India's Long Road
The reform agenda India has still not executed.
Summary
Vijay Joshi, an Oxford economist who has written on Indian macroeconomic policy for four decades, assesses whether India can reach high-income status and concludes that its current trajectory will not get there. He argues that the growth acceleration after 1991 came from partial reform and that the remaining agenda is harder because it involves state capability rather than deregulation.
The diagnosis covers several areas. Joshi argues that India's investment rate is high but its capital productivity is poor, that the banking system misallocates credit through state-owned lenders subject to political direction, that labour law and land acquisition rules keep manufacturing firms small and informal, and that infrastructure and human capital constrain the firms that do grow. He is unusual among Indian reform economists in giving equal weight to the failure of state delivery in health and education and to the failure of markets.
His proposals are specific and some are radical. He proposes a universal basic income funded by replacing existing subsidies, privatisation of public sector banks, an independent fiscal council, and reform of the civil service. The book predates the 2016 demonetisation and the goods and services tax implementation, both of which changed the terms of the debate. Critics from the left dispute his growth-first framing and his confidence in privatisation; critics from the right consider the basic income proposal fiscally unrealistic. The analysis of banking and of firm-size distribution has held up well.
Key takeaways 7
- India's post-1991 growth came from partial liberalisation, and the remaining reforms require building state capability rather than removing controls.
- Indian capital productivity is low, so a high investment rate has purchased less growth than it should have.
- State-owned banks allocate credit politically, and recapitalising them without changing ownership repeats the problem.
- Labour and land regulation keep Indian manufacturers below the size at which productivity gains appear.
- Joshi proposes replacing India's subsidy programmes with a universal basic income, arguing that targeting fails in practice.
- India cannot follow the East Asian export-manufacturing route at the same scale, because automation and Chinese incumbency have changed the opportunity.
- Public provision of health and education in India fails on delivery rather than on funding, and increasing budgets without accountability changes nothing.
Who should read it
Investors and policy analysts who want a rigorous, reform-minded diagnosis of what constrains Indian growth beyond the standard deregulation agenda.
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