In This Review
India in Transition: Freeing the Economy

India in Transition: Freeing the Economy

By Jagdish N. Bhagwati

Clarendon Press, 1993, 108 pp.

Starting in the early 1950s India embarked on a "mixed" economic strategy that attempted to combine features of capitalism and socialism. At the time, India's approach was praised by many of the world's leading development economists and by other international donors. The strategy provided for a large public sector, import substitution, and a highly regulated private sector. The result was truly "mixed" for it produced both the slow growth of socialism and the inequalities of capitalism. While the newly industrialized countries of East Asia took another path, India's political leadership held fast to the Nehru/Mahalanobis strategy well into the 1980s. Professor Jagdish Bhagwati, who served in the Planning Commission in the 1960s before coming to the United States (he is now at Columbia University and the principal economic advisor to GATT) has been a persistent critic for the past 30 years. In the first two essays of this small, lively and readable volume, Bhagwati explains why the model failed. In the third Bhagwati describes the current efforts of the Indian government, under the intellectual guidance of its able finance minister, to play catch-up by embarking on a series of market-oriented economic reforms. India still has a long way to go, but the limited reforms have already led to higher exports and greater industrial productivity. The barriers to continued reform are formidable, for as Bhagwati argues, they depend on how quickly they produce results both in terms of efficiency and growth and a reduction in poverty. The reforms also depend upon political struggles over religious and ethnic identities that have little to do with the economic reforms. Can we be confident that these reforms would continue if the governing Congress party joined in a coalition with the anti-reform Marxist left parties to prevent the Hindu nationalist Bharatiya Janata Party from taking power?

Bhagwati has written an optimistic, prescriptive book, focusing more on what is to be done than on whether politically it will be done. But for anyone concerned with why India's economic development strategy failed and why the new liberalization strategy makes sense, this short, non-technical analysis is the book to read.