Slowdown Stories

Slowdown Stories

Beyond the shrill bipolarity of the Gujarat model versus the 2G scam, alternative explanations for underdevelopment.

The run-up to the 2014 national elections and its aftermath has seen a fraught battle over the relationship between economics and politics. The virtues of the so-called Gujarat model, where supposedly economic efficiency and growth concerns have managed to bypass the deadweight constraints of mundane politics, have been pitted against the horrors of the supposedly inefficient, corrupt, subsidy-spewing, policy-paralysed UPA, driven by its commitment to “vote-bank” politics. To several, however, this binary appeared too stark and too simplistic, and is certainly not sustained by the first major economic policy action of the new government, the Budget, which, for all the proclamation of radical change and good times, is actually far too similar to its predecessor.

This apparent congruence between the economic policies of the NDA and the UPA reinforces the need to think deeper about the constraints and stumbling blocks that prevent a country of India’s size and substantial talent pool from eliminating poverty, ensuring a decent standard of living for its vast majority and embarking on a path of sustained inclusive high growth. The 12 essays in the volume under review delve into specific areas to offer insights that help us re-focus on elements missing from the mainstream discourse, and urge the readers to think beyond formulaic generalisations.

Balakrishnan’s essay on inclusive growth is shorn of clichés, and presents the problem as one of fostering and nurturing the growth of the home market. Given the substantial rural population, investment and growth in agriculture is critical for the internal market, which in turn, increases both demand and employment in the non-agricultural sector. Focusing on boosting growth through strengthening the internal market is a refreshing contrast to viewing stringent labour laws being one of the key reasons hindering investment (and by implication, growth). He also explores factors that prevent this strategy from taking shape: the two major factors being inadequate appreciation of the mechanisms of this process, and the allure of the American business model that privileges the claims of the private sector.

TT Ram Mohan’s essay on corporate governance lucidly highlights the substantial problems in this area, issues that escape popular scrutiny, focused as it is on corruption by politicians. He turns our attention to the all-pervasive evils in the corporate sector: unreliability of accounts (as highlighted by the Satyam case), ineffective corporate boards, autocratic CEOs, whose “whimsical ways have led to the collapse of big companies”, and finally, the high and climbing executive salaries, that are justified for their presumed incentive
effects, but take on a life of their own, regardless of their companies’ performance.


Ravi Kanbur argues that expectations of a decline in informality with development run contrary to the global evidence of its persistence. He rejects the mainstream view that informality is caused by excessive regulation in the formal sector, as most of the developing world has experienced increased informality with decreasing regulation. The fundamental trend in technology has lowered the employment intensity of growth in the formal sector (the phenomenon of ‘jobless growth’), thus rendering the formal sector increasingly unable to provide jobs to a growing labour force.

Policymakers are accustomed to the certainties of the formal sector, which leads to the formulation of rules and procedures that clash with the irregularities that characterise the informal sector. Kanbur gives two examples: the need to produce proof of identity and residence for a host of economic interactions, and constraints on the use of urban space. Loitering and vagrancy laws are used to clear urban spaces of street vendors, depriving them of their only source of livelihood, and often bestowing upon them the stigma of criminality.

Together, these essays re-acquaint us with alternative explanations for slow development, and remind us that that the emergence of a real alternative must take cognizance of the interface between economics and politics, and broaden the horizon of its enquiry. Otherwise, we will simply get stale old decaying wine in a new bottle.

The writer is professor of economics, Delhi University