Dr. Swamy had warned in a 2002 article about 1991 reforms
In the Spring of 2002, Dr. Subramanian Swamy had published an article with “Harvard Asia Pacific Review” titled “Can India Make It?”.
He made a bold prediction in 2002 that India will be the third-largest economy by 2020, behind the United States and China.
Here is a snippet of Dr. Swamy’s concluding paragraph:
Incidentally, in the same article he had pointed out 4 main struggles in the Indian economy, or as he called it “The four main areas of retardation”:
- High fiscal deficit as a percentage of GDP, which leads to crowding out of private investment and the banks’ capacity to lend.
- No consensus on whether the reforms thus far have been effective in alleviating poverty.
- Unequal distribution of growth, posing social challenges to the federal structure of the democracy.
- The growth impulses of India have been range-bound between 5% and 8%.
While it is widely accepted that Dr. Swamy developed the blueprint of the 1991 reforms, he had warned in this 2002 article that the 1991 reforms were limited to the “product markets” such as abolishing industrial licensing and import barriers.
However, the “factor markets” had remained largely untouched and hence warranted the second generation of reforms. For examples:
- Labor market
- Land market
- Capital markets
- Natural resources market
He also placed special emphasis on financial sector reforms. The following quote held relevance all the way through 2016: “India’s present laws of bankruptcy and corporate control require reforms so that the market for corporate control can become competitive.”
He has maintained since 2002 that crony capitalism and misallocation of resources have plagued India for too long and that the independence of regulatory and monetary authorities such as the Securities and Exchange Board of India (SEBI), Telecom Regulatory Authority of India (TRAI), and Reserve Bank of India (RBI will be crucial for the coming decades.
Lastly, he had warned in 2002 (by studying graphs of the efficiency frontier and the coefficients of variation for Return on Investment (ROI) between India and China) that in the absence of the second phase of reforms, China was well placed to grow faster than India and would likely attract more FDI, especially after its inclusion in the World Trade Organization (WTO).
Looking back, Dr. Swamy’s article in 2002 was staggeringly prescient on multiple levels. He was ahead in his predictions and clinical analyses by two decades, raising a serious question: Has India really utilized his talents well?
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
 Can India make it? India’s path to sustained growth: An economist’s perspective – Harvard Asia Pacific Review