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India: The Emerging Giant

Author(s):Panagariya, Arvind
Reviewer(s):Jayadev, Arjun

Published by EH.NET (September 2008)

Arvind Panagariya, India: The Emerging Giant. New York: Oxford University Press, 2008. xxx + 514 pp., $40 (cloth), ISBN: 978-0-19-531503-5.

Reviewed for EH.NET by Arjun Jayadev, Department of Economics, University of Massachusetts ? Boston.

Arvind Panagariya?s book represents an important contribution to the voluminous literature on India?s economy. While there has been no shortage of scholarship on the subject ? one of the favorite countries of study for development economists worldwide- there have been few authors who have attempted the ambitious task of providing a comprehensive survey of the trajectory of the economy and the history of macroeconomic policies in a single volume. Panagariya?s lifetime of research on the subject makes him well placed to tell this story. The depth of this knowledge is certainly evident throughout this book, and most tellingly in his description of the evolution of various policies in the history of independent India. Yet, despite the considerable weightiness of this work, its central message is rather musty and the uneven and slanted marshaling of debates will do little to convince those who are less well inclined to the common liberal narrative of India?s growth pattern.

The morality tale of the fall and resurrection of market-oriented policies and the rescue of India from poverty and moribund growth when policy makers turned away from dirigisme is the backdrop for the analysis in this book. In Panagariya?s retelling, the modern economic history of India is a play in four acts: 1951-65 ? a period of relative liberalism under Nehru; 1965-81 ? a period where ?Socialism Strikes with a Vengeance?; 1981-88 ? ?Liberalization by Stealth?; and 1988-2006 ? ?The Triumph of Liberalization.? The general story is told in the first part of the book and is by now well known and standard. What is striking, however, is how ideologically uncompromising, even stubborn, the author is in the defense of this narrative. Panagariya?s odd periodization can be seen, for example, as a response to arguments made by Dani Rodrik, Arvind Subramanian and Atul Kohli that the period 1980-91 should properly be seen as the beginning of the productivity surge in India. Panagariya?s annexation of the high growth rates from 1988-1991 to the era of liberalization (a full three years before its official start) makes the overall growth rates seem that much higher in the latter period. There is no compelling reason given for this maneuver and it is one of several dubious presentations of evidence or mischaracterizations of opponents throughout the book.

Consider as an example, the chapter on South Korea and India. Panagariya does no justice to the arguments of what he calls the revisionists. For example, he attacks Dani Rodrik?s (1995) argument that the initial impetus to Korean growth could not have been export orientation (since incentives to export were not high enough in the 1960s) and more likely investment coordination and an increase in incentives to private investment began the cycle of growth. Rodrik argues that the contribution of exports to overall growth was low until the 1970s. Panagariya?s ?proof? via an argument of Westphal and Kim that exports also had an effect on investment growth is in no way a refutation of anything that is claimed by Rodrik. An examination of Rodrik?s paper shows much greater care with the arguments than Panagariya takes. Furthermore, the fundamental claim of the revisionists is that there was substantial dirigisme in the Korean case ? an argument which Panagariya does nothing to dismiss.

Another example is the treatment of regional divergence in India. Panagariya seems to treat this as a non-issue and suggests that since the number of poor in all regions is falling, greater effort towards poverty reduction in the poorer states will automatically treat this. Scholars of the Indian experience will point to two missing aspects. First, the rate of poverty reduction has not increased in the post-liberalization period and certainly not in the states where poverty reduction has been most needed. Second, any effort towards poverty reduction in these regions will likely require illiberal policies such as increased public expenditure and directing of finance. There are several other examples which any reader will observe.

Several large sections of the book are arguments countering the work of more recent authors who have started to question and revise our understanding of the policies of the pre- and post-liberalization periods. Panagariya crosses swords with Rohini Pande and Robin Burgess on the idea that nationalization of banks and the rural banking movement reduced poverty; he takes issue with Petia Topalova?s finding that those districts which imposed fewer tariffs saw slower decreases in poverty; he takes on Nouriel Roubini?s and Richard Hemming?s contention of fragility in India?s financial sector; he argues with Pranab Bardhan?s characterization of the debate on labor laws and so on. While there is nothing wrong with the robust partisanship on display, one has the impression that he is taking on too much and as a result is too often unconvincing. Several criticisms devolve into a criticism of methodologies of his opponents; valuable perhaps, but rarely definitive.

The book then turns to chapters dealing with a specific topic, beginning with the debate on poverty, inequality and reforms before considering specific sectors of the economy such as the external sector, agriculture, industry, health, telecommunications and so on. The question of poverty, growth and reforms is one that is immense (for a full, book-length treatment, see Angus Deaton and Valerie Kozel?s Great Indian Poverty Debate) and Panagariya?s summary of this debate naturally leaves much out. While his exposition has an unobjectionable conclusion ? higher growth rates have led to lower poverty and have been the single biggest benefit of liberalization ? he is too often dismissive of genuine concerns of policy makers and scholars. For example, he is scornful of those who are concerned with equity, underscoring a narrow Paretianism at best and ?trickle down? championing at worst that underlies his views. In Panagariya?s view (pp. 160-61), reforms have become ?hostage to the … pursuit of equity,? which may have an adverse impact on growth. Best rather to trust to the philanthropy of the super rich to reduce poverty (he cites Bhagwati?s use of Bill Gates as an example). This is a rather strained position considering the spending habits of India?s super rich (where the fourth wealthiest man in the world is best known for planning to build a billion dollar home). Other positions on poverty debates also are equally implausible. For Panagariya there is no clear link between India?s problem of farmer suicides and reforms (and in doing so he ignores the findings of several researchers that increased market orientation in agriculture, greater volatility from world prices and lack of sources of formal debt engendered by financial reforms were strong correlates). Instead he suggests, farmers who committed suicide were perhaps simply of a greater ?risk taking nature? and thus were highly indebted.

The book is at its strongest in the chapters on policy changes in the various sectors that he tackles. There is much to be commended in these chapters. I have not come across a single similar source with the level of detail and historical information on the history of policy in these sectors. This is an erudite exposition but the reader should be warned that it does not make for casual reading. The exhausting mountain of facts and the linear narrative are more in the mode of a textbook than a synthetic reading in the light of an overarching theme.

As a whole then, this is an ambitious and wide ranging book and will allow a patient reader a much greater in-depth knowledge of the ebbs and flows of policy. It is not, however, without flaws. An ideological fidelity can often lead to great perspicacity and allows for a new way of thinking about a subject. One thinks of such books as Jagdish Bhagwati and Padma Desai?s 1970 book (Planning for Industrialization) which was an early critique of planning or Pranab Bardhan?s 1984 book (The Political Economy of Development in India) which examined class dynamics in India as exemplars. Those books made arguments with verve and penetration but most importantly provided a template by which to think about the Indian economy. In doing so they became and remain classics. Panagariya?s book also displays an ideological affiliation but one that that is increasingly stale. This is a pity because there are many nuanced ways in which liberalization can be defended. In addition it takes too many liberties in creating straw men opponents and twists too many arguments without adequate defense to suit the required conclusion. As such, despite its undoubted scholarly strength, it is unlikely to make anyone think differently.

Arjun Jayadev is a Post Doctoral Fellow at the Committee on Global Thought, Columbia University as well as Assistant Professor of Economics at the University of Massachusetts Boston. He has published articles recently in the Journal of Development Economics, Economics Letters, and the Cambridge Journal of Economics. Arjun.jayadev@umb.edu

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):Asia
Time Period(s):20th Century: WWII and post-WWII