India's growth story: A question of answers

Raghuram Rajan and Rohit Lamba advocate a new growth path for India, rejecting the China model and promoting a strategy anchored in human capital development, and a robust political economy

Breaking the Mould – Reimagining India’s Economic Future 

Authors: Raghuram G Rajan & Rohit Lamba

Publisher: Penguin

Pages: 298+XXXII

Price: Rs 799
 

The authors of Breaking the Mould are teachers by profession, though they have spent some years as economists or economic advisors to institutions and governments. As we know, Raghuram G Rajan has been at the helm of the Reserve Bank of India and earned international praise for the manner in which he discharged his responsibilities as a central banker. But this book under review is incontrovertible evidence, if it were needed, that both authors are teachers at heart.

Breaking the Mould is a classic example of how catechism, used to great effect by teachers, can also be an excellent tool for authors to lay out a complex web of issues concerning how India’s growth story should be crafted to achieve the best results for all stakeholders in India’s economy and, more importantly, its polity. Many of the 13 chapters here begin with a set of gripping and thought-provoking questions.

The authors provide different sets of answers to these questions — answers that they broadly segment into two categories. One set is championed by critics of the current India growth story and the other is trumpeted by its cheerleaders. The authors also make clear their disagreement with the cheerleaders’ views and argue that if the critics’ vision of a new India growth story has to be fulfilled, a new strategy must be evolved. Once this context is set, the authors delve into the finer aspects of the issues at stake and outline their thesis on how India should chart its growth path.

Such a structure makes the book eminently readable. What also helps — surprisingly — is that the authors have avoided relying on complex graphics and intricate econometric models or formulae. Of course, there are numbers that they use to substantiate their viewpoints. But it is refreshing to experience two hard-core economics teachers relying completely on an easy narrative, using stories of individuals and enterprises, to explain how India should create a new development mould and reimagine its future.

The central premise of this book is that the model of economic development that China embraced for its rapid growth is not appropriate for India. The advantage that China had is no longer an advantage for India partly because there is more competition for low-wage manufacturing jobs and partly because that path is no longer appropriate for it. The authors believe that the panacea for India is to build on its strengths in services, particularly manufacturing-led services.

That does not mean that India should ignore the manufacturing sector, but the objective should be to build on the manufacturing base to refine its capabilities to deliver sophisticated and knowledge-based services. That, the authors argue, would require India to invest adequately and smartly in building its educational institutions to produce world-class professionals who could make the country a global hub for value-added services.

Notably, the authors do not want India to be “faux China” because there are plenty of them already. What India needs to strive to become is a country that thrives on its diversity and its society’s ability to question established beliefs. The author’s call for making India “an argumentative society, at harmony with its energetic chaos” is reminiscent of Amartya Sen’s belief in arguments as a core strength and glue for India as a nation.

Where the authors take Dr Sen’s idea forward is by asserting that India’s democracy should not be a weakness and its growth path should build on the capabilities of all Indians, relying on tolerance as a creed. It is here that Breaking the Mould  ceases to be just a treatise on an alternative economic growth model and becomes a comprehensive analysis that suggests a deep connection between economic growth and an inclusive society nurtured by non-divisive politics.

Neatly structured, the book has three sections. The first one examines how human capital has become the most critical contributor to growth in agriculture, manufacturing and services. In particular, sectors such as education, health care and finance have the greatest potential for creating more jobs for India in different segments, including in areas catering to delivery of high-skilled services. But realising that potential will require reforms to strengthen governance, improve human capital formation and create an environment for innovation.

The second section argues that Indians need to be trained to become job creators, instead of remaining job seekers. And this goal can be achieved by making India more open and connected with the world through liberal policies on technology, in particular.

In the third and final section, the authors make an important transition by showing how the country’s political economy needs to play a vital role in making a success of a growth model based on high-value-added services. Such a political system should retain India’s current advantage over authoritarian countries such as China and Vietnam by continuing to nurture liberal democracy, pluralism, free speech, independent institutions and a vibrant civil society.

This section is the shortest and outlines a strategy that seems to be the most ambitious. What makes it the most interesting part of the book is the manner in which the authors have tried to present their case. Borrowing from a structure that Mahatma Gandhi used in Hind Swaraj  (where Gandhi would outline his vision and thoughts through an imaginary conversation between himself, the editor, and a reader), the two professors of economics play the editor’s role and respond to questions with answers that succinctly sum up the book’s core ideas. Catechism is once again at play and to great effect.