Who says only reforms have made India grow?

Pranab Bardhan, professor of economics at University of California, Berkeley, has an excellent piece in the Boston Review, in which he explodes a few myths on the rise of India and China:

“What explains this strikingly rapid growth? The answer that continues to dominate public discussion runs along the following lines: decades of socialist controls and regulations stifled enterprise in India and China and led them to a dead end. A mix of market reforms and global integration finally unleashed their entrepreneurial energies. As these giants shook off their “socialist slumber,” they entered the “flattened” playing field of global capitalism. The result has been high economic growth in both countries and correspondingly large declines in poverty….

“As for India, market reforms may not be mainly responsible for its recent high growth. Reform has clearly made the Indian corporate sector more vibrant and competitive, but most of the Indian economy lies outside the corporate sector; for example, 93 percent of the labor force works outside the corporate sector, private or public.

“Take the fast-growing service sector, where India’s IT-enabled services have acquired a global reputation while employing less than a quarter of one percent of the total Indian labour force. Service subsectors like finance, business services (including those IT-enabled services), and telecommunication, where reform may have made a significant difference, constitute only about a quarter of total service-sector output.

“Two-thirds of service output is in traditional or “unorganized” activities, in tiny enterprises often below the policy radar and unlikely to have been directly much affected by regulatory or foreign trade policy reforms. It is a matter of some dispute how much of the growth in traditional services (mostly non-traded) can be explained by a rise in service demand in the rest of the economy, and how much of it is a statistical artifact, since the way output is measured in these traditional services has been rather shaky all along.”

Read the full article: What makes a miracle