Why Growth Matters, written by Jagdish Bhagwati and Arvind Panagariya, two esteemed Professors of Economics at Columbia University, is a hard-hitting book which basically states that India has grown rapidly since 1991 because of economic and trade liberalization, and that the growth has helped to alleviate poverty.
Written from an economically conservative vantage point, authors Bhagwati and Panagariya lay their stakes in the ground early, sharply criticize left-wing economists such as Joseph Stiglitz and debunk claims such as that growth has not improved the lives of most Indians (I myself, being of Indian descent, have seen many Indian peoples’ lives improve drastically since 1991). One of their strongest arguments is that income redistribution was not a feasible means of lifting India out of poverty for a long time because there just weren’t enough affluent people from whom to collect money. The main point of the book is that in order for poverty levels to decrease, growth needs to happen. Period. At their core, Bhagwati and Panagariya do not want a very unequal society (one with a high Gini coefficient) and are genuinely concerned with mitigating as much poverty as possible.
The most surprising thing that I learned is that the main culprit for India’s lackluster growth until 1991 was not Jawaharlal Nehru (India’s first Prime Minister), but his daughter Indira Gandhi. Nehru believed not so much in nationalization, but rather gradually increasing the size of the public sector relative to the private sector by increasing government spending. Indira Gandhi, on the other hand, wholeheartedly embraced nationalization, and essentially nationalized many key industries—including many prominent oil and insurance companies. She even went after foreign companies, causing foreign investment to dry up (Coca-Cola initially left India in 1978). This policy hampered India’s growth and was unsustainable– and only stopped with her death.
Overall, the authors are basically saying that while India has made great strides, it is far short of its true potential. In terms of going forward, they break down reform into two parts: Track I and Track II. Track I involves an initial (but targeted and effective) investment, including in infrastructure and in cleaning up constrictive labor laws. For example, India needs to invest much more heavily in ensuring a constant, uninterrupted supply of electricity throughout its country because right now, the constant power cuts are disrupting production, potentially causing companies to look elsewhere. Track II focuses on longer term goals such as reforming the healthcare system and promoting a more nutritious diet.
I would also add that India’s patriarchal mindset needs to be reformed, as well. There are a lot of people in India (especially those coming from the more rural, uneducated parts) that firmly believe that a woman’s place is in the home. Without a shift in this antiquated mindset, many intelligent women with a tremendous amount of potential do not enter the workforce, depriving India’s economy of some valuable human capital.
The one downside to this book is that it is a book written by economists for economists. I happen to be very interested in development economics and so, it was easy for me to comprehend and enjoy. I believe that the authors can improve this book by supplementing their arguments with some qualitative anecdotes, such as personal firsthand accounts of poverty reduction in the last 20+ years.
Overall, Why Growth Matters is very well written and I would recommend it to anyone interested in learning more about India and/or in development economics. This book has resounding implications for India in wake of next year’s National Elections between the liberal-but-politically inexperienced Rahul Gandhi (Indira Gandhi’s grandson) and the freemarket but religiously conservative (some even say religiously intolerant) Narendra Modi.