PROVIDING A view on the state of the Indian economy and conjecturing the future has become a habit these days. There have been several such books written, mostly on a eulogistic note. Everyone has a view that the Indian economy has a great future, and that we are in the right direction. In fact, the inaction of the UPA government in the last two years of its reign has been contrasted with the urgency shown by the NDA. We all like talking of India being a leader in future and various scenarios have been painted; and the present NDA government has been lauded for putting us in the ‘sweet’ spot.
Vijay Joshi’s India’s Long Road, which intuitively tells us about the author’s perception, follows a similar pattern when one reads the first 270 pages or so. The view is that India has potential to become a leader by 2040, provided some deep reforms are undertaken by the government. There is the usual chapter on ‘state failure’, not just in the economic story, but also in terms of administration and corruption. Subsidies have been thrashed and the policy to keep PSUs has been criticised with the usual gusto that goes with such essays.
Joshi also talks of low total factor productivity levels, typical of an economic theoretician, besides usual factors such as labour and capital. The skill of the labour force is important for future growth. Capital is another factor and the author argues that we need to get in more investment. The author also guns for inclusive growth and is critical of what has happened so far in this area, blaming state failure in finding a solution in giving free power, food, money and water, and never working seriously on improving the quality of education and health, the two essentials for any sustainable development model. This is because of misplaced priorities. Here, the author lambasts PSUs, which have become a major burden for the exchequer. Similarly, he highlights the fact that while we have reduced the number of families dependent on agriculture, we have not made it resilient or created an alternative that is long-lasting, leading to lopsided structures.
The book gets interesting when the author talks of what should be done. More importantly, he unbiasedly evaluates how the Modi government has performed. He talks here of seven areas where such reforms are required and presents a view on the performance of the government.
First is macro-economic stability, where he gives a good score to the Modi government. Inflation has come down and we appear to be on the right path. He, however, feels that the RBI should follow a ‘managed float of the rupee’ and not let it appreciate, as it affects exports. This can be debated by detractors—that a free rate is better than a controlled one as we can’t push up exports this way.
He is non-committal on the second area of investment climate. While a lot has been done to prop up investment in terms of doing business, he links it with the problem of NPAs and how it has come in the way of flow of funds. Here, the performance has been mixed. Third, he is critical of the progress made in the area of deep fiscal reforms. There have been benefits of low oil prices that have been leveraged well by the government. However, the subsidy levels have not been lowered, which is where Joshi has a quarrel. Fertiliser and food subsidies have not been lowered and while directing them better has been done to an extent, courage has not been shown in lowering the quantum. Similarly, he writes a bit on implicit subsidies like the loss-making PSUs.
The fourth reform is in the areas of markets, ownership and regulation. Here, he is harsh on the government on the PSU front and has rightly pointed out that progress is lagging in infrastructure, environment and agriculture. The same holds true for land and labour reforms.
Fifth, he is all praise for Modi and his government on the external side and what has been done for FDI. The way forward is further liberalisation. The sixth reform is in the area of social development. Here, he gives a mixed score. On the positive side, Aadhaar and cash transfers have been successful. But less efficient schemes like NREGA have not been lowered in scope. Also, a lot has to be done in education and health, which is a theme often alluded to in the book.
The last reform pertains to the state where corruption has to be addressed to make doing business easier. Here, Modi does well, unlike the UPA government. But Joshi is again cautious when talking of the much-touted schemes of ‘Clean India’ and ‘Make in India’. The former, he says, has been crafted poorly, with no major benefit accruing except tick-marking of targets. ‘Make in India’, to his mind, is not possible unless we have all these reforms in place.
A couple of interesting points made along the way that should be addressed are that the government has become less democratic and allowed fringe elements to dominate, which can push us back by years. Second, the government has failed to take the Opposition along despite a large majority, which has made undertaking reforms that much more difficult.
Joshi is a very well-known economist and his insights are welcoming. The first part is a good treatise on what is happening in the country and the problems that exist. The second is a fairly unbiased evaluation that should be looked at closely by policymakers, as his name does matter.
Madan Sabnavis is chief economist, CARE Ratings