The broader story of reforms

The recently announced first-quarter growth numbers for this fiscal have raised hopes that for the second consecutive year, the Indian economy may witness 8 per cent plus growth. Although growth has been on a higher trajectory since 2003-04, it is a bit too early to say whether the Indian economy has graduated from around 6 per cent growth to a new phase of sustained 8 per cent plus growth. However, there is a widespread belief that the earlier shift in the growth pattern occurred immediately after economic liberalisation, whereby the Indian economy graduated from an average 3.5 per cent ("Hindu rate of growth") to a more respectable 6 per cent phase. This, however, is not true, asserts Arvind Virmani in his new book. Contrary to the popular belief that 1991-92 was the turning point, he demonstrates that this transformation actually came about in 1980-81.

This two-volume book, Propelling India From Socialist Stagnation to Global Power, an outcome of three years of research at ICRIER, New Delhi, is an interesting read on a wide range of issues that are both topical and relevant from the point of view of enriching one's understanding of the Indian economy. While the first volume deals with the growth processes, the second discusses policy issues. The best part of the book is that it deals with the India of today, tomorrow as also yesterday, quite comprehensively.

The initial three chapters of the first volume trace the growth performance of the economy since the 1950s, and try to link it to the economic policy regime. According to Virmani, it is the market reforms which started in 1980 that have been the key to the growth acceleration. He further asserts that an accelerated reform process could catapult the economy into a sustained growth phase of 7-7.5 per cent. He also projects India as a global economic power 30-40 years hence, with its economic integration with other Asian countries playing a crucial role in this regard. A chapter in this volume is also devoted to economic growth and voting behaviour. Based on available data, the author provides an interesting explanation of the 2004 election results: no prizes, though, for guessing the conclusion.

The second volume analyses the economic reforms of the early 1990s and draws lessons for the future. It covers governance issues and institutional reforms, the BoP crisis, food and agricultural policy, indirect tax reform and savings and monetary policy. On the Balance of Payments crisis of 1990-91, he argues that though neither a rising trade deficit nor a fixed exchange caused the crisis, faster rupee depreciation could have staved it off. Further, of the various measures taken, Virmani considers external sector reforms the most successful.

So far as bridging the gap between empirical research and its use for policy formulation is concerned, the book is a welcome addition to the existing knowledge pool. The way it has been written and the issues analysed (using econometric techniques), it is obvious that it is primarily meant for economists. However, policymaking has other stakeholders as well. Sadly, they may not be able to take advantage of this scholarly work. Also, while the book discusses the upside of reforms, it is silent about the contentious issues that it has thrown up.

PROPELLING INDIA FROM SOCIALIST STAGNATION TO GLOBAL POWER (VOLUMES 1 & 2)

Arvind Virmani
Academic Foundation
Volume 1: Pages 372, Price 795
Volume 2: Pages 436, Price 895