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Three of his conclusions stand out. First, agriculture is in unambiguous decline. Instead, it is the non-farm sector of the rural economy and migration to the city that account for a rising proportion of village incomes. Second, the traditional caste hierarchy has collapsed, not simply in southern India, but also in the north. Third, the village is now a site of socio-economic pessimism. The urban slum, despite its filth and degradation, is where the rural migrant feels optimism about the future. Slumdog millionaires are not simply a cinematic fantasy.
All of these arguments are supported by field research and some compelling narratives. The analytic problems begin when Gupta enters the cities, visits the nation’s industrial landscape, ponders India’s insertion in the global economy, and makes arguments about whether Indian economy can really take off.
Gupta is pessimistic, but the factual and analytical bases for his pessimism are inadequate. In the first decade of the 21st century, arguments about economic transformation cannot be made without the East Asian experience, the only region to migrate from the third to the first world since World War II. South Korea, Taiwan, Hong Kong and Singapore were the first East Asian economic tigers. But those experiences could be ignored by Indians for, as one Indian scholar once put it to me, why don’t we compare Ludhiana to South Korea! The rise of China, another East Asian nation, has undermined the Ludhiana-South Korea comparison. Gupta’s comparative lens extends primarily to the historical experience of Western industrial transformation. But for contemporary development theory, the West is a historic curiosity. East Asia is a lived reality.
Consider two basic problems that East Asia raises for Gupta’s West-centric argument. First, it has restored the value of savings and investment rates for economic development. India today saves around 35 per cent of its national incomes and invests about 37-38 per cent. (The additional 2-3 per cent come from foreign investment.) That is what we call an East Asian rate of savings and investment (China’s investment rate is about 40 per cent). Moreover, we also know savings and investments rates do not fluctuate wildly. A nation saving 35 per cent of its income this year does not easily drop to 20 per cent the next year.
With savings and investments rates of this magnitude, the question is if India’s economic transformation will come about in 20 or 30 years. The transformation itself is beyond doubt. Gupta never considers the significance of savings and investments rates. Nor does he consider the East Asian experience.
Second, Gupta wrongly attributes India’s recent economic rise primarily to exports based on cheap labour. Again, a comparison of India and China would have been more helpful than a plunge into the West. India-China comparisons have shown that, unlike India, China has specialised in labour-intensive manufacturing. Foreign trade constitutes nearly 80 per cent of China’s gdp, as against India’s 40 per cent. That’s because China’s wages were not only low but its labour was also reasonably productive; Indian wages were low but industrial workers were not productive. That is why China, not India, became the factory of the world. India’s economic rise has more to do with innovation in technologically superior fields. Yasheng Huang of mit’s Sloan School of Management has long argued that India appears to be producing world-class private firms, but China is producing incomes based on lower wages leading to large exports. Cutting-edge arguments like this make no appearance in Gupta’s text.
It is still possible that India’s take-off will not come about. But it will not be for reasons Gupta marshals.
(Varshney teaches political economy and politics at Brown University)