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Gunning for growth Propelling India from Socialist
Stagnation to Global Power (Vol. I Growth Process and Vol. II Policy Reforms).
Arvind Virmani’s book is an amalgamation of three years of research as
director of the Indian Council for Research on International Economic Relations
(ICRIER). It seeks to fill the void in empirical research of India’s growth
process and policy lessons it can learn from China. Grouped into two volumes
are scholarly articles that range from measuring a country’s global power to
a voting model based on economic growth. The first volume traces India’s
journey from the slow and not-so-steady socialist struggle to it embracing
globalization and walking boldly on the path of being a global power. It
highlights the watershed years in India’s economic history since
Independence, using macroeconomic data and econometrical research, which make
the results redoubtable. However, equations and mathematical models decelerate
interest of the general reader. The first section on the history of India’s
economic growth is perhaps the most insightful. According to Virmani, the
transformation from the Hindu growth rate of 3.5 per cent per annum to
neo-Hindu rate of around 6 per cent actually started in 1980, contradictory to
the commonly held belief that 1991-92 was the turning point. If the current
reforms are sustained, he predicts the Indian economy to keep growing at a rate
of 7 per cent for the next 10 years. He also forecasts India to be the third
major power along with China and USA within 20 years. The author has impeccable
credentials. He is Ph.D. from Harvard University and is currently Principal
Advisor to the Planning Commission. Some of the factors that he regards in
favour of India are its effervescent services sector, the demographic ‘bonus’,
and strong domestic entrepreneurship. However, his view that social capital
will help India in its growth is like a kite without the string. There are
three reasons why this argument does not soar. Firstly, there is no definite
proof of social capital having an effect on growth. Secondly, it is extremely
difficult to define social capital that includes value of trust, cooperation
and networking, let alone measure it for a country. Thirdly, social capital
itself seems to be on the decline in India due to poor governance (quantity and
quality of goods and services supplied) and terrorism, which causes mistrust
between communities. For politicians, this book offers definite ideas to
winning elections based on the 2004 general elections. Apart from economic
growth, the efficient delivery of electricity and railways goes a long way in
beating the anti-incumbency factor. There may also be non-economic factors such
as communal tension that play a critical role during elections. This topic
demands further research as vote-hungry politicians sometimes forsake economic
growth for ideological convenience. The sure way of winning votes seems to be
better governance and higher growth. Consequently, the second volume on policy
reforms aids in this process by giving valuable suggestions on much-needed
institutional and taxation reforms. Virmani unravels myths and derives lessons
from the Balance of Payments crises in 1990. His research illustrates that
exchange rate devaluations are an effective way to counter current account
deficit. The greatest worry is the fiscal deficit, which acts as a drag on
economic growth. The empirical research done by Virmani can be readily
applied to contemporary debates on India’s growing international stature as
well as its domestic problems. This book will find its way to coffee tables of
public economists and dusty shelves of government libraries, but it will not be
able to carry its strong reformist message to the wider audience, which is
necessary to build consensus and thereby, convince politicians. Even though
this book is an excellent introduction to India’s past, present and future
economic state of affairs, it suffers from a twin dilemma. Firstly, the
language and style of writing does not cater to non-economists; and secondly,
it is diluted into too many topics to sustain genuine curiosity of an avid
economist over the entire book. Y.V. Reddy has rightly said this is a good
reference book for researchers and policy makers. Great economists not only do
rigorous research, but also forge intelligent public opinion. If Virmani wants
to take the road to being a great economist, he needs to ‘propel’ India
into reading his book. Unfortunately for him, the road is in India and the
season is rainy!
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