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Portrait of a Janus-faced Economy

The Oxford Companion to Economics in India edited by Kaushik Basu;

comprehensive reference volume on the

Portrait of a Janus-faced Economy

basic facts and regularities that gird the contemporary Indian economy” and “a record of the best contemporary thinking

Amitava Krishna Dutt on the subject” (p viii).

y any standard, The Oxford Companion to Economics in India is a major landmark in publishing on the Indian economy. As far as I know, it is the first comprehensive compendium on the Indian economy. It is a large volume, containing over large 600 pages. It contains over 200 entries by almost 200 authors, many of whom are among the foremost experts on the Indian economy including academics and other researchers, policymakers, industry leaders and journalists. It is edited by a very distinguished editor and board of advisory editors. It even comes with a CD-ROM. In short, even without reading the book, one can safely assume that it is essential reading for anyone interested in the Indian economy. But, literally following the old adage that one should not judge a book by its cover, I spent several days reading the book from cover-to-cover (although sometimes the CD-ROM was more convenient!) before writing this review.

It is impossible to do justice, in a few pages, to the many entries and many hours that have gone into writing and editing this book. Instead of attempting to do so, I will first describe what an entry looks like, and then provide a bird’s eye view of the topics covered and views expressed in the book. Following that, I will offer some general comments on the book as a whole and conclude.

1 A Micro View: The Entry

Most of the entries in the book cover themes relevant for the Indian economy and the remaining 10 per cent or so are biographical. The length of each entry varies from just over a page to almost six pages. Even the shorter entries provide more substantive discussions than one would normally find in a single-volume encyclopedia, and some longer ones resemble papers in book and journals in depth and detail.

A composite outline of an entry on a particular theme is as follows: meaning and

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Unfortunately, there are some entries,
review article which provide only a summary of the facts
and regularities without discussing the
The Oxford Companion to Economics in India analytical issues, some, which only record
edited by Kaushik Basu; Oxford University Press, what their authors believe are the impor
pp x + 602, Rs 2750. tant issues and make no attempt to be
broad in coverage, and some, which are
definitions; general analytical and empirical based narrowly on their authors’ own
issues; historical trends for India; recent prior work. This is not necessarily a bad
empirical trends for India; main analytical thing, especially if the author has written
and empirical issues and debates in the about the central issues concerning the
Indian context; review of policy issues for theme but in a world in which scholarship
India; and a list of references. Not every is often driven by narrow specialisation
entry, of course, covers all these dimen and the overriding need to publish in jour
sions or gives the similar weights to those nals, this is frequently not the case, espe
that they do. Nor, indeed, should they. cially for younger scholars. Even more un-
However, the composition of the entries fortunately, some entries neither provide
appears to vary excessively. First, some a broad overview nor summarise the au
entries (for instance, “doctoral education”, thors’ own research but are more in the
“employment”, “exchange rates”, “human nature of opinion pieces. This may be use
development index”, “IMF conditionality” ful in the case of practitioners (such as
and “international migration”) devote business leaders or policymakers, whose
arguably too much space to general defini opinions may be of wide interest) or lead
tions and issues rather than to the Indian ing scholars in the area but not in others.
case, contrary to what one would have Finally, entries in a book such as this
expected in a companion to the Indian can at best be brief introductions to its
economy. Second, some entries delve into theme, and should point the interested
history, providing discussions that are reader towards further reading. Unfortu
often very interesting and help place recent nately, far too many of them do not even
trends in a broader context but one would have a reference list.
have hoped for a more consistent coverage The biographical entries are on econo
of historical issues across entries. Thus, mists (wisely, only those who are no longer
there are good and fairly long historical alive), policymakers, business and politi
discussions on entries such as “famines”, cal leaders who have had a major impact
“handicrafts”, “industrialisation” and the on the economy. The entries on business
“State Bank of India” but none on “agricul leaders, and political leaders are usually
ture development” and “banking”. The ne very interesting and informative (for in
glect of the pre-independence history of ag stance, those on Dhirubhai Ambani,
riculture is surprising, given the path- Mahatma Gandhi, Indira Gandhi, and
dependent legacies of agricultural institu- Jawaharlal Nehru). However, although
tions for agricultural income distribution. some of the biographical entries on econo-
Third, regarding discussions of the mists are very good – for instance those on
Indian context, it would have been ideal if Krishna Bharadwaj and P C Mahalanobis
the entries provided broad overviews of – in many cases, they are excessively
the facts and issues as well as a more eulogistic rather than being informative
detailed look at the major analytical appraisals of their work. It may have been
questions. Had they done so, they would preferable to replace the entries on
have met the editor’s laudable objective of modern economists, by those of figures in
making the volume both “a reasonably the history of economic thought, like

Kautilya, Naoroji and R C Dutt, on whom more objective appraisals could have been written.

2 Bird’s-eye View: Content

To obtain a general overview of the companion, we may classify the entries under some broad themes. This can provide an outline of the main topics covered, what it says about these topics, and what aspects of the economy are not covered.

Growth and Macroeconomics

India’s recent high growth trajectory has not only captured the attention of scholars but also that of the lay person. In the entry on “growth experience”, Arvind Subramanian reports that India’s growth acceleration occurred around 1980 (and not in the post-reform 1990s as is popularly believed). What caused the recent growth acceleration? Subramanian argues that it is not so much economic liberalisation (which occurred mostly in the early 1990s) or fiscal expansion (because increasing aggregate demand increases capacity utilisation, not trend productivity) but rather the government’s attitudinal change in a pro-business (rather than a pro-competition or pro-market) direction, which elicited a large productivity response. This explanation seems to have more validity than the popular liberalisation argument but ignores the very relevant and rich earlier literature on the constraints on Indian growth (much of which appeared in the pages of this weekly). For instance, it does not take into consideration the fact that demand expansion can bring about induced productivity growth due to learning by doing, the contributions of agricultural growth (which prevented a profit squeeze in addition to adding to aggregate demand) and external liberalisation (which increased the availability of foreign exchange, without which growth would have floundered).

The companion devotes several entries to short-run macroeconomics. It has entries on business cycles, inflation, and unemployment, as well as some on general macroeconomics policies. Some of these general entries, such as that on the “fiscal deficit” and “monetary policy” accept rather uncritically the received wisdom of neoclassical macroeconomics that the economy is at full employment or at least at its NAIRU, in the long run, rather than taking into account the structural features of the economy, such as underemployment, distributional conflicts, the role of effective demand, and the interaction between agriculture and industry, which have often been stressed in the literature on Indian macroeconomics. Thus, it is taken for granted that money supply growth is inflationary and government deficits crowd out private investment and worsen the balance of payments, despite the existence of empirical research which questions these orthodox ideas.

More sensitive to the structural characteristics of the economy are the insightful entries on “inflation” by Prabhat Patnaik, “monsoon and economic activity” by Abhirup Sarkar, and “oil price shocks” by Mihir Rakshit, but these short entries have a limited scope. For instance, the chapter on monsoons and the economy is only able to scratch the surface of the rich theoretical and empirical issues concerning agriculture-industry linkages and the terms of trade in the Indian economy.

Poverty and Human Development

The companion devotes a great deal of atten tion to development indicators other than overall income and production, including poverty, inequality, education, health, and nutrition. S Subramaniam’s entry on “poverty” provides an excellent overview of poverty in a broad sense, not only discussing positive freedom in terms of income poverty but also in terms of Amartya Sen’s concepts of functionings and capabilities, as well as negative freedom, and discrimination. While this approach is very commendable, it has allowed only a short discussion of the measurement of income poverty, and little or no discussion of its determinants, including its dependence on income growth.

Inequality is discussed not only in terms of the familiar measures of income but also again very commendably, in entries on “regional disparities”, gender, “religion and economic well-being”, “caste” and “affirmative action”. Health, education and nutrition are covered in a number of excellent entries. Beyond these specific issues, there are informative general entries on “human development index”, “millennium development goals” and “human rights”, although the last one – one of the longest in the book – is arguably too long and detailed for most readers interested in the Indian economy. The general consensus in the entries on human development is that while there have been some improvements, for instance, in reducing poverty, and improving education and health, the progress has been inadequate, unevenly distributed, below potential, and far too slow. By some indicators, such as income inequality the situation even seems to be worsening. The entries also devote a great deal of welcome attention to evaluating the nature and impact of government intervention in these spheres, and in suggesting very useful policy measures, for instance, by improving incentives for health and education workers.


Development must also involve an environmental dimension, and the companion devotes several entries to it. There are some general entries on conceptual issues and government attitudes and policies in India, such as those on “sustainable development”, “environmental policy” and “environmental laws” (the last, by T C A Anant, provides a thoughtful examination the role of the judiciary and public interest law in addressing pollution problems), and there are more specialised informative entries on biodiversity, forest policy, global warming and water. Despite all these entries, and perhaps because of the resulting fragmentation, the companion is unable to provide a comprehensive and integrated discussion of the main environmental problems facing the economy, their causes (the relative roles of economic growth and poverty), and effects – both now and possibly in the future – on health, poverty, inequality and productivity, especially in agriculture.

Resources for Development

Development economists usually discuss resources of growth and development in terms of the accumulation of factors, such as capital, infrastructure and labour, and how they are combined with the use of technology.

On capital accumulation, Parthasarathi Shome’s entry on “saving and investment”

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provides a good review of the main empirical trends, and policy issues involving public saving. However the companion does not carefully and systematically discuss the determinants of saving and investment in India or the analytical and empirical issues on the relationship between capital accumulation and economic growth in India. Financial markets, which intermediate between saving and investment are discussed in a large number of entries. However, many of them are excessively focused on the detailed information on financial markets rather than on their role in financing capital accumulation, stable growth, and development. Moreover, many of them extol the virtues of financial liberalisation, without paying sufficient attention to the problems of financial instability and crises, and the fact that in several successful developing countries, such as South Korea, financial markets were heavily controlled by the government.

Infrastructure, a general entry by Sebastian Morris, provides an insightful and knowledgeable discussion, focusing on deadweight losses, and more specific entries on “aviation”, “ports and shipping”, “power industry”, “power sector deregulation”, “railways”, “roads”, and “telecommunications”, provide good reviews, focusing on issues of pricing and efficiency. In several of these entries, it would have been more useful to emphasise how infrastructure constrains development, and to compare India’s experiences with those of the more successful less developed countries (LDCs) rather than making blanket criticisms of government ownership and control.


On labour, Alaka Basu provides a perceptive discussion of different approaches to population policy in India but there is no discussion of the trends in, determinants and effects of, population growth in India. T S Papola’s entry on “employment trends” contains a balanced discussion of the quality and quantity of employment, discussing the slow growth of formal sector employment and the increasing casualisation and informalisation of the labour force. Given the preponderance of informal labour in India, there are several entries dealing

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with it. Ajit Ghose’s entry on “informal labour” presents a useful analytical structure (which could stimulate profitable formalisation) to explain the existence of underemployment, failure of market clearing, and increase in wages in terms of increases in the incomes of the marginally self-employed. Moreover, it explains the slow growth of formal employment (and hence, increasing informalisation) in terms of government policies which severely constrain the firing of workers, a point also emphasised in the entry on “labour laws in India” (which appears only in the CD-ROM). It is not pointed out, however, that the empirical evidence relating such laws to slow formal employment growth is not robust [Dutta Roy 2004], and that the retrenchment of formal sector workers and lower wage which can result from greater labour market “flexibility” can have adverse aggregate demand effects.

“Social protection for informal sector workers” by Mirai Chatterjee contains graphic illustrations of the insecurity faced by workers in the sector, discusses its cause (including the effects of globalisation), and focuses on the valuable lessons to be learnt from institutions such as Self-Employed Women’s Association (SEWA) in addressing them. This discussion (as well as a separate entry on SEWA), how ever, leaves unclear the extent to which organisations like it can be relied upon to address the many problems of informal sector workers. There are many other entries on labour markets. An example is Rashmi Banga’s entry on “wage inequality”, which although reading very much like a journal paper, provides an excellent theoretical and empirical analysis of the determinants of wage inequality, showing how foreign direct investment increases it but exports reduces it.

On entrepreneurial resources, Ignatius Chithelen provides a useful comparison of Indian ‘entrepreneurs in India and abroad’, noting how lack of access to finance and caste restrictions hinders entrepreneurship within India, while Gurcharan Das provides a very insightful discussion of historical and contemporary problems and prospects of entrepreneurship, including that in the knowledge economy. However, Das sees the government only as a spoiler, not taking into account its role in correcting market failures and in having a synergistic relation with private entrepreneurs.

Finally, the only entry on technological change (leaving technology transfer aside for now) is on “technology diffusion” by Kaivan Munshi. It has an interesting discussion of the different rates of diffusion of high yielding variety seeds of wheat and rice due to different rates of social learning but is a narrowly-focused entry, not taking up the opportunity to discuss broader issues concerning technological diffusion in different sectors. Although there is no entry on research and development, there are several on higher education and research, such as “higher education”, “higher education: regulation and control”, “academic research” and “doctoral education”. They provide such a dismal picture that one wonders whether C N R Rao’s rose-tinted view of “scientific research” is an accurate one.

Sectoral Issues

Beyond overall growth, the companion examines how specific sectors are doing. “Agriculture development” by S Mahendra Dev and “green revolution” by Yoginder Alagh provide good overviews of overall trends and changes in agricultural policy and their successes. Ashok Gulati discusses recent shifts towards higher-value activities such as fruit, vegetables and poultry, as well as food processing. However, these entries note that the bulk of India’s agrooutput continues to be unprocessed, that agricultural growth declined after 1990 partly due to the decrease in public investment, and there has been an increase in farmer indebtedness and suicides (also dealt with in a separate entry). Given these problems, one wonders whether agricultural institutions – emphasised by earlier literature on tenancy and farm size, but now increasingly overlooked – deter the development of the sector. Although the general entries on agriculture do not address this issue, Maitreesh Ghatak’s excellent entry on “land reforms” reviews theoretical arguments and empirical results to emphasise their relevance.

General discussions on the industrial sector appear in entries on “industrial growth” by R Nagaraj, “industrialisation” by Tirthankar Roy and “industry” by Isher Ahluwalia. Although there is some invariable duplication between them, Nagaraj focuses more on the phases and explanations of growth trends in the postindependence period, Roy provides a broader historical perspective and some industry illustrations, and Ahluwalia focuses more on recent reforms and their effects. All agree on the inefficiencies created by the highly protectionist and interventionist industrial policies of the pre-reform period but there is no more than a brief mention of the contribution of these policies in laying the foundations of an industrial sector involving a knowledge base. Ahluwalia is the shrillest critic of the government’s policies and argues that the recent liberalising reforms have been an unmitigated success, while Nagaraj, who emphasises demand and infrastructural constraints, disagrees.

The entry, “manufacturing hub” by Vinay-Bharat Ram, applies Akamatsu’s flying geese theory of development based on the east Asian experience to understand the Indian experience but misses out on some key features of this theory and experience, that is, the role of the government in import substitution and export promotion – which was based not on “minimal price distortions” (p 340) as suggested in the entry but on what Alice Amsden (2001) has called “getting the prices wrong”. There are several entries on individual industries, including very informative ones on the steel industry by Ramprasad Sengupta, and the textile industry by Pankaj Chandra, and the successful pharmaceuticals industry by Sudip Chaudhuri, which discusses the synergistic interaction between the private and public sectors and the role of patents. It would have been useful to have an entry on the auto industry as well, given its importance as a leading sector in several LDCs.

On services, the entry by Rupa Chanda portrays the sector as the leading sector, overemphasising the informationtechno logy (IT) sub-sector and failing to provide a nuanced discussion of the dual nature of the sector comprising a dynamic side as well as one, which is a receptacle of surplus labour. The latter side is portrayed in Sharit Bhowmik’s excellent entry on “street vendors”, which contains an insightful discussion of the interaction between formal and informal sectors. IT services are further discussed in entries on “IT-enabled sectors”, “call centres” and “software exports”. The last, by N R Narayana Murthy of Infosys Technologies provides a valuable insider’s perspective, stressing the role of liberalisation and the problems posed by education and training, and sensing that the Indian industry is “moving up the value chain” to more technologically sophisticated activities, although without presenting any hard evidence on it. While these provide a vivid picture of these globally-visible symbols of the economy’s shining face, they do not clearly evaluate how important they are for sustaining economic growth and bringing about broad-based human development.

International Issues

As one would expect, with India being increasingly opened to global forces, there are several entries on international issues. Ashok Guha’s entry on “international trade” provides a long historical perspective, and is critical of both the inefficiencies of the import-substituting regime and the inequalising globalisation strategy. However, it is more of an opinion piece and less of analytical overview of the changes in the importance and structure of trade, and the interaction between international trade and economic growth and development for India.

Sugata Marjit provides a more informative discussion of the role of exports in the economy (including the lack of evidence export growth causing economic growth) and the nature of government policy but spends too much time on general definitions of terms like dumping rather than on the Indian case. Some entries deal with tariffs and protection. Deb Kusum Das provides an illuminating discussion on “trade barriers in manufacturing” using several different indexes, showing that there was very little reduction in trade barriers prior to the 1990s, and Ila Patnaik briefly discusses tariff trends, and tells us that activist-style tariff setting is “inevitably rooted in dubious political economy” (p 511), apparently oblivious of a great deal of careful historical, theoretical and empirical analysis which supports selective protectionism.

Turning to capital flows, Nagesh Kumar, provides a wide-ranging, well-written overview of the determinants of, and effects of “foreign direct investment” (FDI), pointing out the benefits, as well as possible costs, in contrast to the uncritical eulogies one often hears. However, the space devoted to this important topic – a page and a half – is far too small, and should have been expanded, possibly omitting the opinion piece on policy on “foreign direct investment in media”. Other foreign capital flows are discussed by Rajesh Chakrabarti in “foreign exchange markets” and “foreign institutional investment”, which nicely summarise debates on financial flows and capital account convertibility. Ashima Goyal’s entry on “international finance” provides a balanced overview of some of the analytical issues concerning capital inflows and monetary policy but is not very informative about the empirics for the case of India.

Overall, one would have wished for fuller discussions of the theoretical issues and debates and empirical analysis of how exactly reforms have affected or will affect different elements of capital flows, and how these flows, in turn, affect the stock market, exchange rates, investment, and growth. The effects of international labour migration through human capital and remittance flows are well discussed in entries by Devesh Kapur and Deepak Nayyar. However, the entry on the “brain drain” does not add much, leaving one wondering why there are three entries on this topic.

“Technology transfer” by Arindam Banik and Pradip Bhaumik, provides an insightful, though short discussion of some general issues, and discusses three case studies at the firm level, which reveals the roles of government protection as well as later liberalisation for successful technology transfers, and the relative unimportance of FDI. A broader perspective, examining different mechanisms of technology transfer and how they work for India, and comparisons with other technological learners in other countries, would have been very useful. A major issue regarding technology transfer concerns the protection of intellectual property

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rights, a subject which is dealt with entries on “intellectual property rights” by R A Mashelkar and “patents” by Jayashree Watal. These entries, respectively, provide useful discussions from a scientific research perspective (especially on the pharmaceuticals sector and discussing the patenting of traditional knowledge), and on patent laws before and after the changes in World Trade Organisation requirements but contain very little on the economic implications of such property rights for India, as an LDC, which is primarily a importer of foreign technology, in general, and for transfer of foreign technology in particular.

The role of international institutions is discussed in two entries, on “IMF conditionality” by Sunil Sharma and “World Trade Organisation” by Arvind Panagariya, leaving one wondering why the World Bank is not included. Sharma’s entry reads more like a public relations piece on the IMF in general, than a balanced account, which addresses many problems that adjustment programmes have caused in many parts of the world. Panagariya’s entry on India’s role in the World Trade Organisation is very well informed but rather uncritically accepts the benefits of free trade.

Governance Issues

Beyond the specific policy issues already mentioned, government policies are discussed in a large number of entries. Montek Ahluwalia, the deputy chairman of the Planning Commission, provides an excellent overview of the changing nature and roles of government planning in India since independence, relating these changes to broader changes in the economy. On fiscal policy there are longish entries on “fiscal policy reforms since 1991” by the union finance minister, P Chidambaram, and on “value added tax in the states” by West Bengal’s finance minister (who has contributed extensively its formulation and implementation), which provide very informative accounts of the main facts and issues and are of great interest because of the positions of the authors. Other entries deal with more specific aspects of fiscal policy. “Discretionary centre state transfers” by Bhaskar Dutta, provides an excellent theoretical and empirical review, while “government subsidies” by

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Sudipto Mundle (and possibly Hiranya Mukhopadhyay?) contains an insightful account of the scale and scope of government subsidies, estimating it to be around 15 per cent of GDP. These, among others on fiscal federalism and defence expenditures, provide very useful information on various aspects of fiscal policy.

The two entries on the issues relating to state-owned enterprises and privatisation provide a window on the controversies surrounding this topic. Bhaskar Datta, in “disinvestment”, recommends privatisation disinvestment but this entry is based more on opinion than thorough analysis, while Pulin Nayak, in “privati sation” is much more equivocal about its benefits after a wide-ranging review of the theoretical and empirical literature on the topic.

Broader issues of governance and political economy are dealt with in several entries. Pranab Bardhan’s entry on “political economy” provides an excellent summary of his pioneering work on the issue, discussing collective action problems in an economy characterised by inequality and a fragmented polity, the trade-off between credibility (which requires a strong government) and accountability (which requires checks and balances), and the role of decentralisation in mitigating some of the problems. Abhijit Banerjee (in “public goods”) summarises his important research on the uneven distribution of government-supplied goods and services confirming the bias against the poor and powerless. The Dilip Mookherjee’s entry (on “panchayats”) provides an excellent review of the legal changes and empirical evidence on the beneficial effects of panchayats in distributing public goods to the poor. Finally, Amartya Sen’s entry on “democracy and social welfare” provides a masterful and succinct summary of his analysis arguing that the relation between democracy and development, although not mechanical, is positive.

Beyond Economics

The companion trespasses into themes what some would consider outside economics, but which are relevant for understanding economic issues. Thus, in addition to the already mentioned ones on political economy, there are entries on “corporate ethics”, “dowries”, “law and legal systems in India”, “middle class”, “monsoon” and “space satellites” to name just a few which are particularly well-written and interesting.

3 Some General Comments

Drawing on the discussion in the last two sections, this section examines the book as a whole, considering in turn the overall scholarly quality of its entries, its coverage, the perspective it presents on the Indian economy, and its production quality.

The overall scholarly quality is unquestionably high. Most of the entries are very well-written, well-organised, and highly informative. Quite a number of them are excellent, and one need look no further than them for illuminating and insightful introductions. Not only do we read concise and masterful pieces by veteran scholars such as Amartya Sen, Pranab Bardhan, and Montek Ahluwalia but we also read excellent entries by the next generation of experts and by even younger scholars.

In terms of the quality of research in the book, two additional points are worth noting, especially because the book intends to, and indeed does represent some of the best scholarship and frontiers of research on the Indian economy. First, there is evidence of the widespread use of analytical methods – both theoretical and econometric – on a broad range of topics, on a scale much larger than, say, around the time of the Bhagwati and Chakravarti (1969) survey, which focused only on planning models, agriculture and foreign trade. Second, the research is more closely connected with, and related to research outside India. Both trends are welcome ones because they impose more rigorous standards and allow more sophisticated analysis than is possible in an autarkic situation characterised by an insular mentality.

However, there are dangers of going too far in these directions, resulting in formalisation for its own sake and for techniques to drive economic reasoning, and for the uncritical importation of research questions and theories which may not have much relevance for the Indian economy. There is, arguably, some evidence of these trends in some of the entries in the book (such as those on the US version of the political business cycle and the equity premium). But careful empirical research of a less formal kind but which takes more careful account of the institutional setting of India is also found to be alive and well in the book and can be seen as a good antidote to these extremes. High quality research of this kind is in many of the entries on human development, such as those on inequality, nutrition and health but also in other entries on agriculture, industrial growth, trade unions, and informal labour. Entries which encompass institution detail, a broad empirical perspective, and formal analysis are arguably among the best in the book.

In terms of coverage of topics, the companion is quite comprehensive, traversing almost all major aspects of the economy, and even some themes outside the boundaries of economics. The coverage is especially strong – both in terms of quality and number of entries – on human development, relating to poverty, inequality (across income groups, gender, age, and religion), health, nutrition, education, human rights and informal labour, and the strong emphasis on these issues is most commendable. There is also a large number of entries on banking and financial issues, environmental issues, infrastructure and international issues. The focus on these issues is also very apt, given the importance of the environment for both human development and for the sustainability of development, the importance of infrastructure for economic growth, and the increasing importance of financial and international factors for the economy.


A number of important issues, however, have fallen through the cracks, either being entirely omitted, not being sufficiently emphasised, or being covered inadequately. In my judgment the topics that have largely escaped attention include technological change (especially in industry), those which have been insufficiently emphasised include saving, investment and capital accumulation, and which have been covered inadequately include growth and short-run macroeconomics and the interactions between economic growth, international trade, poverty and inequality and the environment. The omissions may have been the inadvertent result of the alphabetical arrangement of fragmented themes but are more likely to reflect the preferences of the editors and the advisory board (whose interest in microeconomic issues appear to be stronger), and from a possible overreaction to the earlier overemphasis of many developmental economists on growth and capital accumulation, to the neglect of human development. Although it is certainly true that earlier literature was too focused on growth and often made it the sole goal of development, and that the focus on poverty, inequality and human development more broadly, is to be strongly applauded, it does not mean that the economic growth, its determinants, and connections to human development should be given the short shift. While development is not synonymous with growth, growth may be inequalising, and progress in human development can be achieved even at low levels of per capita income, the experience of most successful developing countries suggests that sustained human development requires sustained and fairly broad-based economic growth. The

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companion does not, of course, ignore economic growth, capital accumulation, and international issues – since, as mentioned earlier, it contains many entries on them – but all too often provide excessively brief or one-sided discussions.

View of the Economy

Turning to the view of the economy presented in the companion, it is probably inappropriate to attribute to the large number of authors – often with conflicting views – a unified perspective. Yet, some common threads or refrains are probably recognisable. One element of this view is suggested by the editor himself, who writes in his introduction that the companion intends to portray an economy with both “high growth, leadership role in software and information technology, and outsourcing success” on the one hand and “widespread poverty, farmer suicides, child labour, and large and impoverished informal sector where a vast majority of India’s labourers work” (p viii) on the other.

But the companion can be argued to go further, in explaining how the economy came to become Janus-faced, the relation between the two faces, and what should be done about them. It seems to suggest that the recent liberalising reforms rolling back the state and integrating the economy more with the global economy has made one of the faces of the economy shine but has left untouched the other face, and perhaps even made it uglier. The policy recommendation is then not only to liberalise the economy further but also to make government policies deal with the dark side. In this sense, the policy approach appears to be balanced – there is a role for the private sector as well as the government sector.

This view, however, is open to criticism. The view that neoliberal policies have definitely improved the functioning of many sectors of the economy, and need to be pushed along further, which is echoed in many entries on industry, services, financial, and international issues, forgets or ignores the lessons of several successful LDCs with respect to financial, industrial, technological and trade policies. Several of these countries have had promoted financial “repression” and the government

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allocation of credit, state-owned enterprises, and protectionist policies in addition to exposure to market discipline, and selective restrictions on foreign investment and policies, which can be argued to have been central to their success.

Even if government intervention in India

– characterised by the dogmatic pursuit of self-sufficiency and the Byzantine Licence Raj – has led to a great deal of inefficiency and corruption, it can be argued that if neoliberal reforms are pursued indiscriminately and with full force, it is possible that not only human development but also growth, will falter because of their effects on financial instability, aggregate demand, and technological change. If it does, improving human development through direct public policy interventions may not be enough. For instance, reducing teacher absenteeism may improve the quality of education but if employment does not grow sufficiently, what will the educated do? In the east Asian case, it was not improvements in education alone but appropriate government growth policies, which by improving technology and increasing employment growth allowed the educated workforce to be productively employed.


In this context, it is worth noting that the editor states that he has consciously tried to make the book “scientific” and free of extreme biases. He writes that “[o]ld polarisation of “left” and “right”, where people took up positions not from facts and deductive reasoning but from their chosen texts and pre-committed opinions, is less evident today. Barring a few diehards at both ends, most analysts approach the subject much more scientifically. I wanted the best of this opinion, irrespective of ideology, to be represented in this volume” (p viii). The problem with this view is that even if one pursues “science” in the sense of basing views on rigorous empirical analysis or deductive reasoning, it is not possible to avoid biases in, for instance, one’s views on how the economy actually functions, what methods of theoretical reasoning to adopt, and what are the appropriate roles of governments and free markets. It may, in fact, be preferable to recognise one’s biases rather than believe that one does not have any.

Therefore, it can be argued that many kinds of biases have crept into the entries. In particular, there are biases in terms of neoclassical optimising models in terms of theorising (to the extent that theories are explicitly presented), biases in terms of views of the economy and/or in favour of the efficiency of free markets in the entries on macro economics, industry and trade (which generally take it for granted that free markets are efficient and government intervention in the economy pernicious) and the orthogonality of growth dynamics and human development (although sometimes recognising that improvements in human development can have salutary growth effects).

Production Quality

Finally, turning to production quality – by which I refer to some housekeeping types of editorial and publishing aspects of the companion – I confine the discussion to four brief comments. One, there is a substantial number of entries, which appear to duplicate others. This could be useful in some cases, especially if different approaches and different points of view are provided on the same issue, in different entries, and this can be argued to be the case for entries on “divestment” and “privatisation”, on “industrial growth” and “industry”, and on “gender and empowerment” and “gender inequality”. But in these cases, the book would have benefited if the editor had asked the contributors to react to opposing viewpoints rather than just give their own views of the issues. But in many cases – such as those on “entrepreneurs in India and abroad” and “entrepreneurship”, “intellectual property rights” and “patents”, and “teacher absenteeism” and “teacher and medical workers incentives”, to mention just a few examples – the duplication is more difficult to justify.

Two, the index at the end of the book (with one exception that I could notice) only lists the title of each entry alphabetically. If the reader searches for a topic for which there is no entry in the volume, he or she will not be able to find it listed in the index. A more carefully-designed index could make this book much more useful. Three, there are quite a few typographical errors – although not too many – scattered around the book. For instance, in the index, under earthquakes (one of the rare items in the index which is not an entry), there is a reference to economic and constitutional reform and under agriculture development one is asked to read the entry on agriculture development.

Four, the CD-ROM is very useful because the book’s weight – at around 2 kg – makes it a rather inconvenient travelling companion. Aside from making it easy to run searches, the reader’s guide lists topics other than entries in the book alphabetically, making it somewhat more helpful than the index in the print version (although the indexing is still less useful than it should have been). However, the CD-ROM also contains some errors: some entries in “E” are missing from the bookmarks list, and the alphabetical ordering is jumbled. These last three points, of course, can be easily addressed in a reissue of the companion.

4 Conclusion

Overall, the companion lives up to the very high expectations raised by its cover. It is an indispensable and authoritative guide to the Indian economy, and sets a very high standard for future publications of its kind.

It provides a comprehensive survey of the Indian economy. The entries are generally of very high quality, and quite a few are real gems. If, as I have argued, some entries are somewhat disappointing and some issues are omitted or not sufficiently well treated, it is so only by the very high standards set by the work as whole.

The portrait it paints of a Janus-faced economy, with one face shining and the other face bleak is certainly accurate. The work’s emphasis on poverty and human development is highly commendable. If this review has raised some questions about its treatment of economic growth and the relationship between growth and human development, it has done so not to argue that the work necessarily presents an erroneous picture but to present some alternative views and to generate constructive debate about how to understand the economy and what to do about it. The companion will, undoubtedly, stimulate this further.

Students, scholars, policymakers and the intelligent lay person seeking an introduction to various aspects of the Indian economy are lucky indeed to have access to such a work. It can only be hoped that the companion will help in paving the way towards merging the two faces of the economy and making that face shine brightly.

[Amitava Krishna Dutt ( is professor of economics in the Department of Economics and Policy Studies, and fellow of the Kellogg Institute of International Studies and the Kroc Institute of International Peace Studies, at the University of Notre Dame, Indiana, USA.]


Amsden, Alice (2001): The Rise of the Rest: Challenges to the West from Late-Industrialising Economies, Oxford University Press, Oxford and New York.

Bhagwati, Jagdish and Sukhamoy Chakravarty (1969): ‘Contributions to Indian Economic Analysis: A Review’, American Economic Review, Vol 59, No 4, pp 2-73.

Dutta Roy, Sudipta (2004): ‘Employment Dynamics in Indian Industry: Adjustment Lags and the Impact of Job Security Regulations’, Journal of Development Economics, Vol 73, No 1, pp 233-56.

November 24, 2007 Economic & Political Weekly

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