India’s growth reforms – Pro Business or Pro Market?

Blogging has been absent for longer than I had thought. I would still remain away from discussions…Just point to some interesting links/papers..

Atul Kohli of Princeton gives India’s growth reform story a different twist..He looks whether India’s reforms were pro-market or pro-business. He says they were mostly pro-business and govt tried to stimulate growth  making policies favoring business interests..The distinction between pro-business and pro-market:

Whereas a pro-market strategy supports new entrants and consumers, a pro-business strategy mainly supports established producers [Rodrik and Subramanian 2004]. A pro-market strategy rests on the idea that free play of markets will lead to efficient allocation of resources, as well as promote competitiveness, hence boosting production and growth. This simple but venerable idea inspired the so-called “Washington consensus” on development during the 1980s and the 1990s [Williamson 1990].

The papers were written in 2006 in EPW and came in two parts- Part One which looks at 1980s and Part Two from 1990-05.

First part abstract:

For the last quarter of a century India’s economy has grown at an average rate of nearly 6 per cent per annum. The widely embraced argument that this growth pick up is a result of the Indian state’s adoption of a pro-market strategy is inadequate for three reasons: the  growth pick up in India began a full decade prior to the liberalising reforms in 1991; post-1991 industrial growth has not accelerated; and uneven growth across Indian regions defies any simple market logic. Instead, India’s economy has grown briskly because the Indian state has prioritised growth since about 1980, and slowly but surely embraced Indian capital as its main ruling ally. This pro-business growth strategy is likely to have adverse distributional and political consequences. 

Second part abstract:

India’s economic growth has not accelerated dramatically. What aggregate change is noticeable predates the liberalising reforms by a whole decade and industrial growth in the post-reform period did not pick up. Moreover, the problems posed by India’s current pro-business model of development include disquieting implications for the quality of India’s democracy. Why should the common people in a democracy accept a narrow ruling alliance at the helm? Is ethnic and nationalistic mobilisation a substitute for pro-poor politics? And, is India increasingly stuck with a two track democracy, in which common people are only needed at the time of elections, and then it is best that they all go home, forget politics, and let the “rational” elite quietly run a pro-business show?

India typically took the pro-business route because of the political reasons..The sentiment changed towards business from villains as central figures to Indian economy..

It is not really surprising that despite 20 -years of so called reforms people do not understand much of it…Most of the benefits seem to have accrued to the haves and trickle down effect has been really poor thanks to the highly inefficient public systems…

In the end:

If India’s recent economic growth was really a result of promarket policies, then, in principle, there ought to be very few
costs, only widespread benefits: after all, decentralised markets support democracy; competition creates a level-playing field; efficient use of factors of production ought to create labourintensive industrialisation and thus rapid employment growth; terms of trade ought to shift towards the countryside, benefiting the rural poor; and since capital moves to capital-scarce areas in search of high returns, regional inequalities ought to diminish over time, mitigating inequalities. Unfortunately, many of the trends noted above do not fit these expectations. India’s growth acceleration is instead being accompanied by growing inequalities, growing capital intensity of the economy, growing concentration of ownership of private industry, and nearly stagnant growth in employment in manufacturing industries. This evidence is more consistent with the view that the development model pursued in India since about 1980 is a pro-business model that rests on a fairly narrow ruling alliance of the political and the economic elite.

Rapid economic growth is essential for poor India. It is also the case that India’s development strategy from the Nehru period was much in need of change. However, none of this implies, or ought not to imply, that any new growth strategy that produces these outcomes is beyond critical scrutiny. India’s success at growth acceleration is to be admired. However, the current growth experiment has to be kept in proper perspective. India’s economic growth has not accelerated dramatically. What aggregate change is noticeable predates the liberalising reforms by a whole decade and industrial growth in the post-reform period did not pick up. Moreover, the problems posed by India’s current pro-business model of development include disquieting implications for the quality of India’s democracy. I raise them at the end only as questions. Why should the common people in a democracy accept a narrow ruling alliance at the helm? Is ethnic and nationalistic mobilisation a substitute for pro-poor politics? And, is India increasingly stuck with a two-track democracy, in which common people are only needed at the time of elections, and then it is best that they all go home, forget politics, and let the “rational” elite quietly run a pro-business show?


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