How to put India on the growth path
If you want the right solutions, you have to get rid of the myths first. Mihir Sharma, the caustic critic of Indian contemporary social and economic myth-making, spends 80% of his 354-page tome on the Indian economy on this. This book is the single best refutation of all sorts of false economic beliefs we carry in our heads. On that count alone, it’s worth buying and reading the book a few times.
For instance, a lot of people are still quite awestruck that Narasimha Rao, who had spent decades steeped in the idea of Welfare State, suddenly saw light and launched a cut-and-thrust reforms agenda in 1991. According to Mihir, Rao “never had an overarching idea of what he intended to do, or where he intended to go. He just wanted to address a temporary problem, fight a blazing fire… When the fire was out, he stopped caring.”
India took the easy path of devaluing the rupee, allowing imports and removing production controls. Unfortunately, devaluation drove Indian manufacturers to the ground without improving India’s export competitiveness. So, Rao and finance minister Dr Manmohan Singh destroyed the existing Indian manufacturing structure but failed to help build a new one. What should be done? The policy prescriptions are at the end of the book. Mihir has a short, incontestable list:
Labour: Slash ridiculous employment laws but also make generous severance compulsory while expanding social services for labour.
Land: Create a real open market for all land. Also, force companies to buy land from the open market.
Make Private Sector Accountable: We need active institutional investors, better bankruptcy laws and rewards for entrepreneurship and innovation.
Open up the Farm Sector: Repeal land-ceiling laws, allow farmers to write contracts with big purchasers, tax agricultural income. Treat agriculture as any other productive sector.
Reform Cities: Don’t try to keep people out; make them more liveable. Increase the floor space index.
Higher Tax Revenues: Bring in GST and reform income tax so that more people pay tax and the rich don’t use the many loopholes.
Government Spending: Spend part of the increased taxes on infrastructure, charging people for using it. The private sector has failed to build infrastructure.
The book combines reportage, mood passages, hard numbers and arguments, as well as plenty of contrarian positions—all delivered in an excitable, polemical and conversational tone. I am not sure whether this cocktail would achieve the desired purpose, though. I am not speaking of myself. It was an engaging book to read. I learned a lot I didn’t know about. Lots of parts are a refreshing change from the conventional narrative (like the bit about Narasimha Rao’s ‘belief’ in liberalisation)
The book would be more valuable if the ideas become part of policy-making. This, I am not sure about, not because of the content but the style. Read this passage: “That’s what happens when you pretend you can micro-manage a complex production chain like electricity—and somehow, keep prices down every step of the way. What are we, Superman? I bet even on Krypton they charged full price for electricity. OK, It’s clear that I don’t like coal…”
The sharp edge of the arguments Mihir makes is blunted by this slightly high-strung style. I am not, for a moment, advocating the boring and self-important style of books of this genre. As Mihir says, everybody in India is a bureaucrat no matter which profession they are in. This is why the “prose style of newspapers is usually indistinguishable from that of the average of income-tax reform.” But a more sober style and also the use of some graphics would have done wonders.
That brings me to the sub-title of the book. It is the same glibness of the main narrative that informs the sub-title. Last chance? We have survived Deve Gowda’s and IK Gujral’s rickety coalitions, Pranab Mukerjee as the finance minister and Sharad Pawar as the defence minister not to speak of Communist Party and Mulayam Singh Yadav and Laloo Prasad in the states. I don’t agree with the centrepiece of this alarmist picture about India: millions of jobs have to created, otherwise we will face certain ruin. Jobs are being created. We don’t have the right ways of measuring them. Whether for low-paying jobs as office boys or entry-level office assistants, jobs are aplenty in all major cities. Anecdotal evidence does not support the thesis of a vast army of jobless and restive youth. That’s a small quibble about the title of an eminently useful book. A must read.