Book Summary: "Reset: Regaining India’s Economic Legacy" by Subramanian Swamy

Happy Sunday,

About the Book:

The book ‘Reset Regaining India's Economic Legacy’ has six chapters and the book provides an amount of data showing multi-dimensional economic parameters in various periods to support his arguments but no tabulation is overpowering, as he also provides a lucid and easy explanation. To provide such a bird’s eye view of 150 years in a few pages is in itself quite remarkable.

The book describes the journey of India from the British period to the present stage from a macroeconomic perspective. The book deals with one of the most discussed topics today - India's economic struggles and the way forward. The book aptly describes India's economy in three stages - Pre-Independence, Post-Independence till liberalization, and Post-Liberalization India. This book is termed the most comprehensive document detailing the growth and development of the Indian economy to date. The book helps to identify focal points of economic gaps, out-of-the-box realistic ideas to fix them and gripping narration covering the landscape of India's economic history of 150 years backed by data analytics at every stage. The author urges India not to miss out knowledge and Innovation revolution of the 21st century after missing out Industrial Revolution of the 19th and globalisation in the 20th due to the command economy framework.

About the Author:

Dr. Subramanian Swamy is an economist with a PhD from Harvard University, with Nobel Laureate Simon Kuznets and a jointly published research with Nobel Laureate Paul A. Samuelson. He taught graduate-level courses for several years at Harvard University after receiving his doctorate. He returned to India to be a Professor of Economics at IIT, Delhi, but his scathing criticism of socialism and communism as being inapplicable in a democracy, invoked the ire of Prime Minister Indira Gandhi and his professorship was terminated in 1973. However, a Delhi court held the termination as null and void in 1991, but he resigned after resuming his Chair for a day to participate full-time in politics. Dr Swamy has been elected six times to the Lok Sabha and the Rajya Sabha, three times each respectively. As a Cabinet Minister twice in 1990–91 and 1994–96, he helped Prime Minister Chandra Shekhar and Narasimha Rao to launch economic reforms. He is well-versed in law and has successfully argued for a large number of public interest litigations.

1. Imperialism Uproots Agriculture: the author provides an interesting narrative of the extent to which Britain’s exploitative “Revenue-Extracting Zamindari System” took a toll on India’s peasantry and the agriculture sector as a whole. The author has studied the Chinese economy closely and written a fair amount on it. He makes frequent and fairly compelling comparisons of farm output between the pre-independence economic trajectories of China and India. In 1950, around the time that the two countries founded their new republics, China had a comfortable food surplus enabling it to finance rapid industrial growth, while India’s two-century-long decline in foodgrain yield left it lacking such a cushion.

2. Industrialization; Missed Opportunities and Unfulfilled Promises: In this historical narrative, he compares the growth of the Chinese economy vis-a-vis the Indian economy. He has chosen these two nations as both suffered from imperialism. He gives an interesting example of how the Chinese elite first opposed the railway lines in their country while the Indians welcomed it. So, India had an initial advantage in infrastructure. But, even though railways covered most of India well before the Chinese, the British goal was only to exploit the resources by making it easier for primary products to be exported to the UK at exploitative prices while taxing the industrialists and Indian traders very heavily so they were at a disadvantage when they used the railways. In a way, this advantage saved India during famines. China had two famines from 1870 to 1950 while India had 12. But, due to better infrastructure India hardly saw any deaths while the Chinese suffered nearly 32 million deaths. He shows how Indian entrepreneurs did better and produced low-cost goods but were disincentivised by the British through various levies and various obstacles.

3. The Albatross around India’s Economic Neck; The Soviet Model: It is the second period, extending for four decades from 1950 that attracts the most trenchant criticism from the author, who makes no bones about his complete disdain for the socialist ideology that informed the economic policies of the era. Terming the Soviet command economy a model with its focus on planning as ‘The Albatross around India’s Economic Neck’ the author is emphatic that it was this flawed policy approach that caused a “monumental loss of opportunity”.

4. Roar of the ‘Caged’ Tiger: Phase Two of the Indian economy post-1947 was about imposing the Soviet model of economy in India. This resulted in the infamous‘ Nehruvian Rate of Growth’ of around 3.5% wrongly called ‘HinduRate of Growth’ by establishment economists. During this period of 1947 to 1990, Dr Swamy again brings out a comparison of India vs other economies with special attention to India vs the Chinese economy. China too followed the Soviet model during this time, but completely, unlike India’s mixed economy. Despite huge investments by the Soviets, China too couldn’t achieve better results than a 4% growth rate. While Communists realised the futility of their Communist model of development and changed course in 1980, India took another decade to move out of the respectable appearance of the government-controlled economy run as a mixed economy that gave incentive to be dishonest.

5. A Tryst with Destiny That Never Materialized: Dr Swamy begins the chapter on the Indian economy post-1990 with a quote from The Economist - “Nowhere else, not even in Communist China or the Soviet Union, is the gap between what might have been achieved and what has been achieved as great as in India.” In this chapter, the author goes on to explain the factors behind the complete break from the past with liberalisation and removal of license raj and how India took to a new trajectory that hit a growth rate of 8%. This is the most absorbing chapter and I wouldn’t like to spoil readers’ interest by quoting from this chapter. It was an exhilarating period which many of us witnessed while the millennial people had no idea about this journey from a controlled economy to a competitive open economy. The author offers a critique of Modi since his arrival on the national scene. He feels that bold reforms went missing and shows that the economy followed more or less the UPA period policies. According to him, the boldest move of demonetisation was marred by poor planning. Similarly, the implementation of the boldest reform, GST, was again messed up by bureaucrats who created complex tax regimes that made the life of the people in business and industry, especially the MSME segment, difficult and the economy suffered. In both cases, bureaucracy was ill-prepared but misguided the political masters with false assurances. Despite denials by government sources, Dr Swamy insists that the Indian economy is in a downward spiral unless some dynamic actions are undertaken. We may or may not agree with this doomsday prediction. Considering that he had predicted slowing down of the economy much earlier, one may not take his warning lightly.

6. The Modi Years: Looking Back, Looking Ahead: He insists that PM Modi is a great manager of micro-economics but he doesn’t understand macro-economic issues or solutions. Implementations of wonderful pro-poor schemes by Shri Narendra Modi following the principles of Integral Humanism show his strength in this area. At the macro level, his advisors are not telling him what is correct but only telling him what he wishes to know. This has resulted in a mess at the macro-economic level according to Dr Swamy

Conclusion: a fairly technical and data-heavy primer, it is a fast-paced and carefully compartmentalized economic journey of India, the next chapter of which is currently being penned by Prime Minister Narendra Modi and his cabinet. While Dr Swamy applauds PM Modi's "unstudied familiarity with microeconomics", he recommends a more comprehensive approach to address the "complex multivariate general equilibrium" macroeconomic issues facing India today.

Learning: The growth potential of the economy over a medium period depends upon several factors. First, the capacity of the economy to maintain a sufficiently high rate of investments and domestic savings. Second, ensuring productive use of that capital investment. Third, the deployment of innovation

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