ollowing section we compare and evaluate the impact of the two approaches.
Political Economy of ISI in Brazil and India.
A comparative political economy of FDI policies of Brazil and India has not been adequately analyzed in economic literature. In order to study the two countries one has to highlight the role of political and social institutions in molding public policy. To do this, we return to the historical experiences of the two countries before World War II.
Brazil gained its independence in 1822. Britain acted as a guarantor of its independence in return for which it obtained privileged access to its markets and was influential in shaping various types of policies. Many observers have therefore referred to this period as a “semi-colonial” one. At that time the main source of wealth was export earnings from primary production. The agrarian elites drew their economic power from exporting primary commodities and urban elites depended on cheaper manufactured imports from abroad. These ruling classes were therefore open to a laissez-faire economy with limited state intervention. Even the industrial growth which began by the late 19th century was at the very outset heavily influenced by international factors: incomes generated via coffee exports provided necessary resources to support early industrial development (Kohli 2004, Baer 2008, p. 29).At the same time, immigrant labor, mainly from Europe, brought with it entrepreneurial and organizational skills that were crucial for the establishment of industrial enterprises ( Kohli 2004, Baer 2008, ch. 2 and 3). By the 1930’s, the weakening of the international economy and rising nationalist sentiments drove the Brazilian leadership to adopt defensive policies which were of an early import-substituting nature. Although Brazil gradually restricted activities of foreign investors in some of the sectors where they made an early appearance (mainly public utilities), it never treated them with the same suspicion as did India and the ISI policies left considerable room for foreign investment in new sectors, especially manufacturing.
In the case of India, the British colonial experience lasted for over two centuries. By the late 19th century, a major anti-colonial struggle had begun. Repatriation of profits, guaranteed returns to investments in railways, discriminatory tariffs against Indian textiles and the inadequate development of infrastructure had convinced Indian nationalists about the dangers of integrating a “nascent economy” in the world trading system. The rise of a “national industrial bourgeoisie” during the 20th century, which developed in opposition to colonialism, strengthened nationalist sentiment in India. The aversion to foreign rule translated into an aversion for foreign investment (Naoroji 1901, Chandra 1999).
Thus for large sections of the society, independence meant freedom from foreign domination, not just in the political and social arenas but even in the economic sphere. The post-colonial state that emerged in 1947 was a product of this anti-colonial sentiment.
The difference in perceptions of various groups in both countries regarding foreign capital should not come as a surprise. Britain did extract special trading privileges from Brazil. However, as it was an independent state, it enjoyed certain - albeit limited - flexibility regarding economic policies (Topik 1979, Kohli 2004).
