How India and Brazil

have managed economic

openness since the early
1990s

by

Jørgen Dige Pedersen

DIIS, May 8, 2006

 Introduction: What are
the challenges?
• Globalization = epochal change?
• Threat of marginalization of
developing countries
• Threat of eroding the basis for state-
directed developmental efforts
• Focus on ’capable’ developing states
(India, Brazil): may provide clues to
what options other developing states
have
• Both ’opened up’ in 1990/1991
 The specific challenges

• The emergence of a new society

wide techno-economic paradigm:
knowledge-based, post-Fordist, ICT
focused etc.
• The increasingly important and
volatile financial flows
• The establishment of new
international rules of the game for
international economic exchange/a
new regulatory framework
• Today: only focus on first and third
challenge
 Brazil since 1990

• Dramatic liberalization: reduction of

import tariffs
• Privatization of state enterprises
• Liberal rules for FDI, end of
informatics policy
• Focus on ’competitiveness’
• Technological support programmes
(modest)
Trade policies:
• Many agendas: WTO,
Mercosur, FTAA, EU
•WTO: alliance with India
before 1990, renewed after
1995
•Stronger domestic links in
making trade policies – industry
and academia
•’Commercial defense’
mechanisms
•Still: Itamaraty dominance
 Results:

Figure 4-1. Brazil. Annual growth of GDP, 1970-2004.

16

14

12

10
8.6%

8
Per cent

4
2.6%
2
1.6%

0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
-2

-4

-6
 De-nationalization
Table 4-3. Distribution of net sales of non-financial companies in Brazil.
1983 1989 2000
% % %
Private national companies 53.4 (7547) 59. (6674) 50.2 (6441)
1

State-owned companies 26.4 (407) 23. (306) 15.2 (340)

8

Foreign companies 20.2 (526) 17. (500) 34.6 (756)

1

ote: Figures in parenthesis indicate number of companies included in the surveys.

ource: "Quem e quem na economia brasileira", Visão, agosto 1986 & agosto 1990; "Balanço Anual", Gazeta Mercantil, julho 2001.

• foreign take-over of privatized state companies

• computer sector again foreign dominated
• autoindustry + auto parts foreign dominated
• export sector foreign dominated
Global position:

• maintaining the position in global trade (= 1990

position, less than 1980 position)
• stronger regional ties (but declining recently)
• movement towards primary products/semi-
manufactured products
• a few ’success-stories, cf. later
 India since 1991
• reversal of ’license, permit, quota
Raj’ (BoP crisis)
• liberal investment regime
• gradual opening for FDI, less so for
short-term flows
• reductions in tariffs
• withdrawal of state reserved areas
• technological support system
(timid!) Import of technology
•But: gradual implementation, not
privatization, no labour reforms,
strong state directions
Trade policies:

• Very little regional integration (SAARC).

WTO only significant agenda
• Alliance with Brazil during Uruguay Round.
Again from 1995-
• Strengthened local capacity for trade
negotiations (esp. after 1998)
– Strong links to domestic industry etc
– Academic networks used
• Trade defensive mechanisms used
increasingly
Results
Figure 5-1. India. Annual growth of Gross Domestic
Product, 1970-71 to 2000-01.

12

10

4
nt
 Maintaining local control:

Table 5-3. Distribution by ownership of corporate sector

assets.

Per cent share 1991 1994 1997

Total corporate sector 100.0 100.0 100.0

*Government sector 46.6 35.3 27.5

*Private sector 53.4 100.0 64.7 100.0 72.5 100.0

- Indian private sector 46.0 86.2 57.2 88.4 64.3 88.6

-Top 50 Indian business houses 26.2 49.1 30.5 47.2 33.8 46.7

-Foreign private sector 7.3 13.8 7.5 11.6 8.3 11.4

Source: Centre for Monitoring the Indian Economy, Corporate Sector, April 1998 (www.cmie.com, accessed 12/5 1999).
Own calculation. The sample comprises more than 7000 companies.

•No increase in foreign control

•Decrease of state, increase of private sector
Global position:

• Increase in global trade (but still small)

• increase in outward orientation
• mostly manufactured exports
• outstanding success in software etc.
• companies investing strongly abroad
 India-Brazil

• India advancing, Brazil

maintaining position
• India based on national capital,
Brazil foreign dominated
• Both have avoided
marginalization
• Both are trying to advance
technologically (ICT, biotech
etc.) – both have done too little
• Both have ’successes’:
 Figure 6-1. High technology exports, 1993-2004.

18,000

16,000

14,000

Source: Reserve Bank of India (net export of software); Banco Central do Brasil (gross export sales)
12,000
$ million

10,000
Explaining the outcomes

• Structural constraints (esp. debt

crisis and vulnerability)
• ’gradualism’(India) vs. ’shock
therapy (Brazil)
• Strong state (India) vs. weakened
state (Brazil)
• ’developmental state
capacity’/embedded autonomy
argument
• …….and probably many more..
 Mio. US $

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S h o rt t e rm d e bInt t e rn a t io n a l re s e rve s
To illustrate:

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 The embedded autonomy argument:

• Both countries have see a restructuring of state-

business relations during 1990s:
• New organizations and new outlook among
domestic industrialists: a new industry association
in India (CII), new ’rebel’ organizations in Brazil +
new roles to traditional organizations (CNI, FIESP
renewal)
• Closer links to bureaucrats an policy-makers:
parliamentary channels and bureaucratic channels
• Bureaucrats seek advice from industrialists in trade
and other matters (even Itamarati in Brazil)
• + a new element (compatible with new paradigm
thinking):
• Closer links to experts and academic research
institutions: a new form of (post-Fordist)
developmental state?