Why Growth Matters (35 page)

2
. Bhagwati raised this issue on the previously cited Christiane Amanpour show when he observed that suicides by indebted farmers had been part of what he had read about in Indian agriculture when he was a student almost half a century ago, and farmer suicides were not a new phenomenon.

3
. We may note that Nagaraj calculates suicide rates per 100,000 farmers and finds them substantially higher than the suicide rates in the general population per 100,000 people. But in doing so, he is comparing apples and oranges. To be consistent, farmer suicides per 100,000 farmers should be compared to suicides in the general population per 100,000 working people, rather than to the entire population.

4
.
None of this is to deny the existence of problems that would accompany any new technology that shows promise. Therefore, there have been problems with fake seeds being sold and farmers lacking proper information on the use of pesticide.

5
. See
www.newageweekly.com/2011/09/economic-reforms-fountain-head-of.html
(accessed October 5, 2011).

6
. The following discussion draws on Panagariya (2011e).

7
. Recall our discussion in Part I.

8
. “2G spectrum” refers to electromagnetic frequencies used to transmit calls via second-generation wireless phone technology. The scam involved the allocation of the 2G spectrum to certain companies at exceptionally low prices, with numerous politicians and bureaucrats from the latter or their agents allegedly receiving bribes.

9
. This reform has been most associated with the Peruvian intellectual Hernando de Soto. Whereas the micro-credit program, which Elaben Bhatt pioneered and promoted through the Self-Employed Women's Association two years earlier than Muhammad Yunus, and the priority-sector lending program of the Reserve Bank of India, initiated even earlier, provide loans to very small, poor borrowers without collateral, de Soto intriguingly argued that the poor did in fact have assets but that the lack of clear titles prevented them from turning them into effective collateral.

10
. He also has edited with Narcis Serra a book of essays, with a contribution by Deepak Nayyar at Jawaharlal Nehru University who clearly shares Stiglitz's views, titled
The Washington Consensus Reconsidered
(New York: Oxford University Press, 2009).

11
. The revolution in postwar theory of commercial policy has been described, and its main findings summarized by Bhagwati (who led this revolution starting in 1963), in his Stockholm Lectures, published as
Free Trade Today
(Princeton, NJ: Princeton University Press, 2001). The contributions by the late V. K. Ramaswami and by T. N. Srinivasan also played a major role.

12
. Panagariya was a member of the Bank mission for the Trade and Investment Liberalization Loan during its first visit to Delhi in late March 1993. Senior officials at the Bank had held the view that the loan
would not proceed unless India agreed to abolish import licensing on consumer goods. When the mission was told, however, that this was not in the cards, the Bank leadership quickly changed its mind and proceeded with the loan anyway. As a postscript, India liberalized consumer goods imports almost a decade later on April 1, 2001. But the World Bank kept lending to India in the meantime without so much as a hiccup.

13
. See Ahmad (1995).

1
. In using the adjective “redistributive,” we do not necessarily imply that the enhanced revenues come from the rich and the expenditures go to the poor. In fact, one of the main worries that we address in Part III devoted to such redistributive programs is that unless they are handled with care to ensure proper targeting and prevent massive leakage into political predation, they may fail to reach the poor.

2
. Gary Fields (1980), one of the leading experts of his time on poverty, had expressed the gloom on India's poverty problem in these words: “India is a miserably poor country. Per-capita yearly income is under $100. Of the Indian people, 45 percent receive incomes below $50 per year and 90 percent below $150. Of the total number of absolutely poor in the world . . . more than half are Indian. During the 1960s, per capita private consumer expenditure grew by less than 1/2 percent per annum. India's poverty problem is so acute and her resources so limited that it is debatable whether any internal policy change . . . might be expected to improve things substantially” (p. 204). Fields did not seriously consider the possibility, however, that the reform of India's counterproductive economic-policy framework could accelerate growth sharply and produce a noticeable impact on poverty.

3
. These two tracks are, of course, not entirely independent. Growth directly impacts the volume of revenues and therefore determines the possible scale of the redistributive programs. Symmetrically, education and health will generally create a more skilled and healthier workforce, which should help growth. Sometimes a conflict between the two tracks
may arise as well, though this is likely to be rare. Thus, for example, a macroeconomic crisis such as the one India faced in 1991 may necessitate large cuts in the fiscal deficit so that the economy is stabilized and returned to a rapid-growth trajectory. In turn, this may require cutting some of the social programs in the short run. Symmetrically, a redistributive program such as the National Rural Employment Guarantee Scheme, which progressively pulls the workforce out of the private economy for employment in public projects of unproven quality, can have an adverse effect on growth.

4
. We concentrate on Track I reforms in Part II, leaving issues relating to Track II policies for Part III. We alert the reader that we do not try to be exhaustive but, instead, consider issues that are most critical in each area and require the government's urgent attention. For more detailed and leisurely treatment of a wider array of issues, the reader is invited to consult the recent book by Panagariya (2008a).

5
. See Government of India (2007).

6
. See Dehejia and Panagariya (2012b) for further details.

7
. See Hasan and Jandoc (2012) for further details.

8
. Recall our discussion in Chapters 4 and 5.

1
. See Economic Survey 2010–2011, Appendix Table 3.1, p. A52.

2
. In India, the term “organized sector,” which principally relates to manufacturing activity, refers to the collection of manufacturing firms registered under the 1948 Factories Act. Firms with ten or more workers using electricity and those with twenty or more workers even if not using electricity are required to register under this act. Because services firms are not required to register under the 1948 Factories Act, even large services firms such as WIPRO, Infosys, and TCS are technically in the unorganized sector. This is the reason we used the term “formal sector” previously to include both manufacturing and services firms with ten or more workers.

3
. Clothing accessories refer to Category 84 in the UN SITC classification.

4
.
In fact, the evidence in favor of a declining trend in the labor–capital ratio in Indian manufacturing generally is overwhelming. Thus, Rani and Unni (2004) find a sharply rising trend in the capital–labor ratios in both the organized and unorganized manufacturing sectors. Chaudhuri (2002) computes the labor–capital ratio in three-digit organized manufacturing sectors from 1990–1991 to 1997–1998 and also finds it to decline progressively. Again, Das, Wadhwa, and Kalita (2009) find a sharply declining trend in the labor–capital ratio in thirty-one labor-intensive organized manufacturing industries between 1990–1991 and 2003–2004.

5
. Earlier work on firm-size distribution in India includes Mazumdar (2003) and Mazumdar and Sarkar (2008). These authors have drawn attention to the fact that employment in India is heavily concentrated in small enterprises. While large enterprises have some presence, medium-size enterprises are entirely missing.

6
. Although a handful of the products remain subject to the reservation, a March 2000 executive order allows firms willing to export at least 50 percent of their output to manufacture large-scale firms to produce even these products. Therefore, for all practical purposes, the reservation no longer binds.

7
. See
http://labour.nic.in/act/welcome.html
(accessed October 29, 2011). A report of the working group of the Planning Commission on “Labor Laws and Other Labor Regulations” lists forty-three labor laws. See
http://planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_rplabr.pdf
(accessed October 29, 2011).

8
. Mamata Benrjee replaced the long-standing communist government in the latest State Assembly elections.

9
. Amit Mitra made this statement on the NDTV show
Big Fight
at
www.ndtv.com/convergence/ndtv/new/Ndtv-Show-Special.aspx?ID=289#VPlay
(accessed October 29, 2011).

10
. Manish Sabharwal, CEO of TeamLease, made the remark on the NDTV
Big Fight
episode on labor laws mentioned earlier (
www.ndtv.com/convergence/ndtv/new/Ndtv-Show-Special.aspx?ID=289#Vplay
) (accessed October 29, 2011).

11
.
More precisely, the act says that seven or more workers in an establishment can form a trade union as long as they represent at least 10 percent of the labor force. Alternatively, one hundred workers in an establishment can form a trade union even if they are less 10 percent of the workforce.

12
. All employees earning 6,500 rupees per month or more have to join the provident fund scheme.

13
. Shah told this story at a conference in New Delhi several years ago and recently confirmed it in e-mail correspondence with Panagariya.

14
. Economist Yasheng Huang of the Sloan School at MIT made this argument to Panagariya some years ago.

15
. A bill amending the 1948 Factories Act to allow women to work night shifts has been before the parliament since at least 2008.

16
. Debroy (2001) quotes a Supreme Court judge from the
Excel Wear v. Union of India
case of 1978 who wrote, “Gradually, the net was cast too wide and the freedom of the employer tightened to such an extent by introduction of the impugned provisions that it has come to a breaking point from the point of view of the employers. . . . It is not quite correct to say that because compensation is not a substitute for the remedy of prevention of unemployment, the latter remedy must be the only one. If it were so, then in no case closure can be or should be allowed. . . . But, so long as the private ownership of an industry is recognized and governed on an overwhelmingly large proportion of our economic structure, is it possible to say that principles of socialism and social justice can be pushed to such an extreme so as to ignore completely, or to a very large extent, the interest of another section of the public, viz. the private owners of the undertakings?”

17
. See
www.nlcindia.com/news/news_awardficci.pdf
(accessed November 4, 2011).

1
. A wrinkle in this episode was the firing by the police on the demonstrators which inflamed the latter. Such tactics have long been
given up in India and their use by the West Bengal government was perhaps attributable to the fact that the communists were in charge of the government and they do not accept dissent without tough counter-measures. In fact, the West Bengal government had until then been the only state government that had not been turned out by the electorate once they got in, unlike most other states that have experienced turnover. A reason often cited is that they simply exterminated opposition in the countryside.

2
. See Sukumaran and Bisoi (2011).

3
. If the farmer has no knowledge of how to do this, owing to illiteracy or unfamiliarity, there is a role for the government to ensure that these farmers are given the necessary guidance. NGOs can also play this role. This is surely better than denying these farmers the ability to profit from the sale of their land at better prices.

4
. The area under forest is 22.8 percent. The remaining 23 percent is barren, fallow, or uncultivated.

1
. It is common, therefore, to see trucks carrying produce overturned on the congested roads, making road travel hazardous. Once Bhagwati was in the Lufthansa lounge in New Delhi and a German couple entered. The man had a collar around his neck and the woman's arm was in a sling. It turned out that they had run into a truck on the road from Agra to Delhi.

2
. A more comprehensive treatment of the issues can be found in Panagariya (2008a, Chapters 17 and 18).

3
. This airline ran up losses for several reasons, such as the issuance of automatic upgrades to politicians (a practice that has since been curtailed) as distinct from customers who show loyalty and offer more business later; and the award of free lifetime travel to people chosen by the government. The ministers making such awards act like Evita Peron and have no accountability because the losses they entail go to Air India, where they get absorbed in the yawning deficit that plagues the airline
anyway. Perhaps the way to get at this type of depredation on Air India is to insist on transparency so that the airline has to make public who has benefited, and how often, of such expensive largesse so that opprobrium attaches to them.

4
. See Panagariya (2009b).

5
. See “Kamal Nath, Ahluwalia Spar over Roadblocks,”
Economic Times
, July 5, 2010, at
http://articles.economictimes.indiatimes.com/2010–07-05/news/27569574_l_kamal-nath-planning-commission-plan-panel
(accessed November 7, 2011).