Q&A: Arvind Panagariya

SIPA’s Arvind Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy, recently traveled to Melbourne at the invitation of Australia’s national Productivity Commission to deliver the annual Richard Snape Lecture. Since it began in 2003, the prestigious lecture series has elicited contributions on important public policy issues from internationally recognized figures.

An expert on trade and a student of India’s economy, Panagariya gave a lecture entitled “Indian Economy: Retrospect and Prospect.” He recently spoke with SIPA news about India, the Snape lecture, and his plans for 2014.

In recent years you’ve written extensively about India’s economy. For people who may not be familiar with India, can you identify some issues that distinguish India as a subject of study?

One thing that really sets India apart among developing countries is that it has been a democracy for more than 60 years. There’s only one other country, Costa Rica, that has been a developing country and a democracy for more than six decades; most developing countries became democracies much later.

Another thing that sets India apart is that, within that same parliamentary democratic tradition, India experimented with a really statist, socialist kind of political regime. And then for the last two or three decades it tried to experiment with more market-friendly policies.

Are there pros and/or cons to studying India’s economy from a distance?

If I were doing this 15 years ago, access to certain information would be limited [here in the United States]. I would have to spend more time in libraries to get information that would be more readily available in India. But today, on balance, I find it’s a big advantage. All the data — whatever you need — it’s on the Internet, and my access to technology is much better than what I would probably get in India. I can get information faster than many people there.

Also, in terms of research assistants, we have talented students here, and talented colleagues. The research tradition in Indian universities has gone away a bit. They produce first-rate students, but research-wise the country is lagging.

I do go [to India] very frequently — six times in 2012 and three times this year — and I do interact with people in the policy community and talk to people in my ancestral village and so you get a sense what is happening on the ground. But being outside of India also gives me a little bit of perspective.

It sounds like you covered a lot of ground in the Snape lecture.

I gave kind of a broad-brush account of 65 years of economic history of India. As I alluded to earlier, in the first three decades [of independence] the policies were very statist, with a command-and-control system, and also very protectionist. Imports were allowed only with great difficulty. All the incentives for investors were effectively killed. The government decided who will produce what, how much and where. Domestic entry [to India’s markets] was controlled through investment licensing and imports were permitted only as a last resort. Unfortunately — though predictably — that led to very slow growth, about 3-1/2 percent. With population growing at more than 2 percent, this meant incomes grew less than 1-1/2 percent. Poverty remained endemic.

Then the lecture discussed how liberalization started in the late 1970s and early ’80s with growth returning a little bit, and how in 1991, watershed events led to a complete change in thinking. There’s about a 13-year period from ’91 to ’04 of liberalization in most areas (with some exceptions), and that really shifted the growth trajectory. Reforms in this period opened up competition domestically and internationally and led to a massive decline in poverty, especially over the last seven or eight years of that period.

And then I talked about the future. Currently growth has plummeted to about 4-1/2 percent and there have been a lot of policy mistakes which largely account for this crash in the growth rate. So the big question going forward is what will happen? Those policy mistakes need to be corrected, so India can return to 8 or 9 percent growth again. That’s the big question mark for the 2014 election.

How did you enjoy your trip? What did you think of Melbourne?

Australia is really interesting. It was a short trip, but one thing I found was that all the universities there are really well integrated. I was able to give lectures at four different places – two universities in Melbourne and then the Australia National University in Canberra [in addition to the Snape lecture].

Australia has a tradition of producting first-rate trade economists. You see it in India, too – both are historically protectionist but they produce pro-free-trade economists. I had long chats with some very famous trade economists, including Max Corden, who gave the first-ever Snape lecture.

Earlier this year you published a book, Why Growth Matters, that you wrote with Professor Jagdish Bhagwati. How have people responded?

The reaction has been fantastic, a lot of people in Australia complemented me for it. It’s been widely reviewed — in the Financial Times, the Wall Street Journal, the New York Review of Books, and the Economist. It’s coming out in paperback in March 2014 — we’ll be doing a few more events, and hopefully a new preface in the paperback to bring things up to date. [Editor’s note: Since this conversation, the Financial Times included Why Growth Matters on its list of Books of the Year for 2013.]

What else are you working on these days?

Much of my early career was spent studying international trade — I started as a trade theorist. I want to return to writing a big book on how the move toward freer trade in developing countries over the last 30, 40 years has impacted growth and elevation and general development. The book that will look at a number of countries. There was a lot of work done through the early ’90s by economists who favored free trade. But a lot of countries that turned to freer trade beginning in the 1980s have been doing well lately. A fresh full-scale analysis is called for.

— interview conducted on November 22, 2013