Roadworks Ahead: The Search for Prosperity

Twenty-five years after liberalisation, India still has to overcome challenging hurdles if it is to realise its economic potential

Written by Omkar Goswami | Updated: September 3, 2016 1:30:27 pm
manmohan singh, indi areforms, india economic reforms, vijay joshi, vijay joshi books, The Search for Prosperity, The Search for Prosperity review, The Search for Prosperity author, The Search for Prosperity synopsis Finance minister Manmohan Singh flagging off National Stock Exchange’s operations in the Wholesale Debt Market in June 1994. (Source: Vivek Bendre)

Name: India’s Long Road: The Search for Prosperity
Author: Vijay Joshi
Publisher: Penguin-Allen Lane
Pages: 421
Price: Rs 699

Some years ago, TN Ninan, former editor of the Business Standard and Vijay Joshi, Fellow of Merton College, Oxford, decided to collaborate and write a book on a quarter century of change in India since the advent of economic reforms in mid-1991. Eventually, they amicably decided to go their own ways. The result has been two excellent books: the first by Ninan (The Turn of the Tortoise, published by Penguin-Allen Lane in 2015), which juxtaposed hard facts with sharp journalistic reportage; and the second by Joshi, which is being reviewed here.

I have known Joshi closely since the mid-1990s, have shared many ideas, and, occasionally, worked together on some common areas of interest. That familiarity might have come in the way of objectively reviewing this book. But it doesn’t, because it is a masterly work, so well argued and written that I haven’t the slightest hesitation to praise and recommend it, even to lay readers, as, perhaps, the best work that I have read on India’s progress and its challenges.

The core of the book is simple yet deeply thoughtful. To be a prosperous country with far lower poverty than what exists today, India needs to grow at no less than 7 per cent per annum for the next 15 years. If such growth turned out to be inclusive, it would make India a “high-income country” by today’s yardstick, and also significantly reduce the percentage of people living in poverty.

However, Joshi argues, “with ‘business-as-usual’ policies, India will be hard put to achieve… even 6 per cent per year”. As he rightly points out: “The reforms undertaken in India at the start of the 1990s and thereafter were effective, but are now running out of steam… Moreover, India’s fast growth in the first decade of the twenty-first century was propelled by a highly liquid and expanding world economy. Such a benign global environment looks very unlikely to return any time soon. In the domestic arena, progress remains to be made in many areas such as public sector ownership, banking reforms, rules governing bankruptcy and exit, infrastructure provision, employment creation and delivery of public services. These involve substantive matters in which ‘reform by stealth’, which has been the Indian way of doing things, will be unlikely to suffice. There is also increasingly manifest a contrast between the country’s dynamic private sector… and its weak and ineffective government sector… More liberalisation is necessary. But it is not sufficient because the state does not perform its core functions effectively.”

This, argues, Joshi, is why it is going to be India’s long road. Consider some facts: despite impressive corporate growth, output growth has distinctly slowed down, from an average of 7.7 per cent during 2000-10 to 5.6 per cent thereafter. Employment growth has declined even further: from 2.2 per cent in 1990-2000 to 0.8 per cent after 2010. While this has increased productivity per worker, it raises an uncomfortable question: what is in our policy armoury to ensure employment for some 18 to 20 million people that will be seeking jobs each year over the next 15 years? Especially in a world where the vast majority of those job-seekers will not have the requisite educational and technical skills?

The answer seems to be the rapid growth of medium and small firms both in manufacturing and services across the country — which have higher labour-output ratios than large scale industry. However, as Joshi argues using the World Bank’s company surveys and the annual Ease of Doing Business surveys, we provide insuperable constraints upon growth and employment. Inability to get electrical connection, failure of dependable electric supply, difficulties in registering business and securing the necessary construction permits, repeated hassles with bribe-seeking tax inspectors, inimical labour laws, deficient transport facilities — all these come in the way of expanding capacity and output and, thus, employing more people. The tale is pathetic. In 2014, India’s overall rank in ease of doing business was 134th out of 189 countries. We have marginally improved in 2015 to 130th out of 189!

manmohan singh, indi areforms, india economic reforms, vijay joshi, vijay joshi books, The Search for Prosperity, The Search for Prosperity review, The Search for Prosperity author, The Search for Prosperity synopsisThe list goes on — a plethora of unproductive subsidies for richer farmers and the middle class that prevent the exchequer to spend more on building serious infrastructural capabilities; myriad dysfunctional distortions in land markets that vary across states and municipalities; terrible bankruptcy resolution and insolvency procedures that create huge barriers to exit and, concomitantly, barriers to entry; prevalence of a vast number of perennially loss-making state and central government owned undertakings, which occupy prime land that could be re-used for more productive activities; abysmally poor infrastructure that becomes so pitifully apparent even in the cossetted national capital region after a few days of heavy rain — Joshi lists these out in all their glory. He also explains the “state of the state” — or how poorly governments do what they are elected to do, when they do anything at all.

So, we have a real conundrum. On the one hand, we have manifestly dynamic entrepreneurs, a growing middle class and a favourable demographic profile. On the other, we are faced with poor education and training, dysfunctional laws and procedures and, as Joshi writes, “a rotten physical infrastructure”. Getting the former to politically force changes in the latter is a hard, almost Herculean, task. Thus, once again, the title of the book: India’s Long Road.

For the loud sloganeers who believe high growth is a given irrespective of such constraints, Joshi is a pessimistic read. But for sensible people, this is a superbly realistic book. I pray that many will read it and understand the depth and breadth of our problems. And then do what they can to surmount these.

Omkar Goswami is an economist and the chairman of CERG Advisory

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