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The book deals with the transformation of India from a sleepy giant in the first three decades since Independence to its rate of growth since 1991.

Dr Arvind Subramanian, a well-known US-based Indian economist, has published a thought-provoking book on India’s macroeconomic developments. Dr Subramanian is a Senior Research Fellow of the Peterson Institute for International Affairs in Washington DC.

The book, titled India’s Turn, deals with the transformation of India from a sleepy giant in the first three decades since Independence to its present rate of growth since 1991.

The author came to special attention among India scholars with his path-breaking study co-authored with Dan Rodrick on the growth story of India in the 1980s. He was among the first to point out that India had broken the so-called Hindu rate of growth in the 1980s with Indira Gandhi’s return to power following the 1980 elections. It was marked by a remarkable pro-business attitude of Government.

An important point made by Arvind Subramanian is that the change in 1980s was not so much pro-market as pro-business. In a sense, the distinction may seem a bit academic, as it did to many when it was first brought out by Subramanian’s articles at the time. But he had a valid point, in that the pro-market liberalisation and globalisation changes that followed the 1991 reforms were not attempted in 1980.

Dr Subramanian attributes the resistance of certain economists to this identification of pre-reform era of the 1980s as a turning point to an inbuilt ideological preference among reform-oriented economists that dictates that economies cannot grow without reforms. This pro-reform attitude is pardonable since the record of the nineties does show a sharp break even from the 1980s.

Dr Subramanian discusses in detail, with econometric evidence, why he concludes that the 1980s formed a turning point in India’s growth story. The argument is technical. It is sufficient to say that the author’s exposition shows an expert understanding and analysis of the statistical jungle of today’s growth statistics.

That the 1980s formed a turning point is evident not only from econometric analysis but also even from anecdotal evidence cited by Subramanian, such as the fact that Wipro and Infosys were first established in that period.

While the book is interesting for a discussion of how India’s economic policies acquired a pro-business approach, it is appropriate to point out that is also a reflection of the changing attitude among the leading policy-makers of the time, such as Dr L.K. Jha, Dr I.G. Patel, M. Narasimham and Dr P.C. Alexander. They became increasingly convinced that too much dependence on state control regulation and licensing were fraught with danger to growth.

In fact, the early 1980s witnessed a number of initiatives on the part of Government towards relaxing the control and licence raj — the Narasimham Committee and the Alexander Committee being two instances. There was also the Arjun Sen Gupta Committee, which went into the question of State Enterprise Management.

The pro-business approach, which finally emerged in Indira Gandhi’s Government, was based on detailed studies by the eminent policy-makers. While Dr Subramanian makes a passing reference to such initiatives, his study would have gained by a detailed reference to some of the recommendations of these studies.

Incidentally, it is a matter of some irony that some of these policy-makers had been present at the very inception of control and licence raj.

I recall Dr L.K. Jha telling me in 1985 of the need to radically change the institution of Controller of Capital Issues. He said with a touch of intended humour that he should know how flawed the structure was because he had been the original perpetrator of the “crime”, having proposed the institution of the CCI on the UK model.

Dr Subramanian’s book is fascinating for its discussion on the Indian economic transformation, if only for the reason that it discusses in detail India’s institutional imperatives.

Institutions have a big role to play in economic progress. Dr Subramanian cites a number of recent contributions by leading economists as to the important role played by institutions in economic growth. His discussion of the quality and merits of India’s institutional developments is excellent.

Perhaps, a point he could have incorporated is about the role of bureaucracy. (Speaking as an ex-bureaucrat myself, I must disclose my obvious bias in this matter.) Bureaucracy can be both an inhibitor and enabler of change.

No society has managed its affairs without a bureaucracy, be it Indian style or Chinese style. Where Chinese bureaucracy differs from India’s Civil Service, is an important point for discussion. On the contrary, Singapore’s development was facilitated by its very competent bureaucrats. So did Japan’s M.I.T.I, Ministry of Finance and other bureaucrats.

Dr Subramanian has a fascinating discussion on India’s future prospects. He comes out on the side of optimists considering that the demographics and savings habits of India are on the side of increased productivity.

The author is generous in his tribute to the Nehruvian vision, which encouraged the development of institutions, such as the IIT, which improved the skill-set. India’s software boom was essentially driven by a conjuncture of the vast supply of trained engineering manpower and the global telecom (particularly the Internet revolution), which resulted in the destruction of distance. He has also traced the emergence of India as a destination of research outsourcing, thanks to the growth of higher-level scientific education.

Dr Subramanian has an interesting discussion on what he calls the “Bangalore bug”. He refers, in particular, to the squeeze created by the rapid rise in demand for labour, including managers, that is created by the fast expansion of the IT-intensive sectors. This has repercussions on the supply of skilled labour for other sectors also.

The author rightly emphasises the need to upgrade education levels in the laggard States, so that they can catch up with the faster-growing ones. The problem is more complicated than that, but the author hints at a solution.

In a tantalising reference to the Dutch disease type effect in the Bangalore type development, the author argues that the expansion of opportunities in the software sector can create an uncompetitive situation for the other non-IT sectors.

He is obviously referring to the Dutch experience, which arose on account of the discovery of oil, which led to comparatively lower interest in the traditional Dutch industries.

I feel, however, that the two cases are not entirely similar. The software industry in Bangalore and other centres has led to an explosion of demand for other industries, including manufacturing and particularly services. This is growth-enhancing.

Dr Subramanian has included in the book an interesting article written by him on “Capital Account Convertibility - Neglected Considerations”. He refers to the problem of capital flows and the resulting currency changes.

Appreciation of the currency can lead to lack of competitiveness of labour-intensive industries. Advocacy of capital account convertibility has usually ignored this aspect. There can be grave dangers in the process.

All in all, the book is a scintillating economic treatise. It is likely that it will promote a healthy debate on the subject of India’s growth — and growth accounting in general. The author will be happy about such a debate. The wider public will definitely benefit from the insights Dr Subramanian offers.

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