April 03, 2002

Questions About India

Thank you very much for your long and very insightful critique of the paper I did for Dani's "growth theory meets reality" conference. India is on my mind these days because we at the _Journal of Economic Perspectives_ are trying to edit our forthcoming India symposium (Ahluwalia on the past reform decade, Ravallion and Datt on poverty trends, and Tirthankar Roy on the long sweep of history). (Indeed, I have Roy's _Economic history_ and Gunchuran Das's _India Unbound_ on my bedside table right now.) Yet the more I think and learn, the less I think I know and understand about Indian economic development. There are fundamental and basic questions about which I am totally clueless.

For example:

(1) If relatively small reforms in the past decade and a half moving economic policies a few steps in a neoliberal direction have doubled the growth rate of Indian productivity, why was Indian growth so slow under the British Raj's largely classical policies back before 1947? (Roy seems to propose a four-part explanation: (i) extremely low net savings rates, (ii) next to no financial system to channel capital from savers to investors, (iii) astonishingly low rates of schooling, (iv) immense burdens from the rapid population growth produced by a delayed demographic transition, and (v) barriers to entrepreneurship, adjustment, and knowledge transmission produced by caste in the broadest possible sense--the most important barrier of which divided the Britain-born segment of the Ksatriya from the rest of the India-resident population.)

(2) The failure of state governments within India to imitate policies adopted by their neighbors that have proved successful. Kerala sticks out like a healthy thumb along many dimensions. I would think that in any election-based political system the campaign slogan "they did it in Kerala, we can do it here if only we throw the rascals out" would be unstoppable.

(3) How to divide the acceleration of growth in the 1980s, before the exchange rate crisis, into (i) beneficial effects of minor reforms that nevertheless raised potential output by improving (static) efficiency, (ii) beneficial effects of minor reforms that made it possible to greatly increase the efficiency of investment, and (iii) unsustainable increases in production above potential output that were the source of macroeconomic instability.

(4) The causes of the extraordinary divergence in state-level reforms in the 1990s.

(5) Whether India's pre-1990 performance should be taken as par for the course--about normal for a "developing" country, or whether India had sufficient unique advantages in 1947--political democracy, a large upper class literate in the world's leading technical language of English, effective rule of law, a competent civil service, and so forth--that its growth should have exploded thereafter, and only policies that turned out to be an order of magnitude more malign than those usually found could hold it back.

(6) Is it appropriate to call one of the leading currents in Indian politics today "fascism with an Indian face"--if fascism can be used as an analytical term rather than a term of abuse. Specifically, if one goes back to the foundation of European fascism around World War I, one finds:

--a glorification of the ethno-nation
--a belief that the ethno-nation will realize its glorious destiny only if it has strong leaders to follow
--contempt for the redistributive politics of parliaments dominated by interest groups.
--contempt for the "cretinism of parliaments" in general
--a belief that the ethno-nation not only should, but must band together because it has powerful enemies.

There is (or used to be) a strand in the political science literature that blamed the growth of this current of political thought in Europe on the stresses produced by rapid urbanization and industrialization--as all that's solid melts into air, an assertion of group identity with the ethno-nation and a search for a leader to make sense of it all becomes overwhelming.

(7) Given the extraordinary and visible benefits of the past decade or so of reform, how is it that the pace of reform remains so slow? I mean, where is the Coase theorem when you really need it?

(8) A deeper question: Europeans with state-of-the-art ships appear off the seas of India in the first quarter of the sixteenth century. Mongol-Turks with state-of-the-art firearms and tactics cross the Indus in the first quarter of the sixteenth century as well. At that moment the relative race for technology and organization between the European and the Muslim ekumenoi hangs in the balance: Mehmet II does, after all, employ the world's largest and most advanced cannon in the conquest of Constantinople in 1453. For the folllowing two centuries--until perhaps 1650--the Ottomans are regularly able to muster and supply armies and fleets that are larger and at least as technologically advanced and well-disciplined as their Spanish, Italian, Hungarian, and German adversaries.

Babur's army and tactics overwhelm Delhi Sultanate armies from five to ten times their size, and at a time when the Portuguese are barely able to hold on to Goa the Mughal Empire secures the entire Indo-Gangetic plain. Yet in spite of their (largely) alien religion and (largely) alien language, the Mughal cadres seem to leave little lasting impact. And two centuries later, as the struggle of the Mughal diadochi for the corpse of the Empire begins, it is armies trained by Europeans that have the advantage in organization, supply, and discipline, and that seem able to defeat enemy armies five to ten times their size...

Why the failure to keep up--indeed, why the loss--of Mughal social-organizational-capability?

(9) A naive macroeconomist looking at India's low tax yield and extremely high fiscal deficit would be really, really worried. If growth halts (for any reason) for three years, it seems likely to produce a loss of confidence, large scale capital flight, and a potential fiscal disaster of Argentine proportions. And if it then turns out that any substantial share of financial institutions or industrial corporations have debts that are effectively denominated in dollars, euros, yen, or pounds, then pandemonium... Would a not-naive macroeconomist who knows something about Indian institutions be really, really worried about the current situation too?


Until I can come up with half-convincing answers to these nine questions, I won't think that I understand India at all...



Sincerely yours,



Brad DeLong

Posted by DeLong at April 3, 2002 04:05 PM | TrackBack

Comments

I am not sure if you are still looking for answers. But here is my amateur take on some of the questions.

(1) Though British policies were largely classical there was a strong anti-indian bias, also though the British were hegemons large parts of the country continued to be ruled by their feudatories.

(2) Populism, illiteracy and strong caste biases. The last is particularly true of the post-1989 reservation policy that has given Politicians a pretty large carrot to hang before the electorate under the guise of affirmative action.

(4) and (7) Same as above, and add to that a strong socialist-mercantilism that is still the ideology of choice for most of the political parties. Also differences in the urban-rural distribution of populations, incomes and vote-banks.

(8) The mughals did not control the country centrally except under the first 6 rulers, even then they had feudatories and only controlled the areas north of the present states of Maharashtra and Andhra Pradesh.

There were many independent regional dynasties, amongst those that were powerful at the time of the European advent were the Marathas along the western coast and accross the deccan plateau, the Rajputs in the north western desert, the Sikhs in Punjab and the small dynasties in the south like Tipu Sultan at Mysore and the Rulers of Kerala.

India was not a unified country, it only gained the appeareance of one under the British.

Posted by: Gautam on October 30, 2003 02:41 AM

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