By Jagdish Bhagwati & Pravin KrishnaA ship going in the wrong direction cannot be turned around quickly without risking a disastrous accident. That is what happened with ‘shock therapy’ in Russia where economist Jeffrey Sachs backed rapid reforms, which backfired, by arguing that one cannot cross a chasm in two leaps, forgetting that one cannot do so in one leap either — unless one is Indiana Jones.Prudent gradualism is also appropriate for democracies where institutions (such as a stifling licensing regime) and lobbies (also called ‘interests’ by economists) have grown up over the past many years around the policies that one seeks to change, and the statesmen steering the reforms have to negotiate around the roadblocks they pose.While it is natural that the critics who want rapid and cascading reforms would be impatient with measured and deliberate speed in reforming the economy, they should also remember that the economy was undermined because the politicians listened earlier to the wrong ideas (often advanced by the very same economists who have now changed their minds) that left the economy in a sorry state.In judging Prime Minister Narendra Modi’s performance in office, we also need to remember that the prime minister has faced serious difficulties in passing legislation because he had inherited a Rajya Sabha dominated by the defeated, even decimated, Congress Party. So, like US President Barack Obama, who has been forced to resort to Executive Action because of Republicans blocking legislation in the Congress, Modi has been constrained to use the ‘ordinance’ mechanism to introduce the legislations he wishes to enact.This applies specially to the land acquisition Bill, which is an important part of the new government’s reform agenda that seeks to extend reforms to ‘factor markets’ such as land and labour, whereas the post-1991 reforms were mainly addressed to product markets.The government’s efforts in this regard — and the finance minister’s Budget, which devolved greater economic power to the states and outlined other priorities in the reform program — appears to have been received well. The latest certification to this effect coming from the upgrade of India’s sovereign rating outlook by Moody’s from ‘Stable’ to ‘Positive’.Yet, even if the speed of reforms is prudent, the prime minister needs to be warned against some attractive but ill-advised sloganeering that hides erroneous reasoning that could lead to adoption of policies that harm the economy.First, Modi repeatedly uses the slogan ‘Make In India’. Of course, since one cannot ‘make’ services, the slogan excludes services and will be interpreted as a call to produce manufactures, not services. Again, this ‘manufactures fetish’ is shared by Modi with Obama, who has also bought into it, with American producers of manufactures (such as General Electric) and their lobbies not far behind.India’s problem is that it has under-utilised labour-intensive activities, whether manufactures or services. As discussed extensively in the book, Why Growth Matters (Public Affairs, 2012), by Bhagwati and Arvind Panagariya, India failed to make as much dent on unemployment and poverty reduction as did the East Asian nations because India failed to utilise labour-intensive production the way the East Asian nations did: so India got less ‘bang for the buck’.The new government will have to redress this deficiency, by encouraging both labour-intensive services and manufactures. At the same time, of course, the argument in support of the services sector should not be taken to the other extreme, as some influential economists recently have done in arguing for a model of development based exclusively on growth in services rather than manufacturing.Equally questionable is the view expressed by RBI Governor Raghuram Rajan, in his Bharat Ram Memorial Lecture, that India ought to pursue an inward-oriented (in what we might call a ‘Make For India’) strategy, implicitly rejecting exports as a driver of growth for India. In so doing, he seems to have succumbed to a pessimism concerning India’s export prospects, perhaps driven by the current global crisis as also the fear that India will be required to compete in global markets with a large, labour-abundant, and already successful China.We will do well to recall that such pessimistic concerns about room for new entrants in global markets for low-skill manufactures preceded the emergence of China, due to the prior dominance of the East Asian tigers (Korea, Singapore, Hong Kong and Taiwan) and preceded the emergence of the tigers due to the presence of Japan as an exporting powerhouse. Nevertheless, as wages rose in Japan, Korea took over and as wages rose in Korea, China emerged.Now that Chinese wages are themselves on the rise, the circumstances offer India and other countries their turn. Indeed, even if wages did not rise in China, an expansion of India’s manufacturing and exports would quickly follow any relaxation of the regulatory regime and improvements in basic infrastructure. ‘Make For India’ misreads the present and risks a return to our autarkic, low-growth past.Finally, a word of caution on exaggerated targets. Prime Minister Modi has been offering a vision of Indian transformation from a $2 trillion to a $20 trillion economy. Economists are usually warned that they can protect their flanks by forecasting a number or a date, but never the two together. Modi has heeded this advice by propagating a large aspirational number, but not a year by which this was to be achieved.Nevertheless goals and targets must at least be seen as feasible. Dream castles may briefly capture the imagination, but they only rarely motivate the long and arduous paths needed to achieve them. Surely, the prime minister would serve his cause better by talking instead about restoring India’s high growth rate in the years following the 1991 reforms.Those growth rates were achieved. They are, therefore, likely to be seen as being in the realm of feasibility, even though they, too, will require continuing and comprehensive reforms.