mishra - which india matters - nyt (2013)
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Jonas Bendiksen/Magnum Photos
November 21, 2013 Issue
Which India Matters?
Pankaj Mishra
AnUncertain Glory: India and Its Contradictions
by Jean Drze and Amartya Sen
Princeton University Press, 434 pp., $29.95
Why Growth Matters: How Economic Growth in India Reduced
Poverty and the Lessons for Other Developing Countries
by Jagdish Bhagwati and Arvind Panagariya
PublicAffairs, 280 pp., $28.99
A man hammering inks and dyes rejected from nearby factories into powder that can then be resold, Mumbai, India,
2006
In 1961, soon after arriving in Japan as the American ambassador, Edwin O. Reischauer held
a public conversation with the Japanese economist Nakayama Ichiro. Their differences of
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perception illuminate many dilemmas of a developing nation like India today. The American
diplomat, a particularly sanguine exponent of Modernization Theory, believed that rapid
economic growth was well on its way to making Japan a Western-style developed nation and
a model for other non-Communist Asian countries. The Japanese economist worried that
economic growth that didnt take account of the social and political changes accompanying it
was unhealthy, and created more problems than it solved.
Like all modernizing countries with large rural populations, such as India and China, Japan
was hobbled by an economy with two distinct sectors: one was defined by modern
technology, a high ratio of capital to labor, and high worker productivity and wages; the other
had all the opposite traits. Rapid, unbalanced economic growth aggravated the innate
inequities of the dual structure, which in Nakayamas vision had serious political
consequences. Countries that develop without drawing large parts of the rural population into
the modern sectors of the economy were prone to social unrest and authoritarian regimes.
Nakayama knew this from bitter experience of the war that Japan, beset by severe internalcrises in the 1930s, had subsequently waged against many Asian countries and the United
States. Accordingly, he was keen to see postwar Japan develop an open, egalitarian, and
pacifist democracy.
Largely due to the macroeconomic approach of Nakayama and his colleagues, which
emphasized labor over capital productivity and technical training for people moving out of
the agrarian economy, Japan achieved sustained growth for close to two decades. Helped
considerably by American procurements during the Korean War and infusions afterward ofaid, investment, and technological innovations, Japan then turned into a major exporter of
goods and capital to East and Southeast Asia. Japan also became an example to the region
with its land reforms, industrial policy, well-designed state intervention in markets,
investments in education and health, which created a skilled and productive labor force, and
economic nationalismthe features that when carefully adopted helped in the remarkable
economic emergence of such countries as South Korea, Singapore, Taiwan, and Thailand.
Most of these developing states in East and Southeast Asia, however, came late to electoral
democracy. Indias own, much greater, challenges in the previous half-century are highlighted
by the fact that this bewilderingly diverse and oppressively hierarchical society set out in the
late 1940s to simultaneously build, without possessing much basis for either, an egalitarian
democracy and a modern industrial economy. Decades of colonial rule had damaged India,
saddling it by 1947 with an underproductive agricultural economy, a weak industrial base, and
extremely low levels of literacy (27 percent for men, 9 for women). Even more urgently
than their counterparts in Japan or South Korea, Indian leaders had to be sensitive to the
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needs of the poor, especially those among the low castes, and improve their capacities to
build the basis for both an equitable society and sustained economic growth.
In the early decades, India did make some gains in heavy industry and agriculture.
Investments in higher education created, among other things, generations of highly skilled
upper-caste Indians, many of whom can be found today in senior corporate and university
positions in the West. Poverty failed to decline appreciably despite Indian economicplanners obsession with growth. As the Columbia University economist Jagdish Bhagwati
put it, looking back in 1985 at his work in the 1960s with Indias Planning Commission, their
basic theme, i.e. growth with a view to eliminating poverty was too optimistic.
ong-term investments in education and public health were needed. But in these primary
tasks, Indias rulers failed disastrously. Their breathtakingly conservative approach to
social services can be blamed, as Amartya Sen has often argued, on the elitist character of
Indian society and politics. Democracy in India, B.R. Ambedkar, the leader of Indias low-
caste Hindus and the main author of Indias constitution, famously warned, is only a top
dressing on an Indian soil, which is essentially undemocratic. Certainly, for people who
claimed to be, and are still often mistakenly derided, as socialist, Indias rulers neither
matched the educational accomplishments of some socialist countries, nor did they help
unleash, like their counterparts in South Korea and Japan, entrepreneurial energies in the
countrys protected private sector, which accounted for the bulk of manufacturing output.
Instead of making the public sector more accountable, they imposed, as Bhagwati has often
lamented, irrational restrictions on business, spawning the license-permit Raj that mostlyenriched corrupt politicians and officials.
The liberalization of the Indian economy in 1991, and successive governments increased
business-friendliness, inspired fresh hopes that Indias extreme inequalities could be
alleviated. Indias economy had grown, moving from a rate of 5 percent in the 1980s to
nearly 10 percent until slowing down dramatically to less than half that rate in recent months.
InIndia in Transition: Freeing the Economy(1993), Bhagwati was among the first to hail
his old college friend Prime Minister Manmohan Singh, then the finance minister, for
leading India to a fresh tryst with destiny. By then Bhagwati had turned into, in his own
words, the worlds foremost free-trader. Claiming to be the intellectual inspiration behind
the 1991 reforms, he declared, We are finally in the spring of hope.
The period after 1991 did manifest some vivid and impressive signs of Indias transformation
by consumer capitalism. Helped by cheap credit, Western brands finally became accessible
to a middle class long starved of them by an economic regime that substituted Indian
products for imports. Many of Indias old corporate families, such as Tata, acquired major
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international companies. The potential size of Indias market1.2 billion consumers
managed to provoke a great deal of hype among hopeful businessmen, boosterish investment
consultants, financial journalists, and day-tripping columnists in the West. (Interestingly,
Chinese commentators and investors as- sessed Indias progress much more soberly.)
Yet today Indias economy manifests more serious impediments to widespread growth than
any of the other Asian economies. Economic growth has been led by the services sectoraloose category that includes information technology, telecommunications, banking, and real
estate and contributes nearly 50 percent to the GDPrather than manufacturing, which has
powered the growth of other East Asian economies. Agriculture, which still employs a
majority of Indias population, remains stagnant. A small, well-educated workforce enjoys
rising salaries, but there have been only very small increases in wages and productivity for
people trapped in the bottom half of the dual economy: agriculture and the so-called
informal or unorganized sector, which employ more than 90 percent of Indias labor
force.
The bulk of Indias aggregate growth, the Cornell economist Kaushik Basu warns, is
occurring through a disproportionate rise in the incomes at the upper end of the income
ladder. By 2010 Indias one hundred wealthiest people had increased their combined worth
to $300 billion, a quarter of the countrys GDP. Recent corruption scandals involving the
sale of billions of dollars worth of national resources such as mines, forests, land, water,
and telecom spectrums reveal that crony capitalism and rent-seeking, rather than
entrepreneurial dynamism and innovation in a free market, are the real engines of Indiaseconomic growth.
Furthermore, to a large extent this growth does not create jobsan alarming fact about an
overwhelmingly youthful country that adds 12 million to the workforce each year and whose
present economic pattern obliges it to move many millions more to urban areas from a
crisis-ridden agricultural sector where hundreds of thousands of farmers have committed
suicide in recent years. According to a widely cited report by Michael Walton, an economist
at Harvard University, the quality and distribution of Indias rate of GDP growth are
structurally disequalizing, i.e., causing more inequality. Its not only that India isnt
overflowing with Horatio Alger stories, as The Wall Street Journalput it. It is also
developing all the ingredients necessary for a Latin Americanstyle oligarchy.
hy Growth Matters, however, is a passionate case for more privatization and
liberalization, and less protection for labor. Bhagwati and Arvind Panagariya, who holds
a professorial chair named after his coauthor at Columbia, claim that India has already been
transformed from a basket case into a powerful engine of growth. They are convinced that
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faster growth and freer markets remain the best remedy for poverty, inequality, pollution, and
ill-health.
A contrasting viewthat there is something defective in Indias path to development
and a very different list of priorities appear inAn Uncertain Glory: India and Its
Contradictions. Amartya Sen and his frequent collaborator, the Belgian-Indian economist
Jean Drze, acknowledge that aggregate economic growth is important for generating publicrevenue, which can be used to reduce poverty. But it is only one of many different concerns
that need attention.
Amartya Sen has never wavered from his belief that, as he wrote in these pages in 1983,
growth rate is a very daftand a deeply alienatedway of judging economic progress. Sen
and Drze warned as early as 1995 that reforms that boost growth, though important, were
not enough to improve the living conditions of the poorest, let alone dismantle caste and
gender hierarchies and generate employment. They have to be supplemented, they wrote,
by a radical shift in public policy in education and health. Brazil, for instance, grew only 1
percent compared to Indias 5 percent from 1993 to 2005 but reduced poverty much faster.
Bangladesh, which is only half as rich as India measured by per capita income, now exceeds
India in, among other social indicators, life expectancy, child mortality, and immunization.
And China, by investing a greater proportion of its revenue in education, health, and nutrition,
has created a more solid basis for economic growthalthough Sen has often pointed out that
under Chinas authoritarian system, in which public criticism is suppressed, such
catastrophes as the death of over 30 million people by famine could take place.
Hoping to present material for informed and reasoned public engagement, Sen and Drze
carefully explain such issues as health care, education, corruption, lack of accountability,
growing inequality, and their suppression in Indias elite-dominated public space. It is only
the poor record and capacity of the Indian government that make one question their advocacy
of urgent state action on behalf of the poor.
The 2011 census revealed that half of all Indian households have to practice open defecation.
Nearly half of all Indian children are underweight (compared to 25 percent in sub-SaharanAfrica), and as Sen and Drze point out, despite a rise in literacy rates, a large proportion
of them learn very little at school. Almost all Indians buy health services from private
providers, exposing themselves to crippling debt as well as quackery. Inequalities have
widened between classes, regions, and rural and urban areas. More worryingly, they seem
unbridgeable owing to the lack of adequate education and public health. Not surprisingly,
poverty declines very slowly in India, slower than in Nepal and Bangladesh, and unevenly.
Calorie and protein intake among the poor has actually dropped.
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Subir Halder/India Today Group/Getty Images
Amartya Sen and Jean Drze, 2009
India today, the historian Ramachandra Guha writes,
is an environmental basket-case; marked by polluted
skies, dead rivers, falling water-tables, ever-
increasing amounts of untreated wastes, disappearing
forests. Meanwhile, as Sen and Drze write, the
largely corporate-owned media, deeply indifferent to
poverty and inequality, and reflexively intolerant of
any remedial action by the government, produce an
unreal picture of the lives of Indians in general by
celebrating the fame and wealth of billionaires and
cricket and Bollywood stars.
Indeed, perennially aggrieved columnists and TV
anchors have a crucial part in the deeper drama in
India, according to the political scientist Atul KohliinPoverty Amid Plenty in the New India(2012).
That drama is one of an elite that expands and is
entrenching itself. Increasingly impatient with the
rules and ethics of democracy, Indias ruling class
today consists, as C. Rammanohar Reddy, editor of
The Economic and Political Weekly, defines it, of
large Indian businesses, the new entrepreneurs in real
estate, finance, and IT, the upper segment of theurban middle classes, the upper echelons among the bureaucracy, and even large sections of
the media.
Whats immediately striking about this class of the relatively affluent is the degree to which
it shares the same interests and beliefs, and its reflexive hostility to government spending on
welfarealthough political parties feel particularly obliged to indulge in such spending
before elections. But the conservative rhetoric about buoyantly self-reliant entrepreneurs
hides the fact that, as Kohli writes, the Indian state since the 1980s has been pro-businessrather than pro-market, responsible both for the dynamic forces at the apex of Indias
economy and the failure to include Indias numerous excluded groups in the polity and the
economy.
This collaborative capitalism, of which Narendra Modi, the Hindu nationalist chief minister
of Gujarat, is the most egregious exponent, consists of the state extending tax benefits to
Indias largest businesses and facilitating their cheap access to national resources of oil, gas,
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forests, and minerals. In turn, the disproportionate control over economic resources,
Kohli writes, enables businessmen to buy politicians, shape decision-making through the
media, and even enter politics themselves.
major voice in the echo chamber of Indias elite belongs to rich and powerful Indians
abroad, especially in the United States, many of whom were naturally enthusiastic about,
and now wish to direct, the progress of the poor country they had to leave in the 1960s and1970s. Their reestablished links with the old country have underpinned the new strategic and
economic relationship between India and the United States. This diaspora has promoted a
friendly image of India, Bhagwati and Panagariya write in their new book, and with their
analysis and advocacykept pressure in favor of continued reforms. Indeed, one of the
most distinguished figures of this impressively credentialed Indian-American elitewhich
includes the venture capitalist Vinod Khosla, Vikram Pandit, the former CEO of Citibank, and
(until his conviction on insider trading) the investment banker Rajat Guptais Jagdish
Bhagwati himself.
Educated at Oxford and Cambridge, together with Manmohan Singh, Bhagwati worked with
Amartya Sen at the Delhi School of Economics before moving to the United States in the
1970s. In the changing ideological climate of Anglo-America in the 1980s and 1990s, he
emerged as a major advocate of free trade and globalization. We were economic theorists,
he recalls in his new book, and later turned to policy analysis that would help transform India
and the world. His pioneering work on trade policy became central in shaping the Anglo-
American assumption, also known as the Washington Consensus, that was the dominantideological orthodoxy before the economic crisis of 2008: that no nation can advance
without reining in labor unions, eliminating trade barriers, ending subsidies, and, most
importantly, minimizing the role of the government. From his perch at Columbia and the
Council on Foreign Relations, Bhagwati has provided intellectual authority and sustenance to
those who think that India, by prioritizing wealth-creation over health and education, can
become a role model for other developing nations.
Adversity in this endeavormanifested by Indias falling growth rate as well as rising
inequality and violenceseems to have made Bhagwati particularly cross with his fellow
Oxbridge-educated Indian economists who are still riding the bus that he and Manmohan
Singh, he claims, have gotten off. They fancied themselves, he writes in one of the books
many polemical asides, as Rosa Parks; in truth they were just intellectually lazy and
unwilling to learn from the ruin they had visited on India and its poor.
The people Bhagwati considers intellectually lazy or dishonest are a diverse lot. In his new
book, he accuses Joseph Stiglitz and George Soros of practicing Jurassic Park Economics
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and derides the works of Dani Rodrik, the well-known economist at the Institute for
Advanced Study, as hollow. He has denounced Oxfam as well as Muhammad Yunus, the
Bangladeshi economist who won the Nobel Peace Prize for promoting micro-credit ventures
among the poor. But no one has impersonated Rosa Parks more vexingly in Bhagwatis mind
than his former colleague Amartya Sen.
Why Growth Mattersprovides further variations on Bhagwatis insistent complaint that Senhas used his prestigious Nobel Prize as a weapon of mass destruction against Indias
potential for economic growth. Much of the book consists of an attempt to mock and
repudiate Sen and Drzes ideas, even where the two are not named; it then deplores what
Bhagwati and Panagariya see as the sentimental liberalism embodied by such institutions as
the World Bank and the World Health Organization.
Were health and education neglected during Indias early decades? Not at all, the authors
assert. Slow growth and limited revenues were to blame. Does India today resemble
Americas Gilded Age in the privileges of its upper classes? The allegation is not
persuasive. What about inequality? When mobility is high, as they claim it is in India, the
poor may react by celebrating the conspicuous inequality. Is India doing worse than
Bangladesh in human development despite its much higher growth? These inferences are
plain wrong. What about corruption? The reforms Bhagwati advocated bid good-bye to
many forms of corruption. Does the decline in Indian calorie consumption, as shown by
WHO statistics, reflect increased hunger and poverty? The decline could be due to a shift
from coarse grains to rice and fruits. In any case, Bhagwati and Panagariya add, withoutsaying how it can be done, malnourished families should be shifting their diet to more milk
and fruits.
There is much about this shadow-boxing that makes one wonder if Bhagwati, moving like
many intellectual elites between the bubble of universities and think tanks and the private
hothouse of professional rivalry, has lost touch with how the other halfor the 99 percent
lives.
Bhagwati and Panagariya dont examine in any depth the nature or likely sustainability ofIndias economic growth, which, based primarily on extractionof natural resources and
cheap labor and foreign capital inflowsrather than high productivity and innovation, seems
to have run up against its built-in limits. They urge India to develop more Chinese-style
low-skilled, labor-intensive industries. They are right to blame mindless regulation for
Indias lost lead over a smaller and poorer country, Bangladesh, of clothing export. But then,
investors keep shifting factories to low-wage countries because of the mobility of capital and
the fierce trade competitiveness that Bhagwati recommends as a sure formula for
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prosperity. His fervent advocacy on behalf of Indias potential clashes with the fact that
globalization can shrink a nations comparative advantage pretty quickly, and, even when
usefully deployed, can entrap late-industrializing national economies in low income.
Why Growth Mattersdoes offer some practicable improvements to Indias poor social
infrastructure, for example, training programs for nurses and collectively insuring residents
of rural regions against major illnesses. But too many of its recommendations seemindistinguishable from the talking points of Paul Ryan: the authors advocate vouchers for
schools and hospitals, and targeted rather than universal health coverage. As for extensive
environmental destruction, the correct way to diagnose this issue is to say that we have a
missing market regarding pollution. How such a market could come into effect and reduce
pollution they do not make clear.
Predictably, Bhagwati and Panagariya propose direct cash transfers for performance of
specific jobs rather than guaranteed wage employment in public works. Exemplifying another
right-wing article of faith, they admire the weakness of labor unions in not only Taiwan,
South Korea, and China, but also Bangladesh, which allows firms to hire and fire workers
under reasonable conditions and maintain a balance between the rights of both workers and
employerswords that would have sounded bizarre even before the collapse in April this
year of a garment factory in Dhaka that killed more than a thousand workers, exposing yet
again the slave-labor conditions of many unprotected toilers in the globalized economy.
ooking back at the conversation between Nakayama and Reischauer, and its echoes in
Bhagwatis disagreements with Sen, it seems clear that for postwar Japanese economists
and policymakers, eliminating poverty and reducing inequality were profoundly political
and ethicalchallenges. Writing in the early 1970s, Reischauer seemed to concede the
argument to his Japanese interlocutor by admitting a broad causal relationship between
imbalanced growth and eventual instability.
Nakayamas implicit argumentthat high economic growth can empower an insular, selfish,
and antidemocratic elite in an unequal societyseems particularly applicable now to a
cruelly stratified country like India, where, as judges of the Indian Supreme Court recentlyput it, predatory forms of capitalism, supported and promoted by the State are pushing the
poor to the wall. This is exemplified vividly by the tribals protesting their dispossession by
mining companies and local governments in central Indiapeople often led by armed
Maoists.
Rising social unrest is making an insecure Indian elite gravitate to such hard-line leaders as
Narendra Modi, whose well-advertised toughness with labor unions and PR-enhanced
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business-friendliness make him the preferred choice of many corporate leaders, economists,
and commentators as Indias next prime minister. Bhagwati, for instance, has described
Modi as a positive role model with an unblemished record of personal integrity. As chief
minister of Gujarat, Modi was allegedly complicit in the killing of over a thousand Muslims
there in 2002 and was barred from traveling to the United States as a result. But he still
embodies managerial efficiency and iron discipline to those disturbed by the political
assertiveness of the poor and the disaffected.
In fact, the political energies of the hundreds of millions of the poor and disaffected are still
underdeployed. Could they lead to a more accountable and responsive state and, in the long
run, to a more egalitarian and democratic India? Sen and Drze seem convinced that the poor
themselves rather than technocratic elites can help remove poverty and inequality by keenly
participating in the public sphere.
This bottom-up democratization may seem like a remnant of modernization theory. And
Sen and Drze offer no clear vision of the economicas distinct from politicalprocess
that would help their cause of equity, and also check environmental destruction. But the poor
in India still have a great capacity to aspire, as the social anthropologist Arjun Appadurai
claims in his new book. And their collective efforts can make the state more accountable
and efficienta possibility that Bhagwati and Panagariya ignore while lamenting the states
incapacity and corruption. In the state of Tamil Nadu, for instance, mobilized lower-caste
groups not only achieved political power. They also, as Sen and Drze have written,
established a social infrastructureschools, health centers, roads, public transportthat isnow envied across India. Sen and Drze also reveal how democracy in its simplest
manifestation, the scramble for votes, can drive successful implementation of welfare
programs such as the Public Distribution System. They see more hopeful signs in the
recent mass agitations against corruption and violence against women.
Many observers of India are generally impressed by the procedures of Indian democracy,
with its routine elections. India, Bhagwati and Panagariya assert, has all elements of a liberal
democracy with the poor and the underprivileged having access to effective politics at the
ballot box. But as Sen and Drze point out, the success of a democracy depends ultimately
on the vigor of its practice. Certainly, creeping authoritarianism of the kind witnessed in
India can make political reform from below seem more urgent than economic engineering
from the top. Educate, agitate, and organize, the disenchanted low-caste author of Indias
constitution B.R. Ambedkar exhorted. Many more Indians will have to exercise these
democratic rights if they wish to transform the profoundly damaging elitist character of
Indian society and politics.
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For a fascinating discussion of the challenges confronting postwar Japanese economists, see Laura E. Hein, In Search of Peace and
Democracy: Japanese Economic Debate in Political Context, The Journal of Asian Studies, Vol. 53, No. 3 (August 1994).
Nakayama suspected that the ruling elites pathology of endless growth had led his country into domestic repression and external
aggression. Reischauer, like all teleological-minded modernizers, was inclined to see Japans aggression as a blip on its way to the
modern world, one caused by bad decision-making and aberrant militarism. Such a view was in line with the American attempt topresent Japan as an exemplar of benign Westernization to non-Communist Asia during the height of the cold war. This
normalization of Japan extended to whitewashing the war crimes of Emperor Hirohito. Many scholars of p re-1945 Japan did not
buy the Reischauer Line, as the evolutionary modernization argument was subsequently called. An early and prominent dissenter
was the Canadian diplomat E.H. Norman, who pointed to the facts of uneven development and widespread poverty in pre-war
Japan. See John W. Dower, E.H. Norman, Japan, and the Uses of History in Ways of Forgetting, Ways of Remembering: Japan in
the Modern World(New Press, 2012).
The debate between Reischauer and Nakayama took place just before economic growth in Japan began to reveal its costs, provoking
a strong down with GNP protest movement. Environmental spoliation and urban overcrowding on a large scale mocked the
original goal of raising living standards. The dualism Nakayama feared did vanish, but it reincarnated itself in gaps between
permanent and temporary jobs, male and female workforces.
A classic account of Japans economic rise is Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy,
19251975(Stanford University Press, 1982).
For an insightful analysis, see the articles in The Political Economy of the New Asian Industrialism , edited by Frederic C. Deyo
(Cornell University Press, 1987), esp ecially the one by Bruce Cumings. A more journalistic and contemporary account is in Joe
Studwell,How Asia Works: Success and Failure in the Worlds Most Dynamic Region(Grove, 2013).
The uniqueness of this experience is best illustrated by the fact that much of Europe introduced universal suffrage and social welfare
programs in the early twentieth century after building a capitalist and industrial economy, const ructing a bureaucratic state, and
achieving a degree of prosperity. Democracy in India, promulgated before the preconditions for it existed, has seemed to hamper
both economic growth and national cohesionone reason why many in the countrys middle classes revere such authoritarian figures
as Singapores Lee Kuan Yew.
Much scholarship has been devoted to the destruction of Indias vibrant eighteenth-century economy by British imperialists. Some
new evidence is p resented in Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not: Global Economic Divergence,
16001850(Cambridge University Press, 2011).
Deepak Nayyar argues that Indias economic performance in the 1950s, 1960s, and 1970s was a great departure from the past , and
not much inferior to that of comparative countries. See Deepak Nayyar, Indias Unfinished Journey: Transforming Growth into
DevelopmentModern Asian Studies, Vol. 40, No. 3 (July 2006). For a panoramic account, see Stuart Corbridge, The Political
Economy of India since Independence inRoutledge Handbook of South Asian Politics: India, Pakistan, Bangladesh, Sri Lanka, and
Nepal, edited by Paul R. Brass (Routledge, 2010).
For a full account of the making of this elite that the writer Vijay Prashad calls t wice blessed, first by Indias world-class
institut ions and then by immigration reform in the United States, see Anita Raghavan, The Billionaires Apprentice: The Rise of the
Indian-American Elite and the Fall of the Galleon Hedge Fund(Business Plus, 2013).
Dependence and Interdependence: Essays in Development Economics, Vol. 2, edited by Jagdish Bhagwati and Gene M. Grossman
(Basil Blackwell, 1985).
For a skeptical view of Indian socialism, see Kaushik Basu, The Enigma of Indias Arrival: A Review of Arvind Virmanis
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Propelling India: From Socialist Stagnation to Global Power,Journal of Economic Literature, Vol. 46, No. 2 (June 2008).
The socialist Indian state is commonly blamed for putt ing Indias economy into a prot ective straitjacket, and for a feeble industrial
policy that led to Indias failure to capitalize, along with East Asian economies, on the new openings for world trade in the 1970s.
Vivek Chibber, among others, has argued that Indian industrialists successfully campaigned against state-led development of the kind
South Korea benefited from. SeeLocked in Place: State-Building and Late Industrialization in India(Princeton University Press,
2003).
Bhagwati helped seed the euphoric notioncommonplace now among most commentators on South Asiathat India began to move
out of decades of socialist stagnation after seeing in 1991 the light of free trade and globalization. In fact, growth had started
accelerating in the 1980s, helped by the governments pro-business reforms. Irrational exuberance in the West, and effective
networking at such forums as Davos by Indian politicians and corporate chieftains, account for the breathless and repetitive
descript ions of India as a t iger economy in recent years. There was litt le reason to compare it to Chinas immensely larger, more
productive, and broad-based economy.
The overall share of manufacturing in the GDP has stagnated at 16 percent. It part ly accounts for Indias tiny 1.4 percent share of
world trade, compared to Chinas 15 p ercent.
Despite its serious flaws, China has managed relatively smoothly its structural transformation from an agrarian to an urban, labor-
intensive economy. In India, jobs in manufacturing as well as agriculture have actually shrunk in the previous decade. Theconstruction sector has absorbed many of the disp laced job-seekers, but they will be unemployed again when the real estate boom
ends. See Hans P. Binswanger-Mkhize, The Stunted Structural Transformation of the Indian Economy, The Economic and
Political Weekly, June 29, 2013.
Wages in Chinas manufacturing sector have grown by 12 percent since 2000, compared with 2.5 percent in India. There are also
more workers without social security than before in Indias organized industrial sector. Thus, economic growth has not benefitted
even employed workers, let alone the vast majority of the unemployed and unemployable. See Himanshu, Growth Versus
Redistribution,Mint, July 19, 2013. The social anthropologist Jan Breman, a long-standing observer of Indias uniquely large
informal economy, writes p ercept ively in his new book about the abysmal working conditions of the p oor in Gujarat, a high-
growth state. SeeAt Work in the Informal Economy of India: A Perspective from the Bottom Up(Oxford University Press, 2013).
Basu is a former economic adviser to the Indian prime minister Manmohan Singh. See his Indias Dilemmas: The Political Economy
of Policymaking in a Globalised World, The Economic and Political Weekly (February 28, 2008).
SeeIndia: Economic Development and Social Opportunity (Oxford University Press, 1996), p. 16.
See his essay Press Freedom: Who Is It Good For?, to be published in the autumn issue ofIndex on Censorship.
The measurement and estimates of poverty are vigorously contested. But it is fair to say that by even the most conservative
estimate, the absolute number of poor in India is enormous, and may exceed the entire population of the United States. See Sabina
Alkire and Suman Seth, Multidimensional Poverty Reduction in India between 1999 and 2006: Where and How?, Oxford Poverty
and Human Development Initiative Working Paper No. 60, March 2013. Increasing inequality only slows down the rate of poverty
reduction. See Himanshu, Poverty and Inequality in IndiaII: Widening Disparities during the 1990s, The Economic and Political
Weekly, Vol. 39, No. 39 (September 25October 1, 2004).
See Harsh Mander,Ash in the Belly: Indias Unfinished Battle against Hunger(New Delhi: Penguin, 2012).
The recent floods in Himalayan valleys, which claimed thousands of lives, focused international attention on illegal deforestation,
construction, and mining, and feckless dam-building. The World Bank estimates that environmental damage reduces Indias GDP by
5.7 percent. The figure would be greater if it took into account the loss of livelihoods of millions of Indians who depend on forests,
farms, rivers, coasts, and grasslands. For an eye-opening account of environmental depredation in India, see Aseem Shrivastava and
Ashis Kothari, Churning the Earth: The Making of Global India(Delhi: Penguin, 2012).
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Though, according to a new report by the Asian Development Bank, India spends less than Nepal and Timor-Lesteonly 1.7
percent of its GDP on health, income, employment, and other forms of social protection. As Sen and Drze point out, affluent
Indians p rotesting against the right-to-food bill that would annually cost Rs. 27,000 do not object to t he tax exemption on diamond
and gold import s that annually costs the Indian treasury more than Rs. 57,000 crores a year, or the even more wasteful subsidies on
diesel fuel that benefit the rich. The advocacy by Sen and Drze of social services, and their opposition to Narendra Modi, have
provoked many angry at tacks on them in the corporate-owned media, including the baseless charge of charlatanry. See R.
Jagannathan, Food Bill: Amartya Sens Charlatan Economics Debunked,Firstpost, July 10, 2013.
Such incentives make it harder for the government to raise the revenues needed for public spending. Also, the possibility that they
may not be enhanced, or even withdrawn, provokes Indian businessmen to look elsewhere for greater profits. Indian beneficiaries of
both the old protectionist and new crony capitalist regime such as Birla and Ambani are now putt ing the bulk of their investments
abroad.
The pecuniary logic of the free market is redefining Indias journalism as well as politics. In 2010, Indias leading television
personalities were caught on tape offering their services to business lobbyist s. The managing editor of the Times of India, Indias
biggest English-language newspaper, which pioneered the phenomenon of paid news, recently told The New Yorkerthat we are
not in the newsp aper business, we are in the advertising business. The Press Council of India, a monitoring body, commissioned
and then tried to suppress a report on p aid news. It can be read at www.outlookindia.com/article.aspx?266542. Investigative
reports on corporate-political skullduggery or police brutality are confined to small-circulation magazines such as such as Tehelkaand Caravan. In one of Indias most recent scandals, the government raised gas prices in order to benefit one of the Indias largest
corporations, Reliance, and its global partner, British Petroleum. The corporate-owned media as well as the main opposition parties
stayed conspicuously silent. See Anuradha Raman and Prarthna Gahilote, Lips and Purse-Strings, Outlook India, July 15, 2013.
Briefly, in the 2000s, India seemed to have replaced Japan in the American strategic imagination as an exemplary Asian democracy
with p ro-American elitesone that can be usefully counterposed to authoritarian China.
The intellectual synergy that creates t he elite consensus about reforms in India is now subsidized by conservative American think
tanks such as the American Enterprise Institute, the Cato Institute, and the Peterson Institute, which employ economists and
journalists of Indian origin and ancestry .
Full disclosure: in a speech to the Indian parliament, Bhagwati described my October 2010New York TimesOp-Ed on rising
inequality, farmer suicides, and Maoist insurgency in India as fiction masquerading as non-fiction.
More recently, Bhagwati has compared Sen, unfavorably, to Mother Teresa.
Arvind Panagariya has attempted to prove that malnutrition rates in India are based on faulty WHO methodology and that Indian
children are genetically programmed to be short. See Does India Really Suffer from Worse Child Malnutrition Than Sub-Saharan
Africa?, TheEconomic and Political Weekly, M ay 4, 2013. Also see a rebuttal of Panagariyas argument by several economists in
The Economic and Political Weekly, August 24, 2013.
For a sobering analysis, which claims that Indias economic boom, part of a worldwide expansion before the crisis of 2008, and led
by debt and exceptional flows of foreign capital, was unsustainable, see R. Nagaraj, Indias Dream Run, 20032008: Understanding
the Boom and its Aftermath, The Economic and Political Weekly, May 18, 2013.
As Thomas Friedman put it in his inimitable fashion, if you are a little too slow or too costly...you will be left as roadkill before
you know what hit you.
Even Walmart now calls Bangladeshs working conditions unacceptable. See Jim Yardley, Bangladesh Pollution Told in Colors
and Smells, The New York Times, July 14, 2013. On Indias own unsafe work sites, see the series of articles by Maitreyee
Handique forMint, including Damage Done, But Damages Stay Unpaid, October 8, 2009.
What Went Wrong? inDilemmas of Growth in Prewar Japan, edited by James William Morley (Princeton University Press,
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1971).
An estimated 10,000 to 20,000 armed Maoists are active in one third of Indias districts. The governments resp onse is borrowed
from its counter-insurgency measures in Kashmir and the northeastern states. But the show of brute force in affected parts of central
India by p aramilitaries and p rivate militias makes the s ituation even worse.
For a revealing profile of Modi by Vinod K. Jose, one of Indias best journalists, see The Emperor Uncrowned: The Rise of
Narendra Modi, The Caravan, M arch 2012. Also see Christop he Jaffrelot, Gujarat Elections: The Sub-Text of Modis
HattrickHigh Tech Populism and t he Neo-middle Class, Studies in Indian Politics, Vol. 1, No. 1, (June 2013).
As in p re-war Japan, and many other countries, the elites quest for p ower expresses itself as a preference for a hardline state.
The Future as Cultural Fact: Essays on the Global Condition (Verso, 2013).
For more links between political enlightenment, democratic mobilization from below, and egalitarianism, see Kohlis Poverty Amid
Plenty in the New India, with its comparative studies of West Bengal, Uttar Pradesh, Kerala, and Gujarat.
According to the Planning Commission, poverty rates in rural areas, esp ecially those in states with low growth rates, have declined
faster than in urban India due to increased government spending on welfare programs.
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