India's Reforms: How they Produced Inclusive Growth
Edited by Jagdish Bhagwati and Arvind Panagariya
Oxford University Press, 2012, 312 pp.
India’s economic reforms of the 1980s through the first decade of this century unleashed private enterprise, encouraged foreign investment, and expanded foreign trade. The policies generated high growth but also stirred controversy over unequal wealth distribution. Kohli’s scorching critique argues that a “state-business alliance” dominates Indian policymaking. The political system maintains a façade of pro-poor rhetoric and politicians reach out to disadvantaged ethnic and caste groups, but policymakers remain insulated from pressures for redistribution. Kohli calls this economic strategy “pro-business” rather than “pro-market” because it coddles big firms. To be sure, the Indian version of this strategy provides less direct support to big companies than the classic East Asian versions of China, Japan, and South Korea. But the Indian government suppresses labor activism, and its antipoverty programs do not work. The exclusion of the poor from a fair share of the benefits of economic growth helps explain why they have resorted to caste-based violence and even to the Maoist, or Naxalite, rebellion that smolders in the eastern part of the country.
Bhagwati, Panagariya, and their contributors present an alternative view based on an analysis of survey and economic data. They show that poverty has fallen among even the most disadvantaged caste and tribal groups, that the more economically open regions of the country show the greatest reductions in poverty, and that inequality is greater among individual households than across regions or between cities and the countryside, which suggests it is not the result of any structural bias in India’s development strategy. Even poor voters tend to report that their economic situations have improved, and they often go along with wealthier voters in supporting politicians who deliver growth. These findings are technically impressive. But the argument that Kohli and other critics have put forward is not that growth has made poverty worse but that it has alleviated it too little. For India to truly achieve “inclusive growth” -- a term used in Bhagwati and Panagariya’s subtitle and also an election slogan of the Indian National Congress, the country’s ruling party -- it will have to put far more resources into what Bhagwati has called “Stage 2” reforms, such as delivering better education and health services.