Books
Isher Judge Ahluwalia and I.M.D. Little (editors)
Oxford University Press, Oxford, 1998, viii + 412 pp., £19.99 (cloth).
When asked to name economic reformers in South Asia, most economists would put Manmohan Singh at the head of the list. The late Harry G. Johnson used to say half-seriously that economists have their best ideas by the time they are 35 years old but are only in a position to implement them when they are over 50. By that time, unfortunately, their ideas are 15 years out of date! Manmohan Singh does not fit this pattern. It is true that his ideas on the relation between foreign trade and India's development were formed when he was studying at Cambridge University in the early 1960s. He then became part of the Indian policy-bureaucratic establishment, holding a number of senior government posts, including Deputy Chairman of the Planning Commission and Governor of the Reserve Bank of India. In 1991, he was appointed Minister of Finance, when India was in the midst of a very serious economic crisis. The time was opportune and Manmohan Singh put in place a series of measures designed-and destined-to change the Indian economy in a fundamental way. His ideas on the importance of macroeconomic stabilization and opening up the trade and payment system were hardly outdated; indeed, they were completely consistent with the economic thinking and philosophy sweeping the world at the time.
In putting together this volume to honor Manmohan Singh, the editors have created required reading for those with more than passing interest in the Indian economy. The topics covered in the volume deal with virtually all of the important economic policy issues in India-development strategy, transition to an open economy, poverty, and fiscal federalism. The editors were also able to attract the very best of Indian economists to write on these issues, including a number who have settled abroad and attained worldwide fame. The result is a first-rate volume that will be of value for the economics profession at large.
The volume contains an excellent introductory chapter, followed by 15 papers covering 4 major themes. The first three papers-by Jagdish Bhagwati, Meghnad Desai, and Amartya Sen, respectively-reexamine the development model India adopted in the 1950s and then show how the reforms associated with Manmohan Singh fundamentally altered India's development strategy. Desai argues that the early strategy-with its emphasis on self-sufficiency in capital goods production and neglect of agriculture and exports-was flawed to begin with. Bhagwati disagrees with Desai's thesis, claiming that the strategy only started to fail in the 1960s, when India continued to rely on import substitution and did not follow the East Asian export-oriented growth model. But export orientation was not part of the basic development model India had chosen, so a shift to the East Asian model, as suggested by Bhagwati, would have been inconsistent and unlikely. It was only when Manmohan Singh came on the scene that Indian policy and attitudes toward exports and export promotion changed. Sen, for example, outlines in considerable detail the thinking of Manmohan Singh, as contained in Singh's 1964 book on trade and development in India, India's Export Trends and the Prospects for Self Contained Growth. He points out that many of the now-standard arguments for export-led growth are in the book, although very carefully and cautiously worded, reflecting, no doubt, Indian politics and Cambridge University economics at that time.
Expanding further on the export theme, T.N. Srinivasan demonstrates that openness has positive effects on both the level and growth of output. This theoretical result runs counter to the neoclassical growth-theory proposition that foreign trade has only level effects in the steady state. He backs up his theoretical hypothesis by referring to the large number of empirical studies that have shown the positive effects of openness on the growth rate. While Indian exports have risen significantly as a consequence of the Manmohan Singh reforms, Srinivasan believes they remain hampered by the lack of infrastructure, particularly port facilities, and the bureaucratic red tape that has inhibited foreign investors from moving into the export sector. This is where the next set of reforms should be instituted.
From the standpoint of theory and experience, macroeconomic stabilization is a necessary condition for structural reforms to succeed in permanently raising the growth rate. Manmohan Singh recognized this, and the first thing he did upon coming into office was put in place a macroeconomic adjustment program with IMF support. This program combined monetary, fiscal, and exchange rate policies to reduce the gaping internal and external imbalances that had emerged in India. Unfortunately, the volume...
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