Jagdish Bhagwati and Arvind Panagariya, Why growth matters: How economic growth in India reduced poverty and the lessons for other developing countries

Abstract

After gaining independence in 1947, India’s economic policy was marked by the adoption of central economic planning at home and near autarky in its economic relations with the rest of the world. The overarching goal of the Indian planners in adopting this policy mix, termed “economic nationalism” by the economistMichael Heilperin, could be summed up in the phrase—“economic growth through economic self-sufficiency”; the idea was to rapidly industrialize and achieve high rates of economic growth by producing everything domestically. Whole swathes of the economy, especially its commanding heights, were either nationalized or reserved for the public sector, while the private sector was shackled within a maze of controls. The first cracks in this system of controls began to appear in the 1980s, with a fewminor steps of liberalization taken in the second half of the decade. It was, however, in 1991 that this slow trickle of economic reforms suddenly turned into a flood; and thereafter, a sizeable chunk of the planning apparatus was dismantled over the course of the following two decades. For the majority of the period under planning, India’s rate of growth was at best average by developing country standards and at worst egregiously low. The reforms brought with them a much needed uptick in this growth rate. The 1990s, for instance, saw per capita GDP grow at a rate of 3.8 %, whereas the following decade witnessed acceleration in this rate to 6.6 %. InWhy Growth Matters Jagdish Bhagwati and Arvind Pangariya make their case for why the reforms and the associated high growth rates have benefitted the poorest of the poor in India. The increased productivity unleashed by the process of liberalization has, according to them, “pulled up”millions out of poverty and into gainful employment (p. xviii). Moreover, the increased growth has provided the Indian government with added revenues to undertake expenditure on education, health care and other much needed Rev Austrian Econ (2015) 28:217–219 DOI 10.1007/s11138-013-0248-2