One-sided view of growth

Prof. Arvind Panagariya is a prolific writer on the Indian growth scenario. He holds the Prof. Jagdish Bhagwati Chair at Columbia University in the US, and like his mentor Prof. Bhagwati, he subscribes to the neoclassical model of trade and growth. While Bhagwati has devoted his life to the propagation of virtues of free trade both in theory and action, Panagariya has widened his horizon to cover not only trade but also the political economy of growth and development.

The central theme of Panagariya's latest book is that, but for the Nehruvian false start, India would have by now become a much more prosperous and developed economy. To be fair, he does trace the evolution of the Indian economy since independence and gives credit wherever due, albeit grudgingly, to both Nehru and Indira Gandhi. Notwithstanding the slow and often misdirected start, he believes that the liberalisation of the Indian economy "" partial since the 1980s and full since 1991 "" has now put India on track for emerging as an economic giant in the world.

The book is essentially a political economy analysis of post-independence development. It covers practically all aspects ranging from agriculture to industry, services, health, education, transport and infrastructure. He has also devoted a chapter to compare and contrast the economic transition between India and South Korea. This is a bit curious given the fact that all political economy analysis compares India with China. Contrary to the general scepticism about the political will for economic reforms, Panagariya believes that a determined government, no matter what kind of coalition and how thin its majority is in Parliament, can push forward its economic agenda despite all opposition and vested interests. He traces the history of all major important pieces of economic legislation from Nehru to the present government, and shows examples of how a politically weak government pushed a major economic agenda like the nationalisation of commercial banks by Indira Gandhi or privatisation and opening up of the economy by Narasimha Rao and Manmohan Singh. In this respect Panagariya is far more optimistic about economic reforms in India than many other reformers who treat politics and politicians as obstacles to economic reforms in India. The crucial thing he believes is convincing key politicians about the rationale for economic reforms.

Throughout the analysis he strongly pushes the neo-classical model of growth. He belittles the slowdown of employment growth in the post-reforms period. He also dismisses the arguments of rising inequities in India and seems to believe in the pure neoclassical model of trickledown theory. He also shows less concern about stagnation in agriculture. However, he is probably right in insisting that the solution to farming may have to be found outside the farm sector.

There are, however, exceptions: Like Bhagwati he cautions on the full capital account convertibility. He argues, and rightly so, that India has already liberalised the capital account sufficiently and the expected benefits of further capital account liberalisations such as permitting domestic residents to take the capital out of the country, are substantially outweighed by risks associated with it. He, however, cautions that although the macro economic crisis in near future may be unlikely, external debt could still be a problem in the coming years. He advocates generalised rather than preferential trade agreement. This means that India should stick to the WTO regime, rather than encourage regional trade blocs or bilateral trade. He also argues that the time has come for a flat rate for both direct and indirect taxes. On infrastructure, he advocates more and more participation by the private sector. He insists that elementary and higher education can be provided more efficiently by the private sector than the public sector. He also raises some questions about the motivation on our regulatory authorities. He cites examples to show that while telecom deregulation could be completed at a faster phase, electricity deregulation has remained in the preliminary stages.

This book thus provides a pure neo-classical recipe for faster growth through liberalisation and globalisation. But his lack of concern for equity and his naïve belief that reform could be sustained in the midst of growing disparities "" regional, sectoral and personal "" is highly questionable. He also ignores the fact that the foundation of India's knowledge economy was laid by Nehru. The post-reform globalisation has reaped the maximum benefit of the Nehruvian foundation of industrialisation and knowledge economy.

The author is vice-chancellor, Jawaharlal Nehru University

INDIA
THE EMERGING GIANT

Arvind Panagariya
Oxford University Press
Pages: xxx+502; $39.95