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Updated: September 14, 2010 12:30 IST

For a sustainable economic growth

U. Sankar
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India's growth performance since1991 has been characterised by some economists as “on the growth turnpike”, “India's turn,” and “India the emerging giant”. Pulapre Balakrishnan's book, apart from surveying the country's economic history since Independence, projects what can be expected in the near future. Balakrishnan views growth as an endogenous cumulative change and uses the ‘analytical growth narrative' methodology to study India's growth. He partitions the period since 1950 into three sub-periods — namely, 1950-64, 1965-91, and post-1991 — based partly on the policy regime in vogue and partly on the political configuration, since both evolved.

Moribund economy

Commenting on the Nehru-Mahalanobis planning strategy that focusses only on the supply side, he says that the Nehru era witnessed the revival of a moribund economy and the lighting of a growth process that has remained undimmed for over five decades, during which the rate of growth hastened slowly. The 1965-91 time span witnessed exogenous shocks, including war, drought, and a steep rise in petroleum prices. The Indian state had to come to terms with reduced autonomy and at the same time persist with an interventionist economic policy. The author finds that the Green Revolution not only placed food production permanently on a higher growth trajectory but, through forward and backward linkages, energised the rest of the economy. The growth of the manufacturing sector decelerated in the mid-Sixties and remained depressed for the next decade and a half. He attributes the fast growth of the services sector to a widening income inequality, a faster growth of employment under government, and the impact of the regulatory environment on the supply side of the economy.

The guiding principle of the post-1991 reforms was the integration of the Indian economy with the rest of the world. He argues that the expression ‘liberalisation-privatisation-globalisation', commonly used to describe the shift in the policy regime initiated in 1991, is misleading because ‘liberalisation' was in the forefront of the economic reforms only in the industry and trade policy changes, and there has been very little of ‘privatisation'. The expectation that external liberalisation of a developing economy would actually be beneficial to agriculture has not been fulfilled. One external factor that affects India's agricultural exports is the prevalence of high level of subsidies for the producers and disguised protection for agriculture in the name of multi-functionality of farming in many OECD countries.

Insufficient

In Balakrishnan's view, more reforms, by themselves, are likely to be insufficient for accelerating the growth on a permanent basis. What is needed is a stronger agricultural and human capital base. According to him, the factors constraining agricultural growth are: shrinking farm-size, which makes it difficult for a majority of Indian farmers to access new technology and adopt more efficient forms of production because their capacity to leverage credit is reduced; environmental stress such as the depletion of soil nutrients and a declining water table; inadequate capital formation; poor governance of irrigation systems; and lack of the knowledge base. Unlike in China, trade liberalisation has not triggered India's growth in manufacturing output or its exports, particularly in labour-intensive industries. Access to post-harvest technologies, provision of infrastructure facilities, creation of marketing networks, and extending assistance for compliance with technical barriers to trade, and sanitary and phyto-sanitary measures — all these would enhance value addition in agriculture, generate employment, and increase exports. He applies two criteria for inclusive growth. First, it must carry with it the largest number. Secondly, growth should cater to a wide range of material needs. He says that if a growth impulse is present in agriculture it would come close to satisfying both the criteria. Agricultural growth will raise the demands for manufactures from these households. The significance of a productivity-led agricultural expansion, especially in the production of food, is that it makes a declining relative price of food compatible with growing farm profitability. This is because a decline in relative price of food will leave urban households with greater purchasing power over manufactures.

Balakrishnan favours a greater thrust to agriculture, strengthening of the human capital base, and improved governance for achieving the goal of inclusive growth. For the growth strategy to be sustainable we must also overcome the physical infrastructural constraints, lower the transaction costs of doing business, and address our environmental concerns.

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