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An Account of India’s Growth

Taking off After spurts of growth, India is now on the verge of a real economic take-off
Photo by AFP

On the heels of the economic rise of the People’s Republic of China (PRC) comes that of India. India has caught up with the pace and scale of the economic growth that has characterized the PRC for more than a decade. India’s resurgence has renewed a thirst for a more analytical understanding of this country that has weathered bouts of stagnation and spurts of growth and is now on the verge of a real economic take-off.

There are of course many treatises on India along several disciplines and study areas including economic analysis. Yet there is a clear lack of a panoramic picture that covers the country’s economic growth, especially in the postwar period. No comprehensive systemic economic work on India has been done beyond the mid-1990s.

Arvind Panagariya’s India: The Emerging Giant fills this void—no doubt the definitive work on India for some time to come. The 500-plus-page book is a comprehensive account of India’s economy since the early 1950s (and in certain parts even earlier) until 2007. Although not all may agree with Panagariya’s typology of India’s economic growth (which he divides into four phases), he takes a cumulative and consistent perspective, identifying important points of structural change during the periods and relating them to economic policies that were either adopted or abandoned. He carefully evaluates alternative views and criticisms and manages to deliver the message that the book’s phasing of growth is more realistic.

Indeed the author goes further by saying that India is entering Phase V (the lead argument being that in US dollar terms India’s GDP grew by 59% in the 3 years since 2002–2003 with a parting shot of an unlikely massive depreciation). Part I (Growth and Economic Reforms) of the book sets the stage for looking at India’s economy in more detail, its consequences in terms of poverty and inequality (Part II), the dimensions of the macroeconomy of the country (Part III), the components that reflect and induce a transformation of the country (Part IV), and the evolution and structure of the government (Part V).

Evidence of Pending Poverty

The chapters in Part II on the impact of growth on poverty and inequality provide unassailable evidence of significant declines in poverty, especially after Phases III and IV of Panagariya’s typology. Although quite technical in discussion (e.g., sampling design, defining indices), the numbers are there—the absolute numbers of the poor have declined, social and human indicators have improved, and inequality has either remained the same or increased (depending on methodology) by 10–12% after Phase IV (1988–2006).

What seems to be limiting growth from having a bigger impact is manufacturing’s inability to generate substantial employment. Panagariya notes this as unique to India and goes on to suggest the promotion of industry and services—i.e., “walking on two legs” (recalling the PRC’s own use of the phrase to mean two systems). What is happening in India is actually not unique, as many other developing countries suffer from “jobless growth.” What is not clear is how to overcome this potentially limiting constraint to poverty reduction—the chapter discusses labor market rigidities, institutional barriers, and infrastructure constraints. However, given that trade in labor-intensive products is getting to be more component-based, network-firm related, and horizontally integrated, trade policy itself may offer an additional remedy, e.g., foreign investments, networking of Indian entrepreneurs with global manufacturers, and trade facilitation.

This book should be on the shelf of serious India scholars—a ready reference to more than 50 years of India’s economic growth that draws on many other works and succeeds in consolidating varied sources of data and analysis. To others, the importance of the book lies in lessons and clues it can impart for other development scholars and policy makers.

State-Level Politics

Has India finally graduated from being Gunnar Myrdal’s “soft state” (a 1968 framework that Panagariya may not have found relevant)? How can a country evolve a common development ethos and vision within the cumulatively increasing economic growth that Panagariya says India is now experiencing? How does national consolidation take place or a “determined government” emerge?

Panagariya discusses the political economy of India and partly concludes that state-level politics are critical to election outcomes (which are unfortunately not covered in the book). Do intellectual ideas play a role in this evolution? Panagariya describes the shifting views of I. G. Patel as foremost economic adviser to many governments (much like Albert Winsemius in Singapore)—how pervasive and influential are these views? How debilitating have policy reversals been to India’s growth phases? There are some accounts of these in the book, and to other countries contemplating economic reforms, it would be instructive how these play out in achieving real take-off. •