CASE FOR DEEPER REFORM
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