'An equal governance', The Hindu, 30 June, 2001.
We are on the eve of the passing of one decade since a pronounced turn in the national economic policy. From the beginning, a large part of the criticism this evoked had flagged a potential for disaster of trade liberalisation rather than for any inherent lack of potency in the reforms. Thus we had been warned that tariff reduction would suck-in imports which combined with the IMF loan would leave us increasingly indebted. Ten years hence this has not come to pass. Indeed almost every indicator on
Returning to our own reforms, we may start by asking how they have delivered in the area where most was promised of them, growth of income. Here the comment by The Economist magazine, in a timely recent survey avidly reported by some Indian commentators, that the reforms have finally sloughed-off what had once appeared as an eternal Hindu rate of growth is in the nature of a sleight of hand. While it is technically correct that the 6 percent and odd annual average achieved in the nineties exceeds the steady 3 percent and odd rate, wittily christened `Hindu’ by the economist Raj Krishna, recorded on average during the three decades since 1950 the latter was already breached even before the current reforms were launched. Indeed, if we were to divide the last fifty years into the three sub-periods 1950-80, 1981-91 and 1992-2000 we would find, I wager, that the rate of growth of the gross domestic product accelerates most in the second among these. In terms of the rate of growth, therefore, the period since the reforms does not represent as significant a shift relative to the past as do the 1980s, offering a perspective missed out by The Economist. This history is informative as to the mainsprings of growth. One relatively unrecognised feature of the eighties is that during that decade agriculture grew faster than in any other decade starting 1950. The associated faster overall growth in the economy very likely signals that a demand constraint is unbound by faster agricultural growth unleashing rural purchasing power.Thus the slowing of agricultural growth in the nineties may have compensated for any dynamism sprung by the removal of barriers to entry through delicensing and of supply constraints through trade liberalisation, central elements of the reforms.
Arguably, the reforms have adopted a supply-side strategy which cannot in itself be faulted. The moot question is how much of a very real supply constraint in the Indian economy the reforms have been able to ease. Legal barriers constitutive of a policy regime may regulate entry but they do not alter the supply conditions of an economy. Further, while any analysis of the supply side must legitimately incorporate prices as incentives it must also recognise in addition the importance to it of inputs that are external to the private firm.These include infrastructure and a nation’s
human-capital endowment measured by the educational and health status of its manpower. Notice that all of these inputs, apart from being external to the firm, are in the nature of public goods. At least since Adam Smith, we are attuned to the proneness of the market to undersupply public goods, for their services cannot be attached by the private producer even as they are siphoned-off by the public as consumers. Public goods from schools to sewers are foundational to growth and development for which reason they have historically been provided on a large scale by the state as distinct from the market in economies as diverse as the
Since infrastructural development is not so easy to measure, a proper assessment of its progress under the aegis of the reforms is not so straightforward. However, an indirect assessment may be made by noting the steady decline in public investment by the central government. This has been an almost inevitable fallout of the reforms. First, there was the plain ideology of the Washington Consensus, taken on board by
Contrary to an ideological reading of the argument that there is a need for enhanced supply of public goods in the economy, I suggest that at least some privatisation is a necessary first step. For instance, there can be little economic justification not to jettison those jaded jalopies that are Air
The substantial opening up of the economy since 1991 has not produced a promised deluge. Nor has it propelled the economy forward at a faster rate. The reforms have at best only maintained the tempo of acceleration that had commenced earlier, unable to alter the rate of change of the rate of change as it were. Growth has been more steady since 1991 though. All this does not add up to a stirring verdict. However, it is not an entirely surprising outcome either. Significantly affecting the rate of growth in the economy would require a different strategy. Among other things, it must include a larger effective supply of public goods. On the other hand, the political rationale of the reforms is to make space for unlimited private initiative within the economy while leaving intact a colonial machinery of government not intended to encourage progress in the first place. Steering India to prosperity is not for the squeamish or the inept. It commands an equal governance.