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India: The Emerging Giant

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This book is a must read for anybody wishing to dig deeper into India's recent impressive economic performance and undeniable presence in the world. It offers an outstanding analysis of post independent India's growth experience in the form of four distinct phases--relating it meticulously to the content and pace of economic reforms--and convincingly addresses key issues such as why did growth stall in post independent India, and why it took off again, how the process was affected by the country's complex political process, and where are the promises and challenges for the future. It also provides a very thorough account of the role of government in the macro and structural reform process. Finally, it raises several timely questions in light of the recent economic and financial strains confronting the world economy: is the government's fiscal policy sustainable or would it result in runaway inflation and/or economic crises? How urgent is the need for fiscal consolidation? What is the state of the financial system and does it need to be fixed? What are the risks of a balance of payments crisis--akin to that experienced in the early 1990s?

Notwithstanding its very comprehensive analysis, the book reaches out to a wide spectrum of readers--its careful data analysis with a rich dose of charts and tables will definitely appeal the thorough academician who expects statements to be backed by adequate statistics; at the same time, the issues are close to the heart of any pragmatic policymaker, not just in India but in other emerging market economy. While this is not the only book on India I have read, it is among the very few that I will keep going back to for the timeless nature of its analysis.

Among all the books on India written by economists (recently there have been quite a few) this book has perhaps received the most favorable press. Reading this book one can easily discover the factors determining this disposition of the media. The book is a detailed work that does the delicate job of arriving at measured and researched judgments on India strikingly well. In effect the book dismisses the thick line distinction between optimists and pessimists on India's economic prospects. Arriving at measured judgments on India's prospects that are neither overtly pessimistic nor overtly optimistic required an in depth study of India's economic history in the post independence period. Seemingly straightforward this work had not been done. The reason is that to implement such a work required not one but several economists with their different specializations and also the expertise of social scientists from several other disciplines to handle the social and political complexity of India. Alternatively an individual author had to take upon himself/herself the extremely difficult task of wearing these different hats and more importantly in a way that the hats conformed to each other. This could be difficult but not impossible as the book demonstrates (by virtue of being written by a single author). In fact this is the essence of the book's thesis statement about India: difficult but not impossible.
The book does a great job of compiling several important facts about India's economic performance. The most exciting aspects of the book come where it debunks several of the orthodoxies that fail to stand the test of hard numbers. An earlier book Freakanomics by Steven Levitt demonstrated the power of hard numbers. Those hard numbers led to determination of causality between events/issues that casual observation would never detect or guess, for example between abortion laws and reduction in crime. The hard numbers in this book do not discover new causality as much as they demolish some prevalent myths which are either not based on numbers or ex post can be thought of to be based on "soft" numbers. Thus, issues like when did poverty decline in India and what determined the changes in poverty levels have been challenged with some real hard numbers. Poverty, an issue of great economic and political importance in India has attracted several data engineers and data reverse engineers. The book presents numbers coupled with an easy and exciting tutorial on how to read the numbers correctly that is likely to cause some unemployment among these resources. At the same time, the critical analysis of numbers in the book is likely to generate new employment for social scientists.
Generations of social scientists working on India for example have thought of Nehru (India's first prime minister) as the ultimate Fabian socialist who aspired for total government control and suppressed private enterprise. It is a different matter that no one sat down to check what the numbers could say on this. The book rigorously demonstrates that perceptions on this have been so far from truth. For those working on India's economic history, the book thus offers new employment indeed.
This book is in fact a natural sequel to the epic "Economic History of India" by Dharma Kumar. If Economic History of India is the right book for the pre-independence India, this book is the right one for post independence India. The tenor of the book is definitely different written by stalwarts in different disciplines, the former by an economic historian and the latter by a trade economist. That these two books could combine in a seamless fashion exemplifies that rigorous research by masters always produces masterpieces independent of time.

This book is a comprehensive and in-depth study of the Indian Economy, its journey since India's independence in 1947 till 2006.

There is no doubt that India is now a rapidly growing economy, even under challenging and grim global economic scenario, and is considered to a be strong contender of the global economic pie in the twenty first century.

It is often said that India got independence twice - Political freedom in 1947 from the British Raj and Economic Freedom in 1991 from "License Raj".

Prof Panagaria documents and analyses the economic policy, principles, thought, directions, outcomes and his own views during the six decades of India's economic evolution.

The "Four Phases" and growth rates: 1. Take off under a liberal regime (1951-65 @ 4.1%) 2. Socialism strikes with a vengeance (1965-81 @ 3.2 %) 3. Liberalization under Stealth (1981-88 @ 4.8 %) 4. Triumph of liberalization (1988-2006 at 6.3 %), is the most logical segregation of the six decades of very distinct policy regimes of the times.

One chapter devoted to each of the above phases helps us understand the forces and factors that dictated the political and policy directions, based on domestic and international developments and compulsions.

Till the late 1980's the fundamental thought in Indian economic policy was based on a bias towards establishing a "socialistic" pattern of society, where the government played the predominant role in determining the allocation of "scarce" recourses. The public sector played a key role in most industries, and the Industrial Licensing policy coupled with powerful laws like Monopolies and Restrictive Trade Polices Act, Foreign Exchange Regulations Act, not only isolated India in global trade and investments from the rest of the world but also converted the whole economy into an autarky that crippled its soul.

In contrast, South Korea with a comparable per capita GDP as India's in 1960's adopted outward oriented and market friendly policies that propelled its economic growth and prosperity. The chapter "A tale of two countries" is an excellent read.

Since 1991, enabled by the massive liberalization of the economy that unleashed market forces and attracted foreign investments and technology, India's outward orientation has made a quantum jump to over 43 % as compared to just 8 % in the late 70's.

Despite excellent growth rates, especially in the last decade, India faces the twin challenges of equitable growth and poverty alleviation.

Prof Panagaria has devoted a chapter each to "Declining Poverty" and "Inequality" to discuss the two key topics that are often at the top on the manifestos of most political parties, at least during election campaigns.

Prof Panagaria advocates direct transfer of funds to people below the poverty line (BPL) instead of resorting to subsidies that result in corruption and leakage. Subsidies are not only regressive, but are distortionary argues the author. This policy prescription cuts across all sectors. Given the lack of connectivity and poor reach of the banking system in remote areas, I personally doubt the feasibility of such transfers.

A chapter each to discuss key sectors - Finance, Agriculture, Industry, Education, Health care, Manufacturing, Tax Reform. Telecom and Electricity to name some, the depth of coverage, references, analysis and concluding remarks are splendid.

An excellent reference material, I would recommend this as essential reading to students, business managers, bureaucrats and politicians who will shape the economic destiny and prosperity of the world's largest democracy in the Twenty First Century.

Arvind Panagariya's "India: The Emerging Giant" is hands-down the most comprehensive and detailed study of post-independence Indian political economy written to date. There have been a number of excellent books on India written by economists on the post-reform period (A few notable examples: Suresh Tendulkar and T.A. Bhavani's "Understanding Reforms: Post-1991 India" (2007); T.N. Srinivasan and Suresh Tendulkar's "Reintigrating India into the World Economy" (2003); and Jean Dreze and Amartya Sen's "India: Development and Participation" (2002)). While each of the works just mentioned is insightful and detailed - respectively focusing on domestic political economy, international integration, and human development impacts - Panagariya's work successfully incorporates the insight and debates of fifty years of scholarship on India is a comprehensive, careful, balanced, and detailed manner. While I do take issue with a few nuances of Panagariya's conclusions, I cannot deny that they are well-founded and impeccably supported.

The broad outline of the work is as follows. The first hundred pages provide an overview of the political economy of four phases in Indian economic policy - from the relatively mild control and heavy investment under Nehru, through industrial strangulation under Mrs. Gandhi, the piecemeal but sustained deregulation of the 1980s, and finally the phase-shift in Indian economic regulation that began with the 1991 crisis. The remaining 350 pages provide incisive and thorough analysis of the post-reform period - including policy proposals on everything from trade and finance, to agriculture, to health and education reform.

I am currently polishing off my Master's thesis on Indian development, and this book is a stunner. I wish I had it as a source when I began writing - it is nothing short of epic. It is hands-down the best book on the Indian economy since Bhagwati and Desai's 1970 masterpiece "India: Planning for Industrialization." Highly recommended for students of India.

If all economists were laid end to end, they would not reach a conclusion."
- George Bernard Shaw .

Arvind Panagariya is a distinguished trade economist, professor at the Columbia University, a protoge of Dr Jagdish Bhagwati, and a good communicator who through his newspaper columns has placed economic issues in their social and political contexts and made them explicable to the lay reader.

This book draws on this experience. It is a comprehensive history of the Indian economy from the time of the First Five-Year Plan of 1951. It is not limited to examining selected aspects of the economy but considers the relationship between different aspects. Indian economists, like Indian policy-makers, have tended to look at specific issues and neglected the interactions between different sectors and issues. Panagariya constantly relates policies to political leaderships, economic concepts to practice, analyses a vast amount of data to support his conclusions, looks closely at the infrastructure, social sectors and not merely at poverty levels, industrial policies, agriculture, taxation, and public finance.

Dr Panagariya's analyzes ongoing debates (example use of foreign exchange reserves to fund infrastructure investments) and suggests practical policy directions for every issue that he discusses. For example, he relates poor industrial progress to restrictive labour laws dissuading the organised sector from entering labour intensive industries. He discusses in detail the many infirmities in providing health, education, water and sanitation to the majority of people. He analyses required tax reforms, necessary subsidies to the poor and how they can be given efficiently, the mistake of ignoring the critical importance of international trade for a poor country, the infrastructure and how recent reforms have worked, while attributing poor implementation to hidebound procedures and the infirmities of the civil service set-up.

Dr Panagariya shows convincingly that policy focus on equality often harms the fight against poverty. The present government has achieved less reform than the earlier NDA coalition, principally because of opposition from the Left. He also refutes the pleas for full convertibility of the rupee and supports the gradual relaxations that India has followed.

The book divides the years since 1951 into four growth phases: 1951-65 at 4.1 per cent, 1965-81 at 3.2 per cent, 1981-88 at 4.8 per cent, and from 1988 to 2006 at 6.3 per cent. The restrictive period under Indira Gandhi's rule with her 10-point programme held the economy back and kept poverty levels high. They have dropped sharply since 1991. He demonstrates that growth in the Rajiv Gandhi years was at the cost of weakening the macroeconomic condition and that the years since 1988, especially 1992, show more sustainable growth. He considers a macroeconomic crisis (like in pre-1991) unlikely in the near future because of the gradual reduction of the fiscal deficit, more openness to trade, foreign exchange reserves, and removal of restrictions on industry.

Dr Panagariaya seems to accept government claims on reducing fiscal deficits, though government figures do not provide for the large and growing Rupee bonds for supporting the oil and FCI subsidies, which are not counted in the fiscal deficit. He recognises the stimulating role of large public expenditures when there is growth and finds a close relationship between trade openness, growth and poverty alleviation.

Dr Panagariya blames the complex labour laws for the dependence on agriculture and the huge informal sector for employment. Powerful labour inspectors, provision of facilities on premises, safety provisions, overtime, Provident Fund, health insurance, limited rights to reassign or fire workers, lack of speedy resolution of industrial disputes, and absence of option for firms to exit at reasonable cost (because of antique bankruptcy laws) have disproportionately strengthened the hand of the unions in the organised sector and made wages in the private formal sector 1.8 times those in the private informal sector. This has raised wage costs in unskilled labour intensive industry as against the capital intensive industries, and has held back India's growth of labour intensive industries unlike in China, Bangladesh and Sri Lanka.

This is among the best books and certainly the most comprehensive study of the Indian economy since Independence. It is easy to read despite the immense erudition that the author has brought to bear on the different issues. One thinks of such books as Jagdish Bhagwati and Padma Desai's 1970 book (Planning for Industrialization) which was an early critique of planning or Pranab Bardhan's 1984 book (The Political Economy of Development in India) which examined class dynamics in India as exemplars. Except for the fiscal deficit calculations, the influence of the Left in tempering economic with social reforms, and the neglect of the consumer goods industries and their influence on growth, there is nothing one can find to criticise in this book. It is a valuable addition to the libraries of people interested in understanding the past, present and future of the Indian economy.