Vijay Joshi is one of the most thoughtful commentators on the Indian economy. His trilogy of books—India: Macroeconomics And Political Economy, 1964-91; Indian Economic Reforms, 1991-2001; India’s Long Road: The Search For Prosperity—are among the best in their category. The first two were written in collaboration with the great Ian Little, teacher to a generation of Indian economists, including former prime minister Manmohan Singh. The L K Jha Memorial Lecture that Joshi delivered with his trademark clarity at the Reserve Bank of India this week is a clarion call for the next wave of economic reforms.

Joshi argues that the “partial reforms model" since 1991 has now run into diminishing returns. The next round of radical reforms is needed to boost growth, in his words, “to keep the engine of productivity firing on all cylinders".

The key political economy challenge is to establish the correct balance between the state, the market and the private sector. “India has not fully recovered from a bad case of old-fashioned socialism, with its belief in the benefits of state ownership of the means of production, and its propensity for arbitrary state intervention in the operation of the markets. We have yet to complete the move to becoming a modern social democracy," he said.

What is to be done? Joshi recommends a five-pronged agenda—privatization, employment creation, deep fiscal adjustment, primary education and building state capacity. There is little to disagree with in this broad wish list, though it is heavily derived from the original reform programme of the early 1990s. Later focus areas, such as financial inclusion, formalization of the Indian economy, ease of doing business, and integrating the domestic market, get less explicit attention; they sometimes feature as components of the broader strategy, rather than policy goals in themselves.

At the cost of simplification, it is fair to say that the reforms agenda Joshi has laid out is profoundly influenced by the development success of the tiger economies of Asia, with their focus on macroeconomic stability, adequate provision of public goods, labour-intensive industrialization and dependence on exports to make up for the inadequacy of domestic aggregate demand. This newspaper has often pointed out that the Asian model is still worth pursuing for a poor country such as India that has surplus labour.

The most important difference is that India is a political democracy while the East Asian countries were under authoritarian regimes during their years of very rapid growth, as Joshi too points out. The old question of whether the primitive accumulation of capital is possible under political democracy is still an uncomfortable one. Or, on a more pedestrian plane, can the strong distributional coalitions of democracy come in the way of fiscal stability or the provision of public goods that benefit all citizens?

There are many policy paradoxes that can be gleaned from the lecture. Are banks a special case that need to be kept outside the ambit of aggressive privatization? Do wage subsidies have a role to play in promoting employment growth by organized industry? Can a negotiated deal with the trade unions reduce some of their opposition to labour market reforms? Is it possible to promote labour-intensive exports when the real effective exchange rate is appreciating? How can India have a deep fiscal adjustment—that Joshi estimates at a possible 10% of gross domestic product—by slashing non-merit subsidies as well as minimizing dysfunctional tax exemptions? And can these fiscal gains be used to build infrastructure and fund a programme for universal basic income? How can you get the Indian state—which Lant Pritchett famously described as a flailing one—to do less and do more at the same time?

Economic history tells us that only a handful of countries have been able to sustain 8%-plus growth over two decades. India needs to join this exclusive club—since the window of opportunity will slowly close as the labour force peaks and automation begins to destroy jobs on a bigger scale. Indian policymakers need to step on the reforms pedal. The past few years have seen important changes such as macroeconomic stability, a new monetary policy framework, the goods and services tax, and the bankruptcy law. The goal of inclusive growth in terms of job creation in the organized sector remains elusive. Structured thinking on India’s economic transformation is still needed. Joshi has provided one powerful framework.

Irrespective of where one stands on the Harvard versus hard-work debate, there is no doubt in our mind that the advice of an accomplished Oxford don such as Joshi needs to gain wider currency.

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