Ian Little’s Review of India Unbound

(Speech delivered at the Nehru Centre in London at the launch of the UK edition of the book, published by Profile Books, London. On the panel of speakers were Amartya Sen and Lord Meghnath Desai.)

Good Evening!  Mr. Das has written a big racy, easy to read book. What stands out most for me in it is its optimism. I think its optimism has added to its appeal which, I believe, has been very great both in India and in the United States. Although, there is a lot in his book which is relevant in economic policy, the dismal science is not for him. What is he so optimistic about? India was until 1991 bound by the Nehruvian economic model and the so called ‘permit raj’ which grew and flourished in the reign of his daughter. The reforms of ‘91 have largely set free India’s animal spirits. And this has coincided with the information technology revolution in which, he believes, India has a comparative advantage. So, Indians can now look forward to a growth rate of 7% per annum which, I may say, is hardly lumbering, and in 20 years time half the population of Western – Southern India will be middle class which, I think, it really means they will buy modern products. That is a bit of an over-simplification, perhaps, but it conveys the overall impression I got from India Unbound.

The book owes more to Naipaul and his technique of talking to people than it does to any economic analysis. Indeed, as he has told you, he has a chapter entitled, ‘A million reformers’, which echoes Naipaul. It is very rich in anecdotes and fascinating vignettes of Indian businessmen and politicians. And, I believe it is his contention that among the educated, there has been widespread change of mindset accepting that the heavy industry model and import substitution model and very detailed regulation were wrong. But, I do not think that amounts to a constituency for thorough going reforms.

I wish this book addressed itself more to the continuing need for reforms which, I believe, is required if his optimism is to be justified. Several economists and politicians, political scientists I should say, have complained that the government has never tried to explain to the public the benefits that are to be expected from an extensive program of reforms. And, it would be very good if Mr. Das’ book, written from the point of view of a businessman, was to contribute a deeper acceptance of liberal capitalism as the way forward. But I doubt whether it will for it does not describe or analyse the reforms or their limitations, which is serious. Nor does he explain why they should benefit almost everyone. He pays little attention to the problems of poverty and employment. I think, this is a serious weakness because opponents always claim that pro-capitalism reforms, which greatly increase reliance on the market, will increase poverty.

I believe that most of India’s past regulations and control of market forces were among the causes of poverty. And, therefore, the reforms will favour the poor and would do so still more if carried further. I think, Mr. Das would agree with this. But I do not find that his book really supports the case. It is not enough to assert that poverty will decline to a manageable proportion of population by 2020, if growth continues to 7%. I can’t fully share his enthusiasm for information technology or, more generally, the knowledge industry. It seems to me that there must be things, that is, material objects, to be informed about. Mr. Das seems to believe that making things is a bit old fashioned, ‘old money’ to use his phrase. I found that curious because his own personal business was of making and selling things. Of course, when wealth                          Bollywood and best-selling English language books of many Indian authors including himself. But, I cannot see that this kind of industry can solve educated employment as it used to be called. But, I cannot see if it can be large enough or trickle down enough to make a serious dent on widespread structural poverty.

Poverty reduction, above all, requires rising demands for relatively unskilled, uneducated labour. And, the principle way to achieve a highly labour demanding growth, a concept which, I may say, was rightly part of the 1991 reformist’s rhetoric, is to engineer a high growth rate of labour intensive exports. India has a terrible record though in this respect. I can remember in 1959 suggesting to Pitambar Pant that textile exports, especially clothing, should be permitted. He dismissed the idea saying that India could never compete with Japan. Of course, Japan was about to reduce its share of booming world exports of clothing. After India lost out to Japan in the 1950s, it lost out to Hong Kong, Taiwan and South Korea in the 1960s and the 1970s. Government regulation of the textile industry made it impossible for India to clothe the world. An examination by T. N. Srinivasan of export shares in labour intensive manufactures from ‘79 to ‘94 continues this depressing story. Hong Kong, South Korea and Taiwan were by then losing their shares of world trading most labour intensive manufactures, especially clothing.

Who is filling the gap? Not India, but predominantly China. I do not know whether India has done any better since ‘94. If not, one would certainly like to know why. Agriculture production too would become more labour demanding, if trade in agricultural products were opened up. Finally, of course, growth in the domestic market will be more or less labour demanding. India’s labour and company laws and other regulations have long discouraged employment and, I believe, there has been very little reform in this area. I wish Mr. Das had addressed these problems. The upshot is, I am afraid, that I cannot fully share his overall optimism.

Six years ago, I ended a lecture in Delhi on the reforms with the words, ‘The rise of many political parties with narrow factional interests, the continuing growth of the basic corruption, cast on the ability of the Indian political system to deliver governments which are strong and cohesive enough to avoid fiscal excesses and promote difficult reforms’. I am, therefore, on a mildly pessimistic note and here I am quoting myself of 6 years ago. The achievements of the past 4 ½ years are impressive and will lead to higher growth of the Indian economy. But, the many further reforms, which enable India to achieve its full potential, are not likely to be quickly made. I am afraid I have lost touch with India now for several years, but I believe, what I said then was correct. There has been little reform and, above all, continuing fiscal excess. The overall fiscal deficit has remained around an unsustainable level of 10% of the GDP after 10 years. Moreover, there has been a horrifying growth of common alliances. As the political powers of Hindu extremism have increased, Nehru’s commitment to a secular state seems to have been set aside. These and other major impediments, such as the dearth of infrastructure in power and transport, make me fear that even 5% growth may not continue. Well, I have put the pessimistic side.

 Let me end by saying that Mr. Das has written a very enjoyable and informative book which is going to help convince many foreigners that there is a lot going on  and must be good in the sub-continent. I suppose, I have been arguing that I would have liked him to write a rather different book, one more devoted to promoting reforms which I believe are essential. But, may be, he rightly thought that, that was not his own comparative advantage 

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