"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 this task," he writes in his latest book "The Age of Turbulence - Adventures in a New World".
In the book published a year after he completed his term as head of the US central bank, he says that productivity on Indian farms is only one-fourth of what it is in non-farm areas. Rice yield is half the level in Vietnam and a third of China, while wheat yield is three fourth of China's. India is more productive in only tea than its Asian competitors.
Greenspan, known as an astute policy maker, noted that India's per capita GDP, which was at parity with China in early 1990s, is now only two-fifth of the Communist nation.
While growth in farm productivity has slowed since the 1980s, with weather partly to blame, he pinpointed the main culprit - a highly subsidised government-directed farm sector that prevents market forces from adjusting acreage usage.
Greenspan, who gives Singh credit for tearing a hole in India's regimented economy in the 1990s through a high dose of liberalisation, sees little possibility for dismantling costly farm subsidies considering the leanings of the Congress party and its coalition partners, particularly the Communists.
"Perhaps more than any other major countries addressed in the book, India symbolises most powerfully both productiveness of market capitalism and the stagnation of socialism. India 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," Greenspan writes.
This is despite India focusing on 21st century high-tech global services, the fastest growing segment of world economy, rather than the 20th century labour-intensive manufacturing for export model embraced by China and other East Asian nations.
He also commended Indian software engineers for helping "the world rise to the Y2K challenge". In agriculture, subsidies are the most obvious pitfall, Greenspan says, and stresses on the need for India to reduce the workforce in the sector that supports roughly 60 per cent of the country's one billion population.
"For India, to become the major player in international arena that it aspires to be, it will need to build factories that entice a very large part of its farm workers to urban enclaves to produce labour-intensive exports, the time-honoured path of successful Asian Tigers and China," he says.
Greenspan, one of the world's most revered economists in recent times, said the Indian government in recent years has expended more than four per cent of GDP on subsidies, mainly on food and fertilizer, while state subsidization of power and irrigation has added measurably more.
"Moreover, Indian road transport linking farms to cities is so inadequate that output of perishable crops is largely restricted to on-farm consumption and a third of crops is reported to rote en route to the market," he wrote.
However, even this task appears to be impeded by primitive labour laws and poor infrastructure which, in turn, acts as a drag on the economy that posted a remarkable 9 per cent growth in 2006 compared to 3.5 per cent between 1950-80.
"Manufacturing in India, however, even high-tech, has been hobbled for decades by a job-destroying labour laws, a decrepit infrastructure that cannot provide reliable electric power, and road and rails that inhibit movement of manufactured parts and finished products between plants and markets," Greenspan notes.
He also noted that while India was doing well in the IT sector as a result of homegrown software programmers and engineers, Indian entrepreneurs are doing less well with high technology hardware, which suffers many of the shortcomings of Indian manufacturing overall.
"The manufacturing-for-export model that India urgently needs to embrace has an impressive record of success elsewhere in Asia. It is a model that employs in mass urban manufacturing centres low-wage rural workers with some education," he said, prescribing a remedy to prop up the less than desirable growth in the manufacturing sector.
"I do not pretend to know all the answers. But from my vantage point at the Federal Reserve, I had privileged access to the best that had been thought and said on a wide range of subjects," Greenspan wrote in the book.
