Posted February 7, 2007

In India, economic liberalization has widened the income gap, leaving many regions economically abandoned

Sanjoy Chakravorty
Photo by Ryan S. Brandenberg / Temple University
What happens when a country completely changes its way of doing business?

According to Sanjoy Chakravorty, who specializes in studying distribution of income as it relates to spatial and social changes, India’s recent history provides a clear and sobering look at the economic fallout that can follow a major shift from political to private control of industry.

Chakravorty’s recent book, Made in India: The Economic Geography and Political Economy of Industrialization, examines the effects that the 1991 economic liberalization of India has had on industrialization in the country, and is the result of more than eight years of research, travel, and fights for access to government information.


It’s been a busy year for Chakravorty, chair of Temple’s Department of Geography and Urban Studies. In November of 2005, he was the co-author of Policing Illegal Drug Markets, and just two months later he released his solo work, Fragments of Inequality. Made in India was published this January.

Chakravorty began research for Made in India in 1998. With a grant from the National Science Foundation, he flew to India to collect data about industry in the country. At first, the government there was unwilling to release the necessary data. But after a year of pressing, he persuaded the government to give him the data he needed for his research.

“I kept saying, ‘You’re in a new era, so open this. You can’t be secretive about data anymore,’” said Chakravorty. “I took it to the highest levels of government, so much so that bureaucrats tell me that it influenced the government of India to make open data its policy.”

With data in hand, Chakravorty searched for patterns in where centers of industry had located — both before and after liberalization — and why they had been drawn to those spots. He found that after the 1991 liberalization, industry was increasingly located around existing industrial regions and became virtually non-existent in agricultural regions. This, he said, is a cost issue for companies —transportation costs for necessary materials are lower in urban areas — but more importantly, it’s a proximity issue — urban areas provide close access to auxiliary services, including parts manufacturing, marketing assistance and legal services.

In 2000, researchers at the World Bank took notice of Chakravorty’s burgeoning research and writing. There, he found a project collaborator, Somik V. Lall, and funding to continue the research. Chakravorty quickly produced a series of articles on the topic of India’s liberalization and soon realized that he had enough material for a book.

“Nothing like this has been written before on India,” noted Chakravorty. “For 50 years we played by the same set of rules, and then one day we switched them up. The central question of the book remains, ‘What happens to industry when you change the rules of the game?’”

The answer, said Chakravorty, is that centers of industry shift because the market, and not the state, now controls the playing field. This often means that poor and lagging regions are abandoned for better-off and leading regions.

“The state has a different logic than private enterprise. For private enterprise, it’s profit. The state has other, political logic,” he said. “The state wants to spread the goodies around so that it’s politically viable even in places where the private sector would never go.”

Chakravorty says the unfortunate truth is that in a liberalized economy, the resulting picture for regions lagging in robust industry is grim.

“You can’t buck history,” he said. “Nothing succeeds like success, and it turns out that when there’s an onset of failure for some reason — political or economic — nothing fails like failure. Once industry starts trickling out, it’s not long before it leaves in a torrent.”

According to Chakravorty, when industry begins to leave certain places because more productive work is being done elsewhere, the government has little ability to get people or capital to stay, rendering the state “toothless.”

Furthermore, on an economic level, the gap between the rich and poor increases — in India’s case, essentially creating not one, but two Indias. In 1947, when India became independent, the income of an average person in the richest state was two times the income of someone in the poorest state. According to Chakravorty, today that gap has risen to four-and-a-half times, and may increase to 10 times in the next two decades, which will likely lead to further instability in poor regions of the country.

“There isn’t an easy fix to this problem,” said Chakravorty. “The alternative is to push the private sector back, and that isn’t a great model either. Everybody had a better share of a much smaller pie.”

On a practical level, Chakravorty said that agricultural reforms and the startup of agricultural-based industries could begin to provide relief for Indians living in rural areas. On another level — one he calls contentious — is the possibility of shifting the paradigm of industry completely.

“People often think in terms of bringing jobs to people. The alternative is to bring people to jobs. Nobody likes this because cities are dirty and crowded. What we’re saying is maybe it’s time to rethink that,” he said. “Some people are living unsustainable lives in their villages, so let’s take our blinkers off and look for new options for the future.”