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India’s Second Wind

NEW DELHI – The Indian economy is coming back. After several years of disappointing performance, the authorities are shifting to policies aimed at boosting the annual growth rate closer to the roughly 9% level that India achieved from 2004 to 2008.

That won’t be easy. India has many handicaps and lacks many of the things that are needed to sustain rapid growth.

Although India has outstanding universities and technological institutes, the primary-education system is disastrously poor. The caste system and labor laws prevent an efficient labor market. The policy of quotas for lower castes and for members of certain “scheduled” tribes affects educational institutions, government employment, and even private firms. Populist policies that transfer scarce budget funds to hundreds of millions of rural men and women end up encouraging them to withdraw their labor services, driving up wages and undermining international competitiveness.

True, bureaucratic rules are not nearly as constraining as they were during the pre-1991 “license raj.” But business activity remains bogged down by myriad restrictions and a frustratingly slow judicial system, which, together with a complex system of price subsidies, encourage widespread corruption at every level of government.