Introduction

In this chapter, we propose to understand financial statecraft as the use of monetary, financial, and regulatory levers to reduce a state's survival constraint, which necessarily has both domestic and international manifestations. The state's capacity to relax its domestic survival constraint rests on a set of social compacts or political settlements between the state and society. For India, we identify the evolving bargain between the state and the three dominant classes – big business, rich farmers, professional class – () as central to explaining India's financial statecraft. This political settlement yields a national economy with particular weaknesses, namely a heavy reliance on the import of oil, the import-demand for capital and consumer goods (the latter particularly driven by India's aspirational salaried class which results in chronic current account deficits), and domestically bound accumulation strategies particularly in non-tradable sectors by India's big businesses, which yields a stagnant economy with little innovation and marginal exports (). Meanwhile, rich farmers continue to rely on state subsidies while taxes on urban elites are low, contributing to a structural fiscal deficit. This is compounded by a highly mobilized and largely poor electorate that makes particularistic demands that yield particularistic welfare consumables. While this initial bargain has evolved over the years – capital becoming discursively dominant, the bureaucracy relatively less autonomous, some rich farmers morphing into businesses – the net result for India's survival constraint is Bardhan, 1999Nölke et al, 2021 relatively unchanged. The signal change is on the external account, with external private debt issued by a handful of large firms substituting for external public debt helping to relax the balance of payments constraint.