Book review | India Unlimited - Reclaiming The Lost Glory by Arvind Panagariya

Why is India, a nation blessed with vast natural resources as well as rich human resources, still relatively poor, having an annual per capita income of about ₹1.35 lakh or less than US$ 2000? Citizens often respond to this question with fatalism and defeatism, without going too much into root causes on why this has happened.

Arvind Panagariya, Jagdish Bhagwati Professor of Indian Political Economy at Columbia University and former vice-chairman of the NITI Aayog, addresses this question in his latest book, India Unlimited - Reclaiming The Lost Glory. Panagariya, arguably the foremost expert in the world on India’s economy, provides a panoramic view of India’s economy, starting from the period when the country contributed about one-fourth of global GDP and to which the book's subtitle refers. Panagariya’s objective, in his own words, is to outline how India can “eliminate abject poverty and bring prosperity to large sections of its population.”

Covering a wide number of sectors and issues, Panagariya offers a playbook for reforms that can help India become prosperous, an aspiration that contrasts sharply with the povertarian-centric narratives proffered by the vast majority of India-focused economic and policy analysts. Panagariya makes a compelling case on how India’s problems and issues are largely self-inflicted, and thus can be corrected with good governance and leadership.

His diagnosis of the challenges in agriculture - and concomitant prescriptions - have been partially addressed with the slew of farm sector reforms unveiled in the Atmanirbhar Bharat package. While pointing to the preponderance of minuscule, sub-scale firms in the manufacturing and services sectors, Panagariya marshalls data to construct forceful arguments in favour of the need for labour-intensive, export-driven manufacturing, noting that achieving “rapid prosperity” for the large agricultural workforce would require its migration into other sectors of the economy. He has been able to bring out the interconnectedness of sectors, where reforms in one sector alone may not suffice and factor market reforms too need to be carried out alongside sectoral measures. It is important to see things through such a holistic lens, and sector specialists frequently don’t do so.

Panagariya also addresses urbanisation and financialisation. His recommendations made for labour markets, migrant worker issues as well as securities market and banking sector reforms are particularly relevant at the present time. While noting that the growth of slums has been a feature of all rising urban economies and India has about 64 million slum dwellers, Panagariya carefully contextualises within India’s federal system the reforms that are necessary for land, water provision and use, solid waste management, transportation and urban housing.

On credit markets and banking, Panagariya provides specific policy ideas on broadening the task of credit extension beyond banks and deepening the corporate bond market. The book presents a thorough analysis of the issues plaguing the banking sector in the pre-insolvency and bankruptcy code (IBC) era, where corporate promoters could take lenders on a wild goose chase by abusing the debt resolution legal process.The structural change brought by the IBC to this is an important documentation of one of the most critical reforms implemented by India.

As part of the Atmanirbhar Bharat package, the government has announced that sectors would be categorised as strategic and non-strategic, with non-strategic sectors seeing complete privatisation of public sector units (PSUs). In strategic sectors, the government said up to four PSUs would be retained. It seems clear that under this commitment the number of PSU banks, which has come down to twelve from twenty-seven just 3 years, should be reduced further. Panagariya has provided a strong case for privatising public sector banks in toto, once again assembling data sets on parameters of efficiency as well as social goal fulfillment, holding the PSU banks to their own standards.

As the data bears out, even on priority sector lending, the share of advances to the priority sector (out of total advances) by private and foreign banks has sometimes exceeded the comparable share of PSU banks. Panagariya also raises the critical issues of political control on credit extension, and the emergence of a two-speed regulatory system created by the existence of PSU banks, with the sector regulator treating PSU banks differently, suggesting that the solution to these issues is getting the government out of the business of banking.

Finally, Panagariya assesses the higher education system, drawing comparisons with the US, UK and China on the output and productivity of the Indian system. It is well-known at this point that the Indian education and research system performs poorly and is in urgent need of systemic overhaul, but here too, Panagariya lets the data on published scientific papers, global rankings and university budgets speak. Higher education is one of the major reform areas in which the present government has simply not done enough, and policymakers would do well to cogitate carefully on the reform proposals laid out by Panagariya.

The title of the book, India Unlimited, sets a new aspiration - few books in recent years offer as comprehensive a take as this volume on the various dimensions of reform necessary to remove self-inflicted limits on India’s growth, and thus on wealth creation. India Unlimited is required reading for all students and analysts of India’s economy.

Rajeev Mantri is managing director of Navam Capital and co-founder of the India Enterprise Council. Views expresses are his personal.