India: Rapid Recovery and Stronger Growth after the Crisis
such as China and East Asia. But here, too, the mystery of India’s previous growth spurt episodes persists in two very important respects: (1) there was no single political economy or policy reform that decidedly spurred such an acceleration, and (2) the growth that took place, on the other hand, was not simply “good luck” but was attributable to the impacts of an accretion of macroeconomic and structural policy improvements across a wide range of fronts that this chapter has addressed—from the improvement of tax policies, to the liberalization of FDI policies, the steady opening of the economy, the growth of infrastructure, the development of skills, and managing the complex political economy in favor of faster growth with equity. This process has been given various names by other authors, ranging from “a gradualist and evolutionary transition model” (Ahluwalia 1994), to a shift to a “pro-market attitudinal” orientation (Rodrik and Subramaniam 2004) and the more radical “end of license raj reforms” (Srinivasan 2005). Perhaps the most important aspects of the reform process in India are as noted in a contemporaneous lecture by a leading reform counsel (Rangarajan 2006, 3): “India’s economic reforms are unique in two important respects—not because of the content of the reforms but because of the context in which we are pursuing them. First, we are implementing them in a democratic context.…second, in a decentralized context. This has…meant restraint, even compromise, deliberate decision-making and slow progress…making haste slowly.…(and adding) to the credibility and robustness of our reform.” We have preferred to call it more simply an endogenous process of reform, insofar as such reforms essentially take place in the most binding areas endogenously as pressure groups and lobbyists of the private sector coalesce, as internal bureaucratic policy makers address increasingly costly constraints or attempts to take advantage of new opportunities, and as political actors trade off the costs and benefits of policy alternatives. The steady accretion of such improvements, and the ability to take decisive steps when needed, especially in crises, are the two hallmarks of success. The period FY03–FY08 simply benefited from an acceleration of such a process with improved opportunities and openness to the rest of the world, nothing more, compared to a much more difficult previous five years when growth stalled after the 1991 reforms. The third observation is that such growth accelerations have eventually and ultimately depended on (1) the creation of conditions for rising
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