The Telegraph
Since 1st March, 1999
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Policies, Institutions and Industrial Development: Coping With Liberalization and International Competition In India By John Degnbol-Martinussen, Sage, Rs 475

Economic restructuring in India continues to invite questions. The current debates however no longer relate to the necessity of reforms. Discussions have now shifted to the implementation of policies and the capability of the new economic system to deliver. In this regard, the role of economic institutions has come under sharp scrutiny.

In a complex pluralistic society like India’s, institutions are crucial in determining the outcome of policies. Moreover, the functioning of institutions in developing nations is systemically hampered by the existing underdevelopment. India is not an exception. Besides, institutional mechanisms in India are heavily influenced by considerations of caste, religion, customs, and pressures exerted by different interest groups. These exogenous influences have shaped the functioning of key institutions like the bureaucracy, regulatory frameworks, legislations and so on.Understandably, the impact has often been detrimental, thwarting the effective implementation of policies.

John Degnbol-Martinussen has attempted to analyse the critical link between policies and institutions in India’s industrial development. He has highlighted the prerequisites of an enabling institutional framework (on the lines suggested by Myrdal and North) and has tried to identify the shortcomings in India accordingly. While delineating the history of India’s industrial development, the author has attempted to dig out factors that are significant in explaining the limited, and occasionally distorted outcome of several policies.

The work doesn’t contain startling revelations or radical vindications. It also refrains from judgmental evaluation (a tendency afflicting several scholars while discussing similar subjects). Instead, Degnbol-Martinussen has tried to remain focused in his attempt to unearth the motives behind the observed malfunctioning of institutions. Considerable attention has been devoted to the bureaucracy in this regard. The author points to the “economy of affection”, or the overwhelming moral obligation to look after the interests of one’s own kin, community, and social group, as the fundamental reason behind corruption in the bureaucracy and wastage of public resources. The desire to favour select social groups is traced to the overall paucity of resource endowment and is typical of a developing country like India. The inclination to grant favour, he argues, eventually culminates in a degenerative mechanism for rent-seeking, which works to the advantage of chosen business groups and interest lobbies.

Quite a few of the author’s explanations are contentious. Nevertheless, he must be credited for exploring issues that are often overlooked. But there are instances when he treads the beaten track. He identifies ambiguous property rights, (particularly with respect to commercial transaction of land), complex legal frameworks, lack of systemic transparency, personalized relationships and an underdeveloped “public-private” interaction process, as the core shortcomings of the existing implementation mechanism. All these however are common knowledge. It is also not clear as to how the oft-repeated “economy of affection” manages to scale progressively greater heights of rent-seeking despite elimination of several controls.

The author has relied almost entirely upon interviews for collecting his inputs. While this has given him an “insider’s view”, he has stayed away from responding to a fundamental question. Given the significance of institutions, economic restructuring can’t be bereft of institutional reforms. What should they be' The book is rather conspicuously silent in this regard and is devoid of a curative agenda.

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