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agdish Bhagwati and Arvind Panagariya have written extensively on the economics of India in recent decades. Yet they have written this book because, according to them, at this stage of political and economic development in India there is a need to have a comprehensive look at the accomplishments and failures of the economy. There is also a need “to refute unwarranted and unsupported populist myths prevailing about the economy”, and to understand and address the next set of challenges so as to move ahead with faster and more inclusive growth. The authors observe that the Nehruvian economic policies in the early days of planning in the 1950s followed the goals mentioned in Jawaharlal Nehru’s famous “Tryst with Destiny” speech. However, since the mid-1960s, under the leadership of Indira Gandhi, Indian policymakers shifted to socialism without any real convictions and created an environment of controls and populist poverty alleviation programmes, which neither delivered growth nor poverty reduction. Since the mid-1980s and particularly after 1991 the Indian economy has taken a turn for the better. The past two decades of reforms have raised growth and contributed to poverty reduction. There is a temporary decline and a kind of policy paralysis at present; however, there is a need to move ahead with the reforms to achieve faster and inclusive growth. To move to the right path there is a need to refute some unfounded myths, which are basically about the economic policies in India till the mid-1960s. There are also misconceptions regarding the achievements of economic reforms, mainly in terms of poverty reduction, improvements in health and education, the prevailing inequalities in the economy, the conditionality
India’s Tryst with Destiny: Debunking Myths that Undermine Progress and Addressing New Challenges by Jagdish Bhagwati and Arvind Panagariya (Noida: HarperCollins India), 2012; pp 285, Rs 599.
imposed on India by the International Monetary Fund-World Bank (IMF-WB); and linking corruption, suicides, and the like to reforms. Part 1 of the book is devoted to refuting these myths. No ‘Gilded Age’ The authors believe that the reforms have raised the rate of growth in the economy; reduced the incidence of poverty signiﬁcantly, also of the scheduled castes (SCs), scheduled tribes (STs) and Other Backward Classes (OBCs); and have opened up the economy for the better. The reforms have not led to higher inequalities, in the sense that though better-off states have done better, the other states are also now picking up; and there is no clear conclusive evidence regarding rising inequalities within the states. The authors believe that India has deﬁnitely not reached the “Gilded Age” of the 19th century United States in the sense that there is no crony capitalism in India; Indian tycoons cannot crush labour/ strikes, as Indian democracy has given votes to labour; pro-poor programmes are implemented on a large scale; there are competitive markets; and corporate social responsibility (CSR)/personal social responsibility (PSR) in India will not permit the extreme conditions of a Gilded Age. In health and education, they argue that since India started from low levels, one should see only the changes, and these changes show that India is not an underachiever. The malnutrition in India is exaggerated in the data. And ﬁnally,
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the authors debunk two more myths: (1) about the success of Kerala model and (2) about poor achievements in health and education in Gujarat despite its high economic growth. One would agree with some of the views expressed in Part 1 of the book – there was deﬁnitely a need to move away from the “licence Raj”. Also, the economic reforms have helped raise the rate of growth in the economy; have reduced the incidence of poverty faster (though the SCs, STs and OBCs are still getting marginalised); and some (though small) improvements have been made in health and education. However, the agreement ends here. This is, ﬁrst, because these achievements are far from adequate for two decades of reforms and this raises a question about the validity of the growth model in terms of achievement of development goals; and, second, because the debunking of the myths by the authors does not seem to have adequate empirical support. In spite of the reforms, poverty levels are high,1 the achievements in human development are poor,2 the increase in employment and the quality of employment is far from satisfactory, and inequalities in incomes are rising3 (Shukla 2011). Praise for Gujarat Also, there is no adequate empirical support to say that India does not have crony capitalism and that power of labour and democratic forces protect the interests of labour and the poor. Take the example of Gujarat (its growth model is praised sky high by the authors). There is enough evidence to show that the state government has gone overboard in providing incentives and subsidies to corporate investments (Hirway, Shah and Sharma 2013). For example, sales tax subsidies to medium and large industries during 1999-2000 and 2006-07 constituted 72% of the total sales tax revenue of the state government and the total subsidies (including capital subsidy and interest subsidy) have been more than 10 times the total subsidies given by the state to agriculture and allied activities and to food and civil supply (ibid). In other words, the state spent 10 times more to
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attract investments in industry and infrastructure than to help the poor in agriculture and allied activities and food subsidies (ibid). To say that the voices and votes of labour will enable them to protect their interests is surprising when trade unions are declining and labour is fast losing its power under the process of informalisation. The trust that the authors show in CSR /PSR is amazing when the funds spent under them are negligible. And the faith in competitive markets does not have any empirical support when crony capitalism is thriving in the country. We believe that being away from India the authors are perhaps not aware of the ground realities. Gujarat Model Shortcomings Finally, about the Gujarat model. Its achievements in health and education despite its high economic growth are far from satisfactory. With a high dropout rate in schools, deteriorating quality of primary education in the last decade, and declining rank in literacy from four in 2001 to nine in 2011 among the 20 major states, the performance of Gujarat in education is anything but respectable. Again, with slow decline (slower than most states) in infant and maternal mortality rates, as well as slow progress in immunisation of children, poor availability of potable drinking water and safe sanitation4 (Census of Population 2011), the performance in health is deﬁnitely much less than respectable. The latest data from the Reserve Bank of India (RBI) support this, with per capita expenditure on health, education, and social sectors in the last decade one of the lowest in the state, and the state’s rank declining to the bottom among the major 20 states. The expenditure on incentives to corporates has clearly left much less money for the social sector. There is no doubt that Gujarat has achieved a high growth rate, above 10% per year, in the period of economic reforms, particularly in the last decade. Even agriculture has grown at a much higher rate (6%) per year against 2-3% in India. However, this growth has serious problems. To start with, in spite of diversiﬁcation of the sources of state domestic
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product (SDP), there has been no signiﬁcant structural change in employment. Though the primary sector contributes 14% to the SDP, it houses 55% of the population. This indicates highly capitalintensive growth in the non-primary sectors that has failed to create employment opportunities for a structural shift. Since the ofﬁcially committed goal of industrial development in the state is to be “the fastest growing state in the world”,5 the growth has created a dualism in the economy, with a small modern sector enjoying the lion’s share of growth and the remaining sectors lagging in technology, productivity, and incomes. An important exclusion from the discussion on the Gujarat model as well as from the policy framework supported by the authors is of natural resources or natural capital, which is now recognised as a factor of production and an important component of total capital stock in an economy. The authors neglect the massive depletion and degradation of natural resources, which have affected adversely the livelihoods of people, particularly the marginalised sections in Gujarat. This depletion and degradation in Gujarat in the last decades (Viswanathan and Pathak 2013) is leading the state towards non-sustainable development. Track-1 Reforms Given the much less than satisfactory achievement in developmental goals, the relevant question is whether the economic reforms will lead to signiﬁcant achievements, such as eradication of poverty among all socio-economic groups, educational achievements for all, health for all, productive employment for all, and equitable and sustainable development of the economy. Are the reforms capable of reaching the development goals set out in the tryst with destiny? Or are there any ﬂaws or leakages that will obstruct the achievements? Part 2 of the book argues that if the reforms continue further (that is, Track-1 reforms), they will address these questions effectively. These reforms primarily include reforms in labour laws to promote labour-intensive growth; reforms in labour and land markets; reforms to promote infrastructure for growth; and reforms
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in health and education. One tends to agree with the authors that so far growth of employment has been much lower than what is required and economic growth has been highly capital-intensive and skilled labour-intensive. Labour is concentrated in the primary sector and in the small sector, which is relatively low skilled and inefﬁcient. One cannot agree, however, about the causes for this state of affairs. According to the authors, the root cause is the labour laws in India. Though the government has made many reforms, such as removing licensing, reducing trade protection, opening up to new technology, and removal of reservation of goods/ services for the small sector, it has done almost nothing in labour reforms. There are too many laws, frequently conﬂicting with each other. Even when not implemented well, they are the burden of producers. Several laws such as the Trade Union Act 1926, the Factories Act 1948 and the Acts related to provident fund, gratuity, and other social protection encourage producers to remain small. The worst law is the Industrial Disputes Act 1947, and particularly Chapter V B of the Act, that does not allow ﬂexibility in hiring and ﬁring workers if the units have 100 or more workers. These laws have encouraged producers to remain small on the one hand and use less labour in large units on the other. The authors have suggested amending the Industrial Disputes Act to provide easy labour ﬂexibility and easy exit for ﬁrms. Partial View on Labour We believe that the diagnosis of the problem as well as the solution suggested by the authors is partial. One major reason for large units using capital-intensive technology is that capital is made cheap through large incentives offered to them by governments. Our study on incentives and subsidies to industries in Gujarat (Hirway, Shah and Sharma 2013) shows that the ofﬁcially accepted goal of industrial development in Gujarat is to promote state-of-the-art global technologies (highly capital-intensive) in the state. The rates of incentives and subsidies increase with the size of the units.6 In addition,
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the deﬁnition of capital has expanded considerably for the purpose of giving capital subsidies, and conditions regarding location and employment have been watered down to promote growth of capital-intensive industries.7 According to our analysis of the ofﬁcial data, these incentives add up to 40% of the total public expenditure while incentives to small and medium units constitute a mere 2.27% of the total incentives given to industries (ibid). Though there are high subsidies on capital, land and water, there are no subsidies on labour or on employment. This is nothing but crony capitalism where allocation of resources is determined by incentives and subsidies and not by competitive market forces. A consequence is that small industries, which are labour-intensive, do not get a level playing ﬁeld in the economy. Though one agrees that labour laws need to be streamlined, this should happen only when workers are protected against their vulnerability. It appears to us that the authors have paid attention only to the interests of producers. It is equally important to recommend a minimum package of social security (at least in the thriving export industries to start with) along with a ﬂexible labour market. There is no reference to this aspect at all. Land market reforms are badly needed to facilitate changes in the present land use pattern to help economic growth. However, two points are missing in the discussion: First, land has limited supply but multiple uses. It is necessary for the government to formulate a land use policy keeping in mind the long-term needs of the economy for agriculture, for human settlement, for infrastructure, for industries, and for environmental sustainability. However, in the absence of a well-designed land use policy, land is allotted on the basis of bargaining power and political pressures exerted by different users. Second, in the absence of structural changes in the employment structure, the farming population has limited scope to enter the modern nonprimary sectors. It is not only unfair but also criminal to allow private corporate units to grab farmland from farmers. In short, the land market, which is imperfect and has been distorted further in
recent years, needs reforms to incorporate the above points also. The analysis of the authors shows poor knowledge of the prevailing realities. Making Redistribution More Effective There is no doubt that redistribution has an important role in promoting inclusive growth and reducing poverty. However, it can work only if the growth process is compatible with it. If inclusion is not embedded in the ﬁrst phase through labour-intensive growth process, redistribution will have only a limited role to play later. Under Track-2 reforms, the authors make careful suggestions for raising the effectiveness of redistribution strategy and programmes. They discuss (1) cash transfer vs wage employment strategies, (2) improving adult nutrition and food security, (3) promoting health and education. They recommend cash transfers – mostly unconditional except for vouchers for education and insurance for illness – instead of wage employment programmes. They argue that this will reduce leakages, give freedom to people to use their purchasing power according to their priority, and will also leave their labour with them to use it the way they want. The authors cite strong reasons to discard the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) as (1) there are huge leakages and corruption under it, (2) workers have limited choice to choose their assets/ activities, (3) high wage rates lead to a premature shift to capital-intensive technologies, and (4) the labour on MGNREGA is usually wasted. We agree that cash transfers are important in many cases, but substituting MGNREGA with cash transfer will not be desirable. The economic logic of this programme is to use surplus labour for capital formation to expand the labourabsorbing capacity of the mainstream economy. When this is planned well, it can contribute signiﬁcantly to economic growth in all sectors. It can also promote labour-intensive sectors in the economy in the next round. Also, MGNREGA is expected to empower the poor, the local bodies, and decentralise democracy.
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With the new ﬂexibilities introduced in the programme under MGNREGA II, people have ample room to select the work. Instead of focusing on cases of corruption, the authors should also have looked at some success stories of MGNREGA. Adult Nutrition and Food Security The authors have correctly made a clear distinction between undernutrition of the poor and of the non-poor and recommended the end of “ill-informed decision making”. Clearly declining calorie consumption is not necessarily an indicator of malnutrition. A different strategy is required for reduction of malnutrition of the non-poor. However, it is also important to address the malnutrition of the people at the bottom. Apart from the public distribution system (PDS) and implementation of the National Food Security Act (NFSA), the other aspects of this problem are lack of potable water, poor sanitation and low public hygiene. The suggestion of replacing the PDS with cash transfers is not likely to work, primarily because the supply of essential goods is limited and cash transfers will push up prices considerably, resulting in their low consumption by the poor. The NFSA is also needed, as cash transfers cannot substitute for it. However, its implementation is a challenge. The suggestion of reducing subsidies is well taken. But this reduction should start from subsidies to the corporate sector; subsidies on power, on diesel and on gas; and subsidies on a number of other commodities consumed by the middle class in the country. Also, subsidies for poor should be removed only if the market is able to deliver these goods to them at affordable prices. Other Issues It appears that the authors have overlooked certain aspects related to growth and development. First, they seem to take a very partial view of economic development. They have paid attention to the interests of producers, but neglected the interests of labour. They have recommended streamlining labour laws and a ﬂexible labour market, but not recommended any steps to address the vulnerability of unprotected workers.
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Second, natural resources are outside the purview of the book though sustainable use of natural resources is critical for sustainable development as well as for protecting interests of the majority of the population. Third, the authors seem to have closed their eyes to some ground realities in India – crony capitalism; and the declining labour movement. They overvalue the contribution of CSR /PSR and ﬁnally overestimate the achievements of growth in terms of poverty reduction and human development. While concluding we would like to state that the book has overvalued the positive developments, overlooked the ground realities, and diagnosed problems and made recommendations based on a partial view of the picture. In the process, the book seems to refuse to see the limitations of the model that it recommends for the Indian economy.
Indira Hirway (Indira.email@example.com) is with the Centre for Development Alternatives, Ahmedabad.
1 Even with the very low poverty line of the Tendulkar Committee, more than one-ﬁfth of the population in India is below the poverty line (Planning Commission 2013).
According to the latest Human Development Report of the UNDP, the Human Development Index of India was 0.556, ranking 136 among 185 countries. A large number of Asian, African, and Latin American countries are ahead of India (UNDP 2013). Rajesh Shukla of the National Council of Applied Economic Research (NCAER) has recently done this exercise (quoted in our paper), which shows that the Gini coefﬁcient of income distribution in India is 0.46, which is much higher than the accepted limits (up to 0.32-0.33) (Shukla 2010). According to the 2011 Census of Population, 67% of the rural population and 12.3% of the urban population do not have access to toilets and defecate in the open; 83.3% of the rural population and 32% of the urban population do not get treated tapped drinking water. The state ranks very low in these facilities as well as in the progress made in these facilities (during 2001-11) among the major 20 states in the country (Census of Population 2011). Government of Gujarat (2003). Initially, “Pioneering Units” with a capital investment of Rs 5 crore and more were given a special subsidy; then came “Premiere Units” with Rs 100 crore and more capital investment, which were to get higher rates of subsidies; after this came “Prestigious Units” with an investment of Rs 300 crore and more, which got even higher rates of subsidies; and last came “Mega Industrial Projects”, with Rs 1,000 crore and more investment. Subsidies for mega units are determined on a case-to-case basis (for example, the Tata Nano project). Initially in the early 1990s, it included new plant and building. However, from 1995 onwards, the deﬁnition of capital for the purpose of giving capital subsidy has expanded to include cost of land that covered transfer/acquisition/purchase of land for the unit; new building included also the cost of administrative buildings, building for housing plant and machinery, costing lease/rent, repairs and modiﬁcation of old building, etc; other
construction cost – compound wall, gates, security cabins, internal roads, wells/bore wells, pipelines for water, gas, etc; plant and machinery that covered cost of plant, cost of transportation, erection, installation, electriﬁcation, including cost of transformer and substation; and cost of plants for energy, plants for puriﬁcation or desalination of water, plant for pollution control treatment of efﬂuent, laboratories, waste disposal, etc.
Census of Population (2012): “General Report, Census of Population Ofﬁce”, Government of India, New Delhi. Government of Gujarat (2003): Investment Incentives and Gujarat Industrial Policy – September 2003, Financial Assistance to Industrial Units for Technological Upgradation. – (2009): “Incentive Schemes for Industrial Development-Gujarat Industrial Policy-2009”. Hirway, Indira, Neha Shah and Rajeev Sharma (2013): “Political Economy of Subsidies and Incentives to Industries” in Gujarat: Some Issues, in Growth and Development under Economic Reforms: Case of a Fast Growing State in India, edited by Indira Hirway, Amita Shah and Ghanshyam Shah, forthcoming. Planning Commission (2013): “Poverty Estimates for 2011-12”, Planning Commission, Government of India, New Delhi. Shukla, Rajesh (2010): “The Ofﬁcial Poor in India Summed Up”, Indian Journal of Human Development, Vol 4, No 2. UNDP (2013): Human Development Report, HDRO, UNDP, New York. Viswanathan, P K and Jharna Pathak (2013): “Economic Growth and the State of Natural Resources and Environment in Gujarat: A Critical Assessment” in Gujarat: Some Issues, in Growth and Development under Economic Reforms: Case of a Fast Growing State in India, edited by Indira Hirway, Amita Shah and Ghanshyam Shah, forthcoming.
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