In other words, the book espouses a clear philosophy of hope that Panagariya holds dear and an action plan for sustained growth in the years ahead, in a manner that seems internally consistent.
By Amitabha Bhattacharya
It seems to me that in certain respects, welfare measures tend to be implemented in India ahead of economic growth, for example, in labour laws which are probably the most highly protective of labour interests, in the narrowest sense, in the whole world. There is practically no link between output and remuneration; … It is extremely difficult to maintain an economic level of productivity, or improve productivity…” Written in 1969 by PC Mahalanobis, the main force behind our second five-year plan and the father of Indian statistics, this sounds prophetic today.
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The author of the book under review, Arvind Panagariya, quotes him in support of one of the many barriers that have prevented India from reclaiming its potential, as was manifest up to the early 19th century. The story of India’s economic prowess till then, its fast decline during the colonial rule and its rise-stagnation-resurgence since independence has been perceptively analysed and the underlying causes convincingly articulated.
This is not a memoir of a professor of economics at Columbia University who had served as the first vice-chairman of the newly-created NITI Aayog during 2015-17. Panagariya has been careful, and perhaps modest, to not highlight what he achieved as a key policy maker and how he had influenced the course of decision making. He has used his knowledge as an economist and combined it with his experience in the government to weave a narrative that is lucid without having to compromise with the complexities of the issues involved. He makes a sweep of history, primarily the post-1950 period, focusing on how the key concerns of economic development had been negotiated at crucial junctures by successive governments since Nehru, how the decisive reforms brought about by Narasimha Rao and Vajpayee, in particular, paved the way for renewed optimism. He examines where we faltered, when the other Asian nations were forging ahead, and what price we had to pay for sticking to socialistic ideas enforced by the heavy hand of the State through protectionist and other policies, taken to their extremes in the 1970s, which decisively dented our growth story.
Unfortunately, some of these seem to be surfacing again.
Panagariya alludes to the fact that India accounted for about 30% of world’s GDP up to 1000 AD, then for about a quarter up to 1700 AD and about 16% as recently as in 1820. Colonial rule, together with the impact of Industrial Revolution in early 19th century which shifted the epicentre of the global economy to Europe, largely contributed to this decline. By the time the Britishers left India, the number was just 4.2%. But what happened after independence? Why has it taken such a long time to achieve a high growth trajectory? Is it because of our lack of openness and a distrust of export-led growth? What were the other factors? What were the constraints—in thinking and in action? Was our national leadership—in politics and bureaucracy—equipped to initiate the transformatory changes that other miracle economies of Asia, including China, could accomplish?
During 1950-2018, we moved from a command and control economy to a more liberal order, and the results are visible—in 2017-18, with a GDP of $2.7 trillion, India became the seventh-largest economy. “Ultra-tight control of investment and imports in the past, especially from 1951-81, held back India’s growth.” Panagariya then seeks to explain the myriad challenges of the needed transformation—especially underemployment in various sectors—and charts out a path for reforms. The author delineates on what requires to be done in order to spur an export-led and labour-intensive, manufacturing-fed growth, relying on both secondary and tertiary sectors, with agriculture progressively modernising and releasing surplus workers.
Prudently, Panagariya recommends a basic change of mindset—to avoid falling into import substitution trap, dropping insistence on a strong rupee and such like—and suggests the steps to be taken with a clear goal of export expansion. How the problems of massive urbanisation, in order to make room for migrant workers, have to be addressed, has been proposed with ample details. He devotes separate chapters to the urgent reforms needed in the banking sector, as also in the securities market. Besides, in sync with the emergence of an aspirational nation, he delves into how our higher education sector requires to be changed or how our governance system should be revamped.
In other words, the book espouses a clear philosophy of hope that Panagariya holds dear and an action plan for sustained growth in the years ahead, in a manner that seems internally consistent. In matters relating to governance reform, for example, he advocates exposing the higher civil services, especially the IAS, to increased competition so that the near-monopoly enjoyed by the generalist cadre is challenged, as “certain tasks and positions within the government require specialised skills and knowledge”. Amongst other measures, Panagariya strongly urges, understandably, for privatisation of public sector enterprises, closing of loss-making enterprises, monetisation of public assets, consolidation of subsidies, scaling down of Food Corporation of India and the like. He tries to convey how the Rao-Vajpayee reform process was undermined during the second term of the UPA government which, in turn, contributed to the emergence of a new dispensation in 2014. Thankfully, he has not shied away from examining the present state of the economy (pre-COVID19) and criticising some of the actions that are sometime reminiscent of the dirigist policies of an earlier era.
The book’s strength lies in dissecting the economic policies, based on extensive research, and proposing a comprehensive blueprint for action. However, Panagariya’s recommendations on issues like governance and educational reforms, for instance, do not throw much new light on the subjects. Based on his personal experience with aspiring and senior civil servants, he muses that bureaucracy’s “adherence to socialism remains deeply rooted in the education its members received in Indian universities, where faculty members are wedded to anti-business and anti-market ideology”. A sweeping observation, though not entirely unfounded. But isn’t it the same higher bureaucracy under Narasimha Rao-Vajpayee that had transformed India forever?
The author is a former IAS officer who has also worked in the private sector and with the UNDP