The authors deal with issues in separate chapters, with the six as good as little booklets on the subjects of agriculture, manufacturing, foreign trade, fiscal policy, banking and institutions.
There are a lot of encomiums that we tend to associate with India’s progress. The book, All The Wrong Turns, which takes a look at the past 70 years or so, attempts to correct this misconception. In what can be a valuable read for students of Indian economics and critics alike, the authors argue that we seem to have joblessness growth and quite a bit of uncertainty on many aspects of the economy that are enmeshed in contradictions. The authors deal with issues in separate chapters, with the six as good as little booklets on the subjects of agriculture, manufacturing, foreign trade, fiscal policy, banking and institutions.
A theme that runs through the discourse is the high level of contradictions that we witness in these sectors. In agriculture, for example, there are statistics to show how we are leaders in production of rice, wheat and horticulture products. Yet there is a lot of farm distress, as we have never managed to tie the several loose ends together. A lot of progress made during the Sixties and Seventies, through the Green Revolution, lost steam decades back. Our policies are flawed, as can be seen by the defective approaches of providing free power and, hence, water, which has impacted the environment for generations to come. Overuse of fertilisers and the rather ambivalent approach to using hybrid seeds finds some thought-provoking discussion in this section.
The authors introduce readers to the approach to manufacturing since independence right through the planning process and the period of post-reforms. We have never really witnessed sustained manufacturing growth, which creates jobs and ensures the cycle keeps moving. Why should this be so? Here, the authors take a rather interesting position, where they talk of our rather stodgy approach to public-sector enterprises that are maintained for ideological reasons and where the government does not want to give up control. Second, they also bring to fore the problems with the much-talked about SME segment, which has been given successive incentives, but has never come of age and seems to be stuck with low value-added goods that can never allow it to reach the scale required to bring in sustainable growth. This model works only where they are producing niche products. Also, non-resolution of the two major reforms concerning land and labour has held back this sector.
The analogy for foreign trade provided by the authors is quite appropriate: think of a student who studies very hard and gets 90% marks in the board examination. Yet it is very difficult to get admission at the next stage because all students are doing better. This is our foreign trade situation, where we have a strong base, but we have not really managed to make any major inroad into other markets. India has done very well in services, which include exports, but has not made any major stride in other products where countries like China have gone much ahead.
On the issue of banking, the authors are quite clear about the pain points. They talk of the four major sub sectors that form the superstructure of the system. The RRBs and cooperative banking structures need to be revisited, as they have served little purpose. The DFIs, which did add value and helped create infrastructure in the economy, are now history. The PSBs, which are the largest and critical part, have fallen into the NPA trap due to absence of focus and independence, which was not the case with private banks and which tended to do better.
An interesting feature of PSBs which is highlighted is one of concentration, which increases the risk, as they all have a common business focus, which can be due to common ownership where direction is provided. The analogy that best describes this is a boat in stormy weather where 70% of the people in terms of weight all sit on one side and refuse to disperse!
With Raghavan being one of the authors, the Keynesian story is very well explained and he shows how we have incorrectly interpreted the theory. While Keynes spoke of government stepping in when the private sector was not there to invest or spend, we have turned the tables and made the government the driver along with the private sector. The result has been high deficits and continuous overshooting of the targets. This has put severe constraints on monetary policy where accommodation is required.
On institutions, the point made is that those created by the Constitution remain robust, while those done by the Parliament and ministries are not because of the way of funding and appointments. The book is very well written by the two experts and those by Raghavan can be spotted easily due to his fairly acerbic style. The approach followed is quite novel, where historical perspective is provided before getting into a critique. The former should help the students, while the latter will appeal to the practitioners. Either way, it should find space on your bookshelf.
Madan Sabnavis is chief economist, CARE Ratings