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India: The Emerging Giant Paperback – 30 Apr 2010
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Mr. Panagariya's book is the capstone of a career, a sustained work of scholarship. It demands a lot of its readers, and amply repays the investment. The author's father told him: Take your time, but write a definite book on India. The son did not disappoint. (The Economist (second review))
About the Author
Arvind Panagariya is Jagdish Bhagwati Professor of Indian Political Economy and Professor of Economics in the School of International and Public Affairs at Columbia University.
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There is no doubt that India is now a rapidly growing economy, even under challenging and grim global economic scenario, and is considered to a be strong contender of the global economic pie in the twenty first century.
It is often said that India got independence twice - Political freedom in 1947 from the British Raj and Economic Freedom in 1991 from "License Raj".
Prof Panagaria documents and analyses the economic policy, principles, thought, directions, outcomes and his own views during the six decades of India's economic evolution.
The "Four Phases" and growth rates: 1. Take off under a liberal regime (1951-65 @ 4.1%) 2. Socialism strikes with a vengeance (1965-81 @ 3.2 %) 3. Liberalization under Stealth (1981-88 @ 4.8 %) 4. Triumph of liberalization (1988-2006 at 6.3 %), is the most logical segregation of the six decades of very distinct policy regimes of the times.
One chapter devoted to each of the above phases helps us understand the forces and factors that dictated the political and policy directions, based on domestic and international developments and compulsions.
Till the late 1980's the fundamental thought in Indian economic policy was based on a bias towards establishing a "socialistic" pattern of society, where the government played the predominant role in determining the allocation of "scarce" recourses. The public sector played a key role in most industries, and the Industrial Licensing policy coupled with powerful laws like Monopolies and Restrictive Trade Polices Act, Foreign Exchange Regulations Act, not only isolated India in global trade and investments from the rest of the world but also converted the whole economy into an autarky that crippled its soul.
In contrast, South Korea with a comparable per capita GDP as India's in 1960's adopted outward oriented and market friendly policies that propelled its economic growth and prosperity. The chapter "A tale of two countries" is an excellent read.
Since 1991, enabled by the massive liberalization of the economy that unleashed market forces and attracted foreign investments and technology, India's outward orientation has made a quantum jump to over 43 % as compared to just 8 % in the late 70's.
Despite excellent growth rates, especially in the last decade, India faces the twin challenges of equitable growth and poverty alleviation.
Prof Panagaria has devoted a chapter each to "Declining Poverty" and "Inequality" to discuss the two key topics that are often at the top on the manifestos of most political parties, at least during election campaigns.
Prof Panagaria advocates direct transfer of funds to people below the poverty line (BPL) instead of resorting to subsidies that result in corruption and leakage. Subsidies are not only regressive, but are distortionary argues the author. This policy prescription cuts across all sectors. Given the lack of connectivity and poor reach of the banking system in remote areas, I personally doubt the feasibility of such transfers.
A chapter each to discuss key sectors - Finance, Agriculture, Industry, Education, Health care, Manufacturing, Tax Reform. Telecom and Electricity to name some, the depth of coverage, references, analysis and concluding remarks are splendid.
An excellent reference material, I would recommend this as essential reading to students, business managers, bureaucrats and politicians who will shape the economic destiny and prosperity of the world's largest democracy in the Twenty First Century.
- George Bernard Shaw .
Arvind Panagariya is a distinguished trade economist, professor at the Columbia University, a protoge of Dr Jagdish Bhagwati, and a good communicator who through his newspaper columns has placed economic issues in their social and political contexts and made them explicable to the lay reader.
This book draws on this experience. It is a comprehensive history of the Indian economy from the time of the First Five-Year Plan of 1951. It is not limited to examining selected aspects of the economy but considers the relationship between different aspects. Indian economists, like Indian policy-makers, have tended to look at specific issues and neglected the interactions between different sectors and issues. Panagariya constantly relates policies to political leaderships, economic concepts to practice, analyses a vast amount of data to support his conclusions, looks closely at the infrastructure, social sectors and not merely at poverty levels, industrial policies, agriculture, taxation, and public finance.
Dr Panagariya's analyzes ongoing debates (example use of foreign exchange reserves to fund infrastructure investments) and suggests practical policy directions for every issue that he discusses. For example, he relates poor industrial progress to restrictive labour laws dissuading the organised sector from entering labour intensive industries. He discusses in detail the many infirmities in providing health, education, water and sanitation to the majority of people. He analyses required tax reforms, necessary subsidies to the poor and how they can be given efficiently, the mistake of ignoring the critical importance of international trade for a poor country, the infrastructure and how recent reforms have worked, while attributing poor implementation to hidebound procedures and the infirmities of the civil service set-up.
Dr Panagariya shows convincingly that policy focus on equality often harms the fight against poverty. The present government has achieved less reform than the earlier NDA coalition, principally because of opposition from the Left. He also refutes the pleas for full convertibility of the rupee and supports the gradual relaxations that India has followed.
The book divides the years since 1951 into four growth phases: 1951-65 at 4.1 per cent, 1965-81 at 3.2 per cent, 1981-88 at 4.8 per cent, and from 1988 to 2006 at 6.3 per cent. The restrictive period under Indira Gandhi's rule with her 10-point programme held the economy back and kept poverty levels high. They have dropped sharply since 1991. He demonstrates that growth in the Rajiv Gandhi years was at the cost of weakening the macroeconomic condition and that the years since 1988, especially 1992, show more sustainable growth. He considers a macroeconomic crisis (like in pre-1991) unlikely in the near future because of the gradual reduction of the fiscal deficit, more openness to trade, foreign exchange reserves, and removal of restrictions on industry.
Dr Panagariaya seems to accept government claims on reducing fiscal deficits, though government figures do not provide for the large and growing Rupee bonds for supporting the oil and FCI subsidies, which are not counted in the fiscal deficit. He recognises the stimulating role of large public expenditures when there is growth and finds a close relationship between trade openness, growth and poverty alleviation.
Dr Panagariya blames the complex labour laws for the dependence on agriculture and the huge informal sector for employment. Powerful labour inspectors, provision of facilities on premises, safety provisions, overtime, Provident Fund, health insurance, limited rights to reassign or fire workers, lack of speedy resolution of industrial disputes, and absence of option for firms to exit at reasonable cost (because of antique bankruptcy laws) have disproportionately strengthened the hand of the unions in the organised sector and made wages in the private formal sector 1.8 times those in the private informal sector. This has raised wage costs in unskilled labour intensive industry as against the capital intensive industries, and has held back India's growth of labour intensive industries unlike in China, Bangladesh and Sri Lanka.
This is among the best books and certainly the most comprehensive study of the Indian economy since Independence. It is easy to read despite the immense erudition that the author has brought to bear on the different issues. One thinks of such books as Jagdish Bhagwati and Padma Desai's 1970 book (Planning for Industrialization) which was an early critique of planning or Pranab Bardhan's 1984 book (The Political Economy of Development in India) which examined class dynamics in India as exemplars. Except for the fiscal deficit calculations, the influence of the Left in tempering economic with social reforms, and the neglect of the consumer goods industries and their influence on growth, there is nothing one can find to criticise in this book. It is a valuable addition to the libraries of people interested in understanding the past, present and future of the Indian economy.