Tuesday, November 20, 2012

More on the Indian Economy

In Mumbai for a conference sponsored by the Reserve Bank of India (RBI) and the Asian Development Bank (ADB). On my way, I read an op-ed by Arvind Panagariya in the Times of India, in which he defends that the Bharatiya Janata Party (BJP) should embrace the reform agenda, followed by Congress and by the same BJP when in power. His views [remember that Panagariya is a fairly conventional free trade mainstream economist] are fairly conventional, but interestingly he suggests that "the Indian public today fully appreciates the benefits of reforms."

The notion that the majority of the Indian people are for the Washington Consensus reforms is surprising to say the least. The basis for his proposition is very flimsy indeed. He suggests the following:
"The opposition parties had claimed that the latest package of reforms would damage millions of shopkeepers (FDI in retail), transport workers (diesel price hike) and urban households (subsidised LPG cylinders). Yet, none could translate that supposed harm into sustained anti-reform demonstrations in the public space."
In other words, the evidence for the support for the reforms is the lack of protests on the streets against the reforms. It is far from clear, however, that the absence of protests are a sign of support. Note that for good or bad the Indian economy, even with a slowdown, continues to grow fast, so it would be surprising to find a lot of protesters in the streets.

And yes India has been growing relatively fast since the 1980s, that is a whole decade before liberalization started in 1991. Also, note that one of the key areas in which India has not followed the liberalization and deregulation policies of the neoliberal agenda is in the financial sector, preserving capital controls (even if there have been pressures and a certain amount of liberalization it is way less than what happened in Latin American economies, for example).

The current debate in India has been very heated, following the revelations that Wal-Mart has paid bribes (as much as it happened in Mexico). At any rate, the process of liberalization proceeds with parties being for once in power, but against when in the opposition. This system has been perfect in order to guarantee that no matter who wins the elections, yes this is the largest democracy in world, the process of economic liberalization is not affected.

PS: On a slightly different matter, the RBI study has an interesting study that shows a 10% increase in minimum support price (MSP) of wheat raises wholesale inflation by 1%. That is, price controls, in this case on food supplies, is an important element of anti-inflationary policy in India.


  1. Actually, it seems that India is moving fast towards the truest form of capitalism:

    Capitalism: red in tooth and claw

    You know, Uebermenschen in the best Nietzchean/Randian tradition.

  2. This comment has been removed by a blog administrator.

    1. Hi Muserskly, in reply to why your previous comment was deleted, let me point the obvious, language. Insults are not admitted. And no you didn't destroy Keynesian economics, with a few insults. You can are most welcome to present critics of Keynesian ideas. But those must be about concrete and objective things.

    2. I meant you are welcome to present critiques to Keynesian ideas.


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