Demystifying the Hype

• Author: Razeen Sally
• Position: Director, European Centre for International Political Economy, Brussels
• Pages: 54

Page 54

India: The Emerging Giant

Oxford University Press, Oxford and New York, 2008, 545 pp., $39.95 (cloth).

Arvind Panagariya has written probably the best all-around, up-to-date, and accessible book on the Indian economy. It is informed by the analytic apparatus of a leading international trade economist, yet it is packed full of useful real-world detail. It has a comprehensive range- but it links the separate elements into a coherent whole. It is a superlative work of applied economics, and it is also sensitive to India's political economy. It has pointed, punchy policy conclusions: Panagariya is not shy about attacking those he thinks have got it wrong on the Indian economy, and he does so with a powerful combination of analytical argument and detailed evidence. Finally, though the book was written before the current global economic crisis, its fundamental conclusions remain as valid as they were before the crisis.

This decade's Goldilocks global economy (which ended in 2007-08) has encouraged "India hype," and with it a misdiagnosis of India's seemingly successful recent economic performance. India-hype peddlers paint an impossibly glossy picture of the Indian economy. This has very little to do with Indian reality.

One aspect of India hype that has been given a degree of academic respectability by some business school professors and academic economists is the thesis that India is forging a separate successful path to development, in contrast with the traditional comparative-advantage-based development of China and other industrialized Asian economies. At its extreme, this argument holds that India's growth engines are its high-end service and now manufacturing sectors, with their globalizing, world-beating companies. Dani Rodrik and Arvind Subramanian go one step further: they give some credit to past dirigiste policies for laying the groundwork for recent economic success and downplay the role of the post-1991 market reforms in generating better economic performance.

Panagariya attacks these arguments head-on. He highlights Indira Gandhi's disastrous economic policies (from the mid-1960s to the early 1980s), which turned India's back on its comparative advantage in labor-intensive activities and entrenched destructive regulations that are still difficult to dislodge (not least in labor markets). And he gives due credit to pro-market reforms, not just from reform bursts in 1991-93 and 1998- 2004, but also in the...