Would India have been a bigger economic power had it adopted different economic policies? Why did India take the wrong road of socialism in the fork of economic policy choices in the 1950s? How is it that when India and China had the same per capita GDP in 1980, China’s has now grown to nearly five times larger than India’s?
Economists and commentators have agonised over these questions perennially. No cocktail party of India’s policy intellectual elite is complete without an animated discussion over these questions. These debates have also produced innumerable opinion articles, research papers and books over many years. But an intellectually honest and analytically rigorous answer to these questions is elusive.
Adding to this long list of analysis of India’s economic past is yet another book, eye-catchingly titled All the Wrong Turns. The book is much better organised and more focused than others in this genre. It has one chapter each on the most important facets and sectors of India’s economy — agriculture, manufacturing, trade, banking, fiscal policy and institutions.
The book is also unique in its emphasis on data. It does yeoman service for policy analysts by providing a neat compendium of important economic data on a temporal scale. The stand-out feature is the sheer volume of important, relevant and interesting data on the Indian economy and its global counterparts over a long period of time. This is a treasure trove for people like me who depend heavily on data for their core work.
I have often thought that there was a book waiting to be written using all the information from erstwhile Planning Commission reports, starting with the First Plan in 1951. This book does that and much more. It draws out interesting factoids using these historical reports, such as the one about how there was actually a decline in the number of private sector companies between 1957 and 1962, almost unheard of in a growing economy. Similarly, with trade and banking, the books traces back to Arthashastra and colonial India’s trade patterns to etch out a story of its evolution, twists and turns. The chapter on agriculture has many pleasant surprises in its argument about how, contrary to perception, Indian agriculture has progressed remarkably well.
Much like the cocktail parties, however, the book woefully falls short in its explanations for India’s economic underperformance. The authors ask all the right questions — why is there agricultural distress when Indian agriculture has performed reasonably well vis-à-vis international benchmarks, why did Nehru’s right idea of industrialisation fail, why is India’s banking sector still relatively under-developed when it is more penetrated than its Chinese counterparts and so on. But the answers are not to be found.
The book resorts to the usual lazy explanations such as heavy state intervention, blames the choice of socialism influenced by economist Nicholas Kaldor, casts aspersions on political leaders, their intent and abilities and faults bureaucratic incentives for India’s economic underperformance. There have been a plethora of similar books with fancy titles along the lines of “India as a tortoise” to “India’s economic tryst” and so on, essentially dishing out the same lethargic explanations of state interventions, labour policies and repressive banking to explain India’s below-potential economic performance. All these books compare India’s economic data with China’s to prove their point about India’s underperformance and then cite excessive state intervention as an axiomatic cause, sheepishly ignoring the fact that China’s superior performance was driven precisely by the same “heavy state intervention”.
Another favourite whipping boy for India’s poor track record in manufacturing is India’s rigid labour policy and its restrictions on hire and fire. This ignores the fact that within India, under the same labour policy conditions, states like Tamil Nadu have excelled in manufacturing while other states have been left far behind. Why is rigid labour policy a problem only for Bihar and not Tamil Nadu? In fact, I reckon a deeper study of the variance and diversity of economic performance among the various states of India since independence may throw better light on such studies of India’s economic history than mere economic dogmas. There is an interesting chapter that charts out India’s fiscal policy evolution through all the Budgets, from the first one in 1947. Since this book is written in today’s times, one would have thought the authors would have contextualised their fiscal policy commentary with heterodox theories such as Modern Monetary Theory or the breakdown of the Philips Curve of the bluntness of monetary policy. But there is none of this new analysis and the essay is just another rant against Marx, Keynes and politicians.
Counterfactual analysis is a losing cause to begin with. Would India have been more prosperous had it gone down the road of market capitalism since independence? Would Indian society be as integrated as it is today? One will never know. Overall, the book is a fantastic collection of historical data, statistics and stories. But it is a big let-down if one is searching for new, creative analysis or explanations for India’s economic under-performance since Independence.
Published on 12 March, 2020 in Business Standard