The book under review is a collection of 22 essays published in EPW on the theme of economic growth in India and its distribution between 2005 and 2014 divided into four sections. The first section, ‘The Long View of Growth in India’, containing four chapters, provides an overview of trends in economic growth in India in the last century, from 1900 to 2005. The trends in growth of GDP shows that there was a trend break in 1950-51; economy grew much faster in the second half of last century. Between 1900 and 1947, the growth in per-capita GDP was near stagnant for undivided India; whereas between 1947 and 2004, GDP per-capita grew 250%. Within the second half of last century itself, there was another trend break in 1980-81. Per capita GDP grew at the annual rate of 3.6% after 1980-81 as compared to 1.4% prior to 1980-81. Therefore, Deepak Nayyar argues that the economic performance of India cannot be attributed to the economic reforms initiated in 1991-92; the post-Independence view of economic growth suggests a trend break in 1980-81 and not in 1990-91.
Atul Kohli attributes the trend break in 1980-81 to the shift in the post-emergency political economy. After Emergency, Indira Gandhi chose to shun the state centric model, which she had pursued in the initial years of 1970s. She sought alliance with big business, prioritizing economic growth and downplaying distributive concerns. Her approach shifted away from Left leaning state intervention founded on socialist principles to Right leaning state intervention where a capitalist path of development is envisaged. Kohli suggests that the realization of difficulties in implementing anti-poverty measures such as land reforms and the experience of state support of private producers helping agricultural revolution in India leading to the Green Revolution might have changed the approach of Indira Gandhi. This section, however, does not discuss the issue of distribution of economic growth during the last century.
The other three sections are focused on economic growth after 1991. Section two,
‘Recent Growth and Structural Change’
(4 chapters), analyses the key aspects of the high growth during the last decade. India had reached a rate of annual growth of close to 9% during 2003-04 to 2007-08. This was an investment driven growth, boosted by massive influx of private capital as against the conventional consumption driven growth. The private capital inflows had reached 10% of GDP by 2007-08. This high growth period, however, was also a high inflation period. Nevertheless, there was a decline in growth since 2009-10. There was also a decline in the public capital formation since this year. According to Pulapre Balakrishnan, the government might have assumed that growth will continue regardless of the contribution of public capital formation. Maitreesh Ghatak argues that such fast growth, in developing countries, can put stress on the economy. Two such instances of stress have been issues related to acquisition of land and addressing the issue of development of human capital.
A major feature of the high growth was that much of the output came from narrowly defined industries and services. Most of the incremental investment went to organized manufacturing whose share in the Gross Fixed Capital Formation had increased from 20.4% in 2000-01 to 28.6% in 2007-08. But the domestic output had stagnated around 15% of GDP. This implies either the rise in capital intensity of manufacturing or growing excess capacity or both. Another major feature of this investment driven growth, as pointed out by R Nagaraj, is that only 40% of the FDI inflows went into potentially productive activities. The remaining 60% consisted of private equity, venture capital and round tripped Indian capital. While round tripping of Indian capital is a major concern, characterization of FDI in productive sectors as more desirable and private equity and venture capital investments as less desirable forms of investment is a delicate issue. At the conceptual level, FDI implies control or significant influence of foreign investors over domestic enterprises. It is assumed that with control or influence, foreign MNCs will be able to change the behaviour of domestic enterprises for better outcomes. But the question that is ignored here is whether control or influence over domestic enterprises is desirable in all circumstances. How will domestic enterprises pursue an independent path of growth when they are controlled by foreign entities? For those domestic enterprises looking only for financial collaboration and not for any other form of collaboration to pursue their own independent strategies, private equity or venture capital, which do not generally tend to exert control or influence may be a more desirable option. Private equity and venture capital have their limitation as they are focused on short-term returns, but their positive contributions should be acknowledged.
Section three, ‘The Sectors’ and Section four, ‘Inclusion’, of seven chapters each, look into the impact of economic reforms since 1991 on different sectors and the distribution of gains from economic growth. The Green Revolution had increased the share of agriculture in GDP from less than 1% to more than 3%. However, during the post-1991 phase there is deceleration in the growth of agricultural GDP. This is due to diversion of resources away from agriculture, decline in the public and private investment in agriculture and inadequate provisioning of public goods in agriculture, which would have multiplier effects. To revive the agricultural sector, better technologies need to be adopted, public R&D should be hiked and credit to the agricultural sector has to be increased. Although both the chapters on agriculture discuss technology, they do not deliberate on genetic modification technology, which has been debated passionately in India for some time.
Unfortunately there is no article addressing the impact of reforms on the manufacturing sector, especially the production aspects, and the nature of growth of the service sector although Sudip Chaudhuri’s paper addresses the issue of trade deficit in the manufacturing sector and Archana Aggarwal looks into employment aspects in the services sector. The paper by Chaudhuri points out that trade deficit improved till 2000 and thereafter worsened. He attributes improvement in trade deficit not to economic reforms since 1991 but to the industrial policy of the past, especially in the pharmaceuticals sector. It takes some time to establish the acquired competence. Whereas the worsening of trade deficit is an outcome of economic reforms since 1991 which helped the MNCs and adversely affected domestic enterprises. Withdrawal of government regulations and freedom to the private sector is good for those firms which have acquired capabilities and are in a position to take those capabilities forward, which is not the case with most enterprises in the developing countries. It is suggested that government needs to regulate MNCs and support indigenous efforts. One needs to keep in mind that regulation of MNCs is easier said than done in this current globalized world. Various international agreements which countries like India are party to restrict the ability of the governments to regulate MNCs. Archana Aggarwal argues that the growth in the services sector is concentrated in selected sectors like business services, which are skill intensive in nature. Most of the jobs in services is in low productivity informal activities and most of the labour force is trapped in this.
Indira Hirway opens the section on Inclusion by providing a conceptual treatment to inclusion and a detailed account of challenges for inclusive growth under neoliberal economic reforms. The proponents of neoliberal economic reforms argue that high growth which is inclusive is possible. But in reality the share of profits grow much faster than the share of wages under neo-liberal economic reforms, thus accentuating inequality. Under neoliberal policies, re-distribution does not work effectively as the growth process which is exclusionary in nature overpowers the former. Hirway makes two suggestions for ensuring inclusiveness in the development process. One, change macroeconomic policies to make it reflect reality by the inclusion of natural resources and unpaid work into the framework. Two, adoption of a rights based approach, which requires provisions for education, health, infrastructure and services. This will increase the productivity of workers and enhance the aggregate demand in the economy. Hirway has very briefly touched upon rights based approach to development. Ideally, there should have been a dedicated chapter on the complementarity of human rights based approach to development and inclusive development. Apparently, the editor was constrained in commissioning new papers or selecting papers published outside of EPW. Other papers in this section agree on the conclusion that inequality has increased in the post-1991 period. Inequality has various dimensions including rural–urban and casual–regular. Major part of the gains from economic growth during the post-1991 period have gone to urban households.
Reji K Joseph is Associate Professor in the Institute for Studies in Industrial Development, New Delhi.