Connect And Collaborate

We wasted the first 30 years of Independence in socialist economic experimentation as Indian economy fell further behind the world average. With gradual reversal of anti-market policies since 1980 and then in 1990s, we started catching up with the rest of the world. In the next 30 years, India is bound to grow faster than the slowing Chinese economy, and thus close most of the economic gap.

Today, according to my definition of ‘great power’ and ‘super power’, India will likely become a great power around 2035 and a super power around 2050. Thus, on India’s 100th anniversary we will be celebrating the arrival of India into a Tripolar World with two other super powers: the US and China.

Sustaining this fast growth for next two decades, however, require both policy and institutional reform. We undertook three major decisions in the last 70 years in the space of economic decision making that changed narrative of India’s growth story. First was the removal of production, investment, trade and exim controls imposed during 1950-80. Second was the liberalisation of the foreign exchange and third, the constitutional amendment replacing many indirect taxes by GST.
In India, the economic decision making by political leaders has been affected more by ideology than by data-based analysis. Even today, controls and control mentality (License-Permit-Quota Raj) is deeply embedded in our political-bureaucratic-intellectual systems of governance. The “ease of doing business” and “tax terrorism” elimination initiatives are another effort to remove these oppressive controls.

Looking back at the last 70 years of our three main sectors, agriculture, manufacturing and services, the socialist control model of development of agriculture and manufacturing through controls, public sector as drivers and domestic protection were a failure and are primarily responsible for India’s slow growth till 1989.

Import liberalisation, particularly of capital goods (earlier restricted to USSR) in the 1980s and in the 1990s along with FDI was a major driver of productivity and growth acceleration in manufacturing. The agriculture sector still remains shackled by controls and regulations, and consequently remains a repository of low productivity jobs. Two good monsoons provide a golden opportunity for abolition of import, export, trade and GM seed controls along with R&D, extension and spilling to spur productivity growth.

Both private and public enterprises have a major role in India’s growth story in the next 30 years. In a 2002 EPW paper, I proposed a “New Development Paradigm”. That the government must focus on macroeconomic policy, ‘public goods’ and public goods infrastructure and social security nets; the private sector must lay emphasis on production and distribution of all goods and services and the NGOs on social needs of the country. I am hopeful we can reach this ideal in the next 20-25 years.

Constitutional democracy is the only system consistent with modern concepts of equal rights for all humans, and we must all work together to improve its functioning. It is a convenient evasion to blame all problems on bureaucrats and politicians. The failure is of intellectuals, and all varieties of experts who propound on economic development policy. Their lazy use of ideology as a substitute for facts, data and analysis of problems, solutions and outcomes, shares much of the blame for bad policies and failed programmes.