That’s Alan Greenspan, the longest-serving chairman of the US Federal Reserve (1987-2006), known across the world’s financial markets as The Oracle, in his memoirs The Age of Turbulence: Adventures in a New World. Other than bashing US President George Bush for excessive spending and questioning the “political” coyness over admitting that the Iraq war was all about oil, Greenspan has spelt out his vision of the global economy in 2030. And devoted a chapter The Tiger and The Elephant, on India and China’s divergent economic paths.

“While India is an admirable democracy — the largest in the world — its economy, despite important reforms since 1990, remains heavily bureaucratic. Its economic growth rate in recent years is among the highest in the world but that is off a very low base. Indeed, India’s per capita GDP four decades ago was equal to that of China, but is now less than half of China’s and still losing ground. It is conceivable that India can undergo as radical a reform as China and become world-prominent. But at this writing, its politics appear to be leading India in a discouraging direction.”

India “symbolizes most powerfully both the productiveness of market capitalism and the stagnation of socialism” and “is fast becoming two entities: a rising kernel of world-class modernity within a historic culture that has been for the most part stagnating for generations.” While “the pick up in real GDP growth from 3.5 per cent between 1950 and 1980 to 9 per cent in GDP has been truly remarkable,” Greenspan says that India’s per capita GDP, which was at parity with China’s in the 1990s is now only two-fifths that of China’s and below the per capita GDP of Ivory Coast and Lesotho.

One key reason for this failure is an idea, which according to Greenspan, was left behind by the British and “captivated India’s elite”— Fabian socialism. “Jawaharlal Nehru was firmly attracted by the rationality of the Fabians, and he perceived market competition as economically destructive. Because of him, socialism has retained a firm grip on Indian economic policy long after it was abandoned by Britain,” Greenspan writes.

“Socialism not only is a form of economic organization but also, because of its fundamental premise of collective ownership, has profoundly important cultural implications, most of which have been embraced by a majority of Indians. The notion that government intellectuals, driven by the good of society overall, can far better determine the appropriate allocation of resources than can “erratic” free-market forces dies hard in India,” he points out.

In 1991, Prime Minister Manmohan Singh, whom Greenspan refers to as “a market-oriented economist,” was “able to tear a modest hole in the regimented economy — he initiated liberalizing steps in a wide range of areas — and demonstrated once again that a little economic freedom and competition can exert extraordinary leverage on economic growth.”

“Singh introduced much reform, but in many critical areas he was constrained by the enduring socialist inclinations of his governmental coalition. Even today, firms with more than one hundred employees with few exceptions cannot fire anyone without government permission,” Greenspan writes. “Prime Minister Singh is a highly reputable reform-oriented economist, but he does not have the authoritarian clout that enabled Deng Xiaoping to start China’s agricultural reform in 1978. Indian democracy is up to this task. It needs only to focus on the urgent needs of India’s population. A very large dose of deregulation and competition can spread India’s IT revolution to the rest of the country.”

Greenspan admits that India has “great potential” and lauds its success in “export-oriented, world-class high-tech services” but adds: “...This kernel of modernity is only a small part of the sprawling economy of India. Even as tourism-associated service industries prosper, fully three-fifths of India’s workforce toil in unproductive agriculture.”

Greenspan buttresses this point. “ Total employment in India’s information technology industry is currently about 1.5 million, five times its level of 1999. Almost all the increase is export related. Another three million jobs have apparently been created in telecommunications, power, and construction as a consequence of the IT surge. Directly and indirectly, that’s barely 1 percent of total employment in India. And that’s the problem.”

“If farmworkers are encouraged to migrate to the more productive cities, as has happened in China, a level of agricultural output that feeds 1.1 billion people must be maintained. India’s ability to expand food imports is limited. Farm productivity growth is thus the only viable way to maintain food availability as manufacturing draws workers from rural India. Market competition in agriculture is badly needed,” he says.

On India’s large farm subsidy bill (more than 4 per cent of GDP), he notes “some progress in trimming these subsidies has been accomplished on the edges,” but “a frontal assault will be difficult considering the leanings of the Congress Party and its twenty-three coalition partners, including the Communists.”

“Manufacturing in India, however, even high-tech, has been hobbled for decades by job-destroying labour laws, a decrepit infrastructure that cannot provide reliable electric power, and roads and rails that inhibit movement of manufactured parts and finished products between plants and markets. Owing to costly labor laws that apply to establishments of 10 or more employees, more than 40 percent of employment in all manufacturing takes place in firms employing five to nine workers. This compares with only 4 percent in Korea,” Greenspan notes, before stressing that for Indian manufacturing to become globally competitive, “a major scrapping of the remaining parts of the license raj,” is required.