Political Background and Innivation Potential of Indian Middle Size Enterprises

Immediately after independence the Congress regime under Prime Minister Nehru embarked upon a program of state controlled industrialisation. Over three decades the agrarian sector and the peasant cases of India were neglected by the Congress High Command and the Indian development planners. This Indian “middle path” to industrial development not only led to the emergence of new and rebellious peasant parties it also resulted in a modest, in a “Hindu rate of growth” of some three percent. In addition this policy of non-alignment and this pursuit of “middle path” between the west and the soviet bloc led to increased political and economic isolation. It was finally at the beginning of the 1970th that the government of India under Indira Gandhi constructed a new political alignment and economic exchange system with the Soviet Union. India gained Soviet industrial and military technology and a market for its products - which could not have been sold on the world market. With the end of the Cold War and the dissolution of the Soviet Union in 1991 India not only stood isolated in the midst of a now accelerating process of globalisation; India in 1991 was bankrupt. It was this humiliating experience which since the beginning of the 1990th necessitated far reaching economic reforms: a reduction in the extraordinary high customs barriers, the development of export promotions zones, a cautious opening of the internal market for direct investments and a partial loosening of state control and of the “License Raj”. The paper describes the various reform arenas and the results of nearly two decades of Indian economic liberalisation.