Gunning for growth
Prakarsh Singh

Propelling India from Socialist Stagnation to Global Power (Vol. I Growth Process and Vol. II Policy Reforms).
Arvind Virmani. Academic Foundation. Pages 372 and 436.
Rs 795 and Rs 895, respectively.

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!