Learning to Grow

As the title makes clear, this is a collection of essays, focusing on India8217;s macro-economy and growth prospects. There are six essays, plus a seventh essay that is the introduction and overview chapter, and knits everything together. The essays aren8217;t new. In fact, one goes back to 1995. And all have been published already.

Why publish them in book form then? First, there is the obvious utility of getting these essays together in one place, since everything is not always available to everyone. Shankar is avowedly pro-reform and this brings one to the second argument. Given non-reform in the domestic economy, it is remarkable how the reform agenda continues undisturbed. Consider this quote, from a 2002 essay. 8220;Realisation of the potential growth gains from the demographic bonus will depend crucially on the speed and depth of reforms in labour laws, industrial reservation policy and trade policy. Overall governmental performance could become more of a drag on economic performance.8221; Even if this essay were to be written in 2006, little would change. This continued topicality of the essays is thus an indirect indictment of the state of reforms. Having said this, the first essay ignoring the introductory essay takes stock of reforms and was written in 1995. The second is on macroeconomic policies and performance in the 1990s, with a focus on the slowdown in growth in 1996/97. The third is on managing the external sector. The fourth is on tax reform. The fifth and the sixth essays visit and revisit India8217;s growth prospects.

Given the euphoria about the demographic dividend, a quote from the fifth and sixth essays is in order. 8220;The poor populous states of the Gangetic plain have typically lagged behind the southern states in the demographic transition from high to low fertility rates. As the essay points out, the bulk about 60 per cent of the increase in India8217;s population and labour force in the fifty years between 2001 and 2050 will occur in the relatively poor, slow growing states of Bihar, Uttar Pradesh, Madhya Pradesh, and Rajasthan8230; Their infrastructure, education levels, and governance are among the weakest in India. Hence, the probability of transforming the emerging labour supply bulge into gainful employment and output growth is quite low. A daunting unemployment problem is more likely.8221;

This, spliced with Shankar8217;s legitimate skepticism about the service sector boom providing the trigger for GDP growth, explains some of the former CEA8217;s growth pessimism, as compared to other pro-reform economists who argue that India is already on an auto-pilot trend rate of 8 per cent. However, now that later data have come in, one wonders whether Shankar would have toned down some of his skepticism, despite the overall points remaining valid, had these essays been written today.

The terrain covered in the essays explains the title of macroeconomic policy and growth. Personally, I think that the first essay stock-taking of early reforms and the third managing the external sector have lost some of their relevance. This is familiar stuff, although reform-skeptics might gain a lot from reading them, under the assumption that they are willing to be converted and are not prey to dogma. The value addition is in the other four essays. Of these, the fourth on tax reform has a narrower mandate, but is extremely topical, since the FRBM Act and possible removal of exemptions figures on everyone8217;s agenda now. The second, fifth and sixth have broader appeal, with the first-named raising interesting questions about whether the downturn after 1996/97 is likely to be replicated in the present cycle of growth as well. The fifth and sixth essays should be viewed against bullish sentiments about India in general, such as in the oft-quoted BRIC report, although real GDP growth in that report was less than 6 per cent.

A refreshing and intellectually stimulating collection of essays, worth reading.