The India growth story was in pieces by 2013. The fallout of the global economic crisis, scams, and political and administrative paralysis soured the investment climate. A decade later, investors still aren’t betting their money on it. A collection of essays in A New Reform Paradigm: Festschrift in Honour of Isher Judge Ahluwalia argues that the trouble with the economy runs deeper. Some of India’s finest economists write about the problems and how to fix them, busting several myths about the economy popular in public discourse.
Yes, India is the fastest-growing major economy in the world. But will that make India rich? Rakesh Mohan, member, Prime Minister Narendra Modi’s economic advisory council, offers some answers: If GDP growth can be accelerated to exceed 8% every year, India will reach a per capita income of $8,500 by the late 2030s, lower than where China is today.
But that is easier said than done. Mohan shows that India, despite the tremendous progress since Independence, has fallen behind most other countries. On life expectancy, India is 30 years behind China and 10 years behind Indonesia. A quarter of the adult population is still illiterate, with obvious implications for their employability. The government is severely stretched, with only 1,600 Central government employees (including those of Railways and PSU banks and companies) per 10,000 Indians, compared with more than 7,500 in the U.S. The elite IAS and IPS cadres comprise only 5,000 officers each.
Stress on manufacturing
The essay about the jobs crisis, the single most important issue that will define Narendra Modi’s prime ministership, and India’s future, is the book’s best. Radhicka Kapoor, who has edited the collection, rejects lazy explanations, such as the slow progress on labour reforms. She shows that if hiring hasn’t picked up at manufacturing plants in States such as Rajasthan, where governments have reformed labour laws, it’s because firms have learnt to circumvent labour regulations by hiring short-term contract workers, paying them half the wages of directly employed workers.
The case she makes is this: Farming, construction, trade, hotels and restaurants jobs will not make India and Indians rich. Poverty reduced impressively between 2004-05 and 2011-12, when labour quit farms for construction sites, but 83% of construction jobs are casual, only slightly better than agriculture. The ideal type of employment for the masses, therefore, is manufacturing. Productivity of labour in it is about one and half times the economy-wide average, and it can hire people with low to medium levels of education.
Trouble is, it isn’t generating too many jobs, and accounts for just 12% of the total workforce. The only way to repair this, Kapoor argues, is to shed the legacy capital intensive industries bias in the industrial policy framework. The Modi government’s industrial policy is doing the opposite, she explains, and recommends that it must start encouraging labour-intensive manufacturing instead.
Dr. Ahluwalia (1945-2020) published Industrial Growth in India in 1985, a book that helped shape the technocratic design of the 1991 reforms, particularly the dismantling of controls, and a bigger role for market forces in the economy. Her research work in the 2000s, especially on urban development and climate change, provides a framework for addressing the dissatisfaction with the outcomes of those reforms and building on the successes.
In a personal note for the book, her husband Montek Singh Ahluwalia writes that she was always mindful of the dangers of armchair theorising on policy. The wide-ranging essays reflect a similar approach. The authors offer policy advice on today’s pressing problems, taking a broad view of the strong influence of institutions, state behaviour and technologies on changes in economic structure and outcomes. This book is, thus, both a legacy of — and a tribute to — an influential policy analyst.
A New Reform Paradigm: Festschrift in Honour of Isher Judge Ahluwalia; Edited by Radhicka Kapoor, Rupa, ₹995.
The reviewer is a writer and journalist.
COMMents
SHARE