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BOOK REVIEW-THE HINDU Indias Turn by Arvind Subramanian O!

"#rd Univ$rsi%y &r$ss &a'$s ()* Rs +,+ After the Economist wrote about the books on Indias economy by two Arvinds, Panagariya and Subramanian-which were both pub ished by !"ford in #$$%, &aving reviewed the first, I waited for this one, but am disappointed' (he first was a comprehensive and searching e"amination of Indias economic growth since )*+)' (he second is a patchwork of papers, many fu y or partia y co-authored, written between )**# and #$$,' (he best -hapter is the Introduction' It argues that India was the crucib e for three fundamenta economic e"periments' .irst, high y heterogeneous societies opted for universa adu t franchise for maintaining unity and achieve rapid growth, to ift mi ions out of poverty' It achieved unity' .or three decades it did not generate economic wea th for the average person' /n ike -hina, few died of famine' 0ut iving conditions did not improve much, and growth was poor' Second, preference for state over the market for de ivering economic deve opment ed to a huge pub ic sector, thrott ing foreign trade and to centra contro over a economic activity' It was after the state withdrew from such centra i1ed contro that growth and deve opment took off' (hird, guarantees to historica y disadvantaged groups through massive affirmation programmes in education and pub ic sector emp oyment did not he p them' Socia investment provided many opportunities for advantaged groups, and perpetuated une2ua deve opment' Economic growth rate changed in the )*%$s and has been more stab e than in South East Asia because it was ess dependent on vagaries of foreign capita and was fue ed for #+ years predominant y by productivity growth' (he recent tensions between monetary po icy, e"change rates and foreign capita have eft the 30I to meet two di emmas4 containing inf ation and maintaining currency competitiveness, with on y monetary po icy as instrument' &e makes the case for a more cautious attitude towards opening up to foreign inf ows because of the e"change rate conse2uences' &e does not mention the government encouragement of anonymous foreign inf ows into financia markets, stimu ated by e"emption from short term capita gains ta" that have made the Indian stock markets into a casino for specu ators' &e attributes growth since the mid-)*%$s to manufacturing, resu ting from a new probusiness orientation of government po icies' 5rs' Indira 6andhi was responding po itica y to the 7anata cha enge by becoming ess secu ar and popu ist and more communa and private sector oriented' 5anufacturings key ro e in growth is evidenced by noting that it was the states with the argest manufacturing base that took off' Probusiness po icies natura y benefited the forma 8organi1ed9 sector' .rom the ear y )*%$s the organi1ed and incumbent private sector was un eashed' (he po icies enab ed incumbents to operate more free y' It did not promote competition by faci itating new entrants' A hurd e to future growth cou d be the continuing emphasis on capita intensive than abour intensive manufacturing, eading to rising wages for ski ed abour' .ast growing states are specia i1ing in ski based manufacturing 8petrochemica s, pharmaceutica s9 and

services 8I'(', finance, te ecom9' (he market for ski ed abour is scorching' It is in short supp y because of fau ts in the education system' &e emphasi1es the ro e of institutions in growth and cautions that e"cept for the E ection -ommission they are severe y stressed, weakening and acking accountabi ity' &e is convincing in arguing that ,: growth is assured because of ; factors' Productivity in Indian manufacturing has contributed <$: to overa growth and wi continue because of further reforms' =ith abour force growing faster than popu ation, domestic savings rate wi grow by )# to )+:' Institutions wi improve because of a sharp rise in transparency, a vibrant y assertive civi society and ibera i1ation which wi keep reducing the opportunities for corruption and patronage' &e does not mention steps to improve them' (here are ; chapters on Indias g oba i1ation' &e is in favour of regiona and bi atera trade arrangements' &e argues for (3IPS, 8a sett ed issue9, because it wi stimu ate 3 > ?' &e appears to argue that India has not factored in the conse2uences on e"change rate and growth, of capita account convertibi ity' It is not c ear whether he wants India to move in that direction' (he book devotes scant attention to the socia features of growth in India' It mentions rising ine2ua ities but with no ana ysis' It does not say what kind of growth is ike y in a country with so many poor when the @rea A economy of agricu ture and manufacturing contribute so itt e to the 6?P' &e devotes no attention to agricu ture on which such a arge part of the popu ation depends, and its dec ining productivity' &e is sanguine that institutions wi not pose a bott eneck to growth' &e ignores the dec ining 2ua ity of Indian pub ic administration and its incapacity to de iver the services on which government spends vast sums of money' &e e"pects Indian growth to be uni2ue but does not demonstrate how it can be sustained and what it wi do for the maBority of the peop e' 8%$C9