CASE FOR DEEPER RE­FORM

India Today - - LEISURE -

Vi­jay Joshi be­gins by ask­ing whether In­dia can achieve a per capita GDP of $28,000 at 2011 PPP dol­lars, by 2040. That is about the level in Greece to­day, i.e., in the lower rung of high-in­come coun­tries. This is another way of ask­ing whether our GDP can grow at about 8 per cent per year for two-and-a-half decades. We grew faster than that in the six years be­fore 2008, and government spokesper­sons of­ten sug­gest that we will soon get back to 8 per cent and then go higher. How­ever, Joshi warns that this will not be easy. The in­ter­na­tional en­vi­ron­ment will be less sup­port­ive than it was pre2008, and in any case, only China grew at 8 per cent for three decades. Both Ja­pan and Korea grew at only 7 per cent per year on aver­age over a sim­i­lar pe­riod. Joshi be­lieves high growth is pos­si­ble, but only if we aban­don the “par­tial re­form model” we have been following since 1980. He notes that re­forms were briefly ac­cel­er­ated in 1991, but we then slipped back into a slow, par­tial re­form mode, and successive gov­ern­ments have fol­lowed es­sen­tially the same path. This will not en­able us to over­come our many prob­lems, which in­clude “rot­ten in­fra­struc­ture”; highly in­flex­i­ble labour mar­kets which dis­cour­age the cre­ation of good qual­ity em­ploy­ment; poor ed­u­ca­tional and health sys­tems; un­com­pet­i­tive public en­ter­prises; a public sec­tor bank­ing sys­tem which can­not meet the com­plex credit needs of a rapidly growing econ­omy; and a dys­func­tional ju­di­cial sys­tem in which com­mer­cial dis­putes may take 20 years to be set­tled.

Rapid growth of GDP re­quires high rates of growth of pro­duc­tiv­ity, and Joshi ar­gues that only pri­vate en­ter­prise, work­ing within a gen­uinely com­pet­i­tive mar­ket en­vi­ron­ment, can do the trick. How­ever, he clar­i­fies that he is no mar­ket fun­da­men­tal­ist. He recog­nises there are many types of mar­ket fail­ure which jus­ti­fies government in­ter­ven­tion, but he rightly points out that government must in­ter­vene in­tel­li­gently, to im­prove the func­tion­ing of the mar­ket, not to re­place it. He is also not an ad­vo­cate for smaller government since he ac­cepts that government must take re­spon­si­bil­ity for de­liv­er­ing es­sen­tial public ser­vices, es­pe­cially in health and ed­u­ca­tion, which is bound to ex­pand government ex­pen­di­ture. How­ever, he points out that even if government has to fi­nance the pro­vi­sion of these ser­vices, it doesn’t have to pro­vide them through di­rect public sec­tor de­liv­ery. Ed­u­ca­tion vouch­ers are a sub­sti­tute for set­ting up schools in the public sec­tor. Highly sub­sidised health in­sur­ance (even free for a ba­sic pack­age) is a sub­sti­tute for set­ting up more government hos­pi­tals.

A cen­tral the­sis of the book is that we have

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