As theJapanese were renowned for their automotive technologies, particularly forsmall cars, it was inevitable that they would play some role.


The initial round of liberalization attracted numerous passenger carproposals from several transnational corporations. There were aboutnineteen proposals, of which some were only preliminary inquiries.These numbers and the firms involved reflect the changing market conditions of the Indian economy. Transnational corporations such asCitroën, Fiat, Honda, Toyota, and Mitsubishi, among others, were lead-ing contenders to enter the Indian passenger car market. All of these proposals, including one between TELCO and Honda, were ultimatelyrejected by the government of India on grounds of foreign exchangeoutflows.

The joint-venture between TELCO and Honda was intended to producethe internationally recognized high-end Accord or the less expensive Civicmodels. Yet the project was rejected allegedly after the two private partieshad already agreed to establish the joint-venture and government permis-sion was expected to be a mere formality.4 According to TELCO officials,the company’s in-house strengths would have allowed the project to beginwith 50% local content and attain 90% by the end of five years. This sched-uling of increasing local content conformed to the government’s PhasedManufacturing Program (PMP) policy, in force since the 1970s andrevamped in the 1980s. It stipulated that a local content ratio of about 90%be attained in five years.5 However, other sources point out that the gov-ernment wanted the venture to begin with 70% local content, which in allprobability was not possible even for TELCO, nor was it in the interest ofHonda.6 Interestingly, Eicher Tractors, with long manufacturing experi-ence, wanted to team up with Citroën to produce small cars. This projectwas considered viable enough to export 50% of its output and its cost wasprojected to be lower than MUL (Interview with Senior GovernmentOfficial, Department of Electronics, New Delhi, Oct. 1991). This too wasrejected by the Indian government.

Why did the government reject the joint-venture proposal of TELCO andHonda of Japan when top-notch firms from both countries were involved,and especially when old capital such as the Tatas of TELCO had long expe-rience working with those in the corridors of power? Most automotive pro-ducers quite unequivocally blame the government’s preferential treatmentof MUL. It was alleged that any of the passenger car proposals submitted byvarious parties would have threatened MUL. This argument being a coun-terfactual is difficult to sustain. However, there is no doubt MUL benefitedfrom being the only new entrant in the car segment. Numerous industryofficials from several automotive firms based in Delhi, Bombay, and Madrasargued that as a firstcomer to the auto sector, meeting newly imposed fuel-efficiency standards, MUL secured a solid headstart in a new line ofbusiness.7 Others, such as the representatives of the Association of IndianAutomobile Manufacturers, and C. K. Daikin, a clutch producer, rejectedthis view.

What is incontrovertible is that the Indian government cleverly usedMUL’s advantage in fuel efficiency over other Indian companies to allow itto import components at a reduced tariff – ranging from 40% in 1983–85 to70% in 1991. Other companies allege their import duty burden was 150%.MUL also benefited from imports of pre-cut steel, which was defined as acomponent with 40% duty, whereas steel sheets were interpreted as rawmaterial with 150% duty. Pre-cut steel imports meant less waste, greaterproduction efficiency, and higher profits for the Japanese exporters. Witheffective elimination of a competitor, MUL’s product mix, superior produc-tion technology, relatively large capacity, and government support in theinitial years made MUL virtually unassailable. Economies of scale allowedMUL to attain 88% local content for its principal vehicle within five years(Kathuria 1990: 33). A consuming class accustomed to expensive andshoddy products found the Japanese vehicle aesthetically pleasing and eco-nomically attractive. MUL was the first to tap into the pent-up demandbuilt up over the decades by the state-led embourgeoisment process.

At the same time, the incumbent firms were weakened but not elimi-nated. The new fuel-efficiency norms were applicable only to new enter-prises and new products. Established producers, such as HM and PAL, didnot have to comply with fuel-efficiency standards for existing productsthereby averting plant shutdowns and labor strife in older firms. The liber-alization policies of Mrs. Gandhi in the early 1980s, and their continuationby her son Rajiv Gandhi can be interpreted as weakening the domain ofthe old capitalists but not eliminating them. Hindustan Motors, forexample, owned by the powerful business house of the Birlas, relied onobsolete technology in a sheltered market. Changing fuel-efficiency stan-dards meant the sudden need for huge investments for HM.8 It also meantthat the old protected companies, such as PAL, did not have the resourcesto meet the new capitalist challenge either financially or technologically.Restructuring these companies would have automatically entailed retrench-ment of labor. This was neither socially nor politically acceptable. Thusthere was a general reluctance by the government and the establishedprivate sector firms to speed-up the liberalization process (see Kohli 1992:322).9

3.3.2 Excessive competition in the LCV segment

The poor performance of the Japanese LCV firms and the success of TELCOin the commercial vehicle segment also has its institutional context inwhich business interests, political expediency, and market factors played arole. There were four Japanese joint-ventures in the Indian LCV market –Eicher-Mitsubishi, Allwyn-Nissan, Swaraj-Mazda, and DCM-Toyota. TheIndian partners of the Japanese joint-ventures were well-established busi-ness firms. They also had political access to secure a production license.Once MUL’s production success was apparent, other Japanese companies


were keen to get on the bandwagon. However, bullish sentiments erro-neously overestimated the CV market (Kathuria 1990: III–5), to which theJapanese firms also succumbed. Almost all of the Japanese ventures wereinitially aimed at the passenger car market and not the commercial vehiclessegment. On failing to obtain the requisite industrial licenses all entered adifferent segment of the Indian market than they initially intended. Thepurpose was to maintain a presence in the Indian market (see Hamaguchi1985: M118). Several Japanese firms entered the same LCV market becauseof oligopolistic behavior. Like capital in general, Japanese firms behaved in a herd-like manner, thus transferring their vigorous competition fromtheir home turf to the Indian market. Finally, there were Indian firms who exploited the market opportunity by teaming up with the Japanese,initiated by one firm and subsequently followed by others.

More firms were allowed in the segment partly because Indian big busi-ness possessed the commercial acumen and political connections necessaryto maneuver around government regulations.10 The trade mentality “buycheap and sell dear” of many Indian capitalists complemented the mercan-tilist policy of Japanese firms to quickly reap high profits by assemblingimported kits, and later components. The government liberally permittedan annual capacity of 12,500 units each for these four firms. However, thebest performing firm – Eicher-Mitsubishi – attained a maximum utilizationrate of 54% in 1996. The combined utilization rate for all four firms during1988–97 was a mere 26% (Computed from ACMA 1998). Low outputmeant low local content, even if there were mandatory requirements tomeet a 90% target in five years. DCM-Toyota’s (later taken over by Daewoo)claims of 80% local content by the sixth year and promises of 90% in theseventh year were hotly contested (Personal Interview with DCM-Toyota1991). On the other hand, many industry experts were quite confident ofEicher-Mitsubishi attaining high levels of local content. The Indian marketwas not ready for relatively expensive Japanese trucks, whose costs wererising in the 1980s due to increasing yen-denominated imported parts andcomponents. Between 1984 and 1987, the Japanese yen appreciated nearly200% (Mathur 1991: 92).11 As a result capacity utilization was abysmal andcosts prohibitive. For example, DCM-Toyota had a utilization rate of lessthan 20% in the late 1980s (computed from Mathur 1991: Figure D.1).

The combined LCV market share of the four Japanese LCV units fell from31.2% in 1988 to under 20% by 1993–94. Small output meant rising costs,which in turn limited the market. Also, these four ventures catered to aniche market, for which the Indian economy was not ready. Failure to meetlocal content targets did not attract the government’s wrath. Rather the government, through its pragmatic approach, accommodated the mer-cantilist practices of both Indian and Japanese businesses. From 1983–84 to1988–89 the average value of components imported exceeded the averagevalue of components exported by nearly 170% (Automotive Component


Manufacturers Association of India 1991: 67–69). Due to strict import regulations on completely built units, India’s balance of trade in this seg-ment remained positive. In any case, the Japanese joint-ventures in theLCV segment, due to industry fragmentation, market size, and commercialstrategies, could not substantially increase local content. The governmentultimately abolished the PMP scheme altogether.

TELCO capitalized on the fragmented market by relying on its in-houseengineering capabilities and its long familiarity with the Indian businessenvironment. It has one of the most advanced machine tool industries,capable of manufacturing dies at around 25% of the Japanese cost (Kathuria1996: 215). The Japanese LCV units relied on expensive imported equip-ment and components. Whereas low volumes hurt the Japanese LCV manu-factures, TELCO could overcome this barrier due to its solid in-houseengineering strength. On the whole, TELCO’s output of commercial vehicleswas high, thus enjoying significant economies of scale, especially in the uti-lization of its equipment. Its years of in-house production positioned it tomake interchangeable parts of sufficient volume and thus reap the gains ofnot only economies of scale but also economies of scope. It introduced itsown models, TELCO 407 and 608, and competed directly with the newlyestablished Japanese LCV producers, capturing over 50% of the LCV marketwithin a few years. By mid-1980s TELCO was already producing 50,000 CVs,whereas its nearest Indian rival Ashok-Leyland produced less than a third ofTELCO’s output. Together, the four Japanese joint-ventures combined barelyproduced a third of TELCO’s 1985 output in 1990, their peak productionyear. By 1997–98, TELCO was producing nearly 155,000 units, of which27% were LCVs. In contrast, of what was left of the Japanese segment of theLCV market, total output in 1997 was 11,437 units, with Toyota’s ventureproducing only 420 units (ACMA 1998).

4. The second wave of transnationalization

In 1993 the Indian passenger car segment was completely delicensed. Incontinuing with the institutional practice of joint-ventures, Indian com-panies tied up with foreign ones. Several new ventures by multinationalsin the automobile segment were formed (Table 4.6). Some of these ventures were a result of defensive responses by incumbent Indian firmssuch as HM and PAL who sought to protect their increasingly diminish-ing markets. In the 1980s to deflect some of the competitive pressurefrom MUL, both HM and PAL collaborated with Japanese companies toobtain engine and transmission technology from Isuzu and Nissan respec-tively. No equity was involved in these two joint-ventures. Later HM andPAL formed other partnerships involving equity, with General Motorsand Mitsubishi and Fiat and Peugeot respectively. An established pro-ducer, Standard Motors, had to exit the passenger car market altogether.


94

Tab

le 4

.6M

ajo

r Fo

reig

n C

oll

abo

rati

on

s in

th

e A

uto

mo

bil

e (F

ou

r-W

hee

ler)

Seg

men

t

Nam

e o

f In

dia

n P

artn

erN

ame

of

Fore

ign

Par

tner

Nam

e o

f In

dia

n C

om

pan

yN

atu

re o

f C

oll

abo

rati

on

Hin

du

stan

Mo

tors

(H

M)

Isu

zu, M

itsu

bish

i, J

apan

Hin

du

stan

Mo

tors

Car

s: T

ech

nic

alB

irla

Gro

up

(o

f H

M)

Gen

eral

Mo

tors

, USA

Gen

eral

Mo

tors

In

dia

Ltd

.**

Car

s: T

ech

nic

al, F

inan

cial

Prem

ier

Au

tom

obi

les

Nis

san

, Jap

anPr

emie

r A

uto

mo

bile

sC

ars:

Tec

hn

ical

Prem

ier

Au

tom

obi

les

Peu

geo

t, F

ran

cePA

L-Pe

uge

ot

Ltd

.C

ars:

Tec

hn

ical

Prem

ier

Au

tom

obi

les

Fiat

, Ita

lyFi

at I

nd

ia**

Car

s: T

ech

nic

al, F

inan

cial

TEL

CO

Dai

mle

r-B

enz,

Ger

man

yM

erce

des

-Ben

z In

dia

Ltd

.C

ars:

Tec

hn

ical

, Fin

anci

alM

ahin

dra

& M

ahin

dra

Nis

san

, Jap

anM

ahin

dra

an

d M

ahin

dra

**LC

V: T

ech

nic

al, F

inan

cial

Mah

ind

ra &

Mah

ind

raFo

rd, U

SAFo

rd I

nd

ia L

td.*

*C

ars:

Tec

hn

ical

, Fin

anci

alM

ahin

dra

& M

ahin

dra

Mit

subi

shi,

Jap

anM

ahin

dra

an

d M

ahin

dra

@M

iniv

an: T

ech

nic

alD

CM

Gro

up

Dae

wo

o M

oto

rs, K

ore

aD

aew

oo

Mo

tors

, In

dia

*C

ars:

Tec

hn

ical

, Fin

anci

alK

irlo

skar

Gro

up

To

yota

Mo

tor,

Jap

anT

oyo

ta K

irlo

skar

Mo

tor

Pvt.

Ltd

.C

ars,

MU

V: T

ech

nic

al, F

inan

cial

Go

vern

men

t o

f In

dia

Suzu

ki M

oto

rs, J

apan

Mar

uti

Ud

yog

Ltd

.C

ars,

Van

s: T

ech

nic

al, F

inan

cial

Shri

ram

In

du

stri

al E

nte

rpri

ses

Ho

nd

a M

oto

rs, J

apan

Ho

nd

a SI

EL C

ars

Pvt.

Ltd

.C

ars:

Tec

hn

ical

, Fin

anci

alA

sho

k-Le

ylan

dIV

ECO

Fia

t, I

taly

Ash

ok-

Leyl

and

CV

s: T

ech

nic

alEi

cher

Gro

up

Mit

subi

shi,

Jap

anEi

cher

-Mit

subi

shi

LCV

s: T

ech

nic

al, F

inan

cial

Cap

aro

In

du

stri

esM

azd

a, J

apan

Swar

aj-M

azd

aLC

Vs:

Tec

hn

ical

, Fin

anci

al

Sour

ce: A

uto

mo

tive

Co

mp

on

ents

Man

ufa

ctu

rers

Ass

oci

atio

n (

AC

MA

) (v

ario

us

issu

es).

Not

es: *

pre

vio

usl

y a

join

t-ve

ntu

re b

etw

een

DC

M a

nd

To

yota

to

pro

du

ce L

CV

s, s

ubs

equ

entl

y be

cam

e D

CM

-Dae

wo

o, D

aew

oo

, an

d n

ow

un

der

Gen

eral

Mo

tors

.**

In t

hes

e u

nit

s th

e In

dia

n p

artn

ers

hav

e d

ives

ted

, mak

ing

thes

e u

nit

s 10

0% m

ult

inat

ion

al s

ubs

idia

ries

.@

Th

is i

s o

ne

case

wh

ere

ow

ner

ship

has

rev

erte

d c

om

ple

tely

to

th

e In

dia

n p

artn

er.

The reasons cited were political, technical, and economic (PersonalInterview with former Chairman, Madras, India, November 1991). SipaniAutomobiles, a relatively new-comer to the industry, simply failed to getoff the ground.

In parallel fashion, joint-ventures were also established in the parts andcomponents sector. With severe infrastructural and supply bottlenecks,resulting partly from past government policy of neglecting infrastructureand reserving components for the officially defined small-scale industries,manufacturers were compelled to encourage partnerships among their sup-pliers to reduce mutual vulnerability. Besides, best practice standards in theindustry dictated flexibility and hence a greater reliance on outsourcing.

In the 1980s, soon after the establishment of MUL, foreign collaborationswith Japanese firms in the automotive segment increased dramatically.Auto-related Japanese technical collaborations as a share of all collabora-tions increased rapidly, from 4% to 18% in the 1980s (D’Costa 1998: 307).In the post-reform phase foreign technical collaborations continued tomount. Numerous component manufacturers emerged to supply the autoassembly units. Most of them have had to resort to foreign technologiesthrough joint-ventures. From August 1991 to April 2002, the auto industrygarnered 5.48% of the total foreign direct investment approved during thisperiod (Government of India, Ministry of Commerce and Industry 2002).Of this, 0.8% was for the components sector, which was equivalent to 10.75% of the transportation sector. Collaborators were mainly fromJapan, western Europe, and the US. There were South Korean firms as well,especially those linked to Hyundai and Daewoo Motors.

The internationalization of the Indian industry principally entailed joint-ventures with foreign multinationals. Under this institutional arrangementthere was some degree of national control over the industry even as theoverall trend has been toward denationalization, which is integral to eco-nomic liberalization and integration with the global economy. However, therehave been four recent developments that have accelerated the dominance offoreign companies in the industry. In effect they can be seen as consequencesof neoliberal policies in an integrating world economy with advanced capital-ist firms maintaining their structural grip over developing country firms. First,some foreign companies have entered India without an Indian partner. Forexample, Hyundai of Korea in passenger cars and Volvo of Sweden in truckshave been wholly-owned subsidiaries from the very beginning. Second, a fewcompanies that began as joint-ventures ended up as 100% subsidiaries ofmultinational companies. As capitalist competition dictates investment strate-gies, many Indian partners are either unwilling or unable to make the neces-sary investment contribution. The Indian partners of DCM-Daewoo, GeneralMotors-Hindustan Motors, Mahindra-Ford, and Fiat-PAL are no longerinvolved in these joint ventures. Third, consistent with liberalization, therehas been a gradual privatization of the 50% state-owned MUL. In 2002 the


Indian government announced that it was relinquishing its control for Rs. 10,000 million (approximately $210 million), raising Suzuki Motors’equity to 54.2% (Muralidharan 2002).

A fourth development has been competition and fragmentation and subsequent tendency toward consolidation of the industry. This is some-what idiosyncratic for India but it is consistent with global integration andcapitalist industrialization. The herd-like approach by multinational firmsto enter India always runs the risk of excess capacity, suggesting intensecompetition and subsequent consolidation through mergers and acquisi-tions. This is a capitalist dynamic and General Motors stands out as anexemplary illustration of this development (Figure 4.2). General Motors’recent entry into India began with a 50:50 joint-venture with HM. Withthe departure of Hindustan Motors, GM is the sole proprietor of the formerjoint venture at Halol, Gujarat. GM’s Indian operations are globally linked.At the Halol plant, GM assembles the German-designed Opel Astra usingengines manufactured in GM’s Brazilian plant. GM recently inspected its manufacturing facilities in India for possible joint operations. GM also relies on Indian firms, such as Sundaram Fasteners, which suppliescomponents to GM for its worldwide operations.

As GM expands globally with mergers and acquisitions, its overseasinvestment activities have a bearing on the supply structure of the Indianauto industry. For example, GM has 20% equity in Suzuki Motors, Japan,which in turn controls more than 50% of MUL. Hindustan Motors, whichsold off its share to GM, is technically collaborating with Mitsubishi, a GMaffiliate, to produce the Lancer. Recently HM has agreed to produce enginesfor GM’s new launch in India and Ford India’s Ikon (Philip 2001, Philipand Rajawat 2003). The new launch is expected to be a utility vehicle produced by Isuzu in Japan, a GM affiliate, with 49% stake. Curiously theLancer competes with Ford’s Ikon. A few years ago GM secured a 20% stakein Fiat in Italy and currently Fiat India is discussing product sharing withGM and Suzuki (Press Trust of India 2002). GM is also planning to out-source components from its Indian subsidiary for its China operations(Kant 2002). While GM has allowed its foreign affiliate companies to runautonomously, it is becoming clear that GM’s global strategy of productionintegration will impact the supply system of the Indian industry.

Most recently, the bankruptcy of Daewoo Motors of Korea has strength-ened GM’s grip on the global and the Indian industry even more. Forexample, Daewoo Motors entered India as a joint-venture partner withDCM-Toyota in the LCV segment. Subsequently, Toyota pulled out as itsproduct – the Dyna – performed poorly in India, leaving DCM and Daewooin the venture. Toyota re-entered the Indian market with a partnershipwith the Kirloskars in the late 1990s. DCM, unable to keep up with theinvestment requirements, sold its stake to Daewoo. Until recently DaewooIndia was a 92% owned subsidiary of Daewoo Korea. In 2001 heavily-


indebted Daewoo Motors was sold to GM. What is also interesting is theemerging partnership between GM and Suzuki to establish GM-DaewooAuto Technology by a combined investment of $400 million (Kirk 2002:W1). Fiat is also likely to be a partner in this venture.

The transnationalization of the Indian industry is contributing to supplyshifts as Indian enterprises with foreign collaborations expand output forboth home and foreign markets. The Indian auto industry is not as globally


GM, USA

Fiat, Italy (equity)

Opel, Germany (equity)

GM, Brazil (equity)

GM, India (equity)

Suzuki, Japan (equity)

Isuzu, Japan (equity)

Mitsubishi, Japan (equity)

Daewoo, Korea (equity)

Daewoo, India

Maruti Udyog Ltd.

Hindustan Motors

Ford India

Sundaram Fasteners

OVERSEAS OPERATIONS INDIA OPERATIONS

engines

engines

technical

components

technical

engines

Figure 4.2 General Motors and the Internationalization of the Indian Auto IndustryNote: Solid lines depict equity relationship, dashed lines non-equity relationship.


integrated as other countries such as Brazil and Mexico. However, foreigndirect investment, rising exports, technical collaborations, and trade inparts and components suggest increasing links with the world economy.Export of vehicles, though small by international standards, is risingabsolutely. However, with greater output for the domestic market the relative share of exports has been declining. In 1992–93, India exported apaltry 4.3% of car output compared to 8.8% in 2001–02 (ACMA variousyears). Similarly, Indian exports of auto components, especially the morelabor-intensive type, are also increasing. Its export share has been stablearound 10%, notwithstanding a higher share in the early to mid-1990svarying from 13% to 16% (ACMA 1998: 29, 67). India exported auto components worth $417 million in 1999–2000, roughly 10% of its totalcomponents output and crossed the $1 billion mark in 2003–04, represent-ing nearly 15% of output (ACMA various years, ACMA 2004). Whetherinternationalization of the industry will lead to greater manufacturing andtechnological capability and thus elevate India’s supply to global standardsis examined in the next chapter. What is of importance is that these indus-try developments are a significant departure from a moribund Indian auto-motive industry of the 1980s, shaped largely by a mode of regulation thatrestricted supply and yet contributed to embourgeoisment. Economicreforms and internationalization have thoroughly altered the structure ofthe industry consistent with changing demand conditions.

5. Competition, oligopoly, and diversity of output

The increasing number of joint-ventures in India is suggestive of the deep-ening of capitalist production. On the one hand the Indian market isgrowing, as evidenced by the volume of output and increasing market seg-mentation. On the other hand, auto market growth in an economy charac-terized by endemic poverty reflects uneven capitalist development. Bothare quintessentially embourgeoisment features – an absolute increase invehicle purchases and increasingly diversified product range (see Table 4.7).This corresponds to social differentiation, whereby some own cars andothers do not, and the availability of various models correspond to incomeniches within the upper income households. The economy price of around$5,435 is a substantial sum in the Indian context. However, the fact that aluxury segment exists in this same context, with prices beyond $22,000,suggests the inherent inequality associated with the embourgeoismentprocess. It was estimated that 90.2% of car sales in fiscal year 2000 com-prised the economy segment, while the mid-size and luxury segment combined the remaining 9.8% (India Infoline 2003). Only two firms in2000 catered to the economy segment, MUL and PAL, with the former con-trolling the bulk of the market, while there was considerable competitionfor the limited mid-size and luxury car segments.

The features of embourgeoisment are readily apparent from the in-creasing output of passenger cars and utility vehicles and the subsequentmarket segmentation that has accompanied such growth (Table 4.7).From four companies prior to the reforms producing cars and utilityvehicles, today there are 10 firms in the Indian car industry. The indus-try is highly internationalized, with wholly-domestic firms collaboratingwith foreign companies. For example, HM has technical collaborationwith Nissan and equity partnerships with Mitsubishi to produce theLancers. There are a few units such as Hyundai, GM, and Ford that arewholly owned by the parent companies. On the other hand, TELCO’sproduction entails little foreign collaboration, save for its separate joint-venture with Daimler-Benz. Market segmentation is evident from thefour broad groups of cars, beginning with the small economy class, com-prising over 90%, and ending with high-end luxury vehicles. Includingutility vehicles there are at least 30 different models to choose from,with new ones being added every year. Recent production figures indi-cate increased output in the mid-size segment, with some replacementpurchases. However, increased output has been a result of mostly newentrants to the market.

The significance of product differentiation to capitalist evolution willbe discussed in the next chapter. At this time emphasis is placed on theidea that increasing volumes and market segmentation indicate eco-nomies of scale and scope respectively. They are production featureswhich facilitate cost reduction and overcome a variety of supply bottle-necks. In the Indian market few firms have attained scale economies.Thus far, MUL and TELCO have been the most successful. These firms,diversifying into different product niches, are also able to reap thebenefits of economies of scope. They produce relatively high volumewith a wide range of vehicles. In 2000–01 MUL produced 340,000 unitsspanning 10 models with varying engine sizes. TELCO by diversifyinginto passenger cars, first with its utility vehicles, has positioned itself tocapture high shares in the commercial vehicle and car markets. In2000–01, TELCO produced nearly 85,000 commercial vehicles (62% ofthe market) and in the following financial year captured 12.7% of the car market with an output of nearly 89,000 Indica cars. Other firms suchas Hyundai are also aiming to secure the benefits of scale and scope. In2001–02, Hyundai produced 93,244 cars with three different models.This development has significant implications for the organization ofproduction, cost competitiveness, and capitalist industrialization ingeneral.

It is evident that the internationalization of the Indian auto industry hasled to intense competition among firms. It has also led to considerable frag-mentation of the market, especially in the mid-size segments, (a themetaken up in Chapter 7). Lacking scale economies, the viability of these



Table 4.7 Internationalization, Diversified Output, and Market Segmentation

Market Segment Company/Model Nature of Firm Collaboration

Economy MUL 800, Omni Joint-venture Suzuki MotorsRs. 250,000 (technology$5,435 and equity)

PAL Padmini National n/a

Mid-Size PAL 118NE National NissanRs. 250,000–450,000 (technology)$5,435–$9,785

HM Ambassador National IsuzuNova, Contessa (technology)Fiat Uno MultinationalMUL Zen, 1000, Joint-venture SuzukiAlto*, Wagon R, Balena Altura Hyundai Santro 100% Multinational

SubsidiaryDaewoo Matiz 100% Multinational

SubsidiaryTELCO Indica National

Luxury Peugeot 309 Joint-venture TechnicalRs. 450,000–1,000,000$9,785–$21,740

TELCO Estate, NationalSierraMUL Esteem, Joint-venture SuzukiVersaDaewoo Cielo, 100% Multinational Nexia SubsidiaryHonda City Joint-venture HondaMitsubishi Lancer Joint-venture TechnicalFord Ikon 100% Multinational

SubsidiaryGM Opel Astra, 100% MultinationalCorsa SubsidiaryFiat Siena 100% Multinational

SubsidiaryHyundai Accent 100% Multinational

Subsidiary

Super Luxury Mercedes Benz, Joint-venture Daimler-BenzAbove Rs. 1,000,000 Other Imports$21,740

Source: India Infoline (2003).Notes: Rs. 46/USD, rounded to 0 or 5.* upgraded version of 800 (Japan was producing this in 1991).

units becomes questionable. Relatedly the fragmentation of the industryalso raises the specter of balance of payments problems if production isimport-intensive, which they are likely to be as low volume of productioncannot justify investments in upstream activities. At the same time compe-tition means increased technology flows and greater consumer choice. Italso means competitive pressure on MUL. Currently, of the three main producers in the economy segment, MUL has nearly all of the market. Its firstcomer advantage, government protection, and scale economies ren-dered it virtually unassailable. As we will see in the next chapter, ratherthan rest on its advantages, MUL increased local content, transformed theIndian supplier industry, and introduced wide-ranging institutionalchanges within the firm and the industry. More importantly, it continuedto introduce new products in a limited way. Thus, some firms such as MULand TELCO are in a better position to ride out the competition, whileothers will have to restructure due to greater competition.

However, consistent with capitalist market growth and its diversification,MUL in the 1990s witnessed considerable competition. There was room fornew players in the industry as a whole, especially in the economy segment.The three most serious contenders have been TELCO’s Indica, Hyundai’sSantro, and Daewoo’s Matiz, competing with MUL’s 800 cc and Zenmodels. TELCO has been producing 6,000 units a month. Daewoo’s outputof Matiz was 35,000 in 1999–2000, with plans to increase to 80,000 units.MUL has faced competition from other car makers as well (see Table 4.5).Its Esteem model is being challenged by several multinational products.Hence it is not unreasonable for it to introduce new models as a way to pre-empt and keep up with cutthroat competition. Already it has four newmodels in the upper end of the economy and mid-size segments, withprices roughly ranging from $6,500 to $12,700. It has also resorted to pricecuts when demand has been weak, a situation markedly different from the previous long waiting periods for MUL’s vehicles.

Judging by the post-reform record of the Indian auto industry, it is clearthat the Indian market has matured considerably. Most of the multinationalmajors present in the Indian market coexist with Indian firms. The Indianfirms have had to respond to heightened competition through foreign tech-nical collaborations, while the foreign firms are entrenching themselves byunleashing new products in an already crowded market. Economic liberal-ization has allowed multinationals to import components and diversify themarket. Consequently, the supply system of the Indian auto industry hasbeen fundamentally altered by output expansion and greater diversity ofoutput. This increased supply is very much integral to the embourgeoismentprocess. At the same time there has been excess capacity, a systemic featureof capitalist competition. This is consistent with increased reliance onmarkets to regulate capitalist development in India.


6. Conclusion

Following the demand side of embourgeoisment, this chapter presented the changing supply side of the Indian auto industry. The evolution of theoutput expansion was examined in terms of the formation of capitalistmarkets. By anchoring market development around the changing regime ofaccumulation I showed how the shift away from state-led industrializationto market liberalization contributed to the shifts in the supply system.Clearly a major factor for increased output and its diversification has beenthe internationalization of the Indian auto industry. The internationaliza-tion can be interpreted as a logical extension of capitalist development, aprocess by which both Indian and foreign companies are engaged in capitalaccumulation, playing the market game by offering consumers a greatervariety of products. In the process there has been a tendency toward excesscapacity and market fragmentation as well.

As suggested earlier, capitalist market development has been a productof both internal dynamics and external influences. Structurally, embour-geoisment in the context of slow economic growth produced a disequi-librium between demand and supply. Simultaneously, persistent balanceof payments deficits and changing international economic relationsaccentuated the internal economic crisis. India has not been immune toexogenous forces despite autarkic policies. There have been considerablefinancial movements, including remittances by Indians working overseas(the Middle East) and foreign exchange deposits by NRIs (the US). Thesedevelopments are both a cause and consequence of embourgeoisment.The crisis has been “resolved” by altering the regime of capital accumu-lation. Policy reversals, by way of economic reforms, introduced marketdynamics that were both endogenous in origin as well as exogenous incharacter. Consistent with the historical continuity of the embourgeois-ment process, the reforms succeeded in bringing about macroeconomicgrowth and microeconomic efficiency. India’s economic growth sincethe mid-1980s has been at a higher level, while the auto industry hasundergone a fundamental shift.

The evolution of the Indian auto industry provides a window to theunfolding of capitalist development in a global context. The Indianindustry was out of sync with the global one for nearly four decades afterindependence. However, India’s policy-induced sectoral isolation hasfundamentally changed with a new regime of accumulation. As the nextchapter illustrates, with increased market competition there has been a change in the mode of capitalist regulation as well. Businesses areadopting a wide variety of industrial and organizational practices to copewith rapidly changing market conditions. The gradual liberalization ofthe Indian economy and the auto industry mirrored the global shifts,with Japan playing an important role in transforming the supply system


in India. India is a small player but noticeable changes are taking place inproduction, suggesting that capitalism need not be equated to successfuleconomic development. Paradoxically, Japan’s global success has notbeen replicated in India. Only one joint-venture with the government of India worked, namely MUL, while four light commercial vehicle pro-jects failed. Fostering capitalist markets is a competitive process and sheertechnological mastery is no guarantee of market success. Local firms suchas TELCO are also formidable players, suggesting the maturity of Indiancapitalists. The company capitalized on its prior strengths to take advan-tage of new opportunities arising from economic liberalization. While theJapanese created the LCV niche they failed miserably; TELCO succeededin tapping this market niche.

The recent changes in the Indian auto industry rest significantly onthe entry of multinational firms. However, the internationalization doesnot mean the retreat of the state, as the ownership of MUL testifies. The auto market was opened a little before being shut again. Only in the1990s was the sector fully deregulated. During this period the Indianstate continued to exercise considerable influence in shaping the struc-ture of the industry. Nor does it mean complete denationalization evenif the overall trend is liberalization, privatization, and transnationaliza-tion. In this sense there has been a consistency in the direction of eco-nomic reforms. Yet, a closer inspection of the industry shows that inspite of heightened competition for market entry, both old and newglobally-connected firms coexist. Old firms have been compelled to rejuvenate their market presence with foreign collaborations. But in anumber of cases, joint-ventures have been dissolved and the unitsreverted to full multinational control. This is not unusual in an era ofextreme capital mobility and unequal access to investment funds.

The dominance of multinationals such as GM provides an interestingillustration of the tension between internationalization and denational-ization. GM’s growing presence in India through its global expansion sug-gests a tight grip in the Indian market. At the same time GM’s growth ispulling Indian suppliers into global production networks. Companiessuch as HM, on the verge of collapse at one time, are becoming criticalsuppliers to multinational firms such as GM and Ford. These develop-ments in the supply dimension of the Indian auto industry indicate thetremendous heterogeneity of firms in a given sector, let alone in a givencountry. The “model” of capitalism that is evolving in India is very muchintegral to institutional change behind a changing regime, which is con-sistent with a new mode of capitalist regulation. Consequently how firmsrespond, the impediments to production, and how the industry as awhole shakes out make the ingredients of contemporary capitalistdynamics. However, there are contradictions to capitalist development.For example, both output growth and a variety of output, are consistent


with market development and consumer choice, they also reflect uneveneconomic development and inegalitarian social outcomes. On a nationalbasis there is still a very small percentage of people who can afford cars.Among those who can there is considerable choice in product offerings,as reflected by the proliferation of niche markets. The associated excesssupply, made stark by an economy characterized by rampant poverty andscarcity, is another side to the development of capitalism in India.

As the next chapter shows, the development of the parts and compo-nents industry has been a critical sector for the expansion of the Indianauto industry. The establishment of a dynamic components sector withbest industry practices is likely to indicate the form of capitalist industrial-ization and its global significance. Identifying the challenges faced by theIndian supplier industry is also likely to reveal the impediments – bothinstitutional and technical – to capitalist development.


5Capitalist Regulation, FlexibleProduction, and Auto MarketEvolution

1 Introduction

The ability of the Indian economy to accommodate numerous automobilemanufacturers rested partly on demand growth. It was also supported by afundamental restructuring of the industry as a whole, spearheaded by joint-ventures such as MUL and other collaborations between Indian and multi-national firms. To meet growing demand not only did auto firms increaseproduction of vehicles, but in order to successfully compete and quicklycapture emerging markets firms had to cultivate a viable auto componentssupplier industry. This is the second layer of supply-driven market develop-ment. Increasing backward integration was made possible by new institu-tional arrangements at the macro (national) and micro (industrial and firm)levels. These are institutional responses to a changing national environ-ment of market growth induced by embourgeoisment and the challenges ofsecuring that market.

The discussion here is anchored around shifting capitalist regulation, froman earlier mass production system to a more decentralized flexible produc-tion system. This does not mean that the institutions associated with massproduction are completely abandoned under a flexible production system.Rather there is continuity. In fact the high volume of production characteris-tic of mass production remains critical even under flexible systems (D’Costa2004). The transition to a new system involves significant changes in produc-tion relations among firms and their workers. Not all enterprises are able tocope with the institutional demands of forging cooperative relations withsuppliers or introducing organizational changes on the shopfloor. Why somefirms succeeded and others failed in India in a deregulating environment isalso examined to appreciate the challenges of contemporary capitalist marketdevelopment.

The chapter is divided into four main parts. The first part discusseschanging capitalist regulation by showing how market development canbe supported by the supply expansion of the automotive components

105

industry. This backward integration has been possible due to the deploy-ment of flexible industrial practices. Next, flexible practices are disaggre-gated in terms of the actual forms of institutional responses to new marketimperatives to increase supply quickly and reliably. Three levels of cooper-ative arrangements are presented: between business and government,among firms, and between enterprises and their workers. All three areargued to contribute to a new foundation for capital accumulation and its regulation in a market-expansive system. However, there are alsodifficulties in instituting these arrangements due to a variety of structuralfeatures typical of developing economies. The third part discusses thesignificance of low-volume production for the adoption of flexible indus-trial practices. Using data from the early to mid-1990s for the Japanese-initiated light commercial vehicle (JLCV) segment, the third part demon-strates the challenges of instituting a new mode of capitalist regulation.The fourth part briefly analyzes the growth of the Indian supplier industryas partial evidence of successful capitalist regulation within the context oflimited economic transformation.

2 Changing mode of capitalist regulation at the industry level

One of the features of contemporary capitalism is the flexibility ofeconomies to cope with rapid changes in markets. With the diffusion of markets worldwide, radical technological change, massive increases intrade and investment flows, and the corresponding intensification ofcompetition, firms, markets, and institutions have been pressured tobecome more agile (Morales 1994: 5–15). At the macroeconomic level,fiscal discipline along with tight money policy are aimed at stabilizingmarkets. At the microeconomic level, production flexibility has becomenecessary to cope with market volatility and rapid shifts in demand.Consequently, the entire system of capitalist regulation designed for massproduction and mass consumption of an earlier phase has become out ofsync with new market realities. For example, as budget deficits widened,the Keynesian welfare system, which effectively propped up aggregatedemand, was being replaced gradually by a market growth-driven supplysystem. Macroeconomic flexibility is introduced by curtailing socialwelfare expenditures and subsidies. Welfare is substituted by workfare, a euphemism for worker retraining, and a stable market maintainedthrough monetary discipline rather than employment growth throughfiscal spending. In India the new system of accumulation translated into economic reforms, which induced increased competition at homeand greater international economic integration. In practice reformsentailed limited privatization of state assets, considerable deregulation ofindustry, removal of subsidies, greater export-orientation, higher foreigncapital inflows and outflows, and more liberal trade. Consumption is now


expected to be supported less by fiscal spending and more by economicgrowth that is anticipated from increased market efficiencies.

Changing market realities have elicited highly proactive industry associa-tions to secure infrastructural and financial support from the state. Theyhave engendered greater networking among various industry stakeholdersand an expectation of a more pliant workforce that can be mobilized (or fired) corresponding to shifting output. On the microeconomic produc-tion front, changing capitalist regulation suggests restructuring institu-tional arrangements to transform the rigid system of mass production intoa more flexible system. Market volatility in the context of a rigid mass pro-duction system suggests imbalances in supply and demand due to lags inthe adjustment process. Flexibility, on the other hand, suggests quicklyremoving excess capacity or capturing underserved markets by continu-ously matching production to demand through the collective institutionalefforts of supplier firms, the industry, the government, and workers. Inaddition, flexible production is enhanced by the deployment of modern,reprogrammable machines, as opposed to general purpose machines, whichcan quickly adjust to small changes in niche markets. These industry-levelflexible practices also entail institutional changes. For example, output canbe adjusted by decentralizing production (outsourcing) and making suppli-ers flexibly adjust to changing buyers’ demand. This calls for long-termcooperative relations between buyers and suppliers, which encourages closegeographical proximity of supplier firms. The supplier firms are expected todeliver high quality parts cheaply and reliably.1

Modern, multipurpose machinery, producing a wide range of productsfor specific market niches permits flexibility. The use of new technologiessuch as computer numerically controlled (CNC) machines and informationtechnology demands far more multi-skilled workers than in a standardizedmass production system. Similarly, workers are also expected to adjust tonew market realities such as increased competition from low-wage areas,less rule-bound employment contracts, limited job security, and higherquality control. The supply system is also influenced by labor stability.Unlike typical hostile industrial relations, partnerships between businessand labor become institutionalized with increased interaction betweenthem. Enterprise unions also become integral to new forms of capitalist reg-ulation. For example, production disruptions are minimized and qualityenhanced through the formalization of teamwork and quality circles onthe shopfloor.

The restructuring of the Indian industry, as evidenced by the remarkableexpansion of output, suggests easy transition to flexible production.However, there are serious structural barriers to institutionalized flexiblepractices. The main drawback is small internal markets, especially in the early phase of market expansion. However, the barrier itself can spurthe forging of new institutional arrangements to develop the supplier

Capitalist Regulation, Flexible Production, and Auto Market Evolution 107

industry. Buyers prefer outsourcing over in-house manufacturing so as to maintain flexibility and cost competitiveness, while sellers are unable toexpand in new business lines without some guarantee of a market. It is thelack of economies of scale that prevents easy transition to flexible practices.Consequently, a trust-based cooperative subcontracting arrangement is per-ceived to reduce mutual vulnerability associated with emerging marketgrowth. Also, a long-term relationship between buyers and sellers avoidshigh “switching” costs as markets and suppliers are quite underdevelopedin low-income economies.

The adoption of flexible automation, such as CNCs, to create a diversifiedoutput, is also dependent on scale economies. Without adequate produc-tion volume, investment in CNCs will be limited (Alam 1998: 328). Withthe adoption of flexible automation (CNCs for example) exploitation ofeconomies of scope becomes possible (Alcorta 1998: 14–17, 28, 99–100).2

Economies of scope permit product variability with small volumes andrapid adjustments to changing market conditions. But in low-incomemarkets, demand constrains fixed investment that is critical to flexibleautomation. Also, the prevalence of low wages discourages full-scaleautomation. Hence the reduction of mutual vulnerability will be soughtprimarily through institutional means, such as subcontracting and cordialindustrial relations. With the rudimentary flexible institutional arrange-ments in place, supply bottlenecks can be reduced, output expanded, andproduct differentiation enhanced. Given initial non-discriminatingdemand, there is no compelling reason for firms to produce differentiatedoutput. However, over time as demand diversifies, flexible practices, such ascooperative arrangements and automation become effective and easier todeploy. Economies of scope are more a consequence of increasing scale ofproduction rather than independent of it (Figure 5.1).

With embourgeoisment and subsequent economic liberalization andinternationalization, India’s increased demand for automobiles could bemet by reducing supply bottlenecks, minimizing mutual vulnerability, andcoping with new forms of competitive pressure. Institutional arrangementsconsonant with changing capitalist regulation entail reconfiguring bothinter-firm and intra-firm relations. Long-term buyer-supplier relationshipsand intra-firm teamwork are two examples respectively. The results aredemand-driven economies of scale accompanied by declining costs andrising quality, followed by supply-driven economies of scope accompaniedby product variability. At this stage, the Indian market can be argued todisplay features of more advanced capitalism with diversified demand anda more mature supplier industry. The Indian industry has pursued massproduction with attendant reductions in production costs. Only with suc-cessive cycles of output expansion have the institutional arrangementsbeen ratcheted up to produce diversified output. Today these institutionalarrangements in the industry are increasingly seen as routine.


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There were other objective conditions that compelled firms to institu-tionalize cooperate arrangements at home. First, India’s precariousbalance of payments position mandated high local content. This wasconsistent with the earlier self-reliant strategy. Second, the high cost ofimported components, especially with the 1980s appreciation of theJapanese yen, made local production more attractive. Third, to reducetransaction costs and increase reliability, best-industry practices dictatedthat supplier industries be located in India, preferably in close proximityto manufacturing. All three factors influenced the decision of new firms,beginning with MUL and continued by later entrants, to create a viableparts and components industry. The growth of the industry is consistentwith India’s internationalization and suggestive of India’s deepeningcapitalist market development. More importantly, it signals the chang-ing mode of capitalist regulation whereby institutions are rearranged toexploit best-industry practices for capital accumulation.

3 Institutional responses conforming to a new mode of capitalist regulation

3.1 Changing business environment

In the post-independence protectionist era, the relationship between busi-ness and government was dictated by regulation, thus contributing tovarious restrictive policies and unproductive rent-seeking activities. Withembourgeoisment and the unshackling of the economy, firms had to deviseinstitutional mechanisms to exploit new opportunities. It was evident thata different kind of enterprise would be needed if new supplier industrieswere to meet both high investment and international, especially Japanese,quality standards. MUL’s location in Delhi was advantageous, as most ofthese entrepreneurs in its supplier industry were well connected to thepolitical machinery and business associations in New Delhi. These socialnetworks, in the context of changing government policy, contributed to aconducive business environment.

There were several layers of interconnectedness that boosted the sup-plier industry (see Figure 5.2). In the early 1980s, Suzuki Motors wasselected to assist MUL, a public sector unit, to produce small passengercars. MUL is an exemplary case of nepotism, formerly owned by SanjayGandhi, son of India’s Prime Minister Indira Gandhi, and subsidized bythe government. This patron-client relationship, which failed to produce acommercially viable product, worked extremely well when such a relation-ship was institutionalized after nationalization. Under the Chairmanshipof V. Krishnamurthy, and later R.C. Bhargava, both top-notch civil ser-vants with extensive public sector experience, Suzuki became a minoritypartner with the Indian government. With the reconstituted MUL in thepublic sector, the government, through its industrial licensing policy,


barred other entrants in the passenger vehicle segment. Within a decadeMUL had become the industry leader in terms of production, capacity utilization, and scale. It also attained international standards in terms ofinstalled capacity and was cost competitive with similar small car modelsmade by Nissan (the March) and SEAT (in Spain) (Table 5.1). Today its capacity is over 500,000 units, a scale that matches the best plants inthe world. More importantly, such capacity growth created abundantopportunities for a nascent components industry in India.

By virtue of being a civil servant, the Chairman of MUL had easy accessto the relevant Ministry of Heavy Industry, making preferential treatmentfeasible (Pinglé 1999). Indeed, government policies favored MUL. They

STATE

Maruti Udyog Ltd. (MUL)

CII

Japanese Firms (mainly Suzuki)

Sona Steering 3 JME

Bharat Seats 3 JME

Jay Bharat 3 ME

Mark Auto 3 ME

Machino Plastics 3 JME

Asahi Glass 3 JME

ENTERPRISEUNION

ACMA AIAM

1 GJE

2

2

LEGEND

E = EQUITY GJE = Equity held by Government and Japanese Firms ME = Equity held by Maruti JME = Equity held by Japanese firms and Maruti 1, 2, 3, 4 represent different levels of unranked pathways of cooperation Dashed line identifies Maruti's inter-firm cooperation CII = Confederation of Indian Industry ACMA = Automotive Components Manufacturers Association AIAM = Association of Indian Automobile Manufacturers

4

Figure 5.2 Cooperation Within and Outside MUL


allowed imports of capital equipment at lower tariffs and barred otherentrants into the passenger car segment. MUL was treated as a nationalchampion, which ensured its autonomy to make decisions regarding tech-nology, products, production methods, and work practices. This is a sign-ificant departure from the bureaucratic approach prevalent under theprevious mode of capitalist regulation, namely the restrictive industriallicensing system, which entailed micromanagement of public sector units.The discriminatory approach paid off in the form of economies of scale. Byavoiding excessive, ruinous competition in a small market, the Indian statein effect nurtured MUL to a robust status (D’Costa 1995b).

The changing business environment was also reflected by the activism of industry associations, which helped MUL in particular and the parts in-dustry as a whole. First, these suppliers were linked to the pro-active apex industry association, the Confederation of Indian Industry (CII), comprisingmainly engineering export-oriented firms. CII was responsible for spearhead-ing the economic liberalization movement by seeking to deregulate trade andinvestment.3 CII has an elite membership and overshadows two associationsthat previously had considerable influence: the Associated Chamber of Com-merce (comprised of former British companies) and the Federation of Indian

Table 5.1 Maruti Udyog’s (MUL) Relative Performance (circa 1994)

MUL MUL’s Share Nearest Rival’s Foreign (%) Share in India (%) Benchmark

Production 149,743 72 13 –(cars)Production 155,780 60 17 –(cars + utility vehicles)Capacity 200,000 units* – 65,000 units 200,000**Price (800 cc) $3,992 (1990) – – $6,600

(SEAT-Marbella,Spain)#

Price $7,161 (1993) – – $7,284(Zen model) (Nissan

March,Japan)

Source: Automotive Components Manufacturers Association (ACMA) (various years), MarutiUdyog Ltd. (MUL) (Delhi), Nissan (Japan), Suzuki Motors (Japan).Notes: *expanded from installed capacity of 140,000; currently installed capacity stands at over500,000 units, with 2001–02 production nearly 357,102, a decline from 406,807 units two yearsearlier.** Nissan’s Mexico plant;#data obtained from Suzuki Motors, Japan.


Chamber of Commerce and Industry (mainly national domestically-orientedfirms). Its members also comprise most affluent family-owned entrepreneurialfirms, with many owners trained in technical and commercial fields at homeand abroad. Second, the entry of MUL created opportunities for these selectentrepreneurs and the existing larger, specialized suppliers who were alsomembers of CII and the Automotive Components Manufacturers Association(ACMA). Incidentally, the former President of CII, Subodh Bhargava, is asibling of MUL’s former chairman R. C. Bhargava.4

Of the two industry-specific associations, the Automobile ComponentsManufacturers Association (ACMA) has been more proactive due to the critical nature of the segment than the Society of Indian AutomobileManufacturers (SIAM), formerly known as the Association of IndianAutomobile Manufacturers, AIAM. As ACMA is also a member of theConfederation of Indian Industry (CII), it bridges complementary groupsof industries–automotive firms with general engineering firms. Withexpanding Indian output in the 1980s, MUL, as a public sector firm, andmany of its suppliers have become conduits for information exchangeand policy change. For example, every year the Automotive ComponentsManufacturers Association (ACMA) organizes an annual gathering thatbrings auto-related manufacturers, government officials, foreign busi-nesses and their diplomatic representatives, and researchers together. Themeeting itself is organized around particular themes. In 1992 the focuswas on “Export of Auto Components.” It recommended several policychanges, many of which have since been implemented. In 1994 it held aseminar on “Competitiveness Through Productivity and Cost Control.”Through these meetings, ACMA facilitates dissemination of informationon technical developments, new products, market potential at home andabroad, and government policy changes. It also mobilizes industryopinion for desired policy changes. This “learning by interacting”(Chesnais 1991) among businesses has been instrumental in addressingcollective solutions to industry problems. Each gathering in the past hasdisplayed lobbying efforts, articulating members’ responses to supply bottlenecks, heightened competition, infrastructural barriers, and newenvironmental regulations.

Another dimension to the changing business environment is thesignificance of location of production in which the government had avisible role to play. Local governments have targeted the National CapitalRegion (NCR) (Delhi and its surroundings, including the industrial centersof Gurgaon in Haryana and NOIDA in Uttar Pradesh states) to become anew center for the automotive industry.5 MUL’s principal suppliers locatednear MUL’s plant in Gurgaon. In the late 1990s Ford and Hyundai inChennai also urged their suppliers to locate nearby (Gulyani 2001a). Thisbusiness-government partnership was also a result of liberalization of the1980s under Prime Minister Rajiv Gandhi to foster other “clean” industries

in the region. This shift in favor of a new industrial zone near the capital,away from established automotive centers in Kolkata (formerly Calcutta),Chennai (formerly Madras), and the Mumbai (formerly Bombay)-Puneregion, had more to do with national politics than economics. Withregional parties becoming more important in national politics, industriallicenses were often awarded to ruling party constituencies. The prosperitybrought about by decades of state control and associated rent-seeking activ-ities, massive infrastructural investments in the capital city, and the greenrevolution in neighboring Haryana and Punjab states and the relativeindustrial backwardness of the region, made Delhi and the surroundingareas ideal for new investments. Only more recently, with the second waveof foreign automotive multinationals, has there been some consolidation ofother regional production sites: one in the west (Mumbai-Pune) and theother in the south (Chennai-Hosur-Bangalore). The growing importance of these regions has been accompanied by the relative industrial decline ofthe former industrial belt in the east around Kolkata (see also Chapter 6).

3.2 Inter-firm collaboration to expand output

The Indian industry also instituted a wide variety of inter-firm best practicesto overcome supply bottlenecks. This was highly pertinent for an industry,which was isolated from the global industry for nearly three decades.Assured of a captive market by government decree, but constrained overtime by rising import values and local content rules, MUL pursued a multi-pronged approach to minimize supply bottlenecks. It created dedicated sup-pliers and introduced shopfloor practices geared toward uninterruptedproduction. Until then, the Indian industry had few vendors supplyinghigh-value components and numerous government-spawned small-scaleproducers serving low-value products in the spare parts market. With MUL’sinitiatives small firms, using state-of-the-art technologies, could introducenew plant and equipment with an assured market. At the same time, thebuyer, in this case MUL, could count on reliable deliveries of competitivelypriced intermediate parts and components. This reciprocal arrangementreduced the mutual vulnerability that characterized the Indian industry. Inthe past, even Mahindra and Mahindra, an established monopoly in utilityvehicles, was at the mercy of several sole suppliers of parts (Interview withMahindra & Mahindra Staff, Bombay, October 1991). Dwarfing the suppliercompanies in size, and therefore access to information, the onus was onMUL to form technology and equity collaborations. In a supply-constrainedand price-sensitive market, cost reduction and productivity growth werecritical to MUL’s aggressive growth. Both outcomes hinged on the ability ofparts suppliers to meet MUL’s demand, while MUL’s output expansion hada favorable cascading effect on the suppliers in realizing economies of scale.The cumulative outcome has been market expansion of the Indian autoindustry.


Inter-firm cooperation was critical as small markets discouragedlaunching new products. Successive rupee devaluations made imports ofcomponents prohibitive. To overcome supply constraints, Japanesecapital, technology, and organizational practices played an importantrole. MUL deployed Japanese technology selectively to introduce newproducts. Licensing of foreign technology also became commonplace forMUL’s suppliers. Many of these collaborations entailed Japanese equityas well (Table 5.2).

The development of the Indian parts industry corresponded to theentry of multinationals. This entailed both technical and financial partnerships. In the 1980s, after the formation of MUL, auto-relatedJapanese technical collaborations increased from 4% to 18% (computedfrom Indian Investment Centre, various years). Between 1988 and 2002,the share of Japanese auto-related collaborations reached 31% of thetotal number of collaborations, while 20% of Japanese auto-related collaborations entailed financial partnerships (Computed from IndianInvestment Centre 2002). Of the 72 Japanese ventures, 55 involvedequity partnerships. Roughly a third of these entailed equity over 70%.In the 1990s South Korean vehicle manufacturers entered India andcreated 37 partnerships–eight between 1990–95 and twenty-nine during1996–2002. The share of technical collaborations was 30% of all SouthKorean auto ventures in India (Computed from Indian InvestmentCentre 2002).

Technology transfer went beyond arms-length supply of drawings andequipment. For example, by having a small equity stake in Sona Steering,MUL has been able to work more closely with Sona and ensure the supplyof quality steering components. Koyo Seiko of Japan, a supplier of Suzuki in Japan, also has technical and financial collaboration with Sona Steering.UCAL, a manufacturer of carburetors and fuel tanks, was introduced toMikuni of Japan by MUL. With the transfer of Japanese know-how, UCALtoday is the single source for its original equipment customers, with MULas the main buyer. This cross-interpenetration of Japanese firms withIndian firms as buyers and sellers has generated positive externalities andenhanced collective efficiencies. Several Indian vendors are now “originalequipment” manufacturers for MUL’s products, and in some instances, forexample Sona Steering, exporters as well.6 They are also located near theMUL plant, making just in time (JIT) a reality. Many of these joint-ven-tures make deliveries several times a day. For example, Machino Plasticssupplies plastic panels, made from molds supplied by MUL, every fourhours or four times in a two-shift day. Jay Bharat and Bharat Seats delivercomponents on a daily basis (D’Costa 1998).

The Indian industry is also marked by the development of non-routineforms of institutionalized cooperation. For example, if MUL orders 3,000 unitsfrom a vendor (not necessarily a joint-venture) but adjusts it downward to


116

Tab

le 5

.2T

he

Co

-Lo

cati

on

of

MU

L’s

Su

pp

lier

s

Firm

Fore

ign

Co

llab

ora

tor

MU

L’s

Fore

ign

Y

ear

Sale

s (1

995–

96)

Nu

mbe

r Eq

uit

y (%

) Eq

uit

y (%

)Es

tabl

ish

edm

ill.

US$

)Em

plo

yed

Bh

arat

Sea

tsSu

zuki

, Ho

uw

a K

ogy

o (

Jap

an)

15.5

15.5

1986

22.3

350

Cli

mat

e Sy

stem

sFo

rd (

USA

)39

.061

.019

918.

150

Jay

Bh

arat

Mar

uti

No

ne

29.5

–19

8828

.645

0M

ark

Au

toN

on

e33

.9–

1986

14.5

400

Son

a St

eeri

ng

Ko

yo S

eiko

, So

mic

Ish

ikaw

a,

9.0

7.8

1986

37.0

404

Mat

sud

a (J

apan

)Su

bro

s Lt

d.

Nip

po

nd

enso

, Su

zuki

(Ja

pan

)0.

026

.019

8310

8.6

1,00

0A

sah

i In

dia

Asa

hi

Gla

ss (

Jap

an)

12.0

23.8

1985

27.0

325

Mac

hin

o P

last

ics

Suzu

ki (

Jap

an)

15.5

15.5

1987

10.2

70C

apar

o M

aru

ti

Cap

aro

(U

K)*

20.0

60.0

1994

035

Kri

shn

a M

aru

tiSN

IC (

Jap

an)

13.0

49.4

1993

22.4

151

Nip

po

n D

enso

Nip

po

n D

enso

(Ja

pan

)10

.060

.019

8437

.980

0

Sour

ce: M

aru

ti U

dyo

g Lt

d. (

MU

L).

Not

es: *

= N

ewly

est

abli

shed

no

n-r

esid

ent

Ind

ian

firm

.

2,500, then MUL, unlike long-standing Indian practice, can reject the excess.In other words there is an institutionalized understanding that suppliers areexpected to meet the buyer’s requirements. MUL also negotiates prices withits suppliers through a detailed cost breakdown. Older manufacturers couldnot or did not care to pursue this strategy because of high in-house produc-tion and little concern for quality and costs in a sellers’ market. The change-over is an indication of a more open, competitive environment rather thanmonopsonistic behavior on MUL’s part.

Strategically MUL purchases each component from at least two vendors,introducing competition and keeping its options open. But it also encour-ages multiple customers for its vendors. In other words, it does not want itssuppliers to be too dependent on MUL for the simple reason that it canreduce its own vulnerability by strengthening its suppliers. MUL’s suppliersalso recognize this interdependency. For example, UCAL in recognizing itsresponsibility in meeting its commitments reduced its costs and supportedits suppliers by ensuring prompt settling of bills. MUL reciprocated by com-pensating UCAL when its costs rose due to the devaluation of the rupee.While MUL still relies on imported components such as steel coils for bodypanels, which may take weeks to deliver, other products are obtained moreeasily from its nearby suppliers.

Short-cycle deliveries by a few suppliers are possible for several reasons.First is MUL’s direct involvement in the technical and financial aspects ofits the joint-ventures. As we have seen, MUL took the initiative of creatingsuppliers through equity and facilitated technology transfer through SuzukiMotors. Second is the close physical proximity of the supplier firms to MUL’s plant. There were five joint-ventures within MUL’s property, sup-plying pressed components, seats, and plastic parts. These firms couldmaintain short supply schedules. There were also over 100 firms within an80 km radius, which could practice JIT (Gulyani 2001a: 117). More impor-tantly, close proximity meant that local suppliers could rely on MUL’scaptive power plants, which then prompted suppliers from other regions torelocate near MUL’s operations (Gulyani 2001a). There are other ways bywhich close proximity of firms is beneficial to reducing vulnerability. Forexample, Machino Plastics, making injection-molded components, usesMUL’s maintenance equipment if needed. When they are not availablefrom MUL, Machino Plastics can rely on the support of other joint-venturessuch as Caparo Industries, a joint-venture for steel pressed parts (PersonalInterview with Machino Plastics Staff, Gurgaon, June 1996).

3.3 Further backward integration and capitalist development

There are two significant effects of inter-firm linkages involving technologytransfer and equity. First, a trusting environment is cultivated betweenbuyers and suppliers, which facilitates the negotiation of prices of compo-nents through a detailed cost breakdown. Second, substantial spill-over



effects through buyer-supplier synergy contribute to vendor development,inducing greater reliability of the entire supply chain (Gulyani 2001b). Forexample, Sona Steering begun as a dedicated supplier to MUL has beengradually integrating backward by establishing its own joint-ventures tosupply components to Sona Steering, MUL, and others. As a result SonaSteering has been able to diversify its own product offerings for the auto-motive industry (Figure 5.3). Beginning with simple steering systems forMUL, Sona Koyo helped diversify its steering systems output. Consequentlybackward integration was further pursued by the production of manufac-turing inputs for steering systems, such as Sona’s joint-venture with SomicIshikawa of Japan. It produces ball and suspension joints, critical inputs for steering assembly (Plant Visit, Gurgaon, July 1996, September 1991).

SONA (KOYO) STEERING SYSTEMS

(various steering systems, column and drive line assembly)

1. Sona Somic (with Lemforder Metattwaren in 1998)(ball joints for steering, suspension components) 2. Sona Matsuda Cold Forgings (cold forged components for gear box, engine, etc.) 3. Sona Educational & Training 4. Sona Okegawa Precision Forgings (high quality transmission products, die forging) 5. Sona Oberland 6. Ferodo India

1. Somic Ishikawa, Japan2. Matsuda Industry, Japan 3. Degem Systems, Israel 4. Mitsubishi Materials, Japan 5. Oberland Manigold, Germany 6. T&N, UK

KOYO SEIKO, Japan

MAIN FOREIGN PARTNER

FLAGSHIP COMPANY

Only those holding shares of more than 1% Chairman and MD: 5.45 Maruti Udyog Ltd. (co-promoter): 7.85 Chairman's Family: 3.53 Chairman's Other Promoters (firms):10.76Koyo Seiko (Japanese Promoter): 20.47 Institutional, Corporate, Foreign: 13.19 Indian public (a single individual): 2.56

Ownership of Sona Koyo Steering Systems (%)

AFFILIATE COMPANIES FOREIGN COLLABORATORS

Figure 5.3 Sona’s Evolution of Product VarietySource: Company Documents obtained from Sona Steering and Company website, http://www.sonagroup.com/accessed 10/27/2003 10:13 AMNote: MD = Managing Director, Surinder Kapur.

Similarly, Sona’s collaboration with Matsuda of Japan is aimed at produc-ing small parts by cold forging to be subsequently used in components production. Reliability of the supply chain is enhanced by the diffusion ofcommon standards such as the adoption of statistical process controls bySona Steering, its affiliate Sona Somic, and their vendors.

Backward integration of the automobile industry has been significantlyinfluenced by effective technology transfer from overseas companies who arethemselves suppliers to manufacturers in their home countries. For example,Koyo Seiko’s technology transfer played a key role in Sona Steering’s manufac-turing success. Between 1987 and March 1996 Sona Steering used 382 worker-days of Japanese advising from Koyo (Sona Group of Company Documents,1996). Knowledge imparted ranged from the routine to specific manufactur-ing processes, testing, selection of equipment, line layout and tryouts, qualityenhancement processes, and top management self-study. Between 1986 and1996, Sona, in turn, spent 155 engineer-days in Japan for training in the areasof manufacturing, process control, cost control, and JIT. It also sent twobatches of 12 machine operators for six months of training in Japan.

With backward integration, quality standards are transmitted to other sup-pliers. In addition to Sona Steering, several of MUL’s suppliers have also insti-tuted organizational changes to reduce costs and increase productivity. Thesecover better audit methods, training, cellular manufacturing, and technologi-cal upgrading (Table 5.3). The effect of this backward integration is increasedlocal content and reduced supply bottlenecks. What is noteworthy is thatvendor initiatives, in raising output and productivity are no longer dependenton a Japanese partner. Of the seven cases (in Table 5.3), India Pistons andBrakes India have British collaborators. Both of these firms have been quitesuccessful in reducing waste, increasing productivity, and improving quality.

Industrial deepening was also facilitated by inter-firm arrangements thatreduced mutual vulnerability. For example, one of the key strategies of MULhas been to create an industrial cluster, to overcome India’s treacherous phys-ical infrastructure (Gulyani 2001a). MUL has about 400 first-tier suppliers.Fifty-three of them depend on MUL for at least 90% of their sales. One hund-red are small and located within an hour’s drive from MUL’s plant (Okada2000), an agricultural area prior to setting up MUL. Over 50% of MUL’s totaldomestic parts and components purchased were made by firms located in theindustrial cluster around Delhi (Gulyani 2001a: 119). One strategy MUL usedto lure its suppliers to locate nearby was to share its surplus power. Given theinadequate local power supply, MUL invested in a gas-based captive powerplant (Gulyani 2001a). It skillfully negotiated with the government to obtaingas and construct a dedicated gas line. By overcoming the power bottleneck, italso averted component delivery problems due to distance and erratic powerand realized JIT deliveries. MUL also worked with its suppliers in other parts ofthe country, thus facilitating the sourcing of components by other firms suchas Ford in Chennai and Daewoo in Delhi.


120

Tab

le 5

.3In

tra-

Firm

Fle

xib

le A

rran

gem

ents

fo

r M

ass

Pro

du

ctio

n (

Ear

ly 1

99

0s)

Yea

r Sa

les

Emp

loye

esFo

reig

n

Bu

yers

Go

als

Mea

sure

sO

utc

om

esEs

tabl

ish

ed(m

$)C

oll

abo

rato

r

UC

AL

1990

10.8

430

0M

iku

ni,

M

UL,

do

mes

tic

Cu

t co

sts

Bet

ter

inve

nto

ry

Co

sts

red

uce

d,

Fuel

Ja

pan

man

agem

ent

qu

icke

r p

aym

ent

Sy

stem

to v

end

ors

Ind

ia

1949

35.0

02,

500

T&

N, U

KT

ELC

O,

Cu

t co

sts,

In

tern

al

Scra

p r

edu

ced

, Pi

sto

ns

do

mes

tic

enh

ance

au

dit

pro

du

ctiv

ity

rose

q

ual

ity

fro

m 7

.5 p

isto

ns/

man

-ho

ur

to 8

.5

in a

yea

r.

Sun

dar

am-

1976

9.88

NA

NA

/NK

TEL

CO

, C

ut

cost

sR

edu

ce r

aw

Co

sts

red

uce

d,

Abe

x d

om

esti

c m

ater

ial

qu

icke

r p

aym

ents

(b

rake

Fo

reig

n o

rigi

nal

st

ora

ge s

pac

eto

ven

do

rsli

nin

gs)

equ

ipm

ent:

M

B, I

nd

on

esia

Bra

kes

1964

63.0

02,

325

Luca

s, U

KA

sho

k-Le

ylan

d,

Cu

t co

sts,

C

ellu

lar

Co

sts

red

uce

d,

Ind

iao

ther

s. F

ore

ign

en

han

ce

man

ufa

ctu

rin

gq

ual

ity

imp

rove

d,

ori

gin

al

qu

alit

yre

liab

le d

eliv

ery,

eq

uip

men

t:

smal

l lo

ts,

Var

iou

slo

wer

ed

inve

stm

ent,

set

u

p t

ime

red

uce

d,

accu

rate

co

stin

g p

oss

ible

, jo

b en

rich

men

t.

121

Puro

lato

r 19

7616

.43

429

NA

/NK

MU

L, d

om

esti

c In

crea

se

Au

dit

, tra

inin

g,

Lin

e re

ject

s fe

ll

Ind

ia

Fore

ign

ori

gin

al

pro

du

ctiv

ity

exp

lici

t fr

om

2%

to

1%

, (fi

lter

s)eq

uip

men

t:

pro

ced

ure

s,in

ven

tory

B

osc

h (

Spai

n),

ve

nd

or

red

uce

d f

rom

M

B, I

nd

on

esia

.as

sess

men

t, J

IT,

30 d

ays

to 2

1.

man

agem

ent

Pro

du

ctiv

ity

revi

ew m

eeti

ngs

.in

crea

sed

fro

m

232

filt

er/

man

-day

to

376

. Ex

po

rts

rais

ed

to 3

0%.

Asa

hi

1987

12.5

424

8A

sah

i G

lass

,M

UL,

do

mes

tic

Incr

ease

sh

ift

Equ

ipm

ent,

R

edu

ced

tim

e lo

ss

Gla

ssJa

pan

(no

dir

ect

cap

acit

y h

eati

ng

of

furn

aces

fro

m

exp

ort

s)(1

000

pie

ces

con

dit

ion

s,

19.5

% t

o 9

.5%

in

to

150

0)et

c. a

sses

sed

. tw

o y

ears

, ou

tpu

t Lo

ad i

ncr

ease

d

incr

ease

d b

y 30

%,

fro

m 4

to

tu

rno

ver

by 2

0%,

6 p

iece

s.p

rice

s fe

ll b

y 13

%.

Engi

ne

1959

18.0

21,

506

NA

/NK

Ash

ok-

Leyl

and

, In

crea

se

Rea

sses

s fl

ow

s,

Red

uce

d w

aste

, V

alve

sd

om

esti

c.p

rod

uct

ivit

y o

f ba

lan

ce c

apac

ity,

in

crea

sed

ou

tpu

t,

Fore

ign

ori

gin

al

man

ufa

ctu

rin

g tr

ain

ing.

enh

ance

d q

ual

ity,

eq

uip

men

t:

syst

ems

incr

ease

d

K.H

.D. G

erm

any

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The results have been remarkable. In 1999–2000 MUL produced nearly400,000 vehicles, double its 1994 output. In tandem, the supplier industryadopted flexible practices to cope with rising demand, leading to significantbackward integration. For example, a new press shop was established under ajoint-venture arrangement. The unit is housed on MUL’s premises. Like otherjoint-ventures, such collaborations reduced the required investment freeingup capital for other uses and maintained tight links to keep up with expand-ing output. Also, between 1993–94 and 1994–95, the production of CNCmachine tools in India increased by 77% (from 484 to 858), and in sales by56%. Similarly, metal-working machine tools grew 48% (from 4,999 to 7,400)and in sales by 44%, indicating a deepening of the local supplier industry(Confederation of Indian Industry (CII) 1996). This backward integration hadan unusual effect on firms, which were vertically integrated. For example, theadoption of CNCs by component suppliers compelled TELCO, which is alarge commercial vehicle and a CNC manufacturer to subcontract parts andcomponents as well (Alam 1998: 310).

3.4 Enterprises and unions

In addition to business–government partnerships and inter-firm collabora-tions, Indian firms, like their counterparts elsewhere, have instituted a varietyof internal organizational changes to increase output, productivity, andquality. There are two levels at which reorganization of work has been carriedout and both of them involve the interplay of power, politics, and economics(Mathur 1991). The first is the overall industrial relations system, which is aproduct of the larger national political economy and particular local charac-teristics. The establishment of enterprise unions in certain regions divorcedfrom the larger party-based unions is an example of how particular industrialrelations could be politically used to increase output (D’Costa 1998). Thesecond is the mobilization of workers on the shopfloor through technologi-cal and organizational means such as cellularization and teamwork res-pectively. Built into this are a variety of pecuniary and non-pecuniary socialand cultural initiatives that tends to undercut rampant hostilities betweenmanagement and workers.

A. Managing industrial relations

Traditionally India’s industrial relations in the organized sector have beenconflict-prone.7 The political party-affiliated trade unions in most largeworkplaces have fragmented labor and immobilized management (VenkataRatnam 1995). There is little bargaining power among the fragmentedIndian trade union movement, with the exception of public sector employ-ees who are perceived as “pampered citizens” (Johri 1992). Industrial rela-tions in India, patterned after the confrontational Taylorist industrialrelations of the West, have contributed to labor militancy, low morale, andopposition to new production systems. Multiple unions based on political


parties and external union leaders, who are not employees of firms in ques-tion, often make collective bargaining a nightmare in India. However, in allthe new automotive joint-venture plants, the workers are under companyunions. Their managers have explicitly dictated the formation of only oneunion and barred the union from any political party affiliation, makingnegotiation easier. Extra-firm attempts by political parties to organizeworkers under party-affiliated trade unions have been thwarted by manage-ment. While the DCM-Toyota (now-defunct) management did not want anyunion, MUL’s management explicitly sought to create an enterprise union.8

In most cases the workers themselves opted for internal enterprise unions.For example, at its inception, MUL proactively avoided a strike organized byexternal agents by creating a conducive environment for greater worker par-ticipation in the production process. This was evident also in the mostrecent Toyota-Kirloskar joint-venture, where a strike by the union on wageissues was quickly settled to maintain production (Plant Visit, Bedadi, March2003). From a supply vulnerability point of view it is clear that workers mustbe flexible to maintain uninterrupted production.

Union membership at MUL is high: 80% to 100% of the workers belong tothe company union. Past attempts by central trade unions, such as centristCongress party controlled Indian National Trade Union Congress (INTUC)and the more left-leaning Hindusthan Mazdoor Sangh, to organize MUL’sworkers failed. The failure itself was a result of the struggle between differentfactions of workers, state intervention, and the management’s pre-emptivestrategy in “democratizing” the union, facilitated by the ethnically heteroge-neous workforce (Mathur 1991: 50–51). Furthermore, MUL in settling labordisputes unilaterally, demanded major concessions, including the formationof a single union independent from political parties, and the reliance on con-sultation and cooperation rather than strikes and agitations (Mathur 1991:113). Labor peace was secured with attractive incentive packages. MULworkers recognized themselves as more privileged than their counterpartselsewhere, evident from the significant upward mobility of workers withinthe organization. Also MUL’s few thousand workers are electorally insignifi-cant in India and therefore MUL may not be attractive for the larger party-based central trade unions. Lay-offs are rare and redeployment of workers inother divisions is common when production declines. With most productiondecisions in the hands of management, single unions help prevent over-staffing. This adds to a negative kind of flexibility, encouraging hiring ofcasual labor when output expands. However, given the near-impossibility of laying off workers when production declines, DCM-Toyota has justifiedthis strategy as an economic necessity. As a result labor productivity is kept atrelatively high levels.

Most workers in these plants are young, high school trained, andamenable to the rigor of tight production schedules. The average age atEicher-Mitsubishi is 29 and many workers have a rural background.


Employers in these plants strategically hired workers who were not fromother auto-related enterprises so as to facilitate the transfer of new production practices and avoid polluting a presumably peaceful “workenvironment” (Mathur 1991: 29). Lacking industrial experience the newrecruits were generally unprepared to organize unions and secure ade-quate representation. They found themselves at the center of tensionsbetween selected labor and political party leaders and management.Others on the shopfloor at these plants have been recruited from the gov-ernment-run Industrial Training Institutes (ITIs). These are vocationaltraining schools which supply trained workers for Indian industrythrough a legally mandated year-long apprenticeship program. ITIs andsubsequent employment in auto firms facilitates mobility for some of thesocially weaker ethnic and caste groups.

Employee turnover is generally low and these jobs are coveted. Forexample, in 1991, at the minimum, a MUL worker could earn Rs. 2,295 permonth, equivalent to $92 after devaluation. This translates to an annualincome of roughly $1,100, representing three times the per capita GNP ofless than $350. This does not include production incentives, meals, somemedical reimbursement, children’s education, encashment of leave, anduniforms. Most vacancies are filled through internal promotions; in a fewcases fresh ITI graduates and engineers for higher-level positions are exter-nally recruited. This internal labor market and inter-firm immobility inconjunction with incentives enhances worker loyalty, job satisfaction, andan averseness to labor militancy.

The response of traditional trade unions in India toward flexible indus-trial relations is ambiguous. If flexibility is simply perceived as numericalflexibility, that is a “hire and fire” policy then most unions are against it. They are also against company unions (Personal Interview with TradeUnion Leaders, Delhi 1992). If, however, flexibility encompasses the var-ious Japanese-type practices that increase production efficiency, thenseveral union leaders appear to be favorably disposed. They see it as a nec-essary step in coping with economic challenges.9 They believe that empow-ering the worker, even with nominal changes such as providing commoncanteens, office space, and uniforms can have a significant psychologicalbearing on the Indian worker. Trade union leaders from the left and theright had little to say about the actual shopfloor innovations. Leftist leadersuncritically accepted the western-rationalist approach, arguing that Indianunions are not secular.10 Unions on the political right, sharing the nation-alist critique of foreign investments, were generally unappreciative of therelationship between industrial peace and flexible production systems.Their main concern was the reduced membership in their unions.

Unlike the Japanese system, workers in Indian firms are union memberswhile supervisors cease to be so, marking a sharp division between workersand supervisors. Workers can and do move up to the staff/supervisory level,


although in these new plants very few workers have actually moved to the supervisory level. Vacancies are largely filled through internal promo-tions. Inter-company transfer of employees has been a feature at Eicher-Mitsubishi, where surplus workers from Eicher Tractors were deployed.There is no detailed occupational classification of workers in these plants.There are several grades (or levels) of workers that vary from company tocompany. These grades are based on experience and skills. At MUL thereare 19 levels, including staff and managers, with the first 7 for workers.Eicher-Mitsubishi had only 5 levels. Flatter organizational structure andfewer skill-based distinctions are part of flexibility. The degree of skill varia-tion is small for low-volume producers like Eicher-Mitsubishi and DCM-Toyota. They subcontract a large part of the work or import finishedcomponents. In the early 1990s, the ratio of production workers to non-production workers (including staff and executives) was 2.58 for MUL, 0.43 for Eicher-Mitsubishi, and 0.72 for DCM-Toyota. The large differenceis primarily due to the difference in scale of production and the degree ofin-house production, high for MUL compared to the JLCV units.

Non-confrontational industrial relations can be partly explained by indus-trial location where limited job opportunities and relative isolation frommajor union centers deter any major labor movement. A large part of MUL’sworkforce hails from the surrounding area of Haryana, largely an agrarianstate. All three sites, Gurgaon, Surajpur (both near Delhi and host to MULand DCM-Toyota respectively) and Pithampur in Madhya Pradesh state (for Eicher-Mitsubishi) were initially selected by Japanese investors forIndustrial Model Towns. The chief criterion for such towns has been “indus-trial climate,” a euphemism for peaceful industrial relations compared toolder industrialized areas such as Kolkata or Mumbai. With economic liber-alization, state governments are compelled to promise industrial peace toattract foreign capital. Like Haryana, Madhya Pradesh has become anotherhost state to greenfield plants. More recently, Hindustan Motors, headquar-tered in Kolkata, decided to locate its join-venture with General Motors inGujarat state. This is part of a global trend whereby greenfield plants adopt-ing flexible practices tend to locate away from industrialized areas (see Law1991).

B. Introducing new technologies and organizational changes

On the technological front, cellularization, automation, and incrementalinnovations have been quite effective in reorganization of production.11

With few models, die changes at MUL have been infrequent, perhaps twoor three times a day, with average die-change time in the mid-1990staking 10–15 minutes. This compares well with Japanese standards.12 Diemaintenance and repair are undertaken only by specialized workers.13

However, as competitive pressures rise along with wage costs, labor pro-ductivity for the firm as a whole is raised through increased automation.


Enterprise performance also has been improved through organizationalchanges that demands worker flexibility. For example, in the early 1990sMUL expanded its annual capacity from 130,000 units to 180,000without significant outlays on new capital equipment. This was techni-cally possible by increasing the number of strokes per minute of the pressshop (the press shop being a major bottleneck). But this solution had to be accompanied by an organizational one that called for workers’ contributions. Lunch breaks had to be staggered and equipment mainte-nance was shifted to non-production time. Both required significantadjustments on the part of workers. Various other incremental technicalchanges released labor time for additional production.14 In early 1997MUL was operating at 40% above its installed capacity of 250,000 units, afeat made possible by intra-firm flexibility.

Sona Steering at the behest of MUL introduced cellularization as well.Sona deployed work reorganization and flexible machinery to reduce pro-duction costs and increase output. The results of cellularization in SonaSteering have been remarkable. From an earlier practice of roughly oneworker for every two machines, cellularization increased the ratio to elevenmachines per worker. Sona’s production doubled even as the number ofshifts was reduced from three to two (Sona Steering’s Chairman’s address atACMA Annual Meeting, New Delhi 1994). Thus, since 1994 Sona’s outputof column and rack and pinion steering assembly increased sharply,whereas labor remained virtually the same (from 415 to 418). The numberof operators per machine, per shift was also reduced – from two to one.This is more than simple automation. The resulting “surplus” labor wasredeployed in maintenance support for the machine operators, whileothers were put into new production lines. Sales nearly doubled between1994 and 1996 (from Rs. 656 million to Rs. 1,219 million) with sales perworker increasing from Rs 1.58 million to Rs. 2.92 million (Sona GroupCompany Documents, 1996).

Large buyers like MUL reduced their vulnerability by encouraging theirsuppliers to adopt a system of “self-certification.” This allowed vendors likeSona Steering to find ways of cutting costs. Sona Steering attempted toeliminate several costly inspection procedures by reducing manpower costsand assembly time and raising quality. Here too, the cooperation of itsworkers was necessary since virtually all the elements of self-certificationrequired collective efforts and technological learning on the shopfloor.Simple gestures such as delivering paychecks directly to workers on theshopfloor by the personnel department rather than having workers queueup for them appeared to impress Sona Steering’s workers.

Cellularization also has built-in quality control. Because each worker usesthe output of one machine as the input of another, defects are reducedsignificantly. In the 1990s, Mahindra and Mahindra, long-time Indian producer of utility vehicles and tractors, aggressively introduced extensive


“Business Process Engineering” (Personal Interview, Mahindra and MahindraBombay, 1991, 1996). This program entailed retooling, cellularization, andother shopfloor innovations to increase output and productivity. Thecompany brought in the UK-based Lucas Engineering Systems “to changethe company’s manufacturing methods to contemporary Western andJapanese styles” (Business World 1994: 13; Business Today, November 51995). Cellularization requires constant vigilance on the part of themachine operator and provides a sense of responsibility. The machinesthemselves are reprogrammable and designed to handle several variants ofa given process, ensuring not only quality of diversified output but alsoskill development.

In conjunction with cellularization, continuous learning on theshopfloor has been emphasized by institutionalizing teamwork in manyenterprises. For example, quality circles (QCs) comprising a team of workershave been deployed to solve technical problems. In the mid-1990s MULhad 34 QCs on the shopfloor, with 50 in the entire organization.15

Members meet one to three times a month to discuss their productionneeds and offer suggestions. Such issues could be related to improvising aspecial tool, which could call for changes in technical parameters to beused by the tool room. These meetings take place after the shift is over,perhaps for half an hour, or during the period when production has beenstopped, making volunteerism an essential part of problem-solving. Themeetings are informal. Eliciting suggestions convey a sense of belonging,narrowing the prevalent hierarchical gulf between workers and supervisorsin Indian industrial workplaces.

In 1991–92 at MUL there were nearly 50,000 suggestions, averaging abouttwo suggestions per person per month. Company documents indicate thatthis average has been maintained through the 1990s. In 1992 a cash rewardof Rs. 2 per suggestion was made, irrespective of acceptance or rejection ofthe suggestion, and 10% of cost savings is given to the employee.

MUL also rewards its employees for meeting production targets. For example, in the early 1990s a regular bonus equivalent to one and a half month’s salary was given to employees earning less than Rs. 2,500 a month.16 This bonus is not dependent on the performance of the com-pany. Instead a production incentive scheme pays a flat amount for every300 vehicles, often providing an additional 1,000 rupees per month for aworker. This incentive ensures meeting production targets, an objectivecritical in an increasingly deregulated economic environment. Althoughpeer pressure and employee evaluation on the basis of suggestions mayunderlie the rising rate of suggestions at MUL, the cash rewards and the“Suggestion of the Year” award are excellent incentives for an industrialwork force that is otherwise discouraged from taking initiatives.17

Between 25–30% of the total suggestions were implemented, compared toover 90% in some Japanese firms.18


Enterprise unions lack political power but their members have not beencompletely excluded. On the contrary, a paternalistic relationship hasensured job security, high wages, and some decision-making power inexchange for industrial peace. There is a once-a-month formal consultationbetween management and labor at MUL. In the ten years of MUL’s opera-tion there have been very few labor-management disputes. Some manage-ment decisions, albeit non-critical, are taken in consultation with unions.For example, worker representatives sit on the Canteen Committee anddecide on the menu. These canteens are used by all employees of MUL.19

During local festivals unions negotiate and decide on the value of the giftsto be given to workers by the company. In other enterprises such as Eicher-Mitsubishi a mix of both liberal democratic and paternalistic relationshipshave existed. At Eicher-Mitsubishi management “takes care of people’s per-sonal lives” (Interview with Eicher-Mitsubishi official, Pithampur 1994). Thecompany provides housing, loans, support for children’s education, etc. toits workers to promote teamwork and foster familial relationships amongand between workers and management. Enhanced communication by man-agers is facilitated by morning meetings, formal and informal grievance pro-cedures, and a general “openness” toward worker problems. Group valuesare inculcated largely in an apolitical context. Rather than lay off workers,the company transferred its “surplus” employees to another unit (EicherTractors). These measures, however, were not effective in transforming theworkplace for increasing diversified output.

4 Challenges to the contemporary mode of capitalist regulation

Notwithstanding the significant institutional changes on the supply side that have contributed to market growth, the transition from the state-led model of capitalist development to the new, more flexible system of production has been partial even within the automobile sector. SeveralIndian firms have been unable to cope with the new technological andorganizational demands of modern production. Both institutional rigiditiesinfluenced by national and regional factors and the limited structural trans-formation of the Indian economy continue to hinder a smooth transition.It is not surprising to witness established Indian car producers such asHindustan Motors and Premier Automobiles confronting severe industrialstrife and market pressures. At the same time, as discussed in the previouschapter, excessive competition in the Japanese-inspired light commercialvehicle segment established in the mid-1980s hurt the segment. Aside fromthe institutional constraints to bringing about industry-wide organizationaland technological change, the common factor that plagued the olderIndian car producers and the new Japanese LCV manufacturers was theirinflexibility in introducing competitive products. This was largely due to


lack of economies of scale. The increased competition from MUL and sub-sequently from other MNC-linked entrants squeezed the long-time car pro-ducers, while too many new producers with similar new products in theLCV segment effectively cut into each other’s market. In both cases lowvolume of production failed to bring down relative costs and increasequality. Only those firms that already enjoyed economies of scale such asMUL, because of its firstcomer advantage, and TELCO, which was already adominant producer, could exploit the new market opportunities thatopened up with industrial deregulation.

4.1 Established car producers

The older established car producers who did not or could not introduceflexible practices confronted production and market challenges in the newregime of capitalist regulation. In 1980 both Hindustan Motors (HM) andPremier Automobiles (PAL) together had 67% of the car market. By 1990,their combined share had fallen to about 32%, which by 2000–01 hadfallen to about 5% (ACMA 2002). They succumbed to the competitive pres-sures generated both by MUL’s large volume of high quality output and bythe additional multinational players from South Korea, Japan, the US, andWestern Europe.

It is of course entirely understandable why the two older firms could nottransform themselves internally to adopt more flexible approaches. Heavylegacy problems encompassing the institutional, technological, and businessstrategy areas held them back. These were establishments that matured in anera of heavy protectionism, contributing to technological obsolescence (PlantVisit, PAL, Bombay, September 1991). They operated as monopolists in atightly regulated market. They were also products of the older industrialsystem, driven by mass production concerns in which vertical integrationwas of strategic interest. Both plants were located in India’s old industrialheartlands: Kolkata in the east and Mumbai in the west. They have been sitesof strong labor unions, strengthened in the case of HM by the leftist rulingparty in the state of West Bengal (Personal Interviews with HM Trade Union,Uttarpara, December 1995). Consequently, in an era of outsourcing and ver-tical disintegration, these firms could not extricate themselves from theirhigh-cost, inefficiently produced, shoddy vehicles. Their responses have beenat best ad hoc to stem their decline in market shares.

Both firms in the mid-1990s established technical collaborations withJapanese manufacturers by importing transmissions and engines from Isuzu(HM) and Nissan (PAL) and obsolete dies for body panels. There was nosignificant impact on the performance of these firms except to temporarilydefer the inevitable competitive pressure from firms such as MUL thatdeployed superior governance systems. Later both firms formed other joint-ventures – HM with General Motors and Mitsubishi; PAL with Fiat andPeugeot. For HM adapting to the new regime of regulation has meant


moving investments out of the state. HM’s joint-ventures with Mitsubishiand GM were respectively in Tamil Nadu in the south and Gujarat in thewest. Today, HM is no longer a partner in the GM venture in India,although it has become an important supplier of critical components suchas engines and transmissions to GM. In the late 1990s PAL was plaguedwith industrial strife, leading to suspension in production, and bickeringamong the two foreign partners Peugeot and Fiat and PAL. The companywas reformed into a PAL-Fiat venture called Ind Auto Ltd., while Fiat with-drew PAL’s venture with Peugeot. Fiat also has its own 100% subsidiary inIndia, currently producing the relatively successful Uno and Palio models.

4.2 TELCO and the Japanese LCV producers

The Japanese-inspired LCV (JLCV) firms failed to overcome supply bot-tlenecks and attain economies of scale. Established soon after MUL inthe mid-1980s their market share has been more or less stagnant overthe last 12 years. In 1989, the Japanese joint-ventures had a combinedshare of 33% of the Indian LCV market or about 12% of the total com-mercial vehicle market. Despite their recent vintage and the involvementof Toyota, Nissan, Mazda, and Mitsubishi offering contemporary prod-ucts, their total market share of commercial vehicles was under 10% in1990. In 2000–01 their shares of LCV market and the total CV marketswere 31% and 13% respectively. Today the Toyota venture is defunctand Nissan has sold its equity to Mahindra and Mahindra. It is logical toargue that low output was a result of low demand for LCVs. However, acloser examination of the data reveals that LCV demand has increasedsince the early 1980s paralleling the growth of the commercial vehiclesegment since the 1970s (Table 5.4). Though the Japanese firms createdthe LCV niche in India, it was TELCO, specializing in heavy commercialvehicles, that gained the most in this segment. In 2000–01 TELCO cap-tured 63% of the LCV market (D’Costa 2003c: 118). This counterintu-itive outcome was largely a consequence of scale economies, whichTELCO possessed.

So what did TELCO do right that the Japanese joint-ventures in theLCV market did not? The key factors were the effective adoption offlexible industrial practices, which overcame supply bottlenecks andtapped worker skills. TELCO’s learning was made possible by long indus-try experience, market familiarity, and increased throughput, a featurethat the Japanese LCV firms found daunting. TELCO did not have tointroduce JIT in its subcontracting relationship in part because it hadalready cultivated long-term, reliable partnerships with its suppliers,many of them located in close proximity to its operations in Pune.However, the LCV firms such as DCM-Toyota and Eicher-Mitsubishiattempted to introduce various forms of flexible practices that wereneither deep nor system-wide (Plant Visits 1991, 1992, 1994). Market


131

Tab

le 5

.4R

ecen

t C

han

ges

in t

he

Ind

ian

LC

V M

ark

et b

y F

irm

s

1994

–95

1995

–96

1996

–97

1997

–98

1998

–99

1999

–200

020

01–0

2

Un

its

% s

har

eU

nit

s%

sh

are

Un

its

% s

har

eU

nit

s%

sh

are

Un

its

% s

har

eU

nit

s%

sh

are

Un

its

% s

har

e

Ash

ok-

1,32

71.

4312

,342

1.81

2,26

22.

661,

279

1.97

245

0.44

510

0.83

453

0.82

Leyl

and

Baj

aj

24,0

3525

.90

28,0

2721

.66

8,02

39.

435,

776

8.89

2,77

25.

004,

790

7.83

2,07

23.

74T

emp

o

Dae

wo

o

2,75

42.

972,

045

1.58

765

0.90

204

0.31

––

––

––

Mo

tors

Eich

er

4,80

25.

175,

913

4.57

6,53

17.

685,

696

8.75

5,29

99.

576,

956

11.3

69,

638

17.4

1M

oto

rs

Hin

du

stan

2,

079

2.24

2,66

82.

01–

––

––

––

––

–M

oto

rs

Mah

ind

ra

1,23

81.

432,

093

1.62

1,57

51.

853,

017

4.64

––

––

––

(Zah

irab

ad)*

Mah

ind

ra &

4,

487

4.83

4,63

63.

584,

275

5.03

4,09

36.

294,

589

8.29

4,42

17.

225,

908

10.6

7M

ahin

dra

Swar

aj

3,50

73.

784,

500

3.48

4,00

64.

712,

931

4.50

2,87

75.

204,

010

6.55

6,36

011

.49

Maz

da

TEL

CO

48,5

7652

.43

77,1

9359

.65

57,6

3267

.75

42,0

7364

.66

38,5

8969

.69

38,5

2662

.94

30,9

2955

.87

Tota

l92

,805

100.

0012

9,41

710

0.00

85,0

6910

0.00

65,0

6910

0.00

55,3

7110

0.00

61,2

1310

0.00

55,3

6010

0.00

Sour

ce: A

uto

mo

tive

Co

mp

on

ents

Man

ufa

ctu

rers

Ass

oci

atio

n (

vari

ou

s ye

ars)

.N

otes

: – d

eno

tes

no

pro

du

ctio

n.

* Fo

rmer

ly a

jo

int-

ven

ture

wit

h N

issa

n M

oto

rs o

f Ja

pan

.

fragmentation exacerbated the LCV problems. Also, macroeconomicswings, such as the exchange rate, created havoc with yen-denominatedimports for JLCV firms. Between 1984 and 1987, the Japanese yen appre-ciated nearly 200% (Mathur 1991: 92).20 As a result capacity utilizationwas abysmal and costs prohibitive. For example, DCM-Toyota had a uti-lization rate of less than 20% in the late 1980s (computed from Mathur1991: Figure D.1). The combined LCV market share of the four JapaneseLCV units fell from 31.2% in 1988 to under 20% by 1993–94.

In contrast to the JLCV firms, TELCO facilitated learning for qualityimprovements and process control. Though TELCO is not known for itsexplicit application of Japanese-type flexible practices, it has cultivatedcooperative arrangements with its suppliers and always has had a goodwork environment for its employees. It also capitalized on the LCV marketby relying on its in-house engineering capabilities, interchangeable partsof sufficient volume, and economies of scope (Lall 1987). Over the yearsTELCO built up a reputation for its rugged vehicles well-suited to Indianconditions and its wide service network. It introduced its own models,TELCO 407 and 608, and competed directly with the newly establishedJapanese LCV producers, capturing over 50% of the LCV market within afew years. It has one of the most advanced machine tool industries,capable of manufacturing dies at around 25% of the Japanese cost(Kathuria 1996: 215). Consequently, it could develop markets rapidly, in aflexible way. Thus in the 1980s, TELCO’s introduction of LCVs was veryrapid, 18 months for the new 407 model, compared to the much longertime required by global firms (Kathuria 1996: 223–225).

TELCO relies on a basic platform to produce variations of a given pro-duct, approximating mass customization. The Japanese LCV units relied onexpensive imported equipment and components. Whereas low volumeshurt the Japanese LCV manufactures, TELCO did not face this problem.TELCO’s output of commercial vehicles was high, thus enjoying significanteconomies of scale, especially in the utilization of its equipment. By themid-1980s TELCO was already producing 50,000 CVs, whereas its nearestIndian rival Ashok-Leyland produced less than a third of TELCO’s output.The four Japanese joint-ventures combined barely produced a third ofTELCO’s 1985 output in 1990, their peak production year. By 1990, TELCOwas producing over 80,000 vehicles and by 1999–2000 nearly 172,000including 57,000 cars and 39,000 LCVs. Interestingly, TELCO’s flexibility is partly due to its high degree of vertical integration, and its in-house engineering skills. This resulted in reduced “innovation cycle time” andenhanced market share in the LCV segment. Increasingly TELCO is movingtoward flexible practices by introducing QCs, reconditioning its mass production machines, and reducing inventories. This contrasts with theteething problems the Japanese LCV segment has faced in reducing costsand enhancing marketability of its products.21


TELCO was refining its own longstanding cooperative sourcing practices.TELCO’s growth took place under the old mass production system; its verti-cal integration during the 1977–88 period was about 40% (Kathuria 1996:197–205), high by industry standards but considerably less than what prevailed in the 1960s. Consequently, TELCO had other competitiveadvantages over the JLCV firms, such as in-house manufacturing capabilityin dies, forgings, and machine tools. However, over the years TELCO has also successfully nurtured over 3,000 small-scale suppliers by maintain-ing a steady demand for their products (Personal Interview, Bombay,September 1991). TELCO, like its Japanese counterparts, has begun to dev-erticalize, relying on its previously established suppliers. TELCO, throughtechnical and financial arrangements, was instrumental in developing thesupplier industry. Most large suppliers found TELCO to be “extremelycooperative” (Kathuria 1996: 208; Personal Interviews, TELCO Officials,Bombay, September 1991). Thus TELCO was already practicing institution-alized cooperation with its suppliers more deeply than the newer JLCVfirms.

In the 1990s TELCO, from a position of strength, deepened its inter-firmarrangements. This was a consequence of the increasing maturity of thecomponents sector, increased competition in the machine tool sector, andthe entry of numerous transnational vehicle manufacturers. It has decen-tralized production as it begins to introduce product variability, from heavycommercial vehicles to light ones and utility vehicles. Today it is an impor-tant producer of passenger cars having designed the Indica model in India.TELCO has captured 9% of the Indian passenger car market and is ready toexport its cars through UK’s MG Rover to Europe (Indiacar.net 2003). Thisflexible response is due to its technological capability, extensive vendordevelopment, and cordial labor relations. In contrast, the Japanese LCVsegment failed to institute flexible practices, which were easier to introducewith growing volumes of production.

Given low volumes of production and higher costs due to imports, theJapanese LCV segment could not nurture a vibrant supplier base.22 Theirattempts to introduce various elements of flexible elements were feebleat best. For example, Eicher-Mitsubishi had a zero defect policy on the production line, placing significant responsibility on its suppliers.The problem was that there were very few parts to deliver in the firstplace since the unit was dependent on imported knocked-down kits fromJapan (Plant Visit, Pithampur August 1992). Four months lead time forimported kits implies there was little that the local plant could add inthe area of quick and reliable deliveries of components. This experiencewas replicated by DCM-Toyota as well (Plant Visit, Surajpur 1991, 1992).Both DCM-Toyota (later DCM-Daewoo, now defunct) and Eicher-Mitsubishi required fewer and a narrower range of parts. The lead timefor vendor supplied parts averaged three months for DCM-Toyota,


clearly indicating its inability to introduce more flexible governancesystems that would elicit a quicker response on the part of the suppliers.Moreover, DCM-Toyota has confronted part shortages as a result of workstoppages in supplier firms and by default relied on suppliers that MUL had nurtured. This again reflects not only the vulnerability of manufacturers on suppliers but also the significance of instituting favorable industrial relations among their suppliers to undertake flexibleproduction.

The Japanese LCV units tried to introduce various facets of flexibility. Forexample, both DCM and Eicher followed the Japanese “value-engineering”approach. This is a process by which firms try to reduce costs not only bybreaking down cost of inputs but by reducing waste or identifying redun-dancy in parts and material supplies without fundamentally altering thefinal product.23 This approach is significant as it demands a “trusting” envi-ronment for both buyers and sellers to conduct open discussions of coststhat are typically proprietary information under arms-length market trans-actions.24 However, given the limited supply base and instances of supplydisruptions the value engineering approach could at best have a limitedeffect. Furthermore, the JLCV producers confronted supply problems andhigher costs as they tried to increase local content because of their weakties to their suppliers.

Nevertheless, as the demand for novel products rose, the LCV producershad to cultivate new, reliable suppliers.25 Both Eicher-Mitsubishi and DCM-Toyota have benefited from MUL’s suppliers, indicating some spill-overeffects (externalities and sectoral agglomeration). However, the DCM plant,being in an industrial area near Delhi, had some advantage over Eicher,which was located in central India in Pithampur, Madhya Pradesh.However, in either case there has been little scope for just-in-time delivery.In the early 1990s, the lead time for vendor supplied parts averaged threemonths for DCM-Toyota. The company has not been immune to supplyshortages, even if most of these suppliers (60%) are within a radius of 150 km, a few of them as dedicated suppliers. More recently, however, thepurchase of the DCM-Toyota plant by Daewoo to produce cars has addedto the supplier synergy in the Delhi region, even though the production ofToyota-designed LCVs has virtually ceased (Gulyani 2001a: 133).

Weak supplier relations for the JLCV manufacturers have been accompa-nied by weak organizational changes. For example, unlike MUL, whereQCs were an important form of institutionalized cooperation within thefirm, the Japanese LCV producers did not seriously consider such arrange-ments. The low volume of production and high import content did notjustify such flexible arrangements. There were only three QCs in DCM-Toyota, whereas Eicher-Mitsubishi had non-mandatory QC groups. InDCM-Toyota, although several different elements of Japanese practiceswere initially instituted, labor conflicts over unionization in the 1980s


encouraged workers to resist offering suggestions (Mathur 1991: 93). Theturnkey nature of these projects meant that most technical problemswould have been already solved in Japan. Also, multiskilling of workersassociated with flexible industrial practices, was difficult to adopt in theseenterprises, due to both limited training opportunities and rigid “work torule” norms in many industrial enterprises. Work to rule practices areresults of labor-management bargaining, which assigns specific tasks to specific categories of workers and hence prevent management frommoving workers from one task to another.26 Moreover, little variety inoutput itself made multiskilling redundant. Opportunities for suggestionswere also limited due to undiversified output and small volumes of production.

For both political and production reasons instituting flexible practiceswas superfluous in these enterprises. For example, kaizen in Eicher, aJapanese shopfloor practice which encourages workers to make incrementalimprovements continuously, was carried out when the production line hadstopped. This could mean that there were too few improvements to bemade if the line stops were infrequent. It also appeared that this was theonly opportunity for kaizen when such improvements in process could be made rather than adopting a more organic approach to problem-solving.On the other hand, if line stops were due to defective parts or shortages,which was likely to be high at the initial stages there were few improve-ments that could be made in the shopfloor.27 It was reported that everyyear between two and three thousand kaizen suggestions were imple-mented. However, it is unclear as to the significance of these efforts onEicher-Mitsubishi’s performance. Often “continuous improvements”entailed simple tasks such as cleaning the work space, carrying out preven-tive maintenance work, and finding ways to improve the effectiveness oftools used in the manufacturing process. These activities, while conduciveto a healthy work environment, are limited by their small scale of produc-tion.28 Eicher’s output stood at 8,000 units annually, with a market share of8% of the LCV market.

5. The Indian supplier industry today

The contemporary Indian supplier industry is a testimony to the selectiveadoption of flexible industrial practices and attempts toward establishing a new mode of capitalist regulation, which is consistent with neo-liberal economic policies and the opportunities thrown open by the embourgeo-isment process. As Table 5.5 shows, backward integration in the Indianautomotive industry has been quite remarkable. Between 1981–82 and1991–92, the production of components increased by 47% and by2000–01 the increase was fivefold and nearly threefold in rupee and USdollar terms respectively. With the full deregulation of the automobile


136

Tab

le 5

.5E

xp

and

ing

Mar

ket

fo

r th

e In

dia

n C

om

po

nen

t In

du

stry

(R

s. a

nd

US$

, in

mil

lio

ns)

Ap

ril/

Mar

chEn

gin

e Pa

rts

Elec

tric

al P

arts

Tra

nsm

issi

on

&

Susp

ensi

on

Eq

uip

men

tO

ther

Par

tsT

ota

lSt

eeri

ng

Part

sB

raki

ng

Part

s

1961

–62

80.7

86.

609.

4236

.85

8.26

36.4

117

8.43

1971

–72

479.

4412

4.66

273.

2630

3.80

65.8

263

.64

1,31

0.63

1981

–82

2,52

9.98

897.

031,

680.

891,

150.

5523

1.03

290.

116,

480.

00(2

82.1

1)(1

10.0

2)(1

87.4

3)(1

28.3

0)(2

5.76

)(3

2.35

)(7

22.5

7)

1991

–92

10,4

91.7

32,

212.

176,

782.

523,

696.

051,

116.

701,

775.

7426

,074

.91

(428

.69)

(90.

39)

(277

.13)

(151

.02)

(45.

63)

(72.

56)

(1,0

65.4

1)

2001

–02

38,3

70.8

813

,000

.66

26,3

32.0

319

,556

.74

11,1

14.2

352

,998

.54

161,

642.

09(8

04.5

6)(2

72.6

0)(5

52.1

3)(4

10.0

6)(2

33.0

4)(1

,111

.27)

(3,3

89.2

9)

Sour

ce: A

uto

mo

tive

Co

mp

on

ents

Man

ufa

ctu

rers

Ass

oci

atio

n (

vari

ou

s is

sues

).N

otes

: US$

val

ues

are

in

par

enth

esis

, bas

ed o

n t

he

app

rop

riat

e o

ffici

al e

xch

ange

rat

es t

aken

fro

m G

ove

rnm

ent

of

Ind

ia, M

inis

try

of

Fin

ance

(v

ario

us

issu

es).

Dat

a is

fo

r o

rgan

ized

sec

tor

on

ly a

nd

do

es n

ot

incl

ud

e th

e Sm

all

Scal

e In

du

stry

sec

tor

as d

efin

ed b

y th

e G

ove

rnm

ent

of

Ind

ia.


industry in the mid-1990s, component production more than doubled inthe latter half of the decade. The small-scale sector has also expanded in tandem, having doubled its output between 1995–96 and 2000–01.29

Component production has witnessed significant growth, with an 18-foldincrease in rupee terms from 1984 to 2001 (ACMA 2001: 38) (Table 5.5).Even in US dollar terms the industry has done quite well. The componentindustry’s revenues stood at nearly $4.4 billion in 2001–02 and in 2004Indian exports of components crossed the one billion dollar mark for thefirst time, reflecting the incubation of an entirely new and competitivesupply system.

Today the Indian auto industry has become more quality conscious and correspondingly more export-oriented. As a result foreign companies with Indian operations are eyeing third country markets. For example,India exported 70,547 cars in 2002–03 compared to 25,468 in 1998–99 andnearly a quarter of a million of two- and three-wheeled vehicles. MUL’sAlto in the late 1990s has been quite popular in Western Europe, projectedto sell 24,000 units during 2002–03 (Indiacar.net 2002). Similarly, Hyundai,with a capacity of 150,000 units, plans to export 25,000 units in 2003 (just-auto.com 2003). Fiat and Suzuki announced plans to make India anR&D hub (Anand 2003). Also India’s component exports increased by203%, from Rs. 893 million 1995–96 to Rs. 27,750 million in 2001–02. Indollar terms the increase was over twenty-one fold.

The quality of Indian components has gone up considerably and buyersare no longer subject to arbitrary price increases for components.30 Themanufacturers of components are inducing quality improvements intheir equipment suppliers. The machine tool industry is a case in point.Over 75% of the industry’s output is produced by ISO 9000 certifiedfirms, a post-1991 deregulation development. By 2003, 378 of ACMA’sover 400 members were certified ISO holders (41 of these have environ-mental certification), an increase from 8.6% to over 75% of member firms(ACMA 1994, 1995, 1998, 2003). Two of ACMA’s members have beenrecipients of the coveted Deming Prize and one is a Japan Quality Medalrecipient as well, which recognize significant achievements in manufac-turing quality. Recently, Bajaj Auto and TVS announced plans to expandtheir operations to South East Asia (Vietnam and Indonesia now andChina and others later) (Sify 2003). The TVS Group has become a majorcomponents manufacturer in India. It has successfully captured the newopportunities arising from deregulation by diversifying and verticallyintegrating the company’s tightly controlled activities (Swaminathan1992: 194–195). The company benefits from economies of scale, makingit one of the leading Indian original equipment (OEM) suppliers for GM’sglobal operations. Indian firms are producing a wide array of productswith significant backward integration and increasingly targeting them forthe global market (Rai 2003).

6. Conclusion: capitalist regulation and industrial transformation

In investigating capitalist development in India, this chapter examinedmarket expansion from the supply side. Taking off from the state-ledembourgeoisment process as a source of demand, punctuated by supplyconstraints in the earlier regime of state-led accumulation, this chapterhighlighted the shift toward a new regime of capitalist regulation. Theinternationalization of the auto industry was accompanied by institu-tional responses to an emergent deregulated environment. The Indianauto parts and components industry met the challenges of transition,from one form of regulation to another, with new forms of intra-industry coordination and intra-firm collaborative arrangements to over-come supply bottlenecks and reduce costs. Capitalist developmentviewed through this industry suggests stronger interfacing of the Indianeconomy with the global one.

Today the Indian automobile industry is highly internationalized withleading multinational companies driving the growth of the industry.Output growth of the industry has been remarkable while the quality ofproducts has vastly improved. The foundations of this expansion havebeen concomitant industrial deepening through backward integration. In the last decade and a half the Indian parts industry has witnessedremarkable growth such that the industry is now poised to enter the globalmarket. This was unimaginable a decade ago. It is evident that the Indianauto supplier industry is entering a more mature phase thus contributing tothe overall transformation of the Indian automotive industry.

At the macro level the gradual liberalization of the economy and the industry prompted the industry to tap the world market for technologyand products. At the industry and firm levels efficiency and quality concerns led them to adopt what are generically known as Japanese flexibleindustrial practices. This response is consistent with the shift in capitalistregulation entailing more flexible production systems. Economic liberaliza-tion and internationalization accompanying embourgeoisment providedthe contextual foundations for the growth of the auto parts and com-ponents industry. Initiated by MUL’s aggressive efforts early on in institu-tionalizing cooperative arrangements with its suppliers and workers, therest of the industry followed suit. Supply vulnerability was reduced throughinter-firm collaboration and through worker involvement in the produc-tion process. However, not all firms have successfully adopted these prac-tices, as illustrated by the lackluster performance of the Japanese LCVproducers, suggesting the immense challenges confronting developingeconomies in inducing institutional change for capitalist transformation.Lack of economies of scale, a dimension still critical to unit cost reductions,was also responsible for this outcome.


Overcoming supply bottlenecks has been critical to the growth of theindustry. Even as late as 1997, nearly 15 years after MUL began production,the former Managing Director of MUL, Mr. R. C. Bhargava emphasized theimportance of supply bottlenecks to industry expansion in the followingway: “My problem is, in the next two years I don’t have the capacity forgrowth. So the best we can do in this period is to improve quality, work toreduce cost, improve the marketing network and generally consolidate”(Shipping Times, April 1, 1997: 2). In late 2003, MUL suffered severe supplyproblems from its near-dedicated supplier DCM Engineering. The three-month strike at the supplier firm crippled MUL’s production as 70% of thecylinder blocks were supplied by DCM Engineering (India Daily 2004). Limitsto capacity utilization are not only influenced by macroeconomic demandconstraints dampening vehicle sales but also by the technical and infrastruc-tural ability of components suppliers. The Indian auto industry illustrateshow flexible industrial practices to reduce costs and overcome mutual vulnerability has been a strategic response to meeting rising demand.

The deployment of flexible practices in India also suggests that suchpractices were not designed for greater product variability as is often thecase in high-income markets. Rather flexibility initially circumventedphysical, technological, and institutional impediments to increasedoutput, which over time led to greater responsiveness to meet a morediverse Indian market demanding greater output volume and productvariability. For example, with rising output and backward integrationboth MUL and TELCO could produce differentiated output. Both MULand TELCO focused on a competitive strategy that depended on a reliablesupply system. As demand rose increased production became the verybasis for learning-by-doing, quality improvements, and further backwardintegration. TELCO has been successful not only in the CV/LCV marketbut also in the passenger car segment.

There are over 450 ACMA members which represent the Indian compo-nents segment. Suppliers, such as Sona and TVS Group, have diversifiedtheir manufacturing base and are contributing to regional agglomerations(see Chapter 6). MUL’s third plant was located at its existing site, close toits suppliers rather than a distant coastal site, suggesting the importance ofproximity to flexible practices. The clustering of firms along with hightechnology enterprises could encourage innovation-mediated productionin the regions.

What then is the possibility of Indian firms participating in global production networks? Virtually all major multinational firms from the US, Western Europe, Japan, and South Korea are present in India. Indiansuppliers are expected to cash in on their production capability to meet theneeds of diverse multinational firms. Past efforts to reduce costs andincrease productivity will not have gone to waste. However, there are twocontradictory movements: with new players there is market fragmentation


at the assembly level, while at the same time there are increased opportuni-ties to exploit economies of scale and scope at the components manufac-turing level. With nearly thirty car models produced in India today,covering the compact, mid-size, and luxury segments, the market hasbecome highly competitive. Fragmentation is likely to engage firms in consolidating flexible practices so as to cope with demand variability.Standardization of parts and components (modular production, for ex-ample) will be one strategy to tackle the challenges of diversified qualitymass production. So long as national demand increases the implementa-tion of flexible systems will be facilitated, thereby making Indian productsinternationally competitive.

As oligopolistic competition heats up, MNCs are expected to consolidatetheir market control. Recently several Indian partners of joint-venturesrelinquished their equity in favor of multinational majority ownership. Forexample, foreign equity at Daewoo stood at 92% (before becoming defunctdue to the parent firm’s financial problems in Seoul now being acquired byGeneral Motors), Mercedes Benz at 76%, General Motors at 100%, Ford92%, Honda 90%, and Toyota 74%. Hyundai is the only multinational thatdid not start out as a joint-venture. Consequently, the entry of home-basedsuppliers of multinational auto firms is likely to spur increased competitionfor local components suppliers as well. This could either substitute or complement local suppliers, much depending on volume of output. Theimplication is that inter-firm and intra-firm flexible arrangements will haveto be deployed to greater depth to attain both mass production goals suchas cost reduction and flexible performance to increase quality and productvariability.

There is another possibility. As flexible production demands the proxim-ity of suppliers, MNCs will to have source many components locally. Hencethe diffusion of best-practices raises the possibility of Indian firms to insertthemselves into existing international production networks. With greaterdesign responsibility of parts suppliers in a subcontracting arrangement,flexible output in India suggests global integration of Indian suppliers.However, Humphrey (1999) has argued that with standardization ofmodular components globally, developing country firms, such as thosefrom India or Brazil, are likely to be excluded from participation. This isbecause large multinationals are using common platforms and designs forseveral of their overseas operations, making imports from familiar multina-tional suppliers important for local production. Additionally, with marketexpansion and WTO norms in place, foreign companies are likely toincrease their equity and engage their home-based suppliers. However,system-wide technological capability is expected to increase with expandedand increasingly diversified output. Continuing low labor costs in Indiaand the growing domestic market are likely to favor diversified output. Theconsolidation of flexible practices and the localization of the components


sector through a combination of tariffs, technology transfer, and FDI andwidening markets can make India’s selective participation in internationalmarkets more realistic. Already there are signs of such development. Forexample, India’s design and engineering capability is rated high by theindustry, given the relatively abundant supply of inexpensive skilledworkers and qualified engineers. Its competitive edge is evident by Toyota’sIndian hub for transmissions, Hyundai’s export base for small cars, andseveral other multinationals targeting India for outsourcing components.

What then can we say about capitalist development in India? Thegrowth of the Indian auto industry through backward integration is asign of successful industrial development. However, there are inherentcontradictions, namely uneven regional, social, and economic develop-ment. We take up the regional dimension of capitalist contradiction inthe next chapter by examining the institutional, political, and businessresponses to industrial decline in West Bengal, a state that boasts inde-pendent India’s first major auto company. The source of uneven devel-opment of the Indian auto industry is displayed by both success andpainful adjustments to a new regime of capital accumulation. Contra-dictions are also visible with excessive competition. For example, todaythere are nearly 15 car producers in India, with a total output of lessthan 0.7 million and installed capacity over one million units perannum. The dialectical process inherent in capitalist market develop-ment is illustrated by the changing nature of competition: from monop-oly to excessive competition, market fragmentation, retrenchment, andconsolidation. The next chapter presents some of the regional dimen-sions of development, underscoring the uneven impact of capitalistindustrialization and the mismatch between institutional legacies suchas local politics and industrial relations and the new flexible mode ofcapitalist regulation. The attempt by the state government of WestBengal to resurrect industrial development in the wake of long-standingcapital flight from the state and subsequent industrial decline has beenat best fleeting. Thus the hybrid nature of contemporary industrial capitalism in India, as captured by the restructuring of the Indian auto-mobile industry, can be interpreted as the product of the institutionalinertia of older systems of capitalist regulation and the dynamism of newones under changing regimes of accumulation.


6Uneven Development and theChanging Regime of Accumulationin West Bengal

1 Introduction

The changing regime of capital accumulation at the national level has fostered significant transformation of the auto industry. In a liberalizingenvironment embourgeoisment has also led to increased production andconsumption of consumer durables. These developments suggest unevendevelopment, not only in terms of worsening pre-existing economic andsocial inequality (a theme taken up in the next chapter) but also regionaldifferentiation. The assumption is that not all social groups or geographicregions are likely to experience similar rates of growth. Rather, in an expan-sionary environment the benefits of growth also accrue differentiallyamong different groups. Not all firms are capable of making a successfultransition to the new imperatives of capital accumulation.1 Older firmslocated in older industrial regions are likely to find it more difficult toadjust to the new mode of capitalist regulation involving not only less stateprotection but also the adoption of flexible systems of production.Moreover, institutional legacies, firm strategy, local industrial relations,and, in the case of multicultural, federated system in India, the particularrole of provincial governments will have a cumulative bearing on industrialtransformation. The long march to capitalism entails industrial restructur-ing, whereby lagging firms must either adjust to a new competitive envi-ronment or else become moribund. There must be also an accompanyingideological shift, whereby the regime is anticipated to change to accommo-date the imperatives of a deregulated capitalist environment. In the eventof failure to change, regional decline becomes imminent.

This chapter presents uneven capitalist development by examining thedispersion of automobile production in India to new locations in generaland relatedly the adjustment process experienced specifically by an estab-lished firm in an older industrial location. The discussion is aimed to bringout not only some of the familiar institutional factors responsible forindustrial change but also to highlight the constraints institutional actors

142

face when confronted with the new logic of capital accumulation, namelyderegulation. More importantly, it shows that capitalist transformation is often partial, with successful firms imposing severe adjustment costs on firms, industries, and regions that do not conform to the imperatives ofmarket expansion and competition. The uneven development experiencealso suggests that adjustment failures are not independent of capitalistexpansion but very much integral to it. Capitalist development is as muchexpansionary as it is destructive of the materialist basis of society. Thelatter is a necessary condition for its resurrection as well.

The empirical case discussed here is drawn from West Bengal, a state thatboasts the first auto company – Hindustan Motors (HM) – in independentIndia. However, leftist politics consistent with an earlier national regime ofstate-led capitalist regulation undermined West Bengal’s relative industrialposition. In this context conservative firm strategy has also weakened the state’s industrial base in the more competitive national and global envi-ronments. Both output and market shares for HM have drastically fallen,an outcome that is not inconsistent with industrial deregulation andneoliberalism. The adjustment process has been multifaceted. The com-pany has diversified its activities and invested outside the region. The localgovernment of West Bengal is attempting to resurrect industrial growth inthe state by accepting the tenets of liberal economic reforms. HM wants toclose the auto unit in Uttarpara, West Bengal, while the workers demandthe protection of their jobs. The state, however, is in a quandary. On theone hand, its critical political and ideological support comes from orga-nized industrial workers and, on the other, the political leadership mustalso meet the imperatives of capital accumulation to rejuvenate the localeconomy. Consequently, both HM and its workers are not only pittedagainst each other but the latter is also up against the very state that claimsto represent them. This particular dialectic of industrial restructuring illustrates the dilemma of capitalist development as new competitive pres-sures undermine the social pact between workers and the state, while firmsare liberated to seek alternative investment outlets in their accumulationstrategy.

The chapter is divided into five parts. The first part introduces unevencapitalist development by bringing out the particular Indian context ofindustrialization and the relative industrial decline of West Bengal. Thesecond part delves into the political economy of capitalist regulation in West Bengal and its link to uneven development. In particular leftistpolitics, industrial disputes, and capital accumulation strategies by firms areseen as integral to such local development. The next two parts examine the performance of Hindustan Motors, its strategies, and the inherent class conflict that is associated with industrial growth and stagnation. Thefinal part illustrates the growing acceptability of the new regime of capitalaccumulation as a response to uneven development.

Uneven Development and the Changing Regime of Accumulation in West Bengal 143

2 Capitalism and uneven regional development

There are many sources of uneven capitalist development (Banerjee 1998).Legacies of history and institutional factors such as colonialism and thedominance of a landed gentry and consequent agrarian relations have astrong bearing on the future trajectory of regional economic development.Geographical variation also arises from particular state policies towardindustrialization and the region-specific political economy of industrialrelations. And, in the federated Indian system, the political relationshipbetween the central and state governments, dictated by inter-party conflict,has influenced the direction and the magnitude of central governmentrevenue resources toward different states. Also, the issuing of industriallicenses by the central government favored industrial investments in areasoutside West Bengal. The cumulative effects of multiple factors can be seenin the uneven distribution of industrial production (Table 6.1).

Based on the national industrial classification of Indian manufacturing,in 1970–71 the three states of Maharashtra, West Bengal, and Gujarat had acombined share of 49.5% of total net value added in the manufacturingsector. By 1997–98, when the economic reforms of the 1990s were wellunder way, their combined share fell to 37.1%. Among these three states,Maharashtra has consistently maintained its industrial lead by a widemargin over the last three decades, even though historically its share of netvalue added has been declining (also Gangopadhyay 1996: 267–273).Gujarat has increased its share since the late 1980s, experiencing a fairlytypical business cycle pattern. What is most noteworthy is the seculardecline in West Bengal’s share since 1970–71 (Figure 6.1). Over the lastthirty years, the state’s share of manufacturing has been more than halved,with Tamil Nadu and Uttar Pradesh having exceeded or narrowed theindustrial output gap with West Bengal considerably. Among the variousmanufacturing sectors, jute and other vegetable fibers, along with transportequipment and parts (i.e. National Industry Code 2-digit Code 25 and 37 respectively), witnessed the steepest decline since the late 1970s. In1979–80, the net value added by jute and other vegetable fibers and bytransport equipment were 23.78 and 10.50, which in 1997–98 stood at10.81 and 5.52 respectively. Other industries such as chemicals, rubber,plastics, petroleum products, basic metals, and machinery also showdeclines (Government of India, Ministry of Statistics and ProgrammeImplementation, various years). These are also industries that expandedconsiderably at the national level.

Concomitant to relative industrial decline, the state has been also impactedby uneven national development. For example, in the late 1960s, West Bengalwas among the top states in the sale of passenger cars (Table 6.2). At the timecars were considered a luxury item, hence heavily taxed. Other than govern-ment departments, only very well-placed professionals or rich households could


145

Tab

le 6

.1P

erce

nta

ge D

istr

ibu

tio

n o

f N

et V

alu

e A

dd

ed A

cro

ss S

elec

ted

In

dia

n S

tate

s

AP

Bih

arG

uja

rat

Har

yan

aK

arn

atak

aM

ahar

ash

tra

Pun

jab

TN

UP

WB

1970

–71

4.00

5.50

9.10

2.20

5.70

26.8

02.

309.

806.

6013

.60

1971

–72

4.00

5.70

8.30

2.60

6.00

27.4

02.

109.

406.

2014

.40

1972

–73

Surv

ey w

as

not

con

du

cted

1973

–74

5.10

4.90

9.50

2.20

5.10

26.8

02.

209.

306.

4013

.30

1974

–75

4.30

6.30

10.0

02.

204.

5026

.20

2.20

9.50

6.50

12.9

019

75–7

65.

007.

808.

902.

405.

1024

.60

2.70

8.50

6.50

13.3

019

76–7

75.

105.

409.

402.

504.

9024

.40

2.80

9.40

7.40

12.1

019

77–7

84.

904.

9010

.20

2.70

4.90

25.0

02.

809.

906.

4011

.60

1978

–79

4.90

5.40

9.30

2.70

6.40

25.2

02.

9010

.00

6.20

11.2

019

79–8

05.

005.

009.

502.

905.

2024

.90

3.30

9.90

6.30

11.0

019

80–8

14.

904.

209.

502.

905.

1025

.00

3.20

10.3

06.

3011

.50

1981

–82

4.80

6.30

8.70

3.10

4.60

23.3

03.

009.

8010

.20

9.90

1982

–83

6.10

6.70

9.10

3.10

4.90

21.6

02.

7010

.10

9.00

9.80

1983

–84

6.50

7.90

11.6

03.

705.

6021

.80

2.70

9.00

6.00

8.10

1984

–85

6.90

5.50

10.2

02.

805.

0022

.80

3.00

11.3

06.

608.

8019

85–8

65.

405.

409.

302.

905.

0025

.90

3.20

10.3

06.

008.

4019

86–8

75.

405.

6010

.20

2.90

5.00

23.8

03.

1010

.40

9.10

7.80

1987

–88

4.40

6.70

10.1

02.

804.

7022

.00

3.60

10.0

09.

108.

9019

88–8

95.

307.

409.

802.

904.

7023

.70

3.10

10.9

08.

606.

3019

89–9

05.

006.

108.

502.

705.

0023

.00

5.00

10.9

09.

705.

3019

90–9

15.

805.

008.

703.

205.

4023

.30

3.60

11.2

09.

006.

2019

91–9

25.

806.

007.

503.

206.

2019

.80

3.80

11.2

010

.80

6.80

1992

–93

6.00

4.80

11.3

02.

305.

8022

.80

4.10

10.2

09.

105.

9019

93–9

45.

607.

6010

.70

2.40

4.70

24.4

03.

4011

.20

6.50

6.10

1994

–95

7.00

4.10

11.4

02.

805.

4022

.00

3.20

10.8

09.

905.

0019

95–9

67.

003.

8012

.60

3.40

4.80

23.7

02.

9010

.20

8.40

4.70

1996

–97

5.80

4.90

12.3

03.

906.

1021

.20

3.60

10.2

09.

605.

5019

97–9

87.

406.

009.

203.

005.

5021

.70

3.00

8.70

9.20

6.20

Sour

ce: G

ove

rnm

ent

of

Ind

ia, M

inis

try

of

Stat

isti

cs a

nd

Pro

gram

me

Imp

lem

enta

tio

n, A

nnua

l Sur

vey

of I

ndus

trie

s, v

ario

us

year

s, c

om

pil

ed b

y Sa

ikat

Sin

ha

Ro

y.N

otes

: AP

= A

nd

hra

Pra

des

h, T

N =

Tam

il N

adu

, UP

= U

ttar

Pra

des

h, W

B =

Wes

t B

enga

l.


afford cars. While West Bengal had its share of industrialists, rich merchants,and absentee landlords, Delhi, with no industrial legacy to speak of, dominatedthe car market because of its status as the national capital. The arrival of entre-preneur-cum-refugees from erstwhile West Pakistan after 1947 might haveadded to the city’s purchasing power. However, under both colonial and post-independence national governments, Delhi inherited and appropriated sub-stantial national resources for the upkeep of the city and for national adminis-tration. State-led development in India benefited the city far more rapidly thanother regions as evidenced by its growing market share for passenger cars.

Delhi, a Union Territory akin to a city-state, had 11% of national passen-ger car sales in the 1960s, compared to highly populous West Bengal’s13.5%. The two territories are not strictly comparable, as one is a state withan agricultural hinterland and a large impoverished population and Delhiis the administrative capital with all the privileges that go along with beingone. Nevertheless, the fact that Delhi, with a small population, couldbecome a leading national center of consumption and production implies achanging industrial and economic geography of the country. In 1980 theirshares of passenger car sales were identical but in the 1981–85 periodDelhi’s share increased to 17.4%, while West Bengal’s fell to 9.3%. The salesgap in this particular consumer durable remained wide between the tworegions over the next two decades. In 1990, Delhi had a share of 25.3% ofnational car sales compared to West Bengal’s 5.3%, and in 1998, a recessionyear, the two had 16.7% and 5.5% respectively (ACMA various years).

The difference is highly pronounced when we compare the three metro-politan cities of Delhi, Mumbai (formerly Bombay), and Kolkata (formerlyCalcutta), the state capitals of Maharashtra and West Bengal respectively. In 1977 Delhi had 389,000 vehicles of all types (or 11.9% of national total)

0

5

10

15

20

25

30

1971–72

1973–74

1975–76

1977–78

1979–80

1981–82

1983–84

1985–86

1987–88

1989–90

1991–92

1993–94

1995–96

1997–98

% s

hare

GujaratMaharashtraTamil NaduWest Bengal

Figure 6.1 Net Value Added in Manufacturing by StatesSource: Government of India, Ministry of Statistic and Programme Implementation (various issues).

147

Tab

le 6

.2St

atew

ise

Sale

of

Pas

sen

ger

Car

s

1966

–70

1976

–80

1980

1981

–85

1990

1995

1998

Del

hi

18,4

9918

,163

3,78

050

,649

42,9

0155

,842

45,8

32G

uja

rat

7,67

09,

028

1,88

015

,356

10,4

5722

,024

20,9

25K

arn

atak

a7,

784

9,15

71,

896

11,1

837,

491

19,6

4914

,190

Ker

ala

7,72

97,

317

1,13

09,

640

4,46

912

,511

11,2

63M

ahar

ash

tra

28,4

6737

,305

6,33

868

,620

26,1

2850

,935

28,3

34O

riss

a 2,

008

1,12

516

23,

118

870

1,63

53,

064

Pun

jab-

Har

yan

a6,

318

10,6

442,

433

17,4

9418

,201

18,7

6729

,380

Tam

il N

adu

24,0

2316

,051

3,38

528

,614

12,1

6726

,616

17,3

66U

ttar

Pra

des

h11

,514

6,38

41,

293

12,3

2110

,059

18,4

4323

,054

Wes

t B

enga

l22

,702

22,5

383,

775

26,9

628,

949

11,6

5214

,985

To

tal

167,

921

161,

155

30,9

5029

1,44

516

9,73

029

8,06

527

4,32

4

Sour

ce: A

uto

mo

tive

Co

mp

on

ents

Man

ufa

ctu

rers

Ass

oci

atio

n (

vari

ou

s ye

ars)

.N

otes

: Pu

nja

b-H

arya

na,

pre

vio

usl

y p

art

of

the

sam

e p

rovi

nce

, are

no

w t

wo

dif

fere

nt

con

tigu

ou

s st

ates

an

d s

har

e a

com

mo

n c

apit

al.

compared to Mumbai’s 245,000 (or 7.5%) and Kolkata’s 148,000 (or 4.5%)(ACMA 1984: 66). Notwithstanding West Bengal’s rural hinterland and richindustrial base, uneven development was rife in an era of tightly regulatedcapitalist economy. By 1981, the three cities’ respective shares stood at 10.4%,5.9%, and 3.3%. The economic deregulation of the early 1980s and theunprecedented launching of passenger car production for the first time by ajoint-venture between a foreign firm (Suzuki Motors) and the government ofIndia boosted output considerably in a supply-constrained market. A newregime of capital accumulation was in the offing even if it initially entaileddeep state engagement in industrial production. Market barriers were loweredand international openness to integrate with the world economy was encour-aged. The location of the new auto plant in the outskirts of Delhi reflectedDelhi’s emergence as a pre-eminent market. Subsequent deregulation of pro-duction in the 1990s led to increased overall market expansion, with Delhicapturing 24% of the share of 23 “metropolitan” cities combined in 1998,while Mumbai and Kolkata had a combined share of only 12% (ACMA 2001:60). Twenty other cities shared the remaining 64%.

Uneven development and industrial decline in West Bengal was predicatedon the rise of Delhi as a center of consumption. In a recent study of state performance, Delhi was ranked first in terms of affluence, mass media, con-sumer purchases, and personal finance; while the corresponding ranks forWest Bengal were 14, 8, 16, and 11 out of 18 (Debroy, Bhandari, and Banik2000: 12). Though its rise is a cumulative outcome of both old and the newregimes of capital accumulation, Delhi has become an important center ofindustrial production. This is something quite new in the history of Indianindustrialization but consistent with the institutional requirements offlexible production in a deregulated environment. In fact the NationalCapital Region (NCR), which includes Delhi, became an industrial competi-tor to leading industrial states such as West Bengal, Maharashtra, and Gujarat(National Capital Region (NCR) Planning Board 1997: 18). As we have seenin the previous chapter, firms and their collaborators coped with the newrigors of capitalist regulation and exploited new accumulation opportunities by creating new regional centers of automotive production. New producerscould respond to increasing demand by establishing institutionalized co-operation. For example, business-government partnerships, buyer-suppliercooperation, more cooperative industrial relations, and intra-firm teamworkcontributed to this flexibility. These are precisely the attributes neither HMnor the state of West Bengal could nurture.

3 Capitalist regulation in West Bengal

3.1 The legacy of uneven development

The state of West Bengal occupies an interesting industrial and politicalposition. Aside from hosting colonial India’s administrative city, Calcutta,


until 1911, West Bengal has been also a major industrial center of thecountry. It is also a state that has been ruled by leftist political parties for nearly three decades. Boasting a river port and rich raw material andcash-crop based hinterland, the state remained one of the more industriallyadvanced in the country in the immediate post-independence period.Politically the state has been relatively progressive, with its coalition ofvarious communist and socialist parties working on behalf of the rural poor(Kohli 1989, Williams 2001, Maiti 2002). Historically its intelligentsia has been at the forefront of the nationalist, anti-colonial movement, socialreforms, and mass political mobilization (see Franda 1971). However, thesigns of the city’s, and by extension the state’s, decline were alreadypresent (Bagchi 1990).

Historical, structural, and institutional factors limited the emergence of astrong Bengali entrepreneurial class. The colonial practice of revenue maxi-mization created a class of absentee landlords, thereby contributing to ruralinequality and poverty (Tomlinson 1993; Rothermund 1993). The domi-nance of British merchants and the role of Indian intermediaries, bothBengalis and non-Bengalis, facilitated colonial trade from the hinterland.However, unlike western India such as contemporary states of Maharashtraand Gujarat where the local traders had greater autonomy from Britishmerchants, in Bengal the emergence of a nascent local bourgeoisie wasseverely constrained. In addition, the demand for administrators andbureaucrats attracted the local educated Bengalis to service-oriented careers.The partition of the subcontinent into Pakistan and India in 1947 alsotruncated what was for a while a regionally integrated production system–jute cultivation in East Bengal (East Pakistan) and jute processing andrelated manufacturing in West Bengal (part of India). The decliningdemand for jute products led by technologically-driven substitutes furtherundercut the local industrial base.

However, as traders (mainly Marwaris who belonged to trading commu-nities) began to take up businesses now vacated by the British and as the Indian government pursued a state-led import substitution industrial-ization strategy, West Bengal was not all together cut off from the initialsurge of investments. In fact, several capital-intensive projects were under-taken. For example, Durgapur obtained the first of three one-million tonsteel plants. Hindustan Motors set up India’s first car manufacturing unit inUttarpara near Calcutta. Many other industries such as paper and pulp,plastics, chemicals, metals, rubber, etc., which were already establishedalong the banks of the river Hooghly were complemented by new ones aswell.

Unfortunately the initial momentum in industrial investments could notbe sustained due to both fiscal constraints at the central level and theincreasing rivalry among states to obtain a slow-growing share of nationalrevenue surplus. The Marwari trading groups in West Bengal had neither


the legitimacy nor the clout to be representative of the region (Banerjee1998: 90–91). Their speculative activities limited growth-enhancing eco-nomic activities and, in the absence of a local Bengali bourgeoisie, variousleftist parties found the political space to pursue economic transformation(Pedersen 2001: 666–668). Consequently, Marwari traders began to diver-sify their investments outside the state as illustrated by the Birla enterprise,which was one of the largest Marwari business houses. In the 1960s theBirla house had sought approvals for industrial investment to the tune of Rs. 3,315 million outside the eastern region compared to Rs. 2,414 for theeastern region as a whole, which included West Bengal (Banerjee 1998: 93).Capital mobility out of West Bengal was already underway as other stateswere perceived to be more attractive. Also, as the Indian federation carvedout more states (for example, the Indian Punjab province was divided intoPunjab and Haryana), the clamor for central funds also increased. The par-liamentary political system that could have one ruling party at the centrallevel and another one at the state level left open the possibility that the dis-tribution of central funds could be politically motivated. Both Punjab andWest Bengal, which were ruled by non-Congress parties believed theyreceived proportionately less than what they deserved.2

On the demand side West Bengal was home to a large population that wasdeep in poverty. Consequently, there was a considerable mismatch betweenthe state’s political mobilization of the masses and its economic perfor-mance. This friction was historically compounded by the sub-continent’spartition in 1947, the Indo-Pakistan War of 1965, and subsequent indepen-dence of East Pakistan, which became Bangladesh in 1971. West Bengal,including Kolkata, witnessed increased poverty with high populationgrowth in part due to net in-migration from Bangladesh next door andneighboring Indian states. Bengali refugees from erstwhile East Pakistan and now Bangladesh, and economic migrants from the poor neighboringstates of Bihar and Orissa further compounded West Bengal’s poverty. Thelegacy of poverty in Bengal since the infamous Bengal famine of 1943, sub-sequent famine in the 1960s, and the continued high population growth inthe overall climate of slow national economic growth has created not just an economic malaise but also a political hotbed. Early exposure to anti-colonial struggles and the political mobilization of the masses by leftistparties for economic justice (often with an anti-nationalist, anti-capitalistfervor) created a radical political climate in the state.

3.2 Leftist politics and capitalist imperatives

The mobility of capital in independent India was not only regulated bystate-led economic development programs but in the state of West Bengalcapital was heavily circumscribed since the 1960s and 1970s by a labor forceprone to agitation. Anti-colonial movements had exposed West Bengal toradical politics and consequently influenced industrial relations in the state.


After the formation of the Communist Party of India (Marxist) (CPM) in1964 from the Soviet-leaning Communist Party of India, West Bengal hasbeen ruled by a coalition of left-leaning parties (Franda 1971). Not only werelabor unions in the state dominated by the CPM but the party also tried toaddress the farmers’ plight through land reforms. In 1967, the labor ministerunder the United Front government, which included the CPM as a partner,decreed that “gheraos” (literally surrounding management and employers)were legal (Modak and Bhatkhalkar 1997: 17). Over time the CPM increasedits political influence in the state through grassroots organization andincreasingly won many state assembly seats. In 1977, the CPM formed theLeft Front government of West Bengal with other leftist parties. The partyhas been returned to power in all subsequent state elections and the LeftFront remains in power.

During its rule, the CPM pursued two divergent strategies. The first, and the more important one, promoted land reforms (for example thebargadar or sharecropper movement that redistributed land and regulatedthe bargadar-landlord relationship), which solidified its political supportin rural West Bengal. The second, consistent with its left ideology, was apro-labor strategy, which over time had a seriously debilitating effect onindustrial investments. Declining industrial investment led to decliningprofitability (Ray 1996: 252–253). This strategy also unwittingly corneredthe CPM into a political dilemma and an ideological quagmire. Whilethere is disagreement as to whether declining profitability led to WestBengal’s industrial decline (see Banerjee et al., 2002), it is important torecognize the cumulative impact of a number of interrelated factors thatcontributed to the state’s decline and thus set the stage for capital flightfrom the state. A political economy explanation for the state’s declinecalls for an understanding of the prevailing industrial climate, whichwould include a discussion of industrial relations and its likely impact onthe profitability of investment (Gangopadhyay 1996: 269).

There are three interrelated developments pertinent to the understand-ing of West Bengal’s industrial decline in the larger context of uneven capitalist development. First, was the political mobilization of organizedindustrial workers in the state. Workers had considerable leverage to raisesalaries, buttressed by a dramatic increase in membership of the Centre ofIndian Trade Unions (CITU), the labor wing of the ruling CPM. From 1977to 1996, CITU’s membership increased by 49% to 709,708 (Modak andBhatkhalkar 1997: 42). Second, while the CPM legitimized its politicalinfluence among organized industrial workers and rural small-holders andlandless workers, it effectively pushed industrial capital on the defensive.Investments and profitability were undermined by increasing wage costsdue to overstaffing, technological obsolescence (due to a slowdown ininvestments), industrial agitation by workers, and lockouts by employers.Third, organized blue-collar workers and white-collar state employees


adopted a casual, undisciplined approach to work. This was a consequenceof the earlier go-slow agitations adopted by trade unions especially whenthe CPM was an opposition party.

However, on coming to power in 1977, the CPM had to make an ideo-logical about-face and be more pragmatic toward industrial capitalists andworkers in the state. The challenge for the CPM was to transform theanti-capitalist ideology that has been the party’s political mainstay to apro-capital investment-friendly government and to rein in labor demandsafter having politically mobilized labor and raised worker expectations.Trade union activity heightened under the Left Front government. Notjust CITU, but other unions as well vied for political influence. Between1995 and 2000 the total number of trade unions increased from 216 to352 (Government of West Bengal, Department of Labour 1994). As theCPM came to power in an era of industrial decay, declining productivity,and challenges of capital accumulation, the pro-labor party had to politi-cally and ideologically cope with a new regime of capital accumulation.By this time industrial capital had gone on the offensive and deliberatelyunder-invested in industries.3 Declining capital productivity (accompany-ing declining labor productivity) was a product of declining investmentsand technological obsolescence (Ray 1996: 258). A neoliberal worlddemanded that political legitimacy be sought not simply by politicalmobilization but also by economic welfare through job creation, espe-cially when capital was leaving West Bengal and other states in Indiawere economically and industrially forging ahead of West Bengal.

3.3 Industrial disputes, accumulation crisis, and capital flight

The consequence of heightened political activity, encouraged by the rulingparty, created unusual labor turmoil. In 1979 West Bengal lost 18 millionpersondays to strikes and lockouts (Ramanujam 1990: 283). Tamil Naduwas a distant second with only 8.4. million persondays. West Bengal repre-sented over 40% of national losses in 1979. The paradox, however, wasreadily apparent. The ruling communist party was firmly ensconced in capitalist India. While in opposition the left could agitate against and vetocapitalist development but when in power it had to contend with theeveryday issues of employment generation for the masses and restoreprofitability for industrial capitalists. This contradiction between party ideology and capitalist imperatives forced the CPM leadership to adopt amore pragmatic, social-democratic stance. Consequently the number ofstrikes and the loss in workdays declined (Figure 6.2). But the damage wasdone and the pragmatic compulsion came too late. In the automotiveindustry, other states such as Haryana, Gujarat, and Tamil Nadu were per-ceived to be better destinations for investments than West Bengal.4 Over40% of national disbursements by financial institutions and foreign directinvestment went to Maharashtra, Gujarat, and Tamil Nadu in the early


1990s (Venkata Ratnam 2001: 182). Even as recently as 2000, one of WestBengal’s most significant weaknesses was in the area of quality of labor and industrial relations. The state ranked 12th compared to first, second,and third for Tamil Nadu, Gujarat, and Maharashtra respectively (Debroy,Bhandari, and Banik 2000: 11–15). These states had already adopted moreflexible approaches to capitalist regulation: namely, better industrial rela-tions, infrastructure development, and competitive wage costs (Tendulkar2001: 13). In fact capital based in West Bengal went on the offensive, effec-tively striking against workers and the political leadership by locking out industrial units (Figure 6.2).5 This macro dynamic is consistent with the heightened mobility of capital associated with an increasingly capital-dominated neoliberal world of faster reforms and stronger integration withthe world economy.

West Bengal accounted for a major share of national industrial disputes.More importantly, while strikes by workers decreased over time, lockoutsby employers increased significantly. Clearly political power in West Bengalhad shifted in favor of employers precisely at a time when capital ingeneral had become highly mobile in a neoliberal setting. Strikes resultingfrom industrial disputes in West Bengal reached a peak between 1967 and1969. There were 772 cases of strikes in 1967. Since then it declined pre-cipitously until 1975 and rose again to roughly 200 cases in 1979. In the


0

50

100

150

200

250

300

350

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Num

ber

No. of Disputes StrikesNo. of Disputes LockoutsNo. of Disputes Total

Figure 6.2 Increasing Lockouts in West Bengal, 1979–1997Source: Government of West Bengal, Department of Labour (various issues) in Datt (2003: 124).

following decade strikes became virtually non-existent (Mallick 1993: 201).What is noteworthy since 1978 is the widening gap between the number ofstrikes and lockouts, with the latter exceeding the former throughout theten-year period until 1989. There were over 200 lockouts over the 1987–89period (Mallick 1993: 201). In 1975 West Bengal represented 64.5% ofnational persondays lost due to strikes, which fell to 3.5% in 1983 (Mallick1993: 200). However, West Bengal exhibited a very high share of person-days lost due to lockouts. Of the seventeen years from 1967 to 1983, therewere 15 years in which West Bengal’s share of losses due to lockoutsexceeded 45% of the national total. While the number of workers involvedand the number of persondays lost due to strikes and lockouts reflect cycli-cal patterns since the 1960s, lockouts since the 1980s have been clearly onthe rise in the state (Gangopadhyay 1996: 277).

There are at least three interrelated interpretations of this. The first is the macro political economy interpretation whereby capital as a whole was on the offensive. Data on industrial disputes at the national level point to rising lockouts in terms of number of disputes, number of workersinvolved, and the number of persondays lost (Datt 2002: 179–181).6 In1997 of the total number of persondays lost due to disputes 66.4% of per-sondays were lost due to lockouts. However, of the total number of workersinvolved in disputes, only 35.9% of them were affected by lockouts. Thissuggests that industrial disputes resulting from lockouts involved fewerworkers but of a more protracted form that favored employers.

In recent years the numbers of both strikes and lockouts have beenfalling at the national level. The average number of strikes and lockoutsduring 1999–2001 were 446 and 345 respectively, involving 0.88 and0.26 million workers (Calculated from Government of India, Departmentof Labour 2003). However, the average number of persondays lost due to strikes and lockouts in these three years were 9.38 million and 51.17 million respectively. This pattern of declining industrial disputeshas been mirrored in West Bengal, albeit for different institutional andhistorical reasons. Between 1992 and 1997, West Bengal had nearly halfthe lockouts of the national total. The industrial employers, includingsome multinationals, also took on an offensive posture. Since lockoutsare plant shutdowns at the express will of the management, they can beinterpreted as capital exercising its accumulation choice by foregoingproduction in the state. Though plausible, this collective action does notmake much sense in terms of capitalist logic. The strategy appears to beovertly coordinated and suggests a preference for political outcomesrather than favorable capital accumulation.

The second interpretation is that capital, when faced with increased costsand labor strife, sought alternative accumulation strategies such as diversifi-cation of production, movement into financial activities, or movement ofproductive capital outside the state to other more conducive host states.



The relative industrial decline of West Bengal and the concomitant rise ofother regions suggest that the conditions for favorable accumulation hadshifted elsewhere. The emergence of Delhi and other states as new clustersof automobile production and consumption reflects the changing terrainfor economic activities. This outcome is also consistent with heightenedcapital mobility encouraged by economic reforms and the competitionamong state governments to attract investments.

The third interpretation accounts for the continued and deliberatedeterioration of plant and equipment by gradual disinvestment strategiesor “harvesting” of capital equipment.7 Investors in West Bengal havebeen found to borrow money, strip the assets of firms, and declare alockout (Banerjee et al. 2002). Consequently, technological obsolescencemeant plants could not be economically operated and lockouts seemed to be a good accumulation strategy under the circumstances. In the end,West Bengal’s industrial decline and capital flight, which began evenbefore the 1960s, was a cumulative outcome of a slow growing nationaleconomy with local labor strife during the 1970s, plant obsolescence byeconomic choice in the 1980s and 1990s, and finally the emergence ofalternative industrial locations in the national economy under a chang-ing regime of market-led capitalist regulation. As we will see, the institu-tional legacy of West Bengal was much too deep for easy adjustment tothe new environment.

The relative decline of West Bengal in the wider context of uneven capital-ist development must be seen as changing conditions of accumulation. Thelegacy of industrial disputes has been one contributor to the accumulationenvironment, while the other has been industrial profitability. While laborstrife is related negatively to profitability, the improvement in labor condi-tions in West Bengal did not necessarily raise profitability. West Bengalduring the 1980s and early 1990s was an investment-unfriendly location asreflected in the bleak industrial relations of the 1960s and 1970s. Industrialcapital was already seeking better opportunities elsewhere. However, indus-trial relations begin to show a marked improvement in the 1980s and 1990sas the CPM recognized the importance of working with capital to promoteeconomic growth and employment. This is evident by the dramatic declinein the number of labor strikes. What did not improve was the number ofemployer-driven lockouts. This outcome is unexpected, given that the Indianeconomy as a whole was already on a higher growth path beginning in themid-1980s. Under this scenario rising labor costs need not have drivencapital away from the state even though profitability of several manufactur-ing sectors of the state was quite poor. For example, industrial wage costs asreflected by the consumer price index in West Bengal, specifically in Kolkata,show no discernible difference from the national trend – both have beensteadily rising at identical rates during 1972–1994 (Government of WestBengal, Department of Labour, 1994: 85). Data on profitability by industrial

sectors, while quite mixed, suggest poor performance by large manufacturersin some of the more traditional industries, such as cotton textile and juteprocessing (Gangopadhyay 1996: 270). They not only declined in the ten-year period from 1980–81 to 1990–91, but several sunset sectors since themid-1980s experienced a negative rate of return.

Increasing frequency of lockouts in West Bengal is an explicit manifesta-tion of class conflict, grounded in the routine matters of capital accumula-tion. Between 1992 and 1997, West Bengal had 81% of disputes underlockouts compared to 59.7% in Andhra Pradesh, 29.6% in Maharashtra,12.3% in Gujarat, and 14.3% in Tamil Nadu (Datt 2002: 197–199). Tomaintain overall profitability capitalists found it profitable to not operatethe units. This in turn has been a result of asset deterioration and concomi-tant risk-averse behavior of not modernizing plant and equipment.8 Thuswhen we examine the causes of lockouts in West Bengal, we find forexample that in 1988, of the 212 cases of lockouts, 95 of them (or 45%)were shut down because of “uneconomic operation, financial stringency,loss of economic viability,…” or some other description of profitabilitycrisis (Government of West Bengal, Bureau of Applied Economics andStatistics 1990: 535). This single cause represented 75% of the persondayslost due to lockouts in the state. In 1994, the corresponding figures were121 lockouts, of which 47 (or 39%) relate to lack of financial viability of the plant (Government of West Bengal, Department of Labour 1994: 8).This represented 56% of the total workers impacted by the lockouts thatyear. At the end of 2001 there were 300 cases of “sick” units in West Bengalwhich fell under the Board for Industrial and Financial Reconstruction(BIFR) (Government of West Bengal, Bureau of Applied Economics andStatistics 2003: 44). BIFR sought to arrange loans and other forms ofsupport from the state government for the revival and continuation of sickunits. Of the 300 cases, twenty-four units were central government unitsand the rest under the private sector. Not only was capital accumulation inthe state’s industrial system not favorable but because of it capital wasaggressively seeking alternative outlets outside West Bengal.

Capital flight from the state can be seen as the exhaustion of the previ-ous regime of accumulation and the attempt by industrial capital torenew accumulation elsewhere. Both employers’ accumulation strategiesand politically-motivated industrial disputes have contributed to thestate’s industrial climate and thus its industrial decline (Nossiter 1988:142). The earlier mode of state-led capitalist regulation protected capitalfrom competition both at the national and state levels. As a result tech-nological and labor inefficiencies could be absorbed through higherprices. However, in the new national environment of capitalist competi-tion, accumulation in West Bengal was heavily circumscribed. Therewere various reasons for this state of affairs: manufacturing units werelocked out as they became technologically and commercially unviable;


other states offered better infrastructure, less disruptive workforces, andlucrative commercial incentives; many of West Bengal’s inherited manu-facturing industries were already declining industries such as jute, paperand pulp, and small metals-based units with outdated technologies.Hence, their modernization and rejuvenation could not be economicallyjustified in an era of increased capital mobility.

4 Accumulation strategy of Hindustan Motors

India’s first major automobile company, Hindustan Motors (HM) located inUttarpara just outside of Kolkata, is an excellent case for understanding theaccumulation strategy in the context of uneven national development. It illustrates capital’s response to the constraints imposed by local politicalconditions while also attempting to cash in on opportunities arising out-side of the state. HM has been the flagship company of the C.K. BirlaGroup of the Birla family business house. In 1948 HM began producing theubiquitous Ambassador car from a Morris Oxford model (Hindustan MotorsLtd. 2003). Until the arrival of MUL in 1983, HM was largely a single modelenterprise. Under state-led capitalist regulation, HM displayed a strategy nodifferent from most other Indian firms. It did not technologically upgradeits product nor introduce new models as long as output was controlled andprices were regulated (see Chapter 4). Strategically HM, like the rest of theindustry, favored government protection, without which it most likelywould not have survived. This protection also entailed maintaining HM’smonopoly position by thwarting domestic competition. As early as in themid-1960s, HM was already quite defensive about competition that couldhave arisen with the introduction of small cars by competing firms(Hindustan Motors Ltd., Department of Economics and Market Research1966: 83–84). HM justified its strategy by insisting that small cars in Indiawould be inappropriate as Indians travelled together as families and wouldhave had to carry “beddings.” Given the small market with no economiesof scale, any argument at that time in favor of more firms would have beenpersuasive. The diffusion of small cars in contemporary India of course sug-gests the lack of basis for such an argument. As soon as MUL began captur-ing the Indian car market, HM had to devise new strategies to remainviable. The plant was technologically obsolete and there was little interestin modernizing it. Its industrial relations were contaminated by mutual suspicion of plant closure and labor strikes. As a strategy HM pursued anumber of investment decisions, which has kept the company afloat.However, India’s pioneering auto unit in Uttarpara, West Bengal has beenrelegated to HM’s other plants elsewhere in the country.

Since the early 1980s HM pursued four principal accumulation strate-gies (Figure 6.3). First, it introduced a new model in the 1980s, the Con-tessa, with Japanese technology as a stop-gap measure to stem the rapid


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decline in its market share.9 However, the Contessa was a hybrid betweenan obsolete body made by Vauxhall of UK that was retrofitted with anIsuzu engine and transmission. It did poorly in the Indian market.Second, it made cosmetic changes to its classic Ambassador model, whichfundamentally did not alter the state of the Uttarpara unit. For example,in 1963 it introduced its Mark 2, in 1990 the Nova, and in 1993 anAmbassador with an 1800 Isuzu engine. A diesel version of the Ambass-ador model was also introduced and in August 2003 a retro version calledthe Ambassador Grand was announced (Rajanala 2003). As the engineswere produced in its Pithampur unit, West Bengal’s gain was limited.Third, it established new manufacturing plants in new locations, produc-ing more modern vehicles, often in collaborations with multinationalcompanies. In addition to the Vauxhall (1980–90) and Isuzu (1983–93)collaborations, HM established a major 50-50 joint-venture in Halol,Gujarat with General Motors of the US in the mid-1990s. Today, the unitis a 100% GM subsidiary. In 1998, HM set up a technical collaborationwith Mitsubishi Motors to assemble Lancers and sports utility vehicles in Tiruvallur (in Chennai) in the southern state of Tamil Nadu. LaterMitsubishi engine and transmission manufacturing was launched at itsPithampur plant in the central state of Madhya Pradesh. Fourth, HM,having built up local technological capability in certain areas, is nowpoised to exploit global opportunities by becoming a supplier to multina-tional companies operating in India and third country markets (Ghosh2002). For example, HM has agreed to supply engines and transmissionsfrom its Pithampur plant to GM and Ford of India (V. P. Kumar 2002). In2002 talks were afoot that HM might deploy its idle capacity to assemblecars for other companies such as BMW at its Chennai plant (BusinessStandard 2002a).

The accumulation strategy of HM, leading to gradual capital flight fromWest Bengal, did not seriously begin until the early 1980s, when the joint-venture between the Indian government and Suzuki was established.While MUL’s location near Delhi contributed significantly to the nationalcapital region’s development, HM’s new investments in Tamil Nadu,Madhya Pradesh, Gujarat, and Karnataka became integral to pre-existingindustrial agglomerations. Both Tamil Nadu and Gujarat were alreadymajor industrial centers, the former in auto and the latter in chemicals.Madhya Pradesh was a latecomer to industrialization. Favorable state policies and the absence of a politicized industrial workforce (except inpublic sector steel plants) helped it emerge as a new center for automotiveproduction.

West Bengal, as illustrated by HM, witnessed considerable industrialrestructuring under the new regime of capitalist regulation. Not only was the legacy of industrial relations unfavorable but the industrial capi-talists were already seeking out alternative accumulation opportunities.


HM, not known for its entrepreneurial dynamism, had strategically foundnew collaborators in the auto industry and set up several units outsideWest Bengal. Based on optimistic projections and the threat of new com-petition to its market dominance, in the early 1980s HM petitioned thegovernment to increase its capacity of 30,000 units by another 50,000. Ofthis 50,000, HM’s plan was to produce 30,000 Contessa (Vauxhall-Isuzu)cars in Uttarpara and the remaining 20,000 in a new plant in MadhyaPradesh (Raghavan and Saroja 1984: 19). In examining the productiontrend of Contessa, we find that the highest output achieved by HM wasonly 4,982 in 1988 (ACMA 1991: 16). The average annual output over the1983–98 period was 2,388 units. Any notion of reviving the Uttarparaunit with the production of Contessas was effectively shelved. This was adirect outcome of more efficient, demand-driven producers such as MULwith technologically superior products.

West Bengal suffered industrially because of severe competitive pressurearising from new producers such as MUL. Consequently, the decline of WestBengal in automotive production is mirrored by the development of industrialclusters elsewhere in the country. Tamil Nadu already had an automotive base with manufacturers such as Ashok-Leyland and Standard Motors (nowdefunct). The state is now host to Ford India and Hyundai Motors. Similarly,Hosur in Tamil Nadu, a few miles away from Bangalore, is now becoming part of a new industrial cluster with the Toyota-Kirloskar venture and severalauto components firms located there. Both Karnataka and Tamil Nadutogether are becoming part of a larger industrial site in the automotive indus-try. For example, Tamil Nadu in 2003 accounted for 26% of the 410 majorauto component suppliers in the country, 35% of the total investment of $2.3 billion in the industry, and 30% of output of $1.2 billion (Kumar 2003).Lastly, Pithampur in Madhya Pradesh is now an important industrial agglom-eration with HM’s engine and transmission plant, Eicher-Mitsubishi’s com-mercial vehicle unit (the most successful of the Japanese LCV plants), andBajaj Tempo’s commercial vehicle plant. HM’s joint-venture with GM did notlead to significant expansion of HM’s capacity as it pulled out of the project in 1999. HM did not have or was not keen to commit resources to expandcapacity at the GM–HM facility. Instead, HM has strategically elected toassemble cars for other companies (BMW for example) and supply enginesand transmissions to General Motors and Ford in India. As a result HM iscarving out an interesting subcontracting manufacturing niche for itself as itmoves out of West Bengal.

HM also diversified its products and plant locations but not in terms ofreviving the West Bengal unit. It moved away from the Ambassador andfrom West Bengal to the Astra model for a while (jointly with GM) inGujarat, to the assembly of imported kits of Mitsubishi’s Lancer in TamilNadu, and more recently, engine manufacturing for Lancers in MadhyaPradesh. The West Bengal unit has had to contend with prolonging the


life of the Ambassador in its various incarnations and sustain itself withan obsolete rural transport vehicle (RTV), the Trekker (with less than3,000 units a year). Though it introduced a more modern variant of theRTV in Uttarpara, production volume has been very low. Furthermore, it is saddled with a workforce of over 10,000. The management felt thatwith modernization of the plant in 1998 and increasing reliance on outsourcing of parts and components, less than a tenth of the workforcewas needed (Bearak 1999). However, given the pro-labor state govern-ment, strong unions, and their frustration over HM’s mismanagementand accumulation strategy, the Uttarpara unit has been a site of pro-longed labor conflict. The battle has been complicated by the awkward-ness of the leftist ruling party in dealing with the capitalist imperatives ofincreased productivity and capital-friendly investment policies that arenow integral to the new regime of capitalist regulation.

5 Class conflict in the transition to a new regime of accumulation

Beleaguered by legacies of industrial strife and ideology-driven anti-investment policies by the government, Hindustan Motors astutely,albeit lackadaisically diversified its production outside of the state. The new competition unleashed by the creation of MUL and the subse-quent liberalization of the passenger car industry in 1993 brought theUttarpara unit to its knees. As the wave of foreign multinationals in the Indian market continued, HM’s Uttarpara unit became saddled withobsolete plant and equipment designed for a product that was alreadyobsolete. It also inherited a large workforce, which it cannot get rid ofeven if the economics of production suggest otherwise.

The central conflict has been over employment and job preservation. Notsurprisingly workers, their unions, and their sympathizers in the WestBengal political establishment are fighting desperately against plant closure.Legally, HM must seek government approval to shut the unit down or toretrench workers, however partial. The 1947 Industrial Disputes Act (IDA)expressly states that “no workman shall be laid off by the employer exceptwith the prior permission of the appropriate government…stating clearlythe reasons for the lay-off….” (Government of West Bengal, Labour Depart-ment 1999: 2, Tendulkar 2001: 11–12). There is an elaborate bureaucraticprocess that involves such a request and its final resolution.10 Under the IDAa lay-off can be justified due to “the failure, a refusal or inability of anemployer to account of shortage of coal, power or raw materials or the accu-mulation of stocks or the breakdown of machinery or natural calamity or forother connected reason to give employment to a workman whose name isborne on the master-rolls of his industrial establishment who has not beenretrenched” (Government of West Bengal, Labour Department 1999: 2). Not


only are the reasons for layoff narrowly circumscribed by the IDA but in astate ruled by leftist parties it is highly unlikely a principal constituency willbe betrayed. After all it was the leftist parties that mobilized the alreadypoliticized industrial workers of the state. Nevertheless, there is a curiousdeadlock between workers, the employer HM, and the state. The fault line between the first two parties is clearly drawn, but the relationshipbetween them and the state of West Bengal, with its attendant politicalparty establishment, is considerably strained.

The ruling party recognizes the importance of productivity and investment-led growth today, especially after overseeing the state’s remarkable declineboth temporally and comparatively with other states. However, it also has a political obligation to its labor constituency, whose economic vulnerabilityis heightened under the new regime of regulation. It is instructive to examinethe economic context of some of the legal exchanges that have taken place in the late 1990s between the three parties to illustrate the complexity ofadjusting to a transformed capitalist environment in India.11

On November 11, 1998 HM filed a request with the West Bengal govern-ment to layoff 7,861 workers and 2,093 staff for three days each week fromits Uttarpara unit. Their principal reasons were increased competitionresulting from MUL and several new multinational firms and the prevailingrecessionary conditions. The government refused the request as it found“no adequate ground” (Government of West Bengal, Labour Department1999). HM challenged the decision, hence an industrial tribunal wasappointed to adjudicate the case. The tribunal also rejected HM’s petitionfor lay-offs. That firms can not lay off workers in an age of flexibility goes to illustrate the friction between older and newer forms of capitalist regula-tion and the considerable vulnerabilities associated with more market-driven capitalist transition. By all market logic employers are expected to adjust their output should demand fall and thus their workforce as well.However, not only was this market “logic” challenged by the state andemployees as it did not conform to the legal definition but there wereseveral inconsistencies in the explanations offered by HM and its legal representatives.

These varying interpretations by HM of what was going on in theIndian market and why they responded the way they did have been hotlycontested by the firm’s employees. For example, HM highlighted its lossesdue to competition and economic slowdown. It presented data on unsoldinventory and thus justified its request for lay-offs. However, there is no systematic pattern over time in HM’s losses as a whole and theUttarpara unit in particular, except that profitability was clearly linked tominimum volume of scale (roughly over 26,000 units) (Table 6.3). Laborwas blamed for work stoppages leading to losses but there was no percep-tible decrease in output. On the contrary, HM’s output for the year underreview reflects no perceptible recession as MUL was raising production,


while TELCO’s Indica, which was launched in December 1998, was slatedfor rapid expansion to 60,000 units in 1998–99 and increased to 115,000a few months later (Government of West Bengal, Labour Department1999: 46–47). The workers in turn dismissed HM’s claims by arguing thatthese losses have been inflated and that the company siphoned off hugeprofits to other states made from the Uttarpara plant since Indian inde-pendence. This was inconsistent with HM’s claim that its manufacturingunits were independently financed.

On the question of its inability to compete with small car manufacturers,the company argued that it was saddled with an excess workforce andhence its productivity has been low. The employees countered that thecompany was floating different productivity figures and needed to compareproductivity of HM with other companies in the same market segment, and that it surreptitiously began outsourcing components from outsidevendors. Furthermore, in spite of losses, company executives were givenlarge increases in travel and other allowances and over 60 new staff werehired.

In its petition in the late 1990s, the company claimed wage cost as ashare of total costs to be 7.98%, 16.6% in December 1998, and laterrevised it to 18% (Government of West Bengal, Labour Department 1999:14). This creeping inflation of costs was not acceptable either to the gov-ernment or the workers. Similarly, a wide variety of overhead costs werecited by HM to justify lay-offs. HM also complained about state patronageto MUL and more recently allowing multinationals to import engines and transmissions at much lower tariff rates (130% in 1992–92, reducedto 50% in 1993–94), though its own Chennai operations have relied onimported engines and transmissions from Mitsubishi Motors. It alsoalleged that the government did not approve its requests for a small carunit in 1971 or 1985. However, HM’s own department had defensively


Table 6.3 Profitability of Hindustan Motors in the 1990s

Production (units) HM’s Loss/Profits Uttarpara Plant’s (Rs. million) Losses/Profits

(Rs. million)

1991–92 16,375 –181.4 –346.61992–93 23,047 –304.9 –416.21993–94 27,781 176.9 –77.21994–95 28,481 317.2 103.51995–96 30,822 510.8 111.91996–97 29,036 444.5 16.11997–98 26,634 438.1 –68.61998–99 23,166 –281.7 –591.7

Source: Government of West Bengal, Labour Department (1999: 48–49).

argued against small cars as they would eat into HM’s monopoly. Further-more, in its petition HM did not offer any explanation as to why theUttarpara unit was unfit for small car production, whereas in practice itbegan producing the Lancers in Chennai. At the same time HM does notopenly acknowledge that government departments specify norms for taxiregistration, for which HM’s Ambassador meets the criteria.12 Also, theAmbassador has a high resale value and hence appears to stand up tofierce competition. Similarly, both state and central governments remainlarge buyers of HM’s Ambassadors.

HM seems to underplay its own shortsightedness. As a comprehensiveproducer in an era of protection, with high local content, HM relied verylittle on outsourcing. Yet, it does not seem to have exploited its in-housetechnological learning strategically in an era of liberalization. The inabil-ity to compete with enterprises importing components with 50% tariffssuggests the company’s sheer lack of competence. The unions allege thateven if HM had higher wage costs (greater labor intensity), its lower,fully amortized capital equipment could have been an important coun-tervailing force. Rather than modernize the plant or exploit its huge idleland (over 744 acres were granted by the state on concessional terms and250 acres were given free decades ago), HM diversified its holdingsoutside the state by establishing new component manufacturing units.The government, on behalf of workers, blocked HM’s attempted sale ofland for real estate development (Statesman News Service 2003). Of theapproximately $100 million it invested in the 1990s, less than 20% wentto the Uttarpara unit (Government of West Bengal, Labour Department1999: 22). According to the unions, the company deliberately created theconditions to render workers redundant and justify layoffs. It offeredvoluntary retirement packages, which had few takers, and it was alsoalleged that HM was creating conditions of fear to make its employeesaccept voluntary retirement. Workers have made the argument that theycannot be responsible for management’s poor lack of judgment. On theother hand, HM has asserted that just because units in other states areprofitable does not mean that the West Bengal plant cannot be shutdown.

The class conflict mediated by legal and bureaucratic maneuveringsbetween workers and the employer illustrate the vulnerability associatedwith the new regime of capital accumulation. Not only are workers underthe old regime underprepared to cope with the challenges of a transnation-alized economy but the changing accumulation strategies of capital as aresponse to the neoliberal environment leave workers to fend for them-selves. The heightened mobility of capital worldwide is mirrored at thelocal/regional level as relative costs shift due to changing economic andpolitical developments. West Bengal, despite its longstanding industrialleadership, is no longer able to compete with more flexibly-oriented


Maharashtra and Gujarat and increasingly in the automotive sector withTamil Nadu and Haryana. In the latter state 17% of its gross industrialoutput in the 1990s was contributed by transport equipment (NCRPlanning Board 1997: 56). This uneven regional development is concomi-tantly accompanied by the destruction of capital and its subsequentrenewal through accumulation. The decline of HM’s Uttarpara plant in thecontext of HM’s profitable operations in Pithampur and Chennai withtransnational capital is suggestive of the quintessential dynamic of capital-ism, namely capital mobility (flight), expansion (destruction), and socialupheavals (job losses and worker insecurity).

6 Resurrecting capitalism in West Bengal

In transitioning from a labor-centered, pro-peasant political force, theruling leftist parties have been compelled to make a Faustian bargain. Farfrom the anti-capital posturing of the 1960s, the CPM and its allies havecome to recognize the significance of working with the parliamentarysystem of elections. It has been relatively successful in rural Bengal whencompared to many other Indian states and consequently has been voted to office every term. However, its political mobilization of the organizedindustrial workers against capital provides only temporary politicalmileage. The state has abysmally failed on the urban-industrial front in notbeing able to prevent plant lockouts and permanent closures and generatenew industrial employment. Not only was West Bengal subject to theunequal distribution of industrial licenses by the central government,which dictated investment flows, but its own home-grown capitalist classfound ways of sustaining capital accumulation through diversification intonon-manufacturing activities and investments in more capital-friendlystates in the country.

Consequently, the ruling party has become more investment-friendly in the neoliberal era. With the dismantling of the Indian industrialinvestment licensing system and the opening up of the economy tomultinationals, virtually all Indian states now compete with each otherfor investments. By and large the economic incentives provided by localgovernments to investors are similar (Government of West Bengal,Information and Cultural Affairs Department 2002). Where they differ arein the areas of political stability, industrial relations, technical education,energy supply, and basic infrastructure. West Bengal’s record on thesefronts has been mixed at best but it is improving. The Government ofWest Bengal is initiating reforms in labor laws to boost productivity(Confederation of Indian Industry 2004a). The state has become an activeagent in attracting capital (Pedersen 2001: 660, Baldauf 2001, Con-federation of Indian Industry 2004b). In a recent report, the Confedera-tion of Indian Industry, the country’s most influential industry lobby,


gave high marks to West Bengal (Confederation of Indian Industry 2003).It listed the state’s above-average economic growth (Government of WestBengal, Information and Cultural Affairs Department 2002: 7), increasingpurchasing power, improvements in infrastructure such as power supplyand roads, and aggressive information technology sector promotion.13 Italso boasts some of the country’s finest higher education institutions.

Politically the West Bengal government does not antagonize capital ingeneral and it now periodically reminds workers of the importance ofefficiency. For example, the former Chief Minister, “advised the workforceto strike a balance between realizing its demands and maintaining produc-tivity” (Hindu 2003a). Reining in combative workers has become necessaryas factory closures or threats thereof have become a routine strategy of business in an era of flexible capitalism. In its quest for enhancing thestate’s economic standing the state government has pursued a number of interrelated strategies. It has established the West Bengal IndustrialDevelopment Corporation (WBIDC) for favorable and speedy decisions oninvestment and sent abroad many high ranking state officials, includingthe former Chief Minister Jyoti Basu, to invite investors. The state has alsoimproved infrastructure where it could and pragmatically sought to ride onthe success of the Indian information technology sector as other states suchas Maharashtra, Karnataka, Tamil Nadu, and Andhra Pradesh have done.The West Bengal government has plans to set up a $55 million dedicated IT hub (Sunrise City) at a greenfield site with a private partner (yet to beselected) just outside Kolkata (Silicon India News Bureau 2003a). The statewould provide equity through land (40 acres). Several multinational firmssuch as Oracle, IBM, and Price Waterhouse Cooper were present at themeeting called by the Chief Minister.

The inherent contradiction associated with “new” industries such as IT has not gone unnoticed. It has created an unusual split between theruling party (the CPM) and its affiliated trade union (CITU). For example, in its recent official session, CITU lamented the fact that the CPM-led government is promoting the IT industry, which is likely to be detrimental toa strong labor movement typically associated with traditional heavy industries(Bhattacharya 2003). Furthermore, the government itself is becoming animportant stakeholder in an industry led by the private sector and undeniablyits actions are going against its staunchest ally – the organized industrialworking class. Disciplining its own unions has become the task of the CPM tomake West Bengal an important investment destination (Chakrabarti 2003).That workers, even the most radical, are being tamed under the neoliberalbanner is evident from CITU’s admission of being ineffective in preventingplant closures and representing workers’ demands. More importantly, it hasruled out continuous strikes as an appropriate worker response (Times NewsNetwork 2003).14 However, CITU’s leadership itself has admitted that thetrade union has not been able to do much for its members.


7 Conclusion

This chapter presented capitalist development by way of market growth.Both changing supply and demand conditions presuppose the growth ofthe market. However, market growth is not uniformly distributed. There is not only the cyclical boom and bust of capitalist dynamics but spatiallythere is uneven development as older centers of capital accumulation decaywhile new ones emerge. This unevenness becomes especially acute whenthe regime of capitalist regulation shifts away from its statist moorings to one driven by market deregulation. Older firms and regions, such asHindustan Motors and West Bengal respectively, must now cope with the new competitive environment. However, the adjustment process isneither a foregone conclusion nor a smooth one. Institutional history, busi-ness strategy, and local politics have a significant bearing on the form andsubstance of regional industrial transformation.

This chapter presented a particular case of the adjustment process tobring out uneven development and social contradictions as an integralprocess of capitalist expansion. The state of West Bengal is examined to underscore relative industrial decline from its pre-eminent position asnew centers of industrial production in the north and south emerged inIndia. The experience of Hindustan Motors, India’s first auto company,located in Uttarpara, West Bengal illustrates the complex interplay of leftistpolitics, industrial relations, commercial goals, and historical contingenciesin shaping the transition process. The West Bengal case is interestingbecause of the emergent contradictions associated with uneven develop-ment. In a deregulated environment, the state’s pro-labor government hashad to make an ideological switch in favor of capital to address the every-day issues of market expansion and productivity growth. This about-faceunderscores the gravity of structural imperatives to conform to the normsof capitalist development. Increasingly the policies of the “left” govern-ment have become less distinguishable from other contending platforms.15

This is in part driven by the accumulation strategy of business, which,when constrained, must find alternative investment outlets for economicviability. The consequence of capital mobility is further decoupling of busi-ness from its regional allegiance, while organized workers, when con-fronted with the specter of plant closure, desperately fight to save theirjobs.

The political economy of transition from a state-led to a market-driveneconomy suggests a contradictory and open-ended process. It illustrates thehighly uneven character of capitalist growth, the significant bearing of his-torical and institutional factors on this process, and the increasing mobilityof capital echoing the forces of contemporary global capitalism. However,the relative decline of West Bengal is not a foregone conclusion as thepolitical leadership pragmatically sets a new course to underwrite capital


accumulation through foreign direct investment, foster high technologyindustries, and tame its industrial workforce. The state’s industrial declinealso does not necessarily mean the failure of HM as a whole. Capital mobil-ity, especially in the form of capital flight from the state, has been a pre-emptive strategy by HM to overcome accumulation barriers. At the sametime, HM is not absolutely freed from its workers either. Workers want HMto stay and continue production. Curiously, class conflict under the newregime of regulation takes on a new meaning as workers become far moredependent on capital. This is a far cry from the anti-capital politicalrhetoric of an earlier era for reining in capital.

The emerging contradictions in the transition to full-blown industrialcapitalism does not end here. In addition to the complexities of moving toa new regime of capitalist regulation, industrial transformation in Indiacontributes to ambiguous outcomes such as massive output expansion andexcess capacity, the democratization of consumption and income polariza-tion, and ecological problems and greater environmental consciousness.The consumer durables industries, especially the automobile industry, presents us with development dilemmas that cannot be simply wishedaway. The next chapter takes up these topics to further assess the nature ofuneven capitalist evolution in India in an era of deregulation – a processthat has been backed by the process of state-led embourgeoisment.


7Capitalist Competition,Consumption, and Contradictions ofIndustrial Transformation

1 Introduction

Market expansion in India has been undoubtedly solid as evidenced by thegrowth of the vehicle industry. Not only has demand increased to unprece-dented levels but there has been considerable diversity in the compositionof demand. From the supply side firms have kept up with market growthwith new products – parts and components – and adopted institutionalarrangements, which have contributed immensely to production flexibility.The Indian state contributed to the class of consumers through state-ledindustrialization in general. But most importantly it transformed itself froma passive regulator to an active participant in the industry. It formed thekey joint-venture in the Indian auto industry with majority equity, regu-lated industry participants, and ultimately facilitated the internationaliza-tion of the industry through economic liberalization, deregulation, andprivatization.

This shift to a new mode of regulation, namely market-driven economicand industrial change, has not been without its contradictions. The state ofWest Bengal provided an excellent illustration of uneven capitalist industri-alization, which was uneven to begin with. The greater interplay of marketforces compelled governments with alternative political programs such asWest Bengal’s to succumb to the global capitalist imperatives of efficiencyand commercialization. Admittedly such a reorientation is integral to the new mode of regulation and necessary as the earlier mode of state-leddevelopment becomes exhausted. However, the unleashing of marketforces, in the absence of countervailing forces, is intrinsically unequal. This inequality, evidenced through uneven regional development, nodoubt a specific institutional and historical outcome at the local level, isnevertheless linked to market development. For example, the swift declineof Hindustan Motors in Uttarpara in West Bengal under capitalist competi-tion and its expansion outside the state, piece-meal and wholesale, suggeststhat uneven development is very much a part of the new regime of capital

169

accumulation in India. After decades of industrial decline even leftistparties, sympathetic to industrial workers, are compelled to court capital in the neoliberal era to tackle unemployment and economic transforma-tion. Workers also are forced to adjust to new market-driven realities ofcompetition, efficiency, and productivity and business strategies that aremore consistent with profits and less with job security.

There are other contradictions arising from market growth, which itselfrests on the very process of state-led embourgeoisment. The first contradic-tion is at the level of capitalist competition. The shift from one mode of capitalist regulation to another has resulted in output expansion and con-comitant growth in consumption. At the same time, accumulation subjectscapital to hypercompetition and excess capacity, features typically associ-ated with unregulated capitalism, and often characteristic of advanced capitalism (Brenner 1998: 24–35, D’Costa 1999). The new mode of regula-tion privileges markets over the state and hence encourages systemicallyunplanned private investment and production often beyond the absorptivecapacity of the economy. This is a serious economic dilemma as resourcesare unproductively tied up in idle industrial capacity or in productionwhose realization is constrained by limited market demand. The irony forpoor countries such as India is that excess capacity, should it be there, islikely to coexist with entrenched poverty and social misery. Hence, excesscapacity cannot be seen simply as a consequence of business downturnswith anticipated quick market corrections in the future. For this to occur themarket must be assumed to work like a well-lubricated system, adjustingquickly to market surpluses and deficits. This cannot be assumed in generaland certainly not for India where hundreds of millions of people live inpoverty. Excess capacity can be thus a product of demand constraints,which when brought on by severe inequality, could be persistent.

The second related contradiction, associated with market expansion, is between increased consumption by a wider segment of society on theone hand and, on the other, a greater depth of household consumption bya narrower strata of society. As more Indian households partake thebenefits of expanding markets through rising incomes and associated con-sumption, there remains a vast number of households outside the orbit ofsuch market growth. This growing inequality, as well as income and wealthpolarization, is a serious structural limit to future market growth and henceto an inclusive economic and industrial development process.

The third contradiction with capitalist industrialization, especially with the auto industry, is growing environmental problems. Emissions, theeroding quality of urban life, pressure on deteriorating public transporta-tion, extensive demands on physical infrastructure, and rising dependencyon external sources of energy are significant problems. Technologically,capitalist industrialization is energy-intensive, while embourgeoisment is asocial force driving consumption in an unequal way.


Contradictions call for countervailing policies, whether in the form ofstate regulation of capital, politically negotiated redistributive justice, orsocially informed environmental protection. These emergent issues alsosuggest cautious optimism as developing countries such as India are com-pelled to address issues of inequality as they become more pronounced in an expanding market and adopt socially regulated environmental stan-dards that are consistent with global treaties and best practices. Withheightened environmental awareness, the experience of developing coun-tries demonstrates that the quality of life is not a matter of affluence butone in which all classes are affected. How the state responds to these emer-gent problems will depend on the political pressures brought upon the gov-ernment by civic bodies and the degree to which the state is willing toregulate capitalism under the new regime of accumulation.

This chapter is divided into three main parts, covering the three contra-dictions associated with industrial transformation and market expansion.The first is systemic dynamics of capitalism as illustrated by growth andexcess capacity in the automotive industry. The nature of capitalist compe-tition, fragmentation, and concentration is highlighted in a dialectical wayto capture some of the dynamics of the capitalist transition process fromone mode of regulation to another. The second section dwells on a relatedissue of excess capacity as it arises from demand constraints. This discus-sion is centered around the twin processes of inequality as a source for limiting demand and expanding consumption by segments of the lowerstrata associated with market expansion. This double movement is consis-tent with the embourgeoisment process as both exclusionary and in-clusionary. The third section briefly examines India’s growing vulnerabilityto imported oil, environmental pollution, and social responses to theseadverse developments. Specifically, the contradictions arising from marketgrowth in consumer durable industries such as automobiles and high costhousehold goods are discussed below.

2 Excess capacity in the Indian automobile industry

When the mode of regulation is largely anchored around the market, thereare at least three scenarios that could be generated to discuss excess capacitycharacteristic of dynamic capitalism. All of them reflect industry dynamicsand subsequent evolution in affluent industrial economies. First, excesscapacity persists as expectations about the future remain optimistic andactual markets consistent with expectations do not materialize. There is ahigh degree of competition and industry fragmentation. The second possi-bility is when demand does not match the actual installed capacity. In thiscase market correction could take place over time bringing both supply anddemand within reasonable balance in a dynamic way. However, under thisscenario there are at least two possible outcomes: a consolidated industry

Capitalist Competition, Consumption, and Contradictions of Industrial Transformation 171


with oligopolistic competition or a highly fragmented, competitive industry.In the first case, weaker players are eliminated while those wishing to cuttheir losses exit the market. Consequently, only a few players remain. Thesecond case suggests continued fragmentation of the industry in a buoyantmarket with new entrants and few leavers. In this case many firms coexist,with several of them operating production units of uneconomic scale. Forexample, only one car firm in India met the minimum efficient scale (MES)of 100,000–150,000 units a year among thirteen firms (Association of IndianAutomobile Manufacturers (AIAM) 1999: 38). The third scenario is the morefavorable one in which demand grows on a macroeconomic basis andsupply adjusts to this new environment, with each firm better able to utilizeits existing capacity. More players are added as the economy continues toexpand. However, there is always the possibility of overcompensating foranticipated demand by building new capacity ahead of demand. Excesssupply occurs especially when competition is severe, firms behave in a herd-like manner in their capacity expansion program, and the MES has a tendency to fall due to complex outsourcing arrangements and detailedsegmentation of the market.

Given these possibilities in affluent dynamic economies it is unlikely that India could display similar traits. However, when India’s demand-constrained economy is considered it is not far-fetched to predict excesscapacity. Well before the economic reforms of the 1990s or the gradualentry of foreign auto producers in the 1980s, the Indian auto industry suffered from periodic excess capacity (Table 7.1). In virtually each of

Table 7.1 Excess Capacity in the Indian Vehicle Industry

Cars Utility Commercial TotalVehicles Vehicles

1st Plan Target 13,500 4,200 12,300 30,000Excess –1,179 –444 –1,237 –2,860

2nd Plan Target 20,000 5,500 28,000 53,500Excess 674 346 –262 758

3rd Plan Target 30,000 10,000 60,000 100,000Excess –4,971 385 –26,187 –30,773

Annual Plans Target 33,333 9,000 38,333 80,667(1966–69average/year)

Excess –747 –1,630 –5,817 –8,193

4th Plan Target 75,000 15,000 85,000 175,000Excess –34,068 1,418 –41,079 –76,565

Source: Hindustan Motors Limited (1974: 5).

the plan periods there was excess capacity. It could be argued that faultyplans led to excess capacity. However, even under state-led industrializa-tion with the government maintaining a tight leash on the Indian autoindustry, there was a bias toward excess capacity. Even a minimal annualtarget of 75,000 cars in the fourth five year plan (1969–74) could not befulfilled. This is suggestive of a very low level of economic development,endemic poverty, and persistent inequality characterizing the Indianeconomy.1 Such a shortfall did not necessarily result from the lack of actualphysical capacity but rather due to inadequate demand. The low demandwas also a consequence of government policies that treated cars as luxurygoods and hence were subject to very high excise duties. However, sincethe threshold income for cars was very high in the Indian context it isdebatable if high taxes had a significant impact on demand (Nowicki1968). Furthermore, it was known that many companies often deliberatelycreated excess capacity as a preemptive strategy to keep future competitionat bay (Bhagwati 1993). Hence, the two car producers at that time, despitelittle competition between them, deliberately kept capacity high as a wayto persuade the state not to issue industrial licenses for additional capacity to likely competitors. Such strategies contributed to uneconomic scales ofproduction and thus a high-cost industry.

Under the new mode of capitalist regulation there have been two con-tradictory movements. The first is that economic reforms, under thebroader umbrella of deregulation, contributed to market expansionrapidly by capturing the latent demand that was already built up bystate-led embourgeoisment. The second related movement is heightenedcapitalist competition that arose from deregulation, leading to excesscapacity. Theoretically, this could be acute in the initial round when a previously insulated market is opened up rapidly in a climate of ex-tremely bullish market expectations. Both market demand and subse-quent excess capacity are visible in the Indian market. For example,Indian output has increased quite substantially in the last decade – risingfrom 218,765 cars in 1990 to nearly 700,000 in 2003–04, while all pas-senger vehicles together exceeded one million (Automotive ComponentsManufacturers Association (ACMA) 2002: 25; Society of Indian Auto-mobile Manufacturers (SIAM) 2004a). Total vehicle output increasedseveral fold during this period. Competition is also visible by the sheerincrease in the number of firms in the vehicle industry and the severalmodels of vehicles offered by these companies (Table 7.2). In 1990 therewere only three major car companies, which by 2004 stood at sixteen.During this period the number of basic models multiplied seven-fold,from 8 to 57. This is a remarkable change in the competitive environ-ment, given that each basic model had several variants. This develop-ment is also suggestive of the changing supply conditions, in that severalfirms such as MUL were able to deploy flexible production systems and



incubate competent parts and components vendors. As market outputincreased, accompanied by demand growth, producers had the incentiveto exploit economies of scope (D’Costa 2004), which in turn inducedfurther competition. As the number of players mounted, the market wasfinely segmented to cater to niche markets. Each new niche created thepressure to establish more niches, thus raising the specter of excesscapacity.

With the complete deregulation of the automobile industry in the mid-1990s, competition intensified with many more firms vying to capture ashare of the growing Indian market. In doing so the industry as a wholecreated additional capacity to stay ahead in the competitive game. Con-sequently, installed capacity has always exceeded production as evidencedby less than 100% capacity utilization (Table 7.3). What is noteworthy isthat the Association of Indian Automobile Manufacturers (AIAM), nowknown as the Society of Indian Automobile Manufacturers (SIAM) had pre-dicted excess capacity in a 1999 report, and had estimated capacity utiliza-tion to be only about 50% (AIAM 1999: 38). There has been considerabledecline in capacity utilization in all automobile segments, with a steeperdecline in four-wheelers than in two- and three-wheelers. In the formersegment, capacity utilization fell despite some market correction. Forexample, between 1997–98 and 1998–99 there was a 36% increase in capac-ity and a corresponding 6% decline in production. In subsequent periodscapacity increased by only 4 and 2%, while production increased 17% and

Table 7.2 Increasing Competition and Product Variety in the Indian CarIndustry

1990 2004

Number of Cars 219,000 696,000Produced in India

Number of Firms 3 16

Number of Basic Models 8 57

Names of Companies and MUL (3) Daewoo (3), Daimler-Chrysler (6), Fiat (3), Number of Models* HM(2) Ford (3), GM (6), HM (2), HM Pajero (1),

PAL (3) Honda-Siel (4), Hyundai (4), M&M (5), Suzuki (9), Mitsubishi (1), San (1), Skoda (1), TELCO (5), Toyota (3)

Source: Automotive Component Manufacturers Association (1997–98) and http://www.cyber-steering.com 5/10/2004 11:00 AM and Society of Indian Manufacturers Association (SIAM)(2004b), www.siamindia.com 5/02/2004 2:00 PM.Notes: * Models include cars, utility vehicles, and multipurpose vehicles. These exceeded onemillion units for 2003–04.Figures in parenthesis show the number of models for each company.

175

Tab

le 7

.3C

om

pet

itio

n a

nd

Ten

den

cies

To

war

d E

xce

ss C

apac

ity

in

th

e In

dia

n A

uto

mo

bil

e In

du

stry

Inst

alle

d C

apac

ity

(mil

lio

ns)

Pro

du

ctio

n (

mil

lio

ns)

Cap

acit

y U

tili

zati

on

(%

)

Fou

r-w

hee

lers

Tw

o-

and

Fo

ur-

wh

eele

rsT

wo

- an

d

Fou

r-w

hee

lers

Tw

o-

and

T

hre

e-w

hee

lers

Th

ree-

wh

eele

rsT

hre

e-w

hee

lers

1997

–98

1.10

4.67

0.95

3.31

8671

1998

–99

1.50

5.14

0.89

3.58

5970

2001

–02

1.56

6.95

1.04

4.54

6765

2002

–03

1.59

7.95

0.92

5.38

5868

Sour

ce: S

oci

ety

of

Ind

ian

Au

tom

obi

le M

anu

fact

ure

rs (

2000

, 200

4b)

for

inst

alle

d c

apac

ity,

Au

tom

oti

ve C

om

po

nen

ts M

anu

fact

ure

rs A

sso

ciat

ion

(1

998,

200

2) f

or

pro

du

ctio

n d

ata.

Not

es: I

nst

alle

d c

apac

ity

and

pro

du

ctio

n d

ata

refe

r to

un

its

per

an

nu

m.

Fou

r-w

hee

lers

in

clu

de

pas

sen

ger

cars

, uti

lity

veh

icle

s, a

nd

co

mm

erci

al v

ehic

les.

Tw

o-

and

th

ree-

wh

eele

rs i

ncl

ud

e sc

oo

ters

, mo

torc

ycle

s, m

op

eds,

an

d t

hre

e-w

hee

led

veh

icle

s, m

ost

ly u

sed

fo

r p

asse

nge

ran

d g

oo

ds

tran

spo

rtat

ion

. Th

ese

veh

icle

s ar

e si

mil

ar t

o s

coo

ters

an

d t

end

to

sh

are

som

e el

emen

ts o

f th

e sa

me

pro

du

ctio

n p

latf

orm

.


decreased by 12% respectively. Recent recessionary conditions probablyhave been partly responsible for the demand slowdown. However, it is clearthat excess capacity is a capitalist tendency due to unplanned investmentsassociated with competition. Even the two-wheeler sector, which has wit-nessed massive expansion has been saddled with excess capacity. Given thelower threshold income needed for two-wheelers it is surprising that thissegment also displays low capacity utilization.

It is also true, as we have seen in the previous chapter, that some firmssuch as Hindustan Motors have experienced adjustment problems underthe new mode of capitalist regulation. Their installed capacity is technolog-ically obsolete and unfit to compete with production systems of morerecent vintage. New firms trying to stay competitive will invest in addi-tional capacity, with early entrants capturing first-comer advantages, whilelater entrants must cope with a crowded market in terms of the number of firms and the variety of output produced. This is evident by the surpluscapacity found among several Indian firms (Table 7.4). For example,Daewoo Motors, with a capacity of 87,000 units in India, was shut down

Table 7.4 Excess Capacity by Firms

Installed Capacity Production Capacity (in thousands) (in thousands) Utilization (%) 1998-99/2002–03 2001–02 2001–02

Four-WheelersAshok-Leyland 50,000 31,828 63.7Daewoo 87,000 0 (bankrupt) naFord 100,000 14,306 14.3General Motors 25,000/33,000 8,135 24.7Hindustan Motors 64,000 23,212 36.3Honda-Siel 30,000 10,310 34.4Hyundai 120,000 93,888 78.2Mahindra and Mahindra 113,000/237,000 117,289 49.5MUL 350,000 357,102 102.0Daimler-Chrysler 9,000 1,415 15.7TELCO 345,000/360,000 182,601 50.7

Two- and Three- WheelersBajaj 2,000,000/2,520,000 1,294,632 51.4Escorts-Yamaha* 350,000/400,000 238,638 59.7Hero-Honda* 500,000/1,800,000 1,422,112 79.0LML 400,000/630,000 167,650 26.6TVS-Suzuki* 980,000/1,600,000 872,572 54.5

Source: Society of Indian Automobile Manufacturers (1998, 2004b) and Automotive ComponentsManufacturers Association (2002).Notes: na = not applicable; * now majority controlled foreign subsidiary.

due to the parent firm’s financial problems in South Korea. General Motors,as predicted earlier, has acquired this firm and added to its own surpluscapacity (D’Costa 2002). General Motors already had a capacity utilizationof only 25% and will increase its capacity to 33,000 units. Ford India at present has been licensed to produce 100,000 units but most recentlyproduced only 14,306 units. Anticipating higher growth and fending offcompetition, several companies increased capacity without experiencingproportionate increase in production. All two- and three-wheeler manu-facturers also expanded capacity significantly with most of them sufferingfrom low utilization rates. All but MUL are plagued with excess capacity. To its credit MUL invested at the right time, in the right products, and tookgreat pains to develop its supplier industry. It was the only auto firm inIndia that enjoyed first-comer advantage but kept pace with increasingdemand with product variety, reliability, and extensive after-sales service.With the deployment of flexible production systems, MUL was able tomaintain over 100% capacity utilization, a feat which has not beenmatched by any other Indian automobile firm,.

For lack of data it is not possible to demonstrate that there is excesscapacity in other consumer durable goods industry such as TVs, refrigera-tors, and other household goods. However, given the “consumerism”unleashed by the economic reforms of the 1980s, capacity addition in theseindustries can be inferred (Chadha 1995). Deregulation initially tends totranslate into more investments, domestic and foreign, and increased pur-chases due to falling prices (see Business Standard 2002b, 2002c, 2002d).Prices could fall due to liberalized imports and greater competition,economies of scale, and reduced taxes (Export-Import Bank of India 1996).With upward shifts in income for middle income households, we canexpect purchases of these products to rise dramatically (Rao (ed.) 1994:178–225, Natarajan 1998, National Council of Applied Economics Research(NCAER) 2002). The penetration of household utilitarian goods such asbicycles, wrist watches, fans, and some inexpensive kitchen gadgets andentertainment electronics is increasing rapidly in both rural and urbanareas. More expensive household goods such as refrigerators and washingmachines are likely to be constrained by low incomes. Their utility in theIndian setting also may not be perceived to be favorable yet. Nevertheless,economic mobility accompanying rising consumption suggests both risingconsumer aspirations and output expansion. The optimism surroundingthe rise of the Indian middle class and its voracious appetite for such goodsis conducive to keeping investments ahead of demand.

As Indian consumers are price sensitive and the prices of some of thesegoods are beyond the reach of many households, the demand for someconsumer durable goods may remain low. As we will see in the nextsection, capitalist contradiction arises not just from the supply side in theform of excess capacity but also as a consequence of persistent demand


deficits. Poor income distribution can limit market growth and contributeto structural excess capacity (Cypher and Dietz 2004: 20). The extent towhich capitalist industrialization in India is socially inclusive or exclusive,as illustrated by the consumer durable industries, is discussed below.

3 Market growth and patterns of consumption

Capitalist industrialization accompanying the shift to a new mode of regu-lation has meant not only a larger market for consumer durables but also aform of growth that has exclusionary tendencies. The contradiction of suchdevelopment is evident: as the embourgeoisment process pulls up somelower castes and classes, those who are already well-off push themselves upeven further on the economic and social ladder. This is not an end statebut an ongoing process, whose favorable conclusion, if there were to beone, would result in a more egalitarian society involving the diffusion ofbasic consumer durable goods. However, for such an eventuality to takeplace many of the structural inequalities that characterize Indian societywill have to be levelled. Politically this is an impossible task, given the persistence of income inequality, endemic poverty, and the neoliberal pres-sures for the withdrawal of the state from social policies. In this contextmaintaining a high rate of economic growth, while it is likely to absorbnew participants in the market, is also likely to contribute to polarizationas those high up on the economic ladder are likely to gain more and gainfaster than those on the lower rungs.

It is quite clear that the process of embourgeoisment is steadily con-tributing to economic mobility as lower income households are beingpulled to higher income levels. Based on the National Council of AppliedEconomic Research (NCAER) surveys, Table 7.5 presents the distribution ofIndian households by income.2 The expansion of markets, due to initialeconomic reforms of the 1980s and more comprehensive liberalization of the early 1990s, is nicely captured by the changing income distributionamong classes of households. The share of low income households hassteadily fallen from 65% to 40% since the mid-1980s, implying thatslightly over 16% of low income households of the mid-1980s experiencedrising income levels over this period. In effect these households can beassumed to be the upper margins of poor households in India. This is mir-rored generally by the increasing shares of all other income groups. What isnoteworthy is the doubling of the middle income group (from 6.95% to13.89%), the quadrupling of the upper middle income group (from 1.53%to 6.22%), and the five-fold increase in the high income group (from 1.07%to 5.70%). There is a similar trend when income groups are rearranged to create “broadest,” “broad,” and “narrow” middle class groups, i.e. thehighest income households seem to have increased the fastest compared totheir lower counterparts, suggesting overall an embourgeoisment process


179

Tab

le 7

.5E

stim

ated

Dis

trib

uti

on

of

Ho

use

ho

lds

by

In

com

e G

rou

p i

n I

nd

ia

Inco

me

Gro

up

1985

–86

1989

–90

1992

–93

1993

–94

1994

–95

1995

–96

1996

–97

1997

–98

1998

–99

Low

(L)

65.2

458

.84

58.1

657

.55

53.6

148

.98

44.7

542

.49

39.6

6Lo

wer

Mid

dle

(LM

)25

.22

26.9

525

.42

25.8

627

.94

30.5

532

.61

33.5

334

.53

Mid

dle

(M

)6.

9510

.11

10.3

510

.15

11.2

111

.95

12.8

913

.35

13.8

9U

pp

er M

idd

le (

UM

)1.

532.

663.

743.

974.

384.

965.

465.

806.

22H

igh

(H

)1.

071.

442.

332.

482.

863.

564.

294.

835.

70B

road

est

Mid

dle

Cla

ss

9.55

14.2

116

.42

16.6

618

.45

20.4

722

.64

23.9

825

.81

(M+U

M+H

)B

road

Mid

dle

Cla

ss

2.6

4.1

6.07

6.45

7.24

8.52

9.75

10.6

311

.92

(UM

+H)

Nar

row

Mid

dle

Cla

ss (

H)

1.07

1.44

2.33

2.48

2.86

3.56

4.29

4.83

5.70

To

tal

No

. of

Ho

use

ho

lds

128,

486

142,

440

155,

317

157,

319

160,

551

164,

871

166,

664

169,

207

171,

921

(in

th

ou

san

ds)

Sour

ce: N

atio

nal

Co

un

cil

of

Ap

pli

ed E

con

om

ics

Res

earc

h (

NC

AER

) (2

002:

75,

82,

123

), N

atar

ajan

(19

98).

Not

es: I

nco

me

Gro

up

bas

ed o

n a

nn

ual

in

com

e•

1985

–86

and

199

3–94

in

com

e ba

sed

on

198

5–86

pri

ces

(L =

up

to

Rs.

9,0

00; L

M =

9,0

01–1

8,00

0; M

= 1

8,00

1–30

,000

; UM

= 3

0,00

1–42

,000

; H =

ab

ove

42,

000)

•19

94–9

5 an

d 1

995–

96 i

nco

me

base

d o

n 1

993–

94 p

rice

s (L

= u

p t

o 2

0,00

0; L

M =

20,

001–

40,0

00; M

= 4

0,00

1–62

,000

; UM

= 6

2,00

1–86

,000

; H =

ab

ove

86,

000)

•19

89–9

0, 1

992–

93, 1

996–

97, 1

997–

98, a

nd

199

8–99

in

com

e ba

sed

on

199

8–99

pri

ces

(L =

up

to

35,

000;

LM

= 3

5,00

1–70

,000

; M =

70,

001–

105,

000;

UM

= 1

05,0

01–1

40,0

00, H

= a

bove

140

,000

).


but with significant class differentiation. Over 25% of Indian householdsare now seen as part of the broadest middle group compared to less than10% in the mid-1980s.

When the Indian data for distribution of households by income groups isdisaggregated by rural and urban sectors, the general embourgeoismentprocess is also observable (see Appendix A.2 and A.3). For example, duringthe 1985–86 to 1998–99 period, the share of low income households forthe rural and urban sectors declined from 74% and 42% to 48% and 19%respectively. The decline in rural and urban sectors are of similar magni-tude. However, as the average rural household income base is much smallerthan the urban base, the steep fall in low income rural households is notsurprising. What is remarkable is the number of households involved. Forexample, although there was a 30% increase in the total number of ruralhouseholds, i.e. a net addition of 28.4 million households, there were 10.6 million fewer households from the low income category by the end of1998–99. This compares to a reduction of 15.6 million at the national leveland a 5 million reduction in urban households in the same income cate-gory. While more low income households in the rural sector have experi-enced rising incomes, the lower middle income group in rural areas hasalso steadily increased – from 21% to 35%. This is in contrast to the slightdecline in urban lower middle income groups – from 36% to 34%. Whatthis indicates, in addition to the rural-urban income divide, is further sectoral widening of this income gap.

The broadest middle income groups in the urban areas have risen muchfaster than those in rural areas, from 22% to 47% in the urban sector and 5% to17% in the rural sector. In absolute terms the rural households have a slightedge over the number of urban households because of the large size of the rural population (15.7 million urban versus 16.4 million rural). However,the urban broad middle class clearly exceeds its rural counterpart. In 1998–99there were over 12 million urban households in the upper middle and highincome groups compared to over 8 million rural households. The overallembourgeoisment process is national but it is more urban-centered than ruralwhen income growth is concerned, with the urban narrow middle class out-numbering the rural group by 2.5 million households (see also Stern 2003). Inthe mid-1990s, the annual changes in the share of rich households increasedsignificantly, with rural households at high income levels witnessing greaterincreases than their urban counterparts due to a smaller rural income base(Table 7.6; Natarajan 1998: 56). However, the absolute number of urban house-holds in these high income groups exceeded that of rural households. Nearly110,000 urban households were added to the Rs. 500,000 annual income groupcompared to only 49,000 in the rural areas. The number of urban householdswith an annual income over Rs.5 million was seven times that of the ruralgroup. Due to under-reporting of actual income because of “black money,” thenumber of very rich households is most likely underestimated.

181

Tab

le 7

.6N

um

ber

an

d A

nn

ual

Gro

wth

Rat

e o

f W

ealt

hy

Ho

use

ho

lds

(19

93

–94

an

d 1

99

5–9

6)

1993

–94

1995

–96

Ave

rage

An

nu

al C

han

ge

Inco

me

(in

th

ou

san

ds

Ru

ral

Urb

anT

ota

lR

ura

lU

rban

To

tal

Ru

ral

(%)

Urb

an (

%)

To

tal

(%)

of

Rs.

)

Ove

r 50

0–1,

000

4915

120

098

260

358

42.3

31.0

33.8

Ove

r 1,

000–

2,00

010

4353

2482

106

55.2

37.4

40.9

Ove

r 2,

000

212

146

2632

74.0

47.1

51.0

Nu

mbe

r o

f H

ou

seh

old

s 24

72,

467

2,71

485

85,

685

6,54

284

.351

.855

.3w

ith

ove

r R

s. 5

,000

,000

an

nu

al i

nco

me

Sour

ce: N

atar

ajan

(19

98: 5

6).

Not

es: B

ased

on

199

5–96

pri

ces.

3.1 Two-wheelers and inclusionary consumption

Both rural and urban middle classes are increasingly translating theirincomes to purchases of modern industrial products (Table 7.7). This is aninclusionary dimension of market growth as some households from lowincome groups are also able to consume these products.

The pattern of purchases of selected consumer durable goods shows thatmost bicycles are purchased in the rural areas (82% in 1985–86 compared to78% in 1998–99), with total bicycle purchases increasing by nearly 70%. Thispattern is also displayed by the purchasing pattern of TVs, with a tripling ofrural share over a decade. Other white goods such as refrigerators and washingmachines exhibit similar trends but on a much smaller scale. For example,17% of 10.2 million washing machines purchased were in rural areas.However, that is only 1.734 million units for the entire rural sector, which hasa total population of over 700 million. A washing machine in a rural area maylikely be purchased for social prestige rather than for intrinsic economic andpractical considerations. After all, the dhobis, the caste of launderers in Indiaare integral to Indian society. Nevertheless, the increasing purchases of suchwhite goods by rural households in general reflects new consumption patternsassociated with embourgeoisment and represents an inclusionary form ofindustrialization. Televisions and other related electronic goods and kitchengadgets are best represented by this inclusionary process. These goods requirerelatively low threshold incomes.

The purchasing pattern of two-wheelers is somewhat ambiguous. It isinclusionary if it can be demonstrated that more lower income householdsare acquiring them or conversely, with economic mobility, more house-holds are able to afford such consumer durables. The relative share of ruralpurchases of two-wheelers does not show any noticeable change over the1985–86 to 1998–99 time period (Table 7.7). It has hovered around 40%,even though the total number of two-wheelers has more than doubledduring this period and the rural population is nearly three times that ofurban areas. What this suggests is that, notwithstanding increasing ruralhousehold incomes, they are not large enough to allow for the purchases ofmore expensive consumer durables such as motorized transportation. Inthe urban areas the story is different. There are fewer households in theurban areas compared to rural areas and as urban households continue to absorb nearly all of the increase in two-wheeler output, it can be inferredthat there is far greater economic mobility in the cities and towns than in the countryside. This can be seen by a simple comparison of prices oftwo-wheelers and annual household incomes (Table 7.8).

Based on dealer prices in 2001 and household income groups identifiedby NCAER’s MISH surveys, most two-wheelers are accessible to the lowermiddle income group (Rs. 35,000–70,000). For those households below anannual income of Rs. 35,000, it is most likely that only a tiny fractioncould afford a two-wheeler. Hence, most households earning less than


183

Tab

le 7

.7P

urc

has

es o

f Se

lect

ed C

on

sum

er D

ura

ble

s in

In

dia

(m

illi

on

s) a

nd

Ru

ral

Shar

e (%

)

Pro

du

ct19

85–8

619

89–9

019

92–9

319

93–9

419

94–9

519

95–9

619

96–9

719

97–9

819

98–9

9

Bic

ycle

s4.

7 (8

2)7.

0 (7

4)7.

1 (7

8)8.

1 (7

8)7.

5 (7

9)8.

0 (7

8)9.

0 (7

8)9.

0 (7

8)10

.4 (

78)

Tw

o-w

hee

lers

*1.

1 (4

0)1.

6 (4

0)1.

5 (4

0)1.

7 (4

0)1.

9 (4

0)2.

5 (4

0)2.

7 (4

0)2.

9 (4

0)3.

4 (4

0)R

efri

gera

tors

0.6

(14)

1.1

(15)

1.2

(18)

1.5

(20)

1.6

(24)

2.0

(24)

2.3

(25)

2.6

(26)

5.1

(38)

TV

s/V

CR

s/V

CPs

2.1

(21)

5.6

(39)

4.4

(45)

5.3

(52)

6.2

(52)

7.9

(54)

8.1

(56)

9.2

(58)

10.2

(63

)W

ash

ing

Mac

hin

es2.

5 (1

2)7.

3 (7

)7.

9 (1

0)8.

0 (1

2)8.

7 (1

4)10

.2 (

15)

1.3

(15)

1.4

(14)

1.5

(17)

Sour

ce: C

om

pil

ed f

rom

Nat

araj

an (

1998

: 167

, 168

(T

able

s 24

.5 a

nd

24.

6)).

Not

es: *

co

mbi

ned

to

tal

of

mo

ped

s, m

oto

rcyc

les,

an

d s

coo

ters

;V

CR

/VC

P =

vid

eo c

asse

tte

reco

rder

/pla

yer;

Fig

ure

s in

par

enth

esis

rep

rese

nt

rura

l sh

ares

, (ro

un

ded

).


Rs. 70,000 will find owning most motorcycles financially burdensome.Nearly 83% of rural household income falls in this income level. For urbanareas, the corresponding share in 1998–99 was under 44%, or nearly halfthe rural share. The broadest middle class (middle, upper middle, and highincome groups) in the rural areas constitutes under 18% of households,while the urban share is nearly 48%. Hence, it is not surprising to see a veryhigh share of two-wheelers in urban areas compared to rural areas. It couldbe argued that the two-wheeler market is inclusionary for urban house-holds and exclusionary for rural ones. Sociologically speaking they alsoprovide the means of upward mobility as consumer durable goods take onheightened significance in dowry transactions. This is a contemporaryfeature in both urban and rural areas.

Curiously both rural and urban income distribution display nearly iden-tical shares of lower middle income groups – 34.83% versus 33.76% respec-

Table 7.8 Prices of Two-Wheelers and Distribution of Household Income

Income Group Share of Households Share of Households (1985–86) (1998–99)

Rural Urban Total Rural Urban Total

Low (up to Rs. 35,000) 73.6 42.1 65.2 47.9 19.0 39.7

Kinetic V2 Scootie 19,300 LML NV Scooter 30,758Bajaj Sunny Scootie 22,945 Bajaj AT Scooter 31,960Bajaj Chetak (basic) Scooter 23,800 Honda Active Scooter 34,343Bajaj Chetak (metalic) Scooter 27,905

Lower Middle 21.4 35.8 25.2 34.8 33.8 34.5(Rs. 35,001–70,000)

Bajaj Boxer CT (MC) 35,130 Kinetic Challenger (MC) 41,800Hero Honda CD 100 (MC) 38,300 Hero Honda Passion 43,960

(MC)Kinetic ZX Zoom Scooter 39,511 Kinetic GF (MC) 51,000Bajaj Kawasaki Caliber (MC) 41,420 Hero Honda CBZ (MC) 54,410

Middle 4.0 15.2 7.0 10.4 22.6 13.9(Rs.70,001–105,000)

Bajaj Eliminator (MC) 86,170

Upper Middle 0.7 3.9 1.5 3.9 12.1 6.2(Rs.105,001–140,000)High (above Rs. 140,000) 0.4 3.1 1.1 3.0 12.5 5.7M+UM+H 5.0 22.1 9.6 17.2 47.3 25.8UM+H 1.0 6.9 2.6 6.8 24.7 11.9Narrow Middle Class 0.4 3.1 1.1 3.0 12.5 5.7

Source: National Council of Applied Economics Research (NCAER) (2002), Natarajan (1998), andM. Kumar (2002).


tively. Until the share of the rural lower middle income group begins todecline in parallel fashion to the low income group, the bulk of purchasesof two-wheelers will remain an urban phenomenon because high incomegroups are becoming numerically larger in the urban areas. The rise of two-wheeler purchases also reflects the deterioration of urban public transporta-tion as a consequence of declining public investments. The increasingaffordability of two-wheelers, a consequence of competition and economiesof scale, de facto creates an alternative mode of private transportation in adeveloping country context.

3.2 Passenger cars and exclusionary industrialization

The pattern in the purchases of consumer durables in India suggests thatthere is a widening base of popular consumption. The purchase of two-wheelers is indicative of the broader urban-based embourgeoisment process,with lower middle and middle income households finding such productswithin their reach. However, the passenger car industry provides a very different picture. When we compare two-wheeler production with that ofpassenger cars, there is a marked, growing divergence in the number of units produced (Figure 7.1), with two-wheelers exceeding four millionunits compared to less than three-quarter million units of cars and utilityvehicles. Car purchases represent one-seventh of two-wheeler output, dueto low purchasing power of Indian consumers.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

No.

of U

nits

CarsTwo-Wheelers

Figure 7.1 Growing Divergence in Car and Two-Wheeler Production (1971–2001)Source: Automotive Component Manufacturers Association (various years).

Broadly, the output expansion of both types of vehicles show a similargrowth pattern. The period preceding the pre-reform era was constrainedby the state-led capitalist regulation, which tightly controlled automobileoutput. It is therefore not surprising that output increased most in the post-reform period of 1991 when considerable deregulation took place.From a virtually flat growth rate in the 1970s, two-wheeler productionpicked up dramatically in the 1980s and throughout the 1990s. Car pro-duction growth is similar, albeit with a lag. The spurt in growth coincideswith Maruti’s production in the mid-1980s. The 1990s witnessed rapidexpansion of car output. The ratio of two-wheeler to car output wasroughly 3 in the early 1970s, 6.6 in the remaining decade, 9.5 through1986, and back down to a ratio of 7 through 2001. While there is limitedconvergence, car purchases will inevitably increase, although private trans-portation will remain skewed in favor of two-wheelers for the foreseeablefuture. What this suggests, as we have seen, is that capitalist industrializa-tion under the new regime of accumulation is expansionary creating newopportunities. However, this industrialization process caters mainly to theupper middle and high income households.

Car prices are indicative of this exclusionary form of industrialization(Table 7.9). Not a single model is affordable for the middle income groups.Even the lower end of the high income group falls far short at these prices.The Maruti 800 is the cheapest model, representing roughly two times theannual income of the high end of the upper middle income group. In this sense demand is heavily constrained even within the high incomegroup. Only those in the affluent group with annual household income of Rs. 500,000 constitute a viable market. In 1995–96 this group comprised no more than 360,000 households in all of India (Natarajan 1998: 56),although this is likely to be an underestimate due to under-reporting of income in India. Creating an expanding car market in India would, inpart, entail increasing the share of income in favor of the affluent, which istantamount to increasing inequality as a whole. Such inegalitarian ten-dencies are already rampant when we compare the lower income house-holds with the high income groups. As expanding markets contribute torising incomes as a whole, the higher income groups are likely to experi-ence faster growth than other groups, thus contributing to significant socialand economic differentiation (United Nations Development Programme(UNDP) 2003, D’Costa 2003a, 2003b). This is evident from the narrow baseof car ownership and the class divide associated with such ownership.

The increasing social and economic differentiation is significantly catalyzed by the new mode of capitalist regulation. Not only is theregreater economic space with deregulation leading to expanding marketsbut the imperative of capitalist competition also fosters greater produc-tion efficiencies. As we have seen earlier, new flexible institutions forproduction coordination accompany the new mode of regulation,


leading to greater and differentiated output. Niche markets are consis-tent with embourgeoisment as they cater to different classes and so isthe new mode of capitalist regulation consistent with economic mobilityas the overall size of the market is stretched further. The purchasingpattern of bicycles, electronic entertainment products, as well as house-hold goods display widespread diffusion. The two-wheeler industry, atthis juncture, illustrates a more ambiguous case. Scooters and motorcy-cles are coming within the reach of the broadest middle class, but thatincludes only a small percentage of households in the rural areas. It isevident that the vast majority of households are still not consumers ofthis particular durable good due to low incomes.


Table 7.9 Prices of Selected Cars and Household Income*

Company Model Name Low Cost Expensive Price as Multiple Model Model of Rs. 140,000*

Daewoo Matiz SA 402,255 2.9Cielo CNG 572,935 4.1

Daimler-Chrysler Classic 2,436,000 17.4S320L 5,627,765 40.2

Fiat Palio 1.2 353,443 2.5Siena 12EX 466,983 3.3

Ford Ikon 1.6 637,015 4.6Mondeo Duratec 1,556,185 11.1

General Motors Opel Corsa 548,800 3.9Vectra 1,690,000 12.1

HM Ambassador 432,287 3.11800 ISZContessa Classic 529,336 3.8

Honda-Siel New City 758,697 5.4CRV 1,679,021 12.0

Hyundai Santro XING 452,255 3.2Accent CRD 756,511 5.4

M&M MM550 (jeep) 345,400 2.5Scorpio 803,084 5.7

Maruti 800 DX 269,310 1.9Alto LX 299,274 2.1Zen 494,117 3.5

Mitsubishi Lancer 973,166 6.9Toyota Qualis 547,326 3.9

Corolla 1,035,810 7.4TELCO Indica DLE 358,896 2.6

Indigo 433,093 3.5Skoda 1,117,704 8.0

Source: http://www.cybersteering.com 5/10/2004 11:00 AMNote: * Rs.140,000 represents high income group.


Only a minority of households, rural or urban, are able to acquire an auto-mobile. The total output of automobiles, though on the rise, is a fraction ofglobal production and relative to the India’s population a minuscule output.While today more people own cars in India they still represent a tiny minor-ity. The threshold income for auto purchases is still high for most Indianmiddle class consumers. Until there is a dramatic increase in incomes, capi-talist industrialization as exemplified by automobile production will remainan exclusionary process.

There are other distortions and contradictions that emerge from such anexclusionary form of industrial consumption. These include the use offoreign exchange for oil imports, growing dependence on external sourcesof oil, and the environmental implications of automobile industrialization.These topics are taken up in the next section.

4 Industrialization, energy dependence, and the environment

With industrial growth and diversification India’s dependence on externalsources of energy has grown considerably. Under the old mode of regula-tion, the state severely curtailed fuel consumption by industrial licensing,restricted output in the automobile industry, heavily taxed the industry,treated automobiles as a luxury product, and insisted on high localcontent. As India has limited domestic supplies of oil, it relies significantlyon the Middle East. Also, under the previous regime of accumulation, thestate, through its import substitution strategy, de facto discouraged exports,thereby contributing to India’s foreign exchange scarcity and importdependence. India’s foreign exchange crisis of the late 1980s and early1990s was precipitated by a rapid increase in imports, including that ofconsumer durables, and energy-intensive industrialization such as auto-mobile production.3 As shown in Chapter 4, India’s net trade balance hasbeen persistently negative, mainly because of oil imports (see Figure 4.1).Excluding oil, India’s net trade balance was mostly positive in the 1990s asexports became integral to the regime of capital accumulation.

With rapid growth of the automotive industry, including two-wheelers, thedemand for energy has risen as well. This is seen in both increased domesticproduction as well as imports (Figure 7.2). Imports have been increasingsince the 1960s. However, both imports (and net-imports of oil) show a dra-matic rise from the mid-1980s and late 1990s, during which period domesticproduction stabilized around 32 million tonnes. However, there was almost aten-fold increase in “petrol-driven vehicles in car equivalent units” between1971–1994 (Srivastava and Sengupta 2000: 121). The share of domestic pro-duction to imports has fallen more recently due to new off-shore sources discovered by India. However, oil dependency is still high, with nearly 80 million tonnes being imported each year. In 1999–2000 net importstotalled 73.7 million tonnes and two years later stood at 75.6 million tonnes(Government of India, Ministry of Petroleum & Natural Gas 2003: 79).


0

10

20

30

40

50

60

70

80

90

1960 1970 1980 1990 1996 1997 1998 1999 2000 2001

mill

ion

tons

dom productionon-shore productionoff-shore productionoil imports net oil imports

Figure 7.2 Commodity Balance in Crude OilSource: Government of India, Ministry of Finance, various issues.Notes: dom prod = domestic productionnet import = imports, indicating no exports

There is no doubt that the auto industry expansion since has contributed tothis growing dependence, especially since 1996. Within a decade oil importsnearly tripled.4 As illustrated by the changing pattern in energy consumption,the ratio of oil consumed by the transportation sector (e4/d4) has been risingrapidly (Figure 7.3). Oil consumed by road transportation as a share of oil con-sumed by the total transportation sector is also creeping up (f4/e4 = 0.85 in1994), given that the share was already high (0.74 in 1971). With sustainedimports, driven considerably by the automobile industry as a whole, India’slong-term debt of around $80 billion could become a precarious situation. Atthe same time, foreign exchange revenues have increased substantially due to increasing exports, with the information technology sector contributingsubstantially to foreign exchange reserves. The environmental dilemma is ap-parent: there is increasing dependency on imported energy on the one handwhile India now has a greater ability to pay for such imports, on the other.

This dependency has taken on unanticipated characteristics. First, therapid industrial growth of China with limited domestic supplies, includ-ing the failure to find oil in western China, suggests greater dependenceon Middle East supplies. Second, in addition to China, there are other

industrialized East Asian economies, including Japan and Korea, with avoracious appetite for petroleum-based energy (Cordesman 1998). Hence,India will have to compete with these economies should all of theseeconomies continue to grow at healthy rates. Third, given this likely sce-nario, the Indian government is aiming to construct international pipe-lines from Iran, Oman, and Central Asian republics such as Kazakhstan,Kyrgyzstan, and Tajikistan. The problem with these projects is that thepipelines will have to be either land-based, going through Afghanistanand Pakistan or sub-sea and deep-sea lines, skirting these countries forsecurity reasons. Even China is likely to seek supplies from Central Asia,thereby creating additional pressures on India.

4.1 National and social responses to regulating capitalism

There are two levels at which responses to regulate capitalism might beforthcoming. The first is the national response to perceived and realscarcity of and vulnerability to imported petroleum products. This may


Figure 7.3 Changing Energy Consumption Ratios (1971–1994)Source: OECD in Srivastava and Sengupta (2000).Note: Ratios refer to energy consumption as a whole and consumption of oil by various sectorsoil energy requirement is treated as consumption of oil, all ratios refer to consumption in thousand tonnes of oil equivalent; c4/b4 = total oil consumed as a share of total energy consumed; d4/b4 = energy consumed by total transport sector as a share of total energy consumed; d4/c4 = energy consumed by total transportation as a share total oil consumption; e4/d4 = oil consumed by total transportation as a share of total energy consumed by total transportation sector; f4/e4 = oil consumed by road transport sector as a share of oil consumed by total transportsector.

0

0.2

0.4

0.6

0.8

1

1.2

1971 1973 1975 1977 1979 1980 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

ratio

c4/b4 d4/b4

d4/c4 e4/d4

f4/e4

prompt a variety of state-initiated functional attempts to curtail importsand consumption and enhance production. This can be accomplished by tariffs, subsidies, and investments. Conversely, increasing export rev-enues could make imports financially viable. This may, in the Indian case,lead to creating various geo-political alliances. The other response could bedriven by civil society, resulting from the deteriorating quality of urban lifeand increased environmental consciousness. Irrespective of the nature ofthe responses it is evident that capitalism as we know it needs to be sociallyregulated. The negative externalities are far too consequential to be left to the market. In the next two sections a brief discussion of these responsesis presented to bring out the dialectical nature of industrial evolution, contradictions, and social regulation for their resolution.

India’s net imports of crude oil and petroleum, oil, and oil-based lubricants have been steadily increasing. There are several longer termstrategies, which could alleviate, albeit in a limited way, the emergentenergy co-dependency. The difficult strategy would be to explore newsources of supply of both oil and natural gas, as natural gas is becoming animportant fuel for automobiles as well. Bilateral exploration for both oiland natural gas between India and Myanmar is a possibility. Bangladesh asa major supplier of natural gas is another possibility. However, Bangladeshis reluctant to supply natural gas to its more powerful neighbor and thatscenario does not sell well in Bangladesh’s domestic politics. In the end theuncertainty associated with geopolitical ramifications limit India’s optionsto establish new supplies. An easier option is to reduce oil dependency bycutting back on consumption. However, given the nature of output expan-sion under the new regime of accumulation and fueled by the new mode ofregulation, it is unlikely that growth will be curtailed. One possibility isincreasing the fuel efficiency of industries through technological change.This is consistent with the flexible system of production under the newmode of capitalist regulation. New products and new processes are integralto contemporary capitalist competition and fuel efficiency is an importantelement to consumer satisfaction in rich and poor countries alike. This isalready taking place in India as Indian consumers find Japanese-inspiredvehicles attractive for their fuel efficiency. As Indian consumers are veryprice-sensitive, to petrol prices for example, the small car model is expectedto remain popular. More importantly, alternate fuels such as compressednatural gas (CNG) are becoming more common in India as well, creatingthe possibility of coping somewhat with oil dependency, but certainlycombating air pollution.

4.2 Rising energy dependence and growing pollution

There has been a nearly 140% increase in the domestic production ofnatural gas between 1990–91 and 2001–02 (Government of India, Ministryof Petroleum & Natural Gas 2003: 80). While much of this increase has


been driven by household energy needs (mainly for cooking), the impetusfor adopting CNG as an automotive fuel has come from another quarter.Not only is there is a supply problem with petrol but the emissions associ-ated with such fossil fuels have been responsible for the pressure to switch to alternate fuels. In 1991 when the Indian automobile industry was on the cusp of another round of take-off, a study of the transport sector esti-mated that there were over 40,000 premature deaths and health damagetotalling between $170 million and $1.6 billion (Sengupta 2001: 80). Thethree major cities of Kolkata, Mumbai, and Delhi accounted for 40% of the deaths.

Virtually all forms of mass transportation and motorized individualtransportation contribute adversely to the environment (Sengupta 2001:65). Fossil fuel based road and air transportation contribute significantlyto air pollution with carbon monoxide, hydrocarbon particulates, nitro-gen oxides, sulphur dioxide, and lead. In 1991, the share of the transportsector in Delhi’s urban air pollution in terms of various emissions was64%, accounting for 97% of hydrocarbons, 48% of nitrous oxide, and76% of carbon monoxide contributed by the transportation sector alone.The World Health Organization considers Delhi to be one of most polluted cities in the world (World Resources Institute 1998). Other citiessuch as Mumbai and Kolkata do not fare any better. In part, a largenumber of poorly maintained diesel-run buses and ageing three-wheelersfor public transportation have been responsible for such high numbers.One government report points out that buses, despite providing socialbenefits, are not a solution to Delhi’s pollution problems, rather theycontribute far more to pollution than newer cars (Government of India,Ministry of Heavy Industries & Public Enterprises 2002: 224–225).However, the addition of more passenger cars on the streets in the lastdecade has compounded the problem. In the 1990s virtually every majorcity in India had increasing emission levels (suspended particulatematter per cubic meter) in residential areas; a few cities have reducedemissions in recent years (Government of India, Ministry of HeavyIndustries & Public Enterprises 2002: 59–60). Despite more modernengines that are friendlier to the environment, the sheer number of vehicles on the roads suggests that reducing oil dependency and emissions will be a herculean task in India.

That said, there are various efforts to deal with the emerging contra-diction of capitalist industrialization under the new regime of accu-mulation. There are two sets of efforts to combat environmental effectsof fossil fuel consumption. The first and the most important initiativeshave been governmental, as discussed earlier. For example, to reduce pollution and dependency, the Government of India has introducedseveral legislative measures. They include earlier measures such as AirPrevention and Control of Pollution Act (1981), Environment Protection


Act (1986), and the Motor Vehicles Act (1988). More recent measureshave been the notification of National Ambient Air Quality Standardsand vehicle emission norms such as Bharat I and II modeled on Euro Iand Euro II pollution standards adopted by the European Union. Theseprovide a benchmark for regulatory authorities such as Central and StatePollution Control Boards. Also, there are more R&D efforts by severalgovernment laboratories aimed towards emission reduction technolo-gies. The second set of efforts, briefly discussed below, have been civicresponses to deteriorating air quality and environmental degradation,albeit in a limited way.

4.3 Social and civic responses in Delhi

It is beyond the scope of this project to address the specific measuresneeded to cope with environmental problems arising from the broaderindustrialization process and the auto industry in particular. Clearly thesolutions will have to incorporate sector-specific policies such as technolog-ical developments to reduce consumption and emissions and economicmeasures such as pricing of fuels, alternative modes of transportation, andtaxes on automobiles. There must be various social targets too, in terms ofinfrastructure development, urban decongestion, and population growth.Lastly, astute political maneuverings to negotiate with manufacturingindustries, transportation lobbies, and economically mobile urban-basedmiddle class households will be critical to implement environmentallyfriendly policies. More fundamentally, the very model of economic growthbased on capitalist industrialization may have to be revisited should theinterplay of contradictions become economically, socially, politically, andenvironmentally untenable. Such questioning is already a part of a muchwider global environmental movement and increasingly within India thereare growing concerns with quality of life issues. Here the particular case ofDelhi is presented to highlight India’s social and institutional responses totackle the growing menace of environmental problems, suggesting that thenew regime of accumulation under the new mode of regulation is notimmune to social regulation.

In 1986, M. C. Mehta, a renowned environmentalist, filed a public in-terest litigation case in India’s Supreme Court pertaining to air pollution in Delhi (Turaga 2002: 555). He was already battling the Indian govern-ment over a wide range of environmental and human rights issues (Alleyand Meadows 2004).5 Gradually, over a ten-year period, the Supreme Courtruled in favor of improved fuels, catalytic converters, CNG-poweredengines for government vehicles, and low-sulphur diesel as a result of the suit (Government of India, Ministry of Heavy Industries & PublicEnterprises 2002).

It is remarkable that a country known for bureaucratic lethargy movedquite swiftly in establishing new emission standards, thereby removing


older vehicles from plying, and compelling others to adopt CNG-basedengines. In August 2002, the Government of India’s Report of the ExpertCommittee on Auto Fuel Policy was released (Government of India,Ministry of Heavy Industries & Public Enterprises 2002). The Indian auto-motive industry, loathe to adopt measures that would eat into their bottomlines in a highly competitive, price-sensitive Indian market, institutionallyadopted new technologies and standards. For example, the Society ofIndian Automobile Manufacturers, the auto industry lobby, agreed to aplan to introduce Euro III and IV norms. The automobile manufacturersalready produce vehicles that meet Bharat II pollution norms (a domesticstandard) and the Euro II standard. The entire country will be subject toBharat II standards and Euro III norms for eleven major cities from April 1,2005, and the entire country by 2010 (Outlook 2003). No segment of theroad transportation system has been spared by the new rulings. The two-and three-wheeler segment and trucks and buses also have to meet newpollution standards, albeit with varying timelines. For example, in Delhi,no interstate buses or trucks will be allowed to originate or terminate unlessthey meet India 2000 emission norms beginning April 1, 2007 (Outlook2003). In August 2001 Delhi boasted the largest number of CNG-run busesfor any city in the world. In 2003, Delhi was awarded the US Departmentof Energy’s first Clean Cities International Partner of the Year award(Solomon 2003).

While this dramatic turnaround in auto fuel policy can be explainedby social activism, much of it attributable to the tenacity of a particularindividual, the objective conditions of Delhi’s environment were trans-formed by rapid growth in the Indian automobile industry and Delhi’scentral role in consuming autos. The contradiction was no less remark-able. While the production and consumption of automobiles was largelyan exclusionary form of industrialization, Delhi’s upper middle and highincome households, however, were not immune from the deterioratingair quality. The rise in respiratory illnesses (combined with congestedstreets and high incident of accidents) prepared the groundwork forpolicy shifts. For example, Delhi’s particulate pollution during 1987 to1998 was roughly three times the national annual average, which in turnwas roughly three times the national standard of 140 micrograms percubic meter (Ghose 2002). On some days Delhi’s concentration of partic-ulates was 5–12 times the permissible limit. Consequently, there was a convergence of interests of the court, middle class owners of vehicles,passengers, and residents of the city in pushing through major environ-mental reforms, including the wholesale adoption of CNG. Even thegovernment of West Bengal adopted stringent Euro norms post-April2000 and thus barred established manufacturers from entering the WestBengal market if they did not meet those emission standards (Rediff1999).



There were opponents to alternative fuels and the new environmentalstandards. These included, initially, automobile manufacturers, as it entailedsome redesign and foregoing sales due to additional cost of vehicles. Forexample, on the average, MUL’s vehicles retrofitted with imported fuel man-agement kits cost an additional $600–700 (Iype 1999). As some of the auto-mobile manufacturers were already exporting to the European Union theycould turn around quickly to meet new emission norms. However, most ofthe resistance came from transport operators, mainly the owners of theageing public transportation system, which included taxis, three-wheelers,diesel buses, and private two-wheeler owners. While the exhausts fromageing (subsidized) diesel-based buses and trucks contributed massively to airquality, the three- and two-wheeler units with two-stroke engines also con-tributed significantly to airborne particulates. Of course the proprietors of buses, trucks, and some taxis were relatively well-off, while the owners ofsingle taxis and three-wheelers were clearly not. Furthermore, there weremany three-wheeler drivers who rented their units on a daily basis. Once thecourt ruling went into effect the owner either had to retrofit a CNG converteror idle the unit. While the owner could cope with idle capacity, the renterwho lived from day to day could not. Hence, opposition to new fuel policywas resisted by both owners and drivers. The tacit alliance between ownerand renter was also reflected by the thousands of low-wage workers who wereleft jobless with the Supreme Court’s ruling over polluting industries in Delhito either shut down or relocate their factories.

In the end the Indian automobile industry has adjusted to the newemission standards. Now policymakers have become more consciousabout oil dependency and there is a new auto fuel policy in place. Thegovernment is trying to meet the new demand for CNG, especially afterthe chaos that erupted due to a lack of adequate CNG supplies in Delhiwhen the ruling went into effect. Today, Delhi’s air quality is signifi-cantly better than what it was in the mid-1990s. For example, the wide-spread adoption of CNG has cut particulate emissions by 80% for eachbus in use in Delhi (Reddy 2004). Additional reduction of 50% of smogproducing compounds is expected through the use of better fuels andtighter emission standards. Nationwide, the new emission standards willcut particulate emissions by nearly 60% for large commercial vehicles,while agricultural tractors will curtail carbon monoxide (CO), hydro-carbons, and nitrous oxides by over 30% (Reddy 2004). This transforma-tion has been a consequence of social regulation that arose in the firstplace as a countervailing force to the relentless pursuit of capital accu-mulation under the new regime and accompanied by the new mode ofregulation pursued by private capital. Capitalist regulation as practicedby the Indian union since the 1980s has been of the neoliberal order,albeit of an Indian sort, where the state continued to play an importanteconomic role. However, with economic reforms and deregulation the


state increasingly retreated from the public sphere. It encouraged privatebusinesses – both domestic and foreign – to shape the Indian economyand society. The environmental countervailing force was noteworthy notonly because of the socially beneficial outcomes but also because itdemonstrates that capitalist regulation need not be bereft of social regu-lation. The environmental crisis is quintessentially a contradiction of theadvance of industrial capitalism but capitalist markets as a system ofefficient production and consumption could be made to accommodatenew social demands placed on the system. This tense dialectical move-ment, while far from producing a comprehensive resolution, does pointto the necessity of regulating capitalism politically and socially. It alsopoints to the importance of identifying alternative forms of capitalistregulation, which would be driven more by society and its priorities andless by the expediency of market rationale.

5 Conclusion

This chapter presented three contradictions arising from capitalist indus-trialization. It situated the Indian consumer durables industry in thelarger context of the changing regime of accumulation and the changingmode of regulation. In this transition process, as the state becomes lessimportant in regulating capital, a variety of social and economic contra-dictions emerge. These emanate from the tensions and disequilibriaoften associated with rapid capitalist market expansion. At the sametime contradictions, in a heuristic way, can produce social and politicalresponses, as illustrated by the recent environment-friendly policiesenacted in India, which could act as a countervailing force for copingwith capitalist contradictions.

Three types of contradictions resulting from market growth werecovered. The first dealt with capitalist competition resulting from theincreased number of firms and the number of models of automobiles produced in India. The high degree of competition has fragmented theIndian market and produced excess capacity at both the industry andindividual firm levels. Consequently, most production units are uneco-nomic, producing below the minimum efficient scale. However, this isconsistent with a flexible production system, which allows diversifiedoutput and niche marketing through the hypercompetitive global eco-nomic system. The problem of excess capacity is likely to remain unlessthe Indian market grows rapidly, in which case installed capacity couldexceed market demand, or if firms continue to add new capacity ahead ofdemand.

Constraining market expansion by demand is seen as another contra-diction of capitalist development. Specifically, the exclusionary form ofindustrialization as evidenced by the growth of automobile production

was examined. Based on NCAER’s MISH data (Natarajan 1998 andNCAER 2002) this chapter showed that the embourgeoisment process is real, in that some income groups are moving up much faster thanothers, while a low income group persists. The growing householdincome gap is most pronounced between rural and urban households.The broad middle class is experiencing economic mobility with the highincome groups growing the fastest. This kind of polarization is most pronounced when household incomes are compared to automobileprices, reflecting the exclusionary nature of industrialization. However, asimilar mapping of income with two-wheeler prices reflect a moreambiguous outcome. While the urban sector clearly absorbs the bulk oftwo-wheeler production, the rural sector is largely left out. In other con-sumer durable goods, such as household goods, the evidence suggests amore inclusionary form of industrialization. Consumption has becomemore “democratic” as many of these goods are now affordable and acces-sible even to rural families. In this sense capitalist market growth is con-tradictory as it includes and excludes consumers from the fruits ofcontemporary production systems in the larger setting of a new regimeof capital accumulation.

The third contradiction, the most visible, literally, in India’s largecities, is the environmental crisis. The deteriorating quality of urban life,traffic congestion, and pollution are products of industrialization, whichhas both positive and negative externalities. But the contradiction goesdeeper as India’s dependence on imported oil becomes more acute.Paradoxically, India’s increasing ability to pay for imported oil becauseof rising foreign exchange revenues could work to its disadvantage ifalternative energy sources are not aggressively sought. There are somesigns of coping with these contradictions in limited ways. The interven-tion by activists and the government’s recognition of environmentalproblems in Delhi have prompted both state and social responses, espe-cially toward problems attributable to the automobile industry. Theadoption of CNG and the search for new energy sources are examples ofcoping strategies to deal with the transition to a new regime of capitalaccumulation and the limits of market-based regulation of capital. Manystates in the country are more cognizant of their environment and arekeen to protect it from the ravages of ageing automobiles and poorquality fossil fuels in the country.

The contradictions unleashed by the move to a new mode of capitalistregulation has created the political and social space to cope with the ten-sions associated with such changes. In the dialectics of social change it isrelatively predictable that capitalist expansion, when fraught with majorcontradictions, is likely to produce social regulation of industrial growth.Whether the time has come or not is difficult to say. After all, it was onlyrecently that India, through its economic reforms of the 1980s and 1991,


abandoned an earlier regime of accumulation, which immediately pro-duced rapid market growth and industrial development. It is also true thatgrowth itself has not produced benefits on a wider scale and instead hasbeen limited to upper income households. This has both rewarding andretarding effects. While capitalism hones the market system by making itcompetitive and economically efficient, thereby lowering prices andincreasing output for the population, systemically unplanned productionoften overshoots actual demand. This excess capacity is reinforced by ahigh degree of inequality and high incidence of poverty. While someindustrial goods come within the reach of the poor precisely because ofmarket growth and falling relative prices, many others remain prohibitivedue to the class bias of market expansion. The poor are effectively barredfrom participating due to their low purchasing power. Without adequatelyaddressing these contradictions, India’s ability to make a smooth transitionto the new regime of capital accumulation will be difficult. The transitionnecessarily demands a more healthy balance between growth and equity.Without socially regulating capital, market growth in India could remain atbest lopsided and at worst malign, making it difficult to fundamentallyalter the structure of the Indian economy and society.


8Concluding Remarks on Capitalism,Markets, and Development

1 The ambiguity of capitalist industrial transformation

To analyze India’s long march to capitalism this study focused on theprocess of industrial change within the broader context of capitalist heterogeneity. Despite common sets of economic dynamics in marketcapitalism, the process of development is inherently evolutionary, sub-ject to structural conditions, institutional variations, and divergent out-comes. Hence, the analysis was rooted in unravelling some of India’spolitical economy dynamics and the consequences of such capitalistdevelopment. On some measures India is doing very well. For example,recent economic growth, the IT industry, and exports are all on theupswing. However, on the broader developmental front India has madelimited progress in basic education, poverty, and women’s emancipationand worsened income and wealth disparities as evidenced by India’smultiplying millionaires (South Asian Media Net 2004a).

These themes were examined by analyzing India’s transformation of the consumer durables industry, particularly the auto industry. Thestudy adopted a holistic approach by framing the general issue of marketdevelopment and why it was changing. My argument was that capitalistdevelopment in India was encapsulated in India’s auto industry’s turningpoint. It reflected broad changes in the structure of demand and dynam-ically induced supply responses by the industry to meet this demand.The theoretical interpretation of the turning point was situated withinthe regulation framework, which provided the backdrop to discussIndia’s shift in the regime of accumulation. With the exhaustion of theprevious regime of accumulation and the associated mode of regulationa switch to a new regime and mode was inevitable. However, the changewas not simply due to a crisis, as most turning points tend to be, ratherit was also driven by the embourgeoisment process. This endogenousforce moved in tandem with external developments such as the diffusionof neoliberal ideas and their execution through structural adjustment

199

programs. The change in direction in India echoes the typical macroeco-nomic imbalances associated with the rigidities of the mass productionparadigm, compelling the adoption of a market-driven, more flexiblemode of regulation. However, the precondition for a turning point wasalready in the making, namely, the emergence of an expanding Indian“middle” class. While the regulation framework provided a general an-choring device to discuss the accumulation crisis and institutional shifts,in late industrializing India alternative processes, such as embourgeois-ment in a dialectical way, was argued to drive India’s contemporaryaccumulation trajectory.

The exhaustion of the earlier regime in India is symptomatic of the state-led import substitution industrialization strategy within the specificconfiguration of India’s dominant class structure. Nevertheless, the statecontributed to embourgeoisment, leading to economic and social mobilityfor some. It also laid the structural foundation for capitalist renewal andfurther expansion of the Indian middle class. This is best seen in terms ofbusiness responses to a liberalizing economy, unleashing a range of capital-ist market dynamics hitherto unseen in India. For example, today there isheightened competition with numerous players in the auto industry, con-siderable product variety, increases in labor productivity, technologicalmaturity, rising exports, and significant backward integration leading to acompetitive local supplier industry. These changes can be explained by theadoption of flexible industrial practices, which are consistent with the newmode of regulation under the neoliberal regime of accumulation. Industrialpractices such as interactive business-government partnerships, the estab-lishment of a long-term subcontracting system, shop-floor innovationssuch as cellularization, teamwork, quality circles, and enterprise unionshave characterized the growth of the industry. While the bulk of thesechanges have been initiated by multinational partners of Indian joint-ventures, Indian firms themselves have been receptive to these practices.Both small and large firms show signs of maturity. For example, numeroussmall and medium enterprises in the parts and components segment haveestablished competitive production operations. TELCO’s recent acquisitionof Daewoo’s truck division in South Korea and its diversification plans inboth India and China are a testimony to this capitalist maturity (SouthAsian Media Net 2004b, 2004c).

India’s favorable industrial trajectory is not without its challenges. As seenin the case of the light commercial vehicles segment, even the Japanesemultinationals had a hard time tackling the Indian market. Older estab-lished firms such as HM and PAL, located in older industrial heartlands, areconfronted with the challenges of adjusting to the new regime of growthand adopting practices associated with the flexible mode of regulation. EvenMUL, the industry leader, is taking competition seriously.1 Between 2001and 2003, it reduced its workforce by 41% through its voluntary retirement


Concluding Remarks on Capitalism, Markets, and Development 201

scheme (Silicon India News Bureau 2003b). Thus it comes as no surprise thatHM has diversified its investments to new locations and currently is rein-venting itself by becoming a components producer (Business Standard2004a). Past state policies and deregulation have contributed to unevenregional development, as witnessed in the rise of the National CapitalRegion and the concomitant industrial decline of West Bengal. The offen-sive posture of industrial capital, as witnessed by the increasing number oflockouts, is indicative of the social challenges posed by the new regime of accumulation. Local governments such as in West Bengal, historicallyhostile to capital, have had to switch ideologically to accommodate the newregime of accumulation (see Jenkins 1999: 142–143, 191). Thus, it is not outof place to see the West Bengal government offering an island to Japaneseinvestors (the largest foreign source for the state) to set up a town and a golfcourse (India Abroad News Service 2004a), while industrial workers in thestate are precariously coping with a competitive and technologically-drivencapitalist economy.

The new regime of accumulation has also introduced capitalist problemstypically found in advanced capitalist countries. For example, deregulationin India has generated a highly fragmented Indian industry, exhibiting theclassic global capitalist problem of excess capacity found in other coun-tries as well (Arnesen (ed.) 1988, Harwit 1995: 69). With a shallow market,worsened by entrenched Indian poverty and persistent inequality, theindustry’s profitability could be significantly checked. The fact that the Indian industry is now part of a transnational one, as evidenced byGM’s strategies, suggests that the national industry will be subject toglobal developments. In a narrow sense this creates a semblance of indus-trial convergence as, for example, GM integrates its Brazilian and Indianoperations in new ways. There are both constraints and opportunities to this internal division of labor. Thus as long as Indian production of engines and transmissions was unviable, GM imported these fromBrazil. However, with market growth, GM is gradually expanding its localproduction in India.

There are other dilemmas with contemporary capitalist industrialization.The fruits of market development are accruing rapidly to those already wellplaced economically and socially, namely, the middle class, while arguablyundercutting collective consumption (Preteceille and Terrail 1985: 3–4).Embourgeoisment, however, is a combination of centripetal and centrifugalforces, pulling in better-off social groups and structurally excluding the millions of underprivileged Indians (Ghosh 2004, Chandrasekhar andGhosh 2002). There are also sector-specific contradictions such as fossil-fuel dependency and environmental degradation. However, India’s foreignexchange reserves have crossed the $100 billion mark and thus paradoxicallymay delay the search for alternative energy sources. The study of Indianindustrialization suggests the ambiguous character of capitalist development.

To its credit, market development today presents a far more matureIndian capitalism than that incubated by the state earlier. However, it isalso important to recognize the role of the state in creating markets andsustaining them through the provision of critical inputs and public sectoremployment. Rather than see the role of the state as unchanging, the studyacknowledges a state that is itself engaged in introducing the new regime ofaccumulation. The cumulative process of capitalist development suggests acomplex relationship between the state and market development, eachdominating the other at different times but always mediated by societalforces.

2 Framing questions on capitalist dynamics and marketdevelopment

The study of the Indian auto industry in the larger capitalist context raisesseveral interrelated intellectual and practical concerns. The first concernsthe framework for analyzing capitalist development and identifying itsboundaries. The Indian auto industry was argued to be a reasonable proxyof capitalist dynamics. This case study was appropriate because the industrydisplayed a distinct turning point. To account for the stagnation andgrowth of the industry it was necessary to frame the issue within the regu-lation framework and examine the larger Indian political economic contextand the prevailing conditions that led to the subsequent rise of the indus-try. Hence, the trajectory of the industry had to be looked at in a dialecti-cal, path-dependent, and cumulative way. Non-institutional analyses of theIndian auto industry would have more narrowly focused on policy dimen-sions, shift in relative prices, changing industrial structure, and increasedcompetition. These are important areas of investigation but, because theyare heavily circumscribed by social institutions, a more comprehensiveanalysis of the industry was taken up to explain the industry’s transforma-tion. The problematique suggests that capitalism, despite its historic breakwith feudalism, is still an evolving system, largely driven by endogenousprocesses but increasingly influenced by global dynamics. The outcomesare at best mixed.

The second concern relates to late capitalism and the economic spaceavailable for developing countries such as India. At one level, it is clear that firms, in order to tap global opportunities, will have to be highly com-petitive. This demands technological sophistication, organizational coher-ence, focus on efficiency and productivity, and flexible responses tochanging price signals and market conditions. In this sense there is almosta singular capitalist logic of accumulation and growth that unites busi-nesses around the world and brings about a degree of industrial conver-gence. Those unable to follow the dictates of this logic fail to participateeffectively. However, within this basic logic there is a wide variety of


responses, given institutional diversity and historical legacies. Developingcountries are still peripheral to global capitalism, and hence their parti-cipation is mostly influenced by exogenous developments. Within the auto industry, for example, Indian and Chinese productivity relative to the US has been estimated as 24% and 21% respectively (McKinsey GlobalInstitute 2003: 4). Yet, as the Indian experience shows, domestic marketdevelopment is critical to capitalist expansion, even if recent productioninitiatives have their external origins. Local firms will have to be receptiveto changing market conditions, introduce modern, best-industry practices,and engage in the learning process.

In late capitalism the state can still be an important player not only toprotect developing countries from the ravages of global competition butalso to foster a conducive environment for industrial development. Forexample, education, research and development, industrial relations, foreigninvestment, infrastructure development, and technology policy have abearing on industrial outcomes. The fact that the Indian state had a strictlocal content program meant that the industry had to integrate backwardto maintain its competitiveness. With market expansion this became anadvantage for the manufacturers. How the state regulates multinationalshas an important bearing on local skills and industrial development (Okada2004). But regulation goes beyond its negative connotation of restrictingbusiness. Rather, the concept suggests that capitalism must be managedbroadly not only by the promotional role of the state in expanding in-dustrialization but also through inter-firm and inter-industry partnerships(business associations) to coordinate market transactions and reducemarket uncertainties.

Regulation also demands other kinds of institutional changes, whichhave a direct influence on production. These include more cooperativeindustrial relations, reorganization of work on the shopfloor, deploymentof flexible machinery, technical training, and significant involvement ofworkers in the production process. For example, Toyota-Kirloskar claims tohave halved production costs by introducing flexible production systems(Giriprakash 2002). Not all of these are easy to implement as older workersand industries find the adjustment process painful. Notwithstanding thecontemporary pressures on states to distance themselves from social policy,regulation also needs to encompass non-market processes to ease the tran-sition of excluded social groups to the new regime of accumulation andmode of regulation.

Two other key issues that emerge from the analysis of the Indian autoand other consumer durables industries are transnationalization, nationalownership, and development, and social policy under capitalism. It isevident that the Indian auto industry is Indian to the extent that produc-tion is located there with local content of the vehicles to be high. But themanufacturers are almost all foreign. This raises the issue of ownership and


developmental impact. In the past foreign ownership was seen as detrimen-tal to local development because of the net outflows associated with suchcontrol. The repatriation of profits, dividends, royalties, and the imports oftechnology and other inputs were not balanced due to limited exports. Thebalance of payments concern remained high on the agenda of nationaleconomic planners as foreign debts over time became linked to the persis-tent BOP deficits. The outcome was interpreted as more than economicdependence and was seen as a weakening of national sovereignty as macro-economic instability led to the imposition of structural adjustment programs by the International Monetary Fund and the World Bank. Today,the verdict on foreign ownership is less negative as it is recognized thatunder certain conditions multinational participation can lead to localdevelopment.

Under the new regime of accumulation, more or less operating worldwide,exports within limits are very much a part of the transnational equation.Multinationals seeking to enhance their accumulation do not produce onlyfor local consumption. They are continuously engaged in fine tuning theglobal division of labor by integrating production across national boundaries.Under this process developing countries participate in a limited way, offeringlow wages, some skills, and markets. If multinational investment contributesto increasing local content and net exports over a few years then foreigninvestments should not be seen as either an economic or political threat.Consistent with this recognition, even the CPM has officially embracedforeign investments (India Abroad News Service 2004b). More importantly,investments are likely to set off cluster formation, as the Indian auto industryamply demonstrates. For example, the new industrial city Pithampur inMadhya Pradesh now hosts over 75 suppliers catering to domestic and multi-national firms (Business Standard 2004b). Investments have meant industryexpansion, increased productivity, and greater opportunities for technologi-cal learning (McKinsey Global Institute 2003: 95–121). However, on theemployment front the story is less sanguine, with the exit of old firms andrelatively “lean” production of new firms. This suggests limited employmentgrowth in the sector as a whole.

Technically there is denationalization in India but the fear of displacementis misplaced as there is local industrial development with local businessescomplementing foreign capital. From an investment point of view, multina-tional activity can be made to serve national interests if it complements local investments. For example, several foreign companies have over 70%local content. GM’s new Tavera model produced in Gujarat is expected tohave 93% local content by 2004 (Silicon India News Bureau 2004a). It is alsoinvesting $21 million in an automotive R&D center in Bangalore, its firstoutside of the US (India Abroad News Service 2004c). It is evident that multi-national capital can serve national development interests if local capitalistsare technologically strengthened to exploit new export opportunities. Some


of this is already under way in India. Daimler-Chrysler is sourcing Indiancomponents, original equipment manufacturer exports are on the rise, andSundaram Fasteners has set up a manufacturing base in China (Silicon IndiaNews Bureau 2004b, Das 2004, Business Standard 2004c). Furthermore, giventhat India is the second largest producer of small cars, after Japan, it is possi-ble for India to become a manufacturing hub for this type of vehicle (SouthAsian Media Net 2004c). This is a favorable outcome for India. To replicatefavorable global integration elsewhere, developing countries will have tofoster deep industrial capability and technological learning.

On the social policy front, the following broad issues are germane to capitalist regulation:

• Should there be a balance between private and public transportationsystems so that the former is not promoted at the expense of the latter?

• Relatedly, what kind of infrastructural projects should be funded topromote national development?

• As oil dependency becomes more acute, should alternative energysources and new transportation systems be explored?

• What social policies exist for workers and their dependents who areunable to adjust to the new dynamics of capitalist competition?

• If capitalist development entails market development and enhancedconsumption, how could it be made more inclusive?

• What should be the general approach to regulating capitalism such thatit also supports social agendas?

In looking ahead, these questions could guide India’s social policy in the future. As businesses become more globally connected, as competitioncrowds the state out to pursue more capital-friendly policies, and asmiddle class consumption of industrial products expands voraciously, theunderprivileged communities could be left out by this pattern of capitalistindustrialization. The paradoxes in contemporary capitalism are stark. Forexample, Brazil boasts the second largest market for corporate jets but 25% of its people go hungry (Haseler 2000). Developing countries such asIndia, despite considerable structural transformation and economic mobil-ity, are nowhere near meeting the Millennium Development Goals out-lined by the United Nations (United Nations Development Programme2003). It is evident that social programs directly benefiting the poor arecritical (Drèze and Sen 1998). In particular, increasing the incomes of the rural poor would vastly improve social conditions in India and expandmarkets (Patnaik 1986).

This brings up the related issue of economies of scale. Just as theBrazilian experience shows, it is entirely possible that inequality in Indiahas been the precondition of auto industry growth. Since a high thresholdincome is necessary for consumer durables such as cars, India’s market


size will remain demand-constrained. For example, a threshold income of Rs. 361,000 permits only 10% of Indian households to afford a car(McKinsey Global Institute 2003: 100). However, embourgeoisment facili-tates larger volumes of production at the low-end segment and conse-quently declining unit costs and market growth. This virtuous cycle isalready evident in China, as the number of consumers grow and economiesof scale become feasible (Uchitelle 2003, Bradsher 2004). In India, too, scaleeconomies are at work with MUL’s declining prices (McKinsey GlobalInstitute 2003: 109, 111).

However, there is an alternative scenario. As more international firmscompete in India with expanded capacity, limited demand could under-mine capacity utilization and thus reduce the cost advantages associatedwith a large volume of output. Thus Hyundai’s installed capacity of100,000 units in India matches global norms but its actual capacity utilization of 50% questions its commercial viability (Gullapalli 1999).Relatedly, in the absence of economies of scale, firms in India will find itdifficult to introduce flexible industrial practices and thus exploiteconomies of scope more effectively. There is no theoretical necessity forinstituting cooperative arrangements in emerging economies sincewithout a critical mass of output the opportunities for diversified outputare limited. MUL’s success demonstrates the importance of high-volumeproduction to flexible practices, while the Japanese LCV segment illus-trates how low-volume output has rendered cooperative arrangementsineffective. Economies of scope were more a consequence of rather thanindependent of scale of production. Thus far the adoption of flexiblepractices associated with the new mode of regulation has been critical tocope with mutual vulnerability, market volatility, and uncertainty. Onlywith deepening markets will economies of scope, i.e. small volumes ofmultiple products, be an Indian reality. Without an overt social policyaimed at India’s poor full-blown national market development is likely toremain elusive.

3 Conclusion

Clearly without regulation markets are unable to address broad social devel-opment even as they work toward democratizing consumption on a largerscale. This does not mean that developing countries halt industrialization,where presumably markets are not working well. It only suggests that notall countries are equally predisposed to create the conditions for marketdevelopment and ensure rapid economic transformation. However, giventhat capitalism is an expansionary system it does open up the possibility ofnew opportunities and new participants. Regulating capitalism creativelycan harness the dynamics of market development and minimize, if notquell, capitalist contradictions. Hence, it is not a hopeless situation as the


new environmental regulations implemented in Delhi and the recentdefeat of the incumbent Indian government show. There is greater aware-ness of the importance of quality of life in poor countries even if the mate-rial standard of living in the developing world is woefully below OECDnorms. Recognizing that capitalist industrialization and global economicintegration have been exclusionary, the new Indian government has allo-cated greater spending for rural India and is pursuing economic reformswith a social development agenda (Kripalani 2004).

At the same time, the government has also liberalized foreign ownershipin strategic sectors such as insurance, telecom, and civil aviation believingthat integration will lead to market growth. Curiously this has beenopposed by the coalition government’s supporter, the Communist Party ofIndia (Marxist), which has moved closer to embracing the new regime of accumulation. Irrespective of the outcome, India’s long march to capital-ism is clearly ambiguous. It is also unmistakably toward embourgeoismentand market development, punctuated by state resistance to and accommo-dation of global capitalism. Theoretically it need not be since such a trajec-tory is predicated on a particular mix of historical legacies, institutionaldynamics, and political exegesis. Many scholars already doubt that furtherderegulation will take place (Bardhan 2002, Mukherjee-Reed 2001). Butthat is a moot point. When the selective opening of the Chinese economybegan in 1979 little did anyone think that the long march begun byChairman Mao Zedong in 1934 would end up as an aggressive sprinttoward capitalism. Deng Xiaoping’s aphorism that the color of the cat isirrelevant so long as it catches mice seems apt for the developing worldtoday. In the end, capitalism needs to be seen for what it is, embourgeois-ment, market development, and business responses, and not a road mapfor some teleological end nor a recipe for economic success or failure. Socialpolicies of course could make it what we want it to be, reinforcing the heterogeneity of capitalism and the multiple paths toward inclusive marketdevelopment.


Appendix

208

Appendix A.1 Institutions Visited and/or Contacted for Data Collection

Institution Place, Country Year

All India Trade Union Congress New Delhi, India 1992Allied Motors Ltd. New Delhi, India 1991Am Forge Mumbai, India 1991Asahi Glass New Delhi, India 1996Ashok-Leyland Chennai, India 1991Associated Chambers of Commerce New Delhi, India 1994and Industry of IndiaAssociation of Indian Automobile Mumbai, India 1991ManufacturersAutomotive Components New Delhi, India 1991, 1992, 1994, Manufacturers Association 1995, 1996Bharat Gears Mumbai, India 1991Bharat Seats Ltd. New Delhi, India 1991Bharat Seats Ltd. Gurgaon, India 1996Bharatiya Mazdoor Sangh New Delhi, India 1992Business India New Delhi, India 1994Centre for Indian Trade Unions New Delhi, India 1992Centre for Indian Trade Unions Uttarpara, Kolkata, 1995

IndiaCenter for Studies in Social Sciences Kolkata, India 1994, 2002C.K. Daikin Mumbai, India 1991Communist Party of India (Marxist) Kolkata, India 1994Communist Party of India (Marxist) Uttarpara, Kolkata, 1995

IndiaConfederation of Indian Industry New Delhi, India 1991, 1992, 2001Dalmia Engineering Kolkata, India 1991DCM-Toyota Surajpur, Uttar Pradesh, 1991, 1992, 1994

IndiaEicher Tractors New Delhi, India 1991Eicher-Mitsubishi Pithampur, 1992

Madhya Pradesh, IndiaEmbassy of Japan New Delhi, India 1991Embassy of the Republic of Korea New Delhi, India 1994Federation of Indian Chambers of New Delhi, India 1991Commerce and IndustryGeneral Motors India Halol, Gujarat, India 2001Gleitlager India Mumbai, India 1991Government of India, Department New Delhi, India 1991of Electronics

Appendix 209

Government of India, Directorate New Delhi, India 1991General of Technology and DevelopmentGovernment of India, Ministry New Delhi, India 1992of FinanceGovernment of India, Ministry New Delhi, India 1991of IndustryGovernment of India, New Delhi, India 1991Planning CommissionGovernment of West Bengal, Kolkata, India 1995Cottage & Small Scale IndustriesHaryana State Industrial Development New Delhi, India 1994CorporationHind Mazdoor Sabha New Delhi, India 1992Hindustan Motors Kolkata, India 1991, 1995Honda Motors Tokyo, Japan 1991Honda Motors Saitama Plant, Tokyo, 1991

JapanIndia Investment Centre New Delhi, India 1991, 1992, 1994India Today New Delhi, India 1991Indian Council for Research on New Delhi, India 1991, 1992International Economic RelationsIndian Machine Tool Manufacturers New Delhi, India 1991AssociationIndian National Trade Union Congress New Delhi, India 1992Indo-Japanese Association Tokyo, Japan 1991Isuzu Motors Tokyo, Japan 1991Jamna Auto Industries New Delhi, India 1991Japan Automobile Manufacturers Tokyo, Japan 1991AssociationJapan External Trade Organization New Delhi, India 1991Japan International Cooperation New Delhi, India 1991AgencyJawaharlal Nehru University New Delhi, India 1991, 1992Korea Trade Center New Delhi, India 1994Lucas-TVS Padi, Chennai, India 1991Machino Plastics Gurgaon, India 1996Mahindra and Mahindra Mumbai, India 1991, 1996Mark Auto Gurgaon, India 1996Maruti Udyog Limited New Delhi, India 1991, 1992,

1994, 1995, 1996, 1999, 2002

Maruti Udyog Limited Gurgaon, India 1987, 1991, 1992, 1994, 1996

Appendix A.1 Institutions Visited and/or Contacted for Data Collection –continued


210 Appendix

Mazda Motor Corporation Hiroshima, Japan 1991MICO-Bosch New Delhi, India 1991Mitsubishi Motors Tokyo, Japan 1991National Council of Applied New Delhi, India 1991, 1992Economics ResearchNational Institute of Public Finance New Delhi, India 1991and PolicyNational Union of General Workers Tokyo, Japan 1991(South District)Nippon Denso Industry Co. Tokyo, Japan 1991Nissan Motor Company Tokyo, Japan 1991Nissan Motor Company Yokohama Plant, 1991

Yokohama, JapanPremier Automobiles Ltd. Kurla, Mumbai, India 1991Rane (Madras) Ltd. Chennai, India 1991Research and Information System New Delhi, India 2001for the Non-Aligned and Other Developing CountriesRICO Auto Industries Ltd. New Delhi, India 1991Society of Indian Automobile New Delhi, India 2002ManufacturersSona Steering New Delhi, India 1991, 1994Sona Steering Gurgaon, India 1991Sona Components Gurgaon, India 1996Standard Motors Chennai, India 1991Suzuki Motors Hammamatsu, Japan 1991Tata Engineering and Locomotive Mumbai, India 1991CompanyToshiba (International Operations) Tokyo, Japan 1991Toyota-Kirloskar Bedadi, Bangalore, India 2003UCAL Fuel Systems Chennai, India 1991West Bengal Industrial Development Kolkata, India 2002CorporationWorld Bank Washington, D.C., USA 2002World Bank New Delhi, India 1998XLO India Mumbai, India 1991

Appendix A.1 Institutions Visited and/or Contacted for Data Collection –continued


211

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Chapter 1

1. This approach, long-established and widely used by historically-groundedmarxian scholars, has only recently caught the attention of other scholars (seePierson 2004).

2. The growth of the middle class, income polarization, and transnationalization ofthe industry are features common to both.

3. Robert Boyer warns of mechanistic application of western institutions of capitalistdevelopment to non-western, semi-industrialized economies (Boyer 1990: 99). Heclassifies India as a “mixed” economy in which intensive accumulation (a featureof advance capitalism) coexists with the absence and presence of mass productionand traditional agriculture respectively (Boyer 1990: Table 3). This of course doesnot adequately capture the institutions of Indian capitalism.

Chapter 2

1. For example, in two cities deeply integrated with the contemporary globaleconomy, Singapore and Penang (Malaysia), the high degree of business col-laboration is actually based on primordial ethnic ties rather than impersonalarms-length, market transactions (Wong 2001, Rasiah 2001).

2. The literature on the Regulation school is voluminous and hence it is beyondthe scope of this chapter to disentangle the subtleties of the various positionswithin the Regulation school (see Robles, Jr. 1994 for a survey). A critique ofthe Regulation framework can be found in Brenner and Glick (1991) andMavroudeas (1999).

3. This is similar to the “social structure of accumulation” framework, wherebyeach phase corresponds to a social structure of accumulation (SSA) comprisingsets of institutions favorable to capital accumulation (Kotz 2001).

4. Boyer does not even include Japan in his classification scheme (1990: Table 3).See Williams (1994) for an alternative Japanese approach to regulating markets.

5. Whitley (1999), however, also examines the East European case, which can beargued to fall broadly under the “transitional” group–from state socialism tomarket capitalism. Within this group there is considerable diversity, with Russiaand the East European economies (closer to the more “liberal” Western Europe)and China and Vietnam (closer to more “socially” embedded Asian systems).However, the common link between the two groups is the significance of exoge-nous capitalist forces in altering their institutional foundations for economictransformation.

6. As per the regulation approach, there are two types of regimes–extensive andintensive regimes of accumulation. For the purposes of this study no distinctionis made, although the market-driven strategy intuitively reflects a more intensiveregime of accumulation.

7. The regulation approach in its stylized historicization of advanced capitalismoffers two kinds of modes, namely, competitive (mid-19th century to World War

213

Notes

I) and monopoly (post-World War II until the 1970s) forms. These parallel theextensive and intensive regime of accumulation respectively.

8. Neoliberal ideology could be imposed by exogenous forces. For example, eco-nomic failings, as in the Japanese and Korean financial systems, are often ex-plained by the non-adoption of neoliberal banking practices. Thus these statesare forced to accept practices that they have historically avoided, to theirbenefit, in creating an industrial foundation unprecedented in capitalist devel-opment. Today they reluctantly accept neoliberal foundations for economicorganization to extricate themselves from stagnation and stave off further crisis.

9. This interpretation of the transformation of states is consistent with Pedersen’ssociety-centered explanation of economic liberalization in India (Pedersen2000). However, his attempt to link the 1991 reforms to the emergence of a newcrop of entrepreneurs (the “quiet revolution”), underplays the larger context ofstate-sponsored embourgeoisment, which was in process much earlier.

10. This is in sharp contrast to the distinctiveness of Japanese business systems,which seem to remain “nationally” intact despite the considerable interna-tionalization of the Japanese economy and significant outward foreign directinvestment (Whitley 1999: 128–129).

11. There are various definitions of excess capacity, depending on how productioncapacity is defined (European Commission 1997: 3). In general, excess capacityis the “amount of extra volume that a firm could produce if all its existingplant and equipment were fully used for 24 hours a day” (European Com-mission 1997: 3). Excess capacity in the Indian auto industry is equivalent tothe difference between installed capacity and actual production. For a givenfirm, this difference could arise not only in the way installed capacity isdefined (and sometimes “stretched” incrementally) but due to actual produc-tion falling short of such capacity (see D’Costa 1999: 21–27). However, excesscapacity as discussed here is integral to capitalism and is hence interpreted assystemic.

Chapter 3

1. There are many structural and historical reasons for India’s low level of entrepre-neurship. Suffice it to say the British contribution to landlordism (zamindars),support of local traders, managing agencies involving commissions, and highcaste disdain for manual work contributed to a rent-seeking, risk-averse businessorientation.

2. Other factors include the structural constraints of the import substitution model.This includes bias against exports, misallocation of resources, regulation of production through licensing of industrial capacity, and restrictions on foreigncapital to eliminate competition. The results have been induced competition for state largesse in the form of industrial licenses and the encouragement ofhigh-cost, inefficient industry.

3. Rural class differentiation can be gauged by the fact that in 1971 about 17,000tractors were produced compared to nearly 83,000 in 1981. This is a five-foldincrease (Automotive Components Manufacturers Association (ACMA) 1999: 10).

4. Since 1951 India’s population increased by 2.76 times but grain output increasedby 4.21 times.

5. The irony of this politicization should not be lost on scholars of social change,whereby communities consciously devalorize their primordially-derived social

214 Notes

standing or construct an inferior one in order to gain secular economic benefits.It is of course entirely possible that new-found secular gains can cumulativelyreinforce non-secular attributes.

6. In 1997 138,450 and 186,155 students were admitted to engineering degree anddiploma programs respectively (Institute of Applied Manpower Research 1998).There is a high attrition rate among lower ranked institutions, which results fromboth under-preparation of students as well as poor quality facilities.

7. In Africa, local support for state-led import substitution arose from vested inter-ests (Lofchie 1997).

Chapter 4

1. The government in the 1970s had established Scooters India Ltd. to capture thelucrative two-wheeler market. However, it failed miserably because of industrialstrife and managerial and technological incompetence (Nayar 1992).

2. Discussions held with relevant officials in New Delhi, Bombay, Madras, Calcutta,Tokyo, Hammamatsu, Hiroshima, and Toyota-shi (August-December 1991).

3. In 1986 about 33 million persondays were lost due to industrial disputes(Confederation of Engineering Industries 1991: 131). In a highly politicizedsociety such magnitudes were not uncommon in the past.

4. One component manufacturer confided that dies worth about $4 million for theTELCO-Honda project were already made and were lying idle in Japan (Interviewwith RICO, New Delhi, Sept. 1991). This could not be confirmed with Hondaofficials in Tokyo.

5. Although exporting the Indian-made Hondas was not explicitly stated in theapplication, one TELCO official stated exports could have been made if neces-sary. But he added that since the Hondas would be extremely popular in Indiathere would not have been a need for exports (Interview with TELCO officials,Bombay, Oct. 1991). This argument, however, is not persuasive if the govern-ment was concerned with foreign exchange outflows since not exporting wouldhave entailed outflows under the assumption imported components had to beused for production.

6. I am grateful to Makoto Kojima for this information.7. Based on interviews conducted during September-November 1991.8. See Chapter 6 on the continuing controversy over the firm’s restructuring.9. Nayar (1992) illustrates the difficulty in privatizing state-run firms such as Scooters

India Ltd. as part of the overall liberalization package. Even for private firms laborretrenchment is fraught with difficulty, as in the case of Standard Motors.

10. Manor (1988) sees this principally as a result of the breakdown of the rulingCongress Party’s discipline.

11. The feasibility studies of many Japanese LCV projects were done at 260 yen tothe US dollar. The yen subsequently rose to about a 100 per dollar.

Chapter 5

1. Cooperation between partners need not be symmetrical. A survey carried outfifteen years ago indicates the vulnerabilities of small parts suppliers (Category C),each of whom sold nearly two-thirds of their output to a single buyer, whereassome of the larger suppliers (Category A) were quite independent of assemblers(Narayana 1989: 57–58).

Notes 215

2. Economy of scale in microeconomics is seen as declining long-run average costwith output increases. It is expressed as the cost-output elasticity and written asE = (ΔC/C)/(ΔQ/Q). The numerator is the percentage change in cost and thedenominator the percentage change in output. An E value less than one indi-cates an economy of scale (Pindyck and Rubinfeld 1995: 213). Economy of scopeis said to exist if the cost of joint output by a firm is less than the combined costof output under two firms. However, this economistic view of scale and scopeoverlooks the importance of risks in low-trust environments.

3. This interpretation differs from Kohli’s analysis of liberalization of the 1980swhere he does not even mention the CII (1992: 315–330).

4. After relinquishing his position as the Managing Director of majority state-owned MUL in the late 1990s, R. C. Bhargava was recalled in 2003 to serveunder the majority Suzuki-owned MUL.

5. Proximity to the assembler is not a new development in India. Several “job-works”-oriented firms are found in the vicinity of vehicle manufacturers. In Narayana’s survey (1989), these firms were small, dedicated, and heavilydependent on the vehicle manufacturer. In the current discussion mutual vulnerability would also imply the buyer’s dependence on suppliers.

6. An important exception is TELCO, which over the years cultivated a highlydiversified network of suppliers. However, TELCO, as with other Indian firms inexistence prior to MUL, was vertically integrated (see Narayana 1989: Table 2.2:17). This turned out to be an asset in the changing market.

7. This was echoed by virtually all the representatives of automotive firms I spoketo during my fieldwork in Delhi, Bombay, and Madras in 1991, Pithampur in1992, Halol in 2001, and Bedadi in 2003.

8. It is therefore not surprising that DCM-Toyota in its initial years was plagued byvarious labor disputes. While lay-offs have been rare in the assembly industry,DCM-Toyota in the late 1980s resorted to firing workers as it continued to facelimited demand for its product. This was a quintessential feature of contemporarycapitalist regulation with deleterious effect on industrial relations.

9. This section is based on extensive interviews conducted in Delhi in 1992 withcentral trade union leaders from the All India Trade Union Conference,Conference of Indian Trade Unions, Hind Mazdoor Sangh, and BharatiyaMazdoor Sangh.

10. One renowned trade union leader chastised the workers and national politiciansfor the strange mix of “political sophistication and social backwardness” whencommenting on workers wanting to build temples on factory premises andofficials breaking coconuts to inaugurate high science-based projects (Interviewwith Centre of Indian Trade Unions (CITU) official, Delhi 1992).

11. Cellularization is defined as a production process in which a number ofmachines are programmed to produce outputs, which become inputs for othermachines. The machines are synchronized in a way such that there is a strictadherence to “takt” time. It is a central principle of lean processes, which dictates that a specific number of finished parts must come off the lines within aset time – less than a few minutes. This is accomplished by simplifying andbreaking down operations according to takt time, grouping machines tightlytogether in cellular fashion and limiting operator involvement (Thomas NetIndustrial Newsroom 2003).

12. At its Saitama plant, Honda took 8 minutes in all to change the die – 5 minutesand 40 seconds for the actual transfer plus 2 minutes and 20 seconds for manualtesting (Saitama Plant Visit, Japan, December 1991).

216 Notes

13. There are dedicated but programmable welding robots for passenger car pro-duction. Most welding has been manual because of low labor costs. In Indiathere is no definitive trade-off between workers and robots. When outputincreases rapidly other manual welders are generally deployed. Workers aresufficiently trained to undertake relatively complex but routine tasks on thewelding line.

14. Other cost-reducing, output-enhancing changes included reductions in weldingand transfer time, lengthening the conveyor line, and adding another workstation. Models with low demand were easily replaced with high demand items,making a new line available for high demand units. Even the paint shop (an expensive bottleneck) was reconfigured to accommodate production ofadditional units.

15. Mathur (1991: 119) notes that there were 400 QCs in MUL in the 1980s, most of which have become inactive due to power struggles between workers, management, and unions. I suspect this high figure was due to the overzealous-ness of the management to embrace the QC system in every facet of the organi-zation, resulting in natural redundancy. The fact that MUL’s productivity was26.38 vehicles per person per year compared to 3–4 in other (non-Japanese) car producing units does indicate, at least partly, the utility of Japanese-typepractices, including QCs.

16. In the late 1980s, the lump sum payment at MUL was Rs. 6,900 for monthly production exceeding 400 vehicles per day and an additional Rs. 5.20 for everyvehicle over 400 per day (Mathur 1991: 119).

17. All the QCs compete and the winning team is sent to Suzuki Motors in Japan.The trip in itself is a significant perk for Indian workers, while Suzuki uses thevisit as a learning opportunity.

18. Although the number of suggestions per employee of MUL is comparable toToyota, the implementation rate is significantly lower in India than in Japan.For example, in 1983, Toyota in Japan had an average of 31.8 suggestions peremployee, of which 96% were implemented (Hoffman and Kaplinsky 1988).

19. Commensal rules outside of the modern managerial hierarchical system aresignificantly conditioned by caste, jati, and, increasingly, class positions. Forexample, social and religious rules have been based on the notion of ritualpurity and pollution, which dictate rules of association with others in India,including rules pertaining to eating. Hence, common canteens represent asignificant deviation from the typical Indian experience.

20. The feasibility studies of many Japanese LCV projects were done at 260 yen tothe US dollar. The yen subsequently rose to about a 100 per dollar.

21. Several representatives from the Indian auto industry felt that Japanese LCVjoint-ventures made their money before the appreciation of the Japanese yen,suggesting rent-seeking behavior.

22. See Baranson (1969) for the relationship between local content and cost ofoutput. Eicher-Mitsubishi earlier had four months lead time for the import of knocked-down units from Japan for assembly. Not surprisingly, as predictedby Baranson, supply problems increased with Eicher-Mitsubishi’s increase inlocal content.

23. DCM-Toyota saved Rs. 6,005 per vehicle, 60% of which was material, throughthe breakdown of vendors’ costs, while Eicher-Mitsubishi reported it was able tosave Rs. 212 per vehicle simply by eliminating excess parts available withdealers. Though the amount saved by Eicher is a mere $6 per vehicle, such incre-mental savings cumulatively become crucial for the viability of the firm with

Notes 217

low capacity utilization. These cost reduction approaches are unilateral but suppliers recognize the benefits as well.

24. Generally the labor content of vendor-supplied parts is not negotiated. Buyerscould negotiate over prices and material content in parts and components,should changes in part specifications warrant a reduction.

25. Eicher-Mitsubishi experienced long distance delivery problems, promptingdevelopment of local vendors in a limited way. Of the 1500 parts used by EicherMitsubishi in the early 1990s, 112 were supplied from Pithampur itself on palletswhich are placed directly on the production line. Eicher’s inventory level in1992 averaged 23 days.

26. Rotation of workers in MUL was not across shops. There was negligible rotationin DCM-Toyota and Eicher-Mitsubishi. In these enterprises rotation was motivated not because of the wider implication for flexible production andincreasing product variety but rather to reduce vulnerability associated withabsenteeism. Absenteeism in MUL and the two JLCV producers have been lowby Indian standards, roughly 12–15%.

27. At DCM-Toyota, there was an average of nearly 150 line stops per month duringApril–July of 1992. These stops are indicative of intractable supply problems.Line stops were more frequent at Eicher-Mitsubishi, 15–20 per day, lastingseveral minutes. Again, this was due to supply problems. This is inconsistentwith Eicher-Mitsubishi’s zero defect policy on the production line, which placedsignificant responsibility on its suppliers.

28. Eicher had no industrial engineering department because of low volume produc-tion. Instead it encouraged its workers to adopt self-directed learning. But lowvolume of production and imported kits constrained local “learning by doing”opportunities. Quality control was often confined to fairly mundane tasks suchas physical counting of weld spots.

29. There appears to be statistical artifact, whereby the small-scale sector has a con-stant share of 23.1% of the total components market for each of the financialyears between 1995–96 and 2000–01 (Calculated from ACMA 2001: 27, 38).

30. In the past even large producers like Mahindra and Mahindra confronted arbitrary price increases by its suppliers (Personal Interview, M&M Staff, BombayOctober 1991).

Chapter 6

1. In this connection, the restructuring of the global steel industry is a goodexample of the changing fortunes of older and newer industrial regions (D’Costa1999).

2. Mallick (1993) disputes that West Bengal faced any discrimination. He finds nopattern in the statewise distribution of industrial licenses granted by the centralgovernment during the 1974–84 period (pp. 183–184). West Bengal’s experienceparalleled the decline in the total number of licenses issued nationwide.

3. Such a response is typical in capitalist economies and is not unfamiliar in post-independent India when capital, opposed to the state’s disciplined form ofregulation, refused to make industrial investments (Chibber 2003: 23–39).

4. Banerjee et al. (2002) dispute the significance of labor militancy to West Bengal’srelative industrial decline. They see a drastic drop in strikes during the 1980–97period as a good reason for investment to pick up. However, industrial relationsas a whole remained problematic with a massive rise in industrial lockouts and

218 Notes

capital flight out of the state. There is indeed a relationship between earlier labormilitancy and later investment slow-down in the state.

5. This interpretation is somewhat different from but not inconsistent with themicro institutional view of Banerjee et al. (2002).

6. This was also evident in Karnataka but investments continued to pour in, suggesting labor instability or high wage costs are two of several factors thatinfluence investment decisions.

7. This was also witnessed in the case of the US steel industry where investors shiedaway from modernization of plant and equipment and instead diversified intomore profitable non-steel activities (Markusen 1985, D’Costa 1999).

8. A similar argument has been made by Banerjee et al. (2002) to explain the state’sindustrial decline.

9. See Chapter 4.10. A copy of the request must be provided to the workers and a judgment passed by

the government. If the resolution is disputed then the matter is transferred to atribunal for adjudication.

11. Like most older manufacturing plants in India, the HM plant at Uttarpara alsohas several labor unions. Class conflict at the shop-floor level is further compli-cated by inter-union rivalry. However, in this instance as workers’ jobs are atstake we can reasonably assume that the major battle lines are drawn betweenworkers and employer (management) rather than among workers. Similarly,there are various arms of the government that impinge on the process of arbitra-tion of labor disputes. Involved are the judicial system, the ruling political party,the bureaucratic arm under the Department of Labor of the state, an IndustrialTribunal that specifically aims to resolve the problem, and others.

12. I am grateful to Debdas Banerjee for pointing out HM’s captive market.13. West Bengal has wooed Japanese investments and consequently it has received

India’s largest Japanese investment in a petrochemical complex.14. In an unrelated way but consistent with the notion of productivity and

efficiency, the Kolkata High Court banned rallies and processions in the city onweekdays (Hindu 2003b).

15. The historic rise of the Workers Party in Brazil and the subsequent election of its leader Lula as the country’s president displays similar dilution of “leftist”political and economic agendas under a rapacious capitalist setting.

Chapter 7

1. These characteristics have been captured by India’s low GINI coefficients, whichintuitively suggests them to be high rather than low.

2. Strictly speaking, the data in Table 7.5 are not comparable as the incomes arebased on different base years. However, since the NCAER’s Market InformationSurvey of Households (MISH) consistently has five income groups, it probablymakes little difference in the distribution of households by such income groups(see Natarajan 1998 and NCAER 2002). The discussion in this section is largelybased on NCAER’s MISH Reports of 1998 (same as Natarajan 1998) and 2002.

3. Absolutely, coal remains India’s principal fuel, followed by imported petroleum,oil, and lubricants. In more recent years natural gas consumption has been on therise but it is a fraction of imported energy and electricity consumption.

4. Other modes of transportation such as railways and airlines also contribute to oil dependency, as the data for consumption of oil by the transportation sector

Notes 219

illustrates. For example, in 1975 consumption by this sector was 8.8 billiontonnes of oil equivalent, which rose to 29 billion tonnes in 1994 (Srivastava andSengupta 2000: 67–92, also Government of India, Ministry of Heavy Industries &Public Enterprises 2002: 88–89). A decade later this consumption is expected to bemuch higher, given the rapid expansion of the automobile industry.

5. Of the 72 entries obtained for “MC Mehta v Union of India” under the Envi-ronmental Law Alliance Worldwide, over 50% of the entries dealt directly withlitigation pursued by Mehta (http://www.elaw.org/5/24/2004 11:41 AM). Mehtanot only dealt with environmental issues such as automobile emissions and haz-ardous industries but also worker abuses that resulted from unregulated industriessuch as mining and quarrying and subsequent layoffs from court-ordered closuresof polluting enterprises around the Yamuna river and the Taj Mahal in Agra. In1996 he received the Goldman Prize (the “green Nobel”) and he is credited in thedecision to make Delhi’s buses use CNG.

Chapter 8

1. This was evident from MUL’s refusal to update some of the information, whichthey enthusiastically shared with me in the 1990s (Personal Interview with MULStaff, August 2002).

220 Notes

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238 References

Agrarian society 54–56Agriculture, commercialization of

54–55Air pollution 40, 42, 170, 191–195, 197Air Prevention and Control of Pollution

Act 192Allwyn-Nissan 88, 91Alternative analytical framework 13,

17, 23, 27–45Andhra Pradesh 145, 156Asahi Glass 111, 116, 121Ashok-Leyland 87, 88, 93–94, 120,

121, 131, 132, 160, 176Association of Indian Automobile

Manufacturers (AIAM) 90, 111see also SIAM

Automotive Components ManufacturersAssociation (ACMA) 111, 113,137, 139

Backward integration 11, 13, 119, 122,135, 138–139, 141

Bajaj Auto 87, 137, 176, 184Bajaj Tempo 131, 158, 160Balance of payment (BOP) problems

70, 76–77, 79–81, 89Best industry practices 11–12, 38, 67,

70, 95, 104, 110, 114see also Flexible practices

Bharat I and II pollution standards192–194

Bharat Seats 111, 115, 116Bharatiya Janata Party (BJP) 1Bhargava, R. C. 110, 113, 139Bhargava, Subodh 113Birla Group 82, 91, 94, 150, 157Black money 180BMW 75, 158, 159, 160Board for Industrial and Financial

Reconstruction (BIFR) 156Bombay Plan of 1944 48Brakes India 119, 120Brazil, automobile industry 2, 72, 96,

97, 98, 140, 201 Broadbanding 83

Business associations 30, 41see also Industry associations

Business systems 12, 16, 20–21, 23–27,31, 32, 34, 37, 39

C. K. Daikin 90Capacity utilization 92, 177

see also Excess capacityCaparo Industries 94, 116, 117Capital flight 151, 156, 158–159Capitalism

alternative framework of 13, 17, 23,27–45

heterogeneity of 3, 6, 15–18, 21, 23,26, 27, 199

models of 16, 18, 21, 23peripheral 18, 40

Capitalist competition 3, 8, 12, 14, 19,36, 91–93, 96–101, 129, 143, 156,160, 162, 171, 173–176, 185, 191

Capitalist contradictions 10, 14, 27,38–43, 169–171, 173, 196

Capitalist development, turning point2–5, 7, 8, 14, 22, 26–27, 29, 37, 41,105, 199–200

Capitalist regulation 5, 8–11, 28–29, 39,70, 81, 106, 108–110, 112, 129, 135,138, 169–170, 173, 186, 195, 199

see also French regulation approach Caste and class dynamics 51, 52,

56–57see also Dalits, Jatis, Other backward

castesCaste-based affirmative action 9, 51,

57–58Cellular manufacturing 35, 109,

119–120, 122, 125–127, 200Centre of Indian Trade Unions (CITU)

152, 166Chennai (formerly Madras) 113, 114,

119, 158, 164, 165China 7, 23, 24–25, 28, 59, 81,

189–190, 200, 203, 205–207Chinese networks 24

see also Business systems

239

Index

Citroen 90Class conflict 143, 156, 161–165, 168Climate Systems 115Communist Party of India (Marxist)

(CPM) 1, 151–152, 155, 161–162,165–166, 204, 207

Completely knocked down (CKD) kits85, 89, 92, 133

Components industry 95, 98, 104–105,110, 115, 117–119, 122, 135–140

Computer numerically controlled(CNC) machines 107, 108, 122

Confederation of Indian Industry (CII)111, 112, 113, 165

Conspicuous consumption 62–63, 78,177

Consumer class 1, 4–5, 9, 17, 177Consumer durables 2, 22, 28, 31, 38,

48, 63, 89, 183Consumption 59, 142, 144, 182–188,

197, 205–206Continuous improvements

see KaizenConvergence 6, 24Cooperative arrangements 5–6, 19–21,

23, 34, 44–45, 73, 105–110, 115,117–119, 122, 130, 133–134, 138,148, 200, 203

see also Economic coordination

Daewoo 75, 86, 87, 88, 92, 94–97,100–101, 119, 131, 134, 140, 174,176, 187, 200

Daimler-Benz 75, 94, 99, 100, 174,176, 187, 205

Dalits 56, 57, 58DCM Group 94, 96, 139DCM-Daewoo 88, 95, 134DCM-Toyota 88, 91, 92, 93, 96, 123,

125, 132, 134, 135Delhi 110, 119, 134, 146–148, 155,

159, 192, 194, 195Diversified output 99, 100, 101, 108

see also Flexible practices

East Asia 7, 16–17, 23, 26, 70Economic coordination 5, 16, 19,

28–29, 34–35, 40–41, 43Economies of scale 20–21, 35, 37, 42,

82–83, 91, 93, 99, 106, 108–109,112, 114, 129–130, 137, 139, 177,185, 206

Economies of scope 21, 35, 37, 42, 83,93, 99, 108–109, 132, 174, 206

Education 31, 53, 58–61caste reservations 51, 57–58higher education 41–43, 59–62and social inequality 58–61

Eicher Group 87, 94, 131Eicher Tractors 90, 125, 128Eicher-Mitsubishi 88, 91, 92, 94, 123,

125, 128, 132, 133, 134, 135, 158,160

Emission standards 192–195Energy dependence 42, 188–192, 201Enterprise unions 34, 107, 109, 111,

122–124, 128, 200Environment Protection Act 192Environmental challenges 10, 11, 41,

43Euro pollution standards 193–194Excess capacity 11–14, 33, 36–37, 41,

43, 71–73, 96, 170–177, 201Exclusionary development

see InequalityExport of vehicles and components

98, 137

Foreign Exchange Regulation Act (FERA)49, 82, 83

Fiat 75, 86, 90, 93, 94, 96, 97, 100,130, 137, 174, 187

Fiat-Premier Automobiles Ltd. (PAL) 95Flexible practices 4, 9, 16, 17, 28,

37–39, 43–44, 70, 81, 105–110, 122,124–125, 128–130, 132–135,138–141–142, 173, 203, 206

Food grain production 54Ford 75, 82, 94, 95, 99, 100, 103, 113,

116, 119, 140, 160, 174, 176, 187Ford India 94, 96, 97, 158, 159, 160,

177Fordism 8, 20, 22, 35–36, 94–95

see also Mass production systemForeign exchange reserves 76–77Fossil fuel imports 10, 14, 40, 76, 170,

188–191, 201French regulation approach 7–9,

12–13, 20–24, 28, 29, 34Fuel efficiency 91, 191, 194–195

Gandhi, Indira 85, 91, 110Gandhi, Rajiv 66–67, 91, 113Gandhi, Sanjay 85, 110

240 Index

General Motors 75, 82, 86, 93–100,103, 125, 130, 137, 140, 158–160,174, 176–177, 187, 201, 204

German capitalist model 18, 21Germany 24, 25, 47Gujarat 125, 130, 144–148,

152–153, 156, 159–160, 165, 204Gurgaon, Haryana 113, 125

Halol, Gujarat 96, 158–159Haryana 113, 114, 125, 145, 147, 152,

165Hero Honda 176, 184Hindustan Mazdoor Sangh 123Hindustan Motors (HM) 82, 85–88,

91, 93–100, 103, 125, 128–131, 143,149, 157–169, 174–176, 187,200–201

Honda Motors 75, 90, 94, 100, 140Honda-Siel 94, 174, 176, 187Hosur, Tamil Nadu 158, 160Household incomes 98, 179–182, 184,

186, 187, 197, 206, 211, 212Hyundai 75, 85, 86, 95, 99, 100, 101,

113, 137, 140, 141, 160, 174, 176,187, 206

Import substitution industrialization2, 5, 8, 30, 31, 39, 42, 46–49, 50, 72,81, 149, 200

Inclusionary consumption 15, 182,184–185

Income distribution among households98, 178, 179, 184, 186, 187, 197,206, 211, 212

Income polarization 38, 168, 170, 178,197, 199

Incremental innovations 35, 125–127,135

Indian National Trade Union Congress123

Industrial clusters 113–114, 119, 130,134, 139, 140, 141, 158, 160

Industrial decline in West Bengal144–165

Industrial Disputes Act 161–162Industrial licenses 110–112, 114, 144,

165, 188Industrial Policy Statements 83Industrial relations 20, 35, 89,

122–126, 150–165Industrial Training Institutes 124

Industries Development and RegulationAct 49, 81, 83

Industry associations 5, 8, 107, 112, 113see also Business associations

Inequality 7, 11, 12, 15, 26, 29, 32, 36,38, 43, 55, 56, 59, 98, 142, 149,170–171, 178, 184–186, 188

Information technology industry 61,66, 77–78

ISO 9000 121, 137Isuzu 75, 93, 94, 96, 97, 100, 158, 159Italy 20, 24, 85, 96

Japan 12, 24–25, 33, 70, 72–73, 85,95–96, 102, 103, 139, 190

Japanese capitalism 18–21Jatis 52, 56, 57, 58Jay Bharat 111, 115, 116Just in time (JIT) 115, 117, 119, 130, 134

Kaizen 35, 135Karnataka 145, 147, 159, 160Keynesian policies 8, 17, 20, 36, 46,

69, 71, 106Kirloskar 94, 96Kolkata (formerly Calcutta) 114, 125,

129, 146, 148–149Koyo Seiko 115, 116, 119Krishnamurthy, V. 110

Labor 107, 123–126, 128, 143,151–152, 161–163, 166, 170

Labor relations in West Bengal152–165

Light commercial vehicles (LCV) 14,84, 88, 96, 103, 106, 128–130,132–134, 138–139

Local content 92, 93, 101, 110, 134,164, 203

Lockouts 151–156Long-term subcontracting arrangements

20, 34, 44–45, 73Luxury car segment 98, 100

Machino Plastics 111, 115, 116, 117Macroeconomic stability 17–18Madhya Pradesh 159, 160Maharashtra 144, 145, 146, 147, 148,

152, 153, 156, 165Mahindra & Mahindra 85–88, 94, 95,

114, 126–127, 130, 131, 174, 176,187

Index 241

Mark Auto 111, 116Maruti Udyog Ltd. (MUL) 75, 83–86,

88, 90–95, 97–100, 101, 103, 105,110–130, 134, 138–139, 157,159–160, 162, 173, 176–177, 187,195, 200, 206

Marwaris 149–150Mass consumption 22, 106

see also FordismMass customization 35, 132Mass production system 9, 20, 21, 35,

106, 81, 105, 107Mazda 75, 87, 88, 91, 94, 130Mehta, M. C. 193Mercedes Benz 86, 94, 100, 121, 140MG Rover 75, 133Middle class 3–5, 13, 31, 41, 52, 68,

80, 89, 177–180, 184–187, 193, 194,200–201, 211, 212

Middle class, size of 62–64Minimum efficient scale 37, 172Mitsubishi 75, 87–94, 96, 97, 99, 100,

130, 158, 159, 160, 163, 174, 187Mode of capitalist regulation

see Capitalist regulationModels of capitalism 17–18, 21, 27, 103Monopolies and Restrictive Trade

Practices Act (MRTP) 49, 82, 83Motor Vehicles Act 192Multinational firms 1, 5, 12, 14, 29,

72, 84, 103Mumbai (formerly Bombay) 129, 146,

148Mumbai-Pune region 114

National Ambient Air Quality Standards192

National Capital Region (NCR) 113,148, 201

National Council of Applied EconomicResearch (NCAER) 178, 182, 196

Natural gas 191, 193–195Negative externalities 40–41Neoliberalism 2, 5, 12, 13, 15–16, 28,

32–33, 38–39, 66, 71, 95, 135,164–165, 195

Nissan 75, 87, 88, 91, 93, 94, 99, 100,111, 112, 129, 130, 131

NOIDA, Uttar Pradesh 113, 125see also Industrial clusters

Non-resident Indians (NRIs) 67, 68,78, 80, 102

Oil dependency 41, 43, 76, 188, 189Opel 96, 97Other backward castes (OBCs) 58Outsourcing 34, 37, 95, 96, 107, 141,

164Overproduction 33, 72

see also Excess capacity

Path-dependent development 31–32Peugeot 93, 94, 100, 130Phased Manufacturing Program (PMP)

90, 93see also Local content

Pithampur, Madhya Pradesh 125, 134,158, 159, 160, 165, 204

Political economy approach 10, 12,25, 46

Pollutionsee Air pollution

Pollution Control Boards 193Poverty 11, 27, 51, 56, 62, 150, 199Premier Automobiles Ltd. (PAL) 82,

85–88, 91, 93, 94, 95, 98, 100, 128,129, 130, 200

Premier Automobiles Ltd. (PAL)-Peugeot86, 94

Pricescars 186–187two-wheelers 184–185

Punjab 114, 145, 147

Quality circles 25, 35, 107, 109, 122,127, 133, 135, 200

Regime of accumulation 9–11, 13, 25,28–29, 34, 36, 39, 81, 102, 141–143,164, 169–171, 199, 201

Regulation approachsee French regulation approach

Rural embourgeoisment 53–55, 68Rural-urban income distribution 59,

180–185, 211–212Russia 21, 23

Scheduled castes 58Scheduled tribes 58SEAT 111, 112

242 Index

Shopfloor organization 105, 114, 122,125–128, 135, 200, 203

Skoda 174, 187Social regulation 41, 193, 196, 205, 206Society for Indian Automobile

Manufacturers (SIAM) 113, 174, 194Sona Steering 111, 115, 116, 118, 119,

126, 139South Korea 10, 24, 33, 72, 85, 95,

115, 139, 177, 190, 200Soviet Union 6, 69, 77Standard Motors Private Ltd. (SMP)

85–88, 93, 95, 160Statement of Government’s Industrial

Policy 49, 81Sundaram Fasteners 96, 97, 120, 205Suzuki Motors Corp. (SMC) 43, 68, 73,

83–85, 94, 96–97, 100, 110–111,115–117, 125, 137, 174

Swaraj-Mazda 87–88, 91, 94, 131Swedish capitalist model 18, 21

Taiwan 24–25Tata Group 75, 90TELCO 86–88, 90, 91, 93, 94, 99–101,

103, 120, 122, 129–133, 139, 163,174, 176, 187, 200

Three-wheelers 175–177Tiruvallur, Tamil Nadu 130, 144–147,

152–153, 156, 158–160, 165

Toyota 86–93, 96, 130, 134, 140, 141,158, 174, 187

Toyota Kirloskar 94, 123, 160, 203Trade unions 122–125, 129, 152, 161,

164, 166see also Enterprise unions

TVS Group 137, 139, 158, 176Two-wheelers 63–66, 82, 137,

175–177, 182–187, 197

UCAL Fuel Systems 115, 117, 120Uneven capitalist development 8–9,

26–27, 98, 104, 143–144, 148–149,151, 155, 157, 167, 169

Uneven regional development 11, 14, 40–42, 141–142, 144, 165, 200

Untouchablessee Dalits

Uttar Pradesh 145, 147Uttarpara, West Bengal 143, 149,

158–169

Vertical integration 20, 34

Walchand Group 82West Bengal 1, 14, 129, 143–168, 169,

194, 20West Bengal Industrial Development

Corporation 166

Index 243

The Long March to Capitalism: Embourgeoisment, Internationalization and Industrial Transformation

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