A Questionable Account
during the short period of about a decade
Aspects of India’s Economic
Growth and Reforms
by R Nagaraj;
Academic Foundation,
New Delhi, 2006;
pp 352, Rs 795.
J C SANDESARA
T his book is composed of 12 articles
on the recent (“orthodox”) economic
reforms written by the author during 1990-
2003. Eleven of these articles were pub-
lished in the EPW and one was published
in a book (Economic Reforms and Industrial
Structure, edited by Suji Uchikawa,
Manohar, Delhi, 2002). The first-time
readers of these articles, as also those who
would like to revert to them, would find
this book handy.
The book assesses the performance of the
Indian economy under economic reforms
since the 1980s. It is divided into three
parts: macroeconomic performance, indus-
trial growth and some aspects of economic
policy, each having three, four and five
chapters respectively. The chapters are
organised systematically. Generally, the
chapter begins with a short summary of
the main findings of previous researches
and/or the propositions commonly pro-
pounded. This is followed by the statistical
and related material, which is used to answer
the questions posed for investigation. The
last part is devoted to summary and con-
clusions, which also includes explanations,
interpretations and implications. There is
also a short introduction by the author.
A collection of articles on a monothematic
subject of growth and reforms published
4670 Economic and Political Weekly
or so is bound to be repetitive and over-
lapping in varying measures. Further, if
the statistics used are from different sources,
relate to non-uniform or different years/
periods, and changes thereon differently
calculated, they may yield different num-
bers showing dissimilar conclusions and
also necessitating changes in explanations,
interpretations and implications. These are
some of the pitfalls of such collections, and
this book is not free from them. To avoid
such pitfalls, I have adopted the following
course in this review. I treat the three
chapters of part I as one piece, and the four
chapters of part II as another piece, as these
parts have one single theme each. In such
a broad sweep, I have had to pass over the
details. I begin with a summary and then give
my comments and observations. Chapters
of part III have specific themes, so they are
dealt with theme-wise, but only very briefly.
Macroeconomic Performance
The growth rate of gross domestic product
(GDP) for 1980/81-1990/91 was 5.6 per cent
and that for 1980/81-1999/2000 5.7 per cent.
If 1991-92 is excluded from the latter, the rate
becomes 6.2 per cent. At 99 per cent con-
fidence level, these rates are not significant.
Although the rate for the period 1990/91-
1999/2000 is not given there separately,
the rate for that period implicit in the rate
for the period 1990/91-1999/2000 will be
higher than the rate for 1980/81-1990/91.
Secondly, the rates for all three re-
form periods (1980/81-1990/91, 1990/91-
1999/2000, 1980/81-1999/2000 are substan-
tially higher than those during the pre-
reform periods of 1951/52-1959/60,
1960/61-1969/70 and 1970/71-1979/80.
November 11, 2006
 In chapter 3, the author presents some
statistics on poverty, employment and
income distribution in the context of GDP
growth. While noting that economic growth
has been faster since 1980-81 than before,
he also points out that the gains of growth
“have been unequally shared by different
sections of the Indian society”. Those
favoured are “urban India, organised sec-
tor, richer states and property-owners
against rural India, unorganised sector,
poorer states and wage-earners”. The sum
and substance of the part on macroeco-
nomic performance is “India’s growth
process does not seem to have been a
virtuous one – it has polarised the economy”
(all quotations from p 106).
A number of observations and comments
are called for on these conclusions. First,
the GDP growth data show a growth of 5.7
per cent during 1990/91-1999/2000, and
of 5.6 per cent during 1980/81-1990/91.
The author has noted that these rates are
not significant (at 99 per cent confidence
interval). At another place, he has labelled
these rates as “the same” (p 103). This calls
for three comments. (1) It is not accurate
or proper, to say that 5.7 and 5.6 are the
same. The former is higher than the latter,
admittedly in a small measure. Further,
when the year 1991-92 is excluded from
the 1980/81-1999/2000 period, the rate
turns out to be 6.2 per cent, high by a fair
measure over the 1980/81-1990/91 rate.
(2) It would be interesting to know whether
these figures change their significance when
tested at lower level of intervals, say at
1995 or 1990. These tests are not reported,
perhaps because they may not have been
carried out. (3) The reader should note that
the statistics stop at 1999-2000. GDP
seems to have grown at a faster rate after
2002-03. The growth rates for these years
are not yet firmed up, but the (provisional)
estimate for 2003-04 is 8.5 per cent, the
(quick) estimate for 2004-05 is 7.5 per cent
and the (advance) estimate for 2005-06 is
8.1 per cent (base 1999-2000). So if these
are taken into for the period 1990/91-2005/
06 or for the decade ending 2005-06, the
growth rate would be higher than 5.7 (or
6.2 per cent).1
Secondly, it is not clear why the author
does not use the same logic in inter-
preting the numbers. Take, for example,
Suryanarayana’s data on the monthly per
capita consumption expenditure in rural
areas under the section growth and poverty
reduction in chapter 3. They show an
increase in expenditure by 32 per cent
during the two decades from the level of
Economic and Political Weekly November 11, 2006
Rs 18.40 in 1973-74. The author calls it
“a statistical mirage” (p 96) as this increase
has come over a drop of 20 per cent during
1960-65. If there is no real increase there
on that reckoning, should the 5.7 per cent
(or 6.2 per cent) GDP growth of the decade
of 1990s not be regarded really and sub-
stantially higher, as it has followed a high
growth of 5.6 per cent during the decade
of 1980s. But that logic is not applied here.
Thirdly, occasionally one finds the use
of “simplistic”(p 102) statistics to drive
home a point. Consider, for example, data
on factor shares in value added in the
private corporate sector to report on income
distribution. They show a decline in wage
share from 35 per cent in 1985-86 to 20
per cent in 1996-97 and an increase in
profit share by about 15 percentage points
during the same period. In view of the fact
that this sector accounts for only a small
percentage (10) of GDP, an opinion on
income distribution based on its share does
not serve much purpose. To base an opinion
firmly, a similar exercise is necessary to
have data for other sectors also, in particular
the public sector, small industry sector,
etc, on which the needed data can be readily
had from government publications.
Industrial Growth
Registered manufacturing output grew
at a faster rate during 1980/81-1986/87
(10.4 per cent per annum) than during
1959/60-1965/66 and 1966/67-1979/80 (7.6
and 5.5 per cent). Second, that sector grew
at a faster rate during 1980/81-1986/87
than the unregistered manufacturing sec-
tor (5.3 per cent). Third, growth rate of
manufacturing output, based on National
Accounts Statistics (NAS), for 1980/81-
1985/86 was higher than growth rates as
per index number and Annual Survey of
Industries’ Statistics.
Following NAS, the author also gives
growth rates of two-digit level industry
groups for the manufacturing sector and
the registered manufacturing sector for
1981-91, 1992-2000 and 1981-2000. At
the aggregate level, 1981-2000 period
witnessed a growth rate of 7.2 per cent in
the manufacturing sector and 8.0 per
cent for registered manufacturing sector
(revealing lower growth rate for the un-
registered manufacturing). Second, the
growth rates of these sectors were lower
during 1992-2000 than during 1981-91.
Other statistics in this part relate to
profitability, investment, employment, etc.
It may suffice here to quote the general
conclusion of the author “…the reforms
neither improved the output nor the
employment growth rates, in the total
manufacturing sector. The distribution of
the growth process across regions and be-
tween the organised and the unorganised
sectors turned adverse. And above all, it
seems hard to believe that the reforms
enabled India to overcome the ‘macro-
economic perversity’, as India’s exports or
export capability have not improved on a
sustained basis, at least not as yet” (p 190).
This is a harsh and questionable judg-
ment. First, it must be remembered that the
reforms started during the 1980s, so a proper
comparison should be for the pre-reform
period before the 1980s and the reform
period since the 1980s. In fact, the above
quotations are from the chapter reporting on
performance in the 1990s. Second, during
this long period, reforms have not moved
on a smooth path or at a steady pace. Third,
after 2003-04, industry has grown, on the
Index of Industrial Production statistics, at
higher rates – 8.4 per cent in 2003-04, 8.6
per cent in 2004-05 and 7.8 per cent in
2005-06 (April-December, in the last two
years). These rates would be reflected in
the 1990/91-2005/06 growth rate (more so
in the growth rate of the decade ending
2005-06) showing higher growth rate than
for the rate of the decade of 1990s.2
This part has listed some major features
of industrial and related policies since 1980.
Among the positive features in India’s
industrial economy are listed: improvement
in the rate and pattern of investment, better
performance of infrastructure, improved
functioning of industrial markets and
improvements in the quality and cheape-
ning of industrial products, consumer
durables in particular.
Other Aspects
Of the five chapters in this part, two are
on the public sector and one each on
employment and wages, capital markets and
foreign direct investment. In what follows,
I summarise very briefly the main conclu-
sion/s of these chapters. Additionally, there
are two comments on the public sector.
Public sector: There is no deceleration in
the growth rate of output of public sector
in the 1980s. The overall deficit of public
sector has deteriorated (the author has put
this soothingly: “...the overall deficit of
PSEs has increased marginally over two
decades (but) the increase seems insignifi-
cant compared to the sharp deterioration
in the gross fiscal deficit” (p 250)). A rising
4671
tide, it is said, lifts all boats. The 1980s
had high growth rates in GDP and industry;
also administered prices of goods/services
of public sector enterprises were raised
during this period. These high tides of
growth and price increases have not only
not lifted the boat of the public sector but
it has actually sunk, counteracting
those tides by other more powerful
factors. Secondly, the absence of
tabular presentation of statistics on this
sector is striking. Employment and wages:
Earnings for workers in registered manu-
facturing show a higher growth rate during
1980/81-1988/89 than during 1973/74-
1988/89 (3.6 and 3.2 per cent). However,
the employment growth rate was negative
during 1980/81-1988/89 but positive during
1973/74-1988/89.
Capital markets: There is no statistically
valid association between capital market
growth and growth of investment and output
in the corporate sector. Also, growth had
little impact on aggregate saving and invest-
ment rates in the economy.
Foreign direct investment: The author
suggests that a strategic review of foreign
direct investment and policy thereon be
undertaken. Such a review should take into
4672
account the role and scope of foreign direct
investment in increasing domestic produc-
tion, technological capabilities and access
to foreign markets.
Concluding Remarks
The interpretations of statistical and other
information given in this book has to be
reviewed judiciously. The reader is better
advised to explore whether other interpre-
tations are possible and called for. Also,
there are other statistics and other researches
on this subject that come to different
conclusions, some of which are cited in the
reference section of the chapters. Their
findings and interpretations have to be
juxtaposed with those of this book to arrive
at a balanced view. There is also a need for
a more up-to-date account up to 2005-06.
All this is very necessary in the
context of this book, where the conclu-
sions, explanations, interpretations and
implications of its chapters are qualified
as being preliminary, tentative and indica-
tive. Meanwhile, I welcome this book as
a part of the researches on this subject. I
also recommend it for perusal to the read-
ers who have not read these articles from
Sage
Economic and Political Weekly
their original source, as also to those who
have read them but not judiciously. EPW
Email: jcsudebu@hotmail.com
Notes
1 This point needs an explanation. The rates for
2003-04, 2004-05 and 2005-06 are on the 1999-
2000 base. On the other hand, the rates of 5.7 and
6.2 per cent given in the first para of this section are
on the 1980-81 base. So as such, the two are not
comparable. To make them comparable, they have
to be put on the common base, say 1980-81. But
since rates after 2002-03 are quite high, they would
show higher growth on that base for 1990/91-
2005/06 and for the decade ending 2005-06 than
5.7 for the period 1980/81-1999/2000 (or 6.2
per cent if 1991-92 is excluded from this period).
2 This point also needs an explanation. The rates for
2003-04, 2004-05 and 2005-06 are based on the
Index of Industrial Production with base year
1993-94. On the other hand, the rates for 1992-
2000 and 1981-2000 given in the second para of
this section are on gross/net value added as per
NAS with base year 1980-81. So as such, the two
are not comparable. Since, however, the above
index-based rates are quite high, they would be
reflected in the gross/net value added rates for the
period 1991/92-2005/06 or for the decade ending
2005-06, showing higher rates than 7.2 and 8
per cent of 1992-2000 and 1981-2000. This
point gets support from the statistics of growth
rates based on index number and gross value
added for 1980/81-1985/86, which show higher
rates on the latter measure (p 128, Table 5.1).
November 11, 2006