Book Review in Telegraph, Kolkota, 5 Sept 2008
HIGHS AND LOWS OF THE INDIAN ECONOMY AFTER INDEPENDENCE
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->HIGHS AND LOWS OF THE INDIAN ECONOMY AFTER INDEPENDENCEÂ
Under liberal regimesÂ
<b>Arvind Panagariyaâs latest work is arguably the most comprehensive and incisive book written on the economic history of post-independence India.</b> A distinguished professor of economics at Columbia University, the author is familiar to the lay readers in India through his columns in a leading financial daily that tackle complex economic and social issues.
<b>The book divides the period between 1951 to 2006 into four phases based on mean growth rates: 1951-65, at 4.1 per cent, is titled âTakeoff under a liberal regimeâ, 1965-81, at 3.2 per cent, is âSocialism strikes with a vengeanceâ, 1981-88, at 4.8 per cent, is âLiberalisation by stealthâ, and finally 1988 to 2006, at 6.3 per cent, is labelled âTriumph of liberalisationâ.</b>
The first phase witnessed massive public investment in industry, infrastructure, agriculture and social sectors. <b>This was made possible by running down the huge sterling balances inherited from World War II and through liberal foreign aid. But as Jawaharlal Nehru found to his dismay, the prosperity could not be sustained and two droughts, war with Pakistan and the consequent suspension of foreign aid resulted in economic ruin in 1965.</b> The second phase, with garibi hatao as Indira Gandhiâs clarion call, was a nightmare so far as the economy was concerned, with the growth rate of gross domestic product shrinking to 2.6 per cent and per capita growth becoming almost nil as a consequence. Moreover, poverty was not reduced. In an interesting exercise, Panagariya demonstrates how apparent growth during the Rajiv Gandhi years had only weakened the macro economic condition and it is the growth since 1992 that is genuinely sustainable.
The chapter on the economic and social evolution of India and Korea makes interesting reading. Both countries were in a post-colonial phase in the 1950s with a growth rate of around 4 per cent and similar per capita GDP rates. Thereafter, Korea switched to export orientation while India remained devoted to import substitution. Korea became a miracle economy with a GDP per capita of $198,624 in 2007 â which is 20 times Indiaâs $965. <b>The delay, till 1991, in the opening up the Indian economy resulted in myriad problems that India today finds difficult to cope with.</b> The recent reforms make it evident that the number of people living below the poverty line or without basic education is strongly related to the GDP per capita. <b>So the cost of the delay in the opening up of India till 1991 has to be measured in terms of the hundreds of millions of people left below the poverty line, an equal number left without access to healthcare and around half a billion deprived of primary education.</b>
No book on the Indian economy can be complete without the author having a crack at poverty and inequality. Panagariya is no exception. The topic is highly contentious since official sample surveys, which form the empirical basis of the debate, changed definitions of poverty a number of times. As such, there is no continuous series of study on which everyone can agree. Panagariya has done a commendable job in painstakingly describing the subtle changes in the definitions of poverty, thus bringing about some order in this field.
<b>He argues convincingly that policy focus on equality often weakens the fight against poverty.</b> This is what has happened in the case of India. The current debate of using foreign exchange reserves to fund infrastructure investments is discussed and policy directions suggested. <b>Not surprisingly, Panagariya relates poor industrial progress to restrictive labour laws dissuading the organized sector from entering labour-intensive industries.</b> The ways of providing basic health facilities, education, water and sanitation to the people living in remote areas are dealt with in detail and pragmatic solutions offered. The subject of tax reforms, with necessary subsidies to the poor, and the methods of their implementation are also addressed. <b>Panagariya laments the mistake committed by a poor country like India in ignoring the importance of international trade.</b>
Although the book deals with a period ending in 2006, one wonders whether Panagariya could have introduced another phase with a growth rate of 8 per cent. He could have suggested the ways of using the additional revenue. And what would have been his prescription for tackling the present situation of high growth coupled with high inflation? A follow-up is eagerly awaited.
SATRUJIT BANERJEE
<!--QuoteEnd--><!--QuoteEEnd-->
HIGHS AND LOWS OF THE INDIAN ECONOMY AFTER INDEPENDENCE
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->HIGHS AND LOWS OF THE INDIAN ECONOMY AFTER INDEPENDENCEÂ
Under liberal regimesÂ
<b>Arvind Panagariyaâs latest work is arguably the most comprehensive and incisive book written on the economic history of post-independence India.</b> A distinguished professor of economics at Columbia University, the author is familiar to the lay readers in India through his columns in a leading financial daily that tackle complex economic and social issues.
<b>The book divides the period between 1951 to 2006 into four phases based on mean growth rates: 1951-65, at 4.1 per cent, is titled âTakeoff under a liberal regimeâ, 1965-81, at 3.2 per cent, is âSocialism strikes with a vengeanceâ, 1981-88, at 4.8 per cent, is âLiberalisation by stealthâ, and finally 1988 to 2006, at 6.3 per cent, is labelled âTriumph of liberalisationâ.</b>
The first phase witnessed massive public investment in industry, infrastructure, agriculture and social sectors. <b>This was made possible by running down the huge sterling balances inherited from World War II and through liberal foreign aid. But as Jawaharlal Nehru found to his dismay, the prosperity could not be sustained and two droughts, war with Pakistan and the consequent suspension of foreign aid resulted in economic ruin in 1965.</b> The second phase, with garibi hatao as Indira Gandhiâs clarion call, was a nightmare so far as the economy was concerned, with the growth rate of gross domestic product shrinking to 2.6 per cent and per capita growth becoming almost nil as a consequence. Moreover, poverty was not reduced. In an interesting exercise, Panagariya demonstrates how apparent growth during the Rajiv Gandhi years had only weakened the macro economic condition and it is the growth since 1992 that is genuinely sustainable.
The chapter on the economic and social evolution of India and Korea makes interesting reading. Both countries were in a post-colonial phase in the 1950s with a growth rate of around 4 per cent and similar per capita GDP rates. Thereafter, Korea switched to export orientation while India remained devoted to import substitution. Korea became a miracle economy with a GDP per capita of $198,624 in 2007 â which is 20 times Indiaâs $965. <b>The delay, till 1991, in the opening up the Indian economy resulted in myriad problems that India today finds difficult to cope with.</b> The recent reforms make it evident that the number of people living below the poverty line or without basic education is strongly related to the GDP per capita. <b>So the cost of the delay in the opening up of India till 1991 has to be measured in terms of the hundreds of millions of people left below the poverty line, an equal number left without access to healthcare and around half a billion deprived of primary education.</b>
No book on the Indian economy can be complete without the author having a crack at poverty and inequality. Panagariya is no exception. The topic is highly contentious since official sample surveys, which form the empirical basis of the debate, changed definitions of poverty a number of times. As such, there is no continuous series of study on which everyone can agree. Panagariya has done a commendable job in painstakingly describing the subtle changes in the definitions of poverty, thus bringing about some order in this field.
<b>He argues convincingly that policy focus on equality often weakens the fight against poverty.</b> This is what has happened in the case of India. The current debate of using foreign exchange reserves to fund infrastructure investments is discussed and policy directions suggested. <b>Not surprisingly, Panagariya relates poor industrial progress to restrictive labour laws dissuading the organized sector from entering labour-intensive industries.</b> The ways of providing basic health facilities, education, water and sanitation to the people living in remote areas are dealt with in detail and pragmatic solutions offered. The subject of tax reforms, with necessary subsidies to the poor, and the methods of their implementation are also addressed. <b>Panagariya laments the mistake committed by a poor country like India in ignoring the importance of international trade.</b>
Although the book deals with a period ending in 2006, one wonders whether Panagariya could have introduced another phase with a growth rate of 8 per cent. He could have suggested the ways of using the additional revenue. And what would have been his prescription for tackling the present situation of high growth coupled with high inflation? A follow-up is eagerly awaited.
SATRUJIT BANERJEE
<!--QuoteEnd--><!--QuoteEEnd-->