bobf2d33's review
3.0
Gives the reader a good foundation on the recent economic history of India. However, does not make a compelling case for why growth matters and the reforms the authors recommend to improve growth for India.
jingyao's review against another edition
5.0
A very informative account of why India did not achieve impressive economic growth in the last 20th century like its Asian peers and how economic reform is undoing the damage. Some main points I enjoyed learning about:
In a country with widespread poverty and an agricultural economy, the comparative advantage in cheap labor allows the country to move its farmers into labor-intensive manufacturing jobs, thus reducing poverty. However, Indira Gandhi’s Socialist policies granted the government monopolistic power in major industries, cast extensive control over the private sector through labor laws excessively protective towards workers and turned away from trade and foreign direct investment to protect domestic firms. This led to 0.3% annual GDP growth from 1965-1975.
In particular, highly protective labor laws translate to very high costs of doing business in labor-intensive industries where labor costs make up 80% of total cost. Chapter VB of the Industrial Disputes Act effectively makes it impossible for an industrial establishment with one hundred or more workers to lay off or retrench workers even if it is unprofitable and is therefore forced to close the unit. Firms can minimize labor-related problems and costs by hiring less than 7 workers.
As late as 2005, 200+ employee firms employed only 10.5% of manufacturing workforce in India, while small firms are not interested in exporting globally and scaling up employment. This lack of large-scale manufacturing firms leads to a shortage of gainful employment opportunities for the majority of the rural population still farming in rural villages. Although India's economic growth has picked up significantly in recent years, it is driven by capital-intensive industries like IT services, automobile and telecommunication.
India has one of the youngest growing populations in the world and is projected to be a main contributor to the global workforce in the next few decades. Against a global context of aging populations in developed economies, this poses a huge opportunity for reducing poverty in India. It is then crucial for the government to increase investment in education, skill development and public health and create employment opportunities in labor-intensive industries.
In a country with widespread poverty and an agricultural economy, the comparative advantage in cheap labor allows the country to move its farmers into labor-intensive manufacturing jobs, thus reducing poverty. However, Indira Gandhi’s Socialist policies granted the government monopolistic power in major industries, cast extensive control over the private sector through labor laws excessively protective towards workers and turned away from trade and foreign direct investment to protect domestic firms. This led to 0.3% annual GDP growth from 1965-1975.
In particular, highly protective labor laws translate to very high costs of doing business in labor-intensive industries where labor costs make up 80% of total cost. Chapter VB of the Industrial Disputes Act effectively makes it impossible for an industrial establishment with one hundred or more workers to lay off or retrench workers even if it is unprofitable and is therefore forced to close the unit. Firms can minimize labor-related problems and costs by hiring less than 7 workers.
As late as 2005, 200+ employee firms employed only 10.5% of manufacturing workforce in India, while small firms are not interested in exporting globally and scaling up employment. This lack of large-scale manufacturing firms leads to a shortage of gainful employment opportunities for the majority of the rural population still farming in rural villages. Although India's economic growth has picked up significantly in recent years, it is driven by capital-intensive industries like IT services, automobile and telecommunication.
India has one of the youngest growing populations in the world and is projected to be a main contributor to the global workforce in the next few decades. Against a global context of aging populations in developed economies, this poses a huge opportunity for reducing poverty in India. It is then crucial for the government to increase investment in education, skill development and public health and create employment opportunities in labor-intensive industries.
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