The Economist judges the first four decades of economic policy in modern India since independence from British rule thus:
‘The hopes of 1947 have been betrayed. India, despite all its advantages and a generous supply of aid from the capitalist West (whose ‘wasteful’ societies it deplored), has achieved less than virtually any comparable third-world country. The cost in human terms has been staggering. Why has Indian development gone so tragically wrong? The short answer is this: the state has done far too much and far too little. It has crippled the economy, and burdened itself nearly to breaking point, by taking on jobs it has no business doing.’ (The Economist, 1991, p 9)Is the Economist right?
43 Answers on Quora
According to historian Asa Briggs, the Anti-Corn Law League was a large, nationwide middle-class moral crusade with a Utopian vision; its leading advocate Richard Cobden promised that repeal would settle four great problems simultaneously:
First, it would guarantee the prosperity of the manufacturer by affording him outlets for his products. Second, it would relieve the Condition of England question by cheapening the price of food and ensuring more regular employment. Third, it would make English agriculture more efficient by stimulating demand for its products in urban and industrial areas. Fourth, it would introduce through mutually advantageous international trade a new era of international fellowship and peace. The only barrier to these four beneficent solutions was the ignorant self-interest of the landlords, the "bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering."The landlords claimed that manufacturers like Cobden wanted cheap food so that they could reduce wages and thus maximise their profits, an opinion shared by socialist Chartists.
Neo-liberals then?
And a reminder that The Economist magazine opposed the provision of aid to the Irish during the Great Famine of 1845-49. The Economist argued for laissez-faire policies, in which self-sufficiency, anti-protectionism and free trade, not food aid, were in the opinion of the magazine the key to helping the Irish live through the famine which killed approximately one million people.
Records show that Irish lands exported food even during the worst years of the Famine. When Ireland had experienced a famine in 1782–83, ports were closed to keep Irish-grown food in Ireland to feed the Irish. Local food prices promptly dropped. Merchants lobbied against the export ban, but government in the 1780s overrode their protests. No such export ban happened in the 1840s.
Valuing free trade, pricing and the free market above humanity?
Fans of Free Markets then?
Ajit Singh references the Economist quotation from 1991 to help us understand what had actually been happening with the Indian economy in a globalized economic context, and this is somewhat different than the Economist's version of events that was being used in a way that amounted to a clearly ideological tirade. In fact, as Ajit Singh points out that in a long-term view of Indian economic development over the last four decades as a whole, contrary to The Economist quote, the record was far from being disastrous. His judgement is the following:
It was clearly not outstanding - it was about average for the developing countries of Asia (the most successful of the three developing continents). Importantly, further analysis suggested that the mediocrity of the outcome was mostly due to the extraordinary and far-reaching economic shocks sustained by the economy during the decade 1965-75. These shocks included the effects of the two wars with Pakistan in 1965 and 1971, suspension of foreign aid for various periods following each of the wars in 1965 and 1971, the economic effects of the earlier war with China in 1962, drought in the late 1960s, maxi-devaluation of the rupee around the same time and oil price-rise in 1973-74. In this context, it is a credit to the Indian system that these shocks were contained by prudent macro-economic policies even though it resulted in slower long-term growth for almost ten years, 1965-75. India ended the 1970s with low inflation and a healthy balance of payments position. Indian economic management of these shocks compares favourably with the experience of Latin American countries during the debt-crisis of the 1980sAjit Singh's paper sets out the economic policy of the newly independent India thus:
In the post-World War II period India was probably the first non-communist developing country to have instituted a full-fledged industrial policy. The purpose of the policy was to co-ordinate investment decisions both in the public and the private sectors and to seize the ‘commanding heights’ of the economy by bringing certain strategic industries and firms under public ownership.Singh then considers the Nehru-Mahalanobis model:
This policy programme was clearly greatly influenced both by close association of the top Indian leaders with Fabian Socialism and UK labour party thinkers like Harold Laski. It also drew inspiration from what was then regarded as highly successful Soviet planning for industrial development. Indeed, emulating the Soviet Union, industrial strategy in India was formulated and implemented in the form of five-year plans. This classical Indian state-directed industrialisation model held sway for three decades, from 1950-1980. The model began to erode in the 1980s. Following a serious external liquidity crisis in 1991 the model appeared to be fundamentally changed, if not abandoned altogether.
The Indian industrial policy, as embodied in the five year plans, has long been the subject of intense criticism from the influential neo-liberal critics of the country’s development.
In the mainstream accounts of Indian economic development the change away from India’s traditional industrial policy in 1991 towards liberalisation, de-regulation, market orientation has been hailed as ushering in a new era of freedom from government controls and one which promises greater prosperity for the Indian people. This unshackling of the economy is credited with achieving the huge increase in India’s trend rate of growth of GDP, from the so-called Hindu (Nehru-Mahalanobis) rate of 3 to 3.5 percent during 1950-80 to nearly 6 to 7 percent per annum over the last two decades. To fulfil its promise, it is suggested that further liberalization is required both in India’s domestic economy and in its external economic relations (for example, further privatization, capital account liberalization, increasing foreign direct investment (FDI)). India is regarded as a major beneficiary of globalisation by the international financial institutions (IFIs) but is considered to need to go further along this road.
This paper takes a rather different view on these matters; specifically, it presents
analysis and evidence to support the following theses:
These tendencies include:
- There has been far greater continuity both in the industrial policy framework over the last five decades and in the economic record than is suggested by the neo-liberal interpretations.
- The economic growth record of the Nehru-Mahalanobis period (1950-1980), in terms of aggregate statistics, does not reflect the structural achievements of this economic model especially in creating a scientific and technical infrastructure for a modern economy. Furthermore, in the neo-liberal analyses, the enormous internal and external shocks that the economy was subject to for a considerable part of this period (1965-1975), are totally ignored.
- The relationship between the post Nehru-Mahalanobis industrial policy and the post-1980 record of faster economic growth is critically examined. Notwithstanding this acceleration in economic growth, students of the current economic regime point to certain observed long term tendencies which suggest that such growth may not be sustainable.
The relationship between growth of manufacturing and that of services in an emerging country like India will receive special attention here as it is an issue with enormous general significance for economic development.
- Premature de-industrialisation
- Slow pace of structural change despite fast growth of the economy
- Jobless growth in modern industry and services
- Hence, increase in ‘informality’ of the economy.
The main question to be considered is whether due to new technology such as ICT, services could be an additional engine of growth for the Indian economy.
Far from abandoning industrial policy as a relic of the past, it is suggested here that the shortcomings of current economic developments as well as the structural issues outlined above provide fresh challenges, albeit in a different form for a vigorous industrial policy for the 21st century.
The Nehru-Mahalanobis model: The Classical Indian Industrial Policy Framework 1950-1980Singh's paper identifies two key turning points in India’s industrialisation and growth record:
In keeping with the ideals of the top leadership, the Indian five-year Plans were designed to bring about economic and social development within a ‘socialist’ framework. The plans pursued multiple objectives of industrialization, raising per capita incomes and achieving equity in the distribution of gains from economic progress. They also sought to reduce the existing concentration of economic power and to achieve a better regional distribution of industrial development. As far as economic strategy is concerned, the following elements were the most important during the 1950s, 1960s, and most of the 1970s:
- The Indian planners emphasized the role of heavy industry in economic development and sought to build up as rapidly as possible the capital goods sector.
- The plans envisaged a leading role for the public sector in this structural transformation of the economy.
- Major investments in the private sector were to be carried out, not by the test of private profitability, but according to the requirements of the overall national plan.
As is well known, the economic rationale for an industrial strategy biased towards capital goods was provided by P.C. Mahalanobis. In the Mahalanobis (1963) model, essentially that of a closed economy, the development of the capital goods industry emerges as the main constraint on economic growth. This model of internal technological and heavy industry development could be rationalized for an open economy of the size of India if one envisages slow rates of growth of the world economy and trade, and, perhaps, falling commodity prices in world markets. Alternatively, it could also be justified in more orthodox terms along the lines that India’s dynamic comparative advantage was in industries like steel, for which the country had available the necessary raw materials in close proximity to each other (thus reducing the costs of transportation).
- The plans emphasized technological self-reliance, and for much of the period, an extreme inward orientation in the sense that if anything could be produced in the country, regardless of the cost, it should not be imported.
An important drawback of the heavy-industry-biased industrial strategy is that it conflicts with the employment objectives embodied in the five-year plans. The plans sought to square this circle by providing external (against foreign competition) and internal (against domestic competition) protection to a number of small-scale and cottage enterprises for which the capital-labour ratio was very low. Thus, for instance, domestic modern textile factories were limited in how much they could expand their output so that they would not compete with the high-cost products of the cottage industries.
In implementing this industrial strategy, and particularly in making the private sector conform to the requirements of the plans, the government used a wide variety of measures. The most important of these were:
Industrial licensing: For much of the period, this entailed that any enterprise which wished to manufacture a new article or sought a substantial expansion of its existing capacity had to obtain a licence from the relevant government authority.
Jawaharlal Nehru was an architect of new institutions in all spheres, including notably those for the development of scientific and technical infrastructure, which latter blossomed into the information and communications technology industry.
- Strict regime of import controls
- Subsidization of exports through special measures
- Administered prices
- Investments by multinationals were generally subject to strict controls.
It is also important to observe that the above economic strategy chosen by the Indian leadership was by no means the only feasible one available. In the public debate that took place at the time of the formulation of the early five-year plans, two leading Indian economists, Vakil and Brahmananda (1956) advocated an alternative, more orthodox, strategy. After the war, the country had emerged as one of the leading exporters of textiles in the world. Vakil and Brahmananda favoured concentration on textile exports, on the development of light industries, and reliance on market forces to achieve industrial development. This kind of alternative strategy was deliberately shunned by the Indian leadership in favour of state-planned industrialization.
This industrial policy framework, as noted earlier, has been subject to intense criticism, particularly by neo-liberal economists, including highly distinguished Indian scholars such as Srinivasan and Bhagwati.
Economic historians identify two major turning points in Indian GDP growth during the 20th century. The first and most important one occurred around the early 1950s and a second around 1980. The latter is not quite as important as the former in a hundred year perspective but is far more so if the shorter and more recent time-span of the last half century is considered. These turning points have been the subject of great controversy both in statistical and economic terms. However, there is now fairly wide consensus, as indicated above, on the statistical identification of the two main breaks in long-term economic growth. The early 1950s trend-break relates to the fact that there was a big increase in long-term economic growth in the second half of the 20th century (independent India) compared to the first half (British- ruled India).
The GDP growth rate in the second half was ten times faster than in the first half – nearly 5 per cent per annum during 1950-2000, compared with 0.5 per cent per annum during 1900-1950.It seems that this comparison by Singh presents a positive context for the outcomes of post-independence economic policy, but casts the shadow of a big question as to why then was GDP growth so relatively poor during the first half of the century under the British Raj?
A very helpful overview of the British interference in Indian politics and economy that started from 1757 and for a period of roughly two centuries, when India stood as the main base of the British Empire can be found in the article British Rule in India: Stages and Consequences | History of Indian Economy.
The net outcome of this British rule was the utter exploitation of India.
The British Raj was the period of British rule on the Indian subcontinent between 1858 and 1947. A system of governance was instituted in 1858 when the rule of the East India Company was transferred to the Crown in the person of Queen Victoria (who in 1876 was proclaimed Empress of India). It lasted until 1947, when the British provinces of India were partitioned into two sovereign dominion states: the Dominion of India and the Dominion of Pakistan, leaving the princely states to choose between them. The two new dominions later became the Republic of India and the Islamic Republic of Pakistan (the eastern half of which, still later, became the People's Republic of Bangladesh). The province of Burma in the eastern region of the Indian Empire had been made a separate colony in 1937 and became independent in 1948.
In the latter half of the 19th century, both the direct administration of India by the British crown and the technological change ushered in by the industrial revolution, had the effect of closely intertwining the economies of India and Great Britain. In fact many of the major changes in transport and communications (that are typically associated with Crown Rule of India) had already begun before the Mutiny. Since Dalhousie had embraced the technological change then rampant in Great Britain, India too saw rapid development of all those technologies. Railways, roads, canals, and bridges were rapidly built in India and telegraph links equally rapidly established in order that raw materials, such as cotton, from India's hinterland could be transported more efficiently to ports, such as Bombay, for subsequent export to England. Likewise, finished goods from England were transported back just as efficiently, for sale in the rising(burgeoning) Indian markets. However, unlike Britain itself, where the market risks for the infrastructure development were borne by private investors, in India, it was the taxpayers—primarily farmers and farm-labourers—who endured the risks, which, in the end, amounted to £50 million. In spite of these costs, very little skilled employment was created for Indians. By 1920, with a history of 60 years of its construction, only ten per cent of the "superior posts" in the railways were held by Indians.Radical liberalism, free trade and colonialism are a contradiction until it is acknowledged that, actually, there is no such things as a free market.
The rush of technology was also changing the agricultural economy in India: by the last decade of the 19th century, a large fraction of some raw materials—not only cotton, but also some food-grains—were being exported to faraway markets. Consequently, many small farmers, dependent on the whims of those markets, lost land, animals, and equipment to money-lenders. More tellingly, the latter half of the 19th century also saw an increase in the number of large-scale famines in India. Although famines were not new to the subcontinent, these were particularly severe, with tens of millions dying, and with many critics, both British and Indian, laying the blame at the doorsteps of the lumbering colonial administrations.
Thing 1 in Ha-Joon Chang's 23 Things they don't tell you about capitalism is There is no such thing as a free market.
What they tell you
Markets need to be free. When government interferes to dictate what market participants can or cannot do, resources cannot flow to their most efficient use. If people cannot do the things that they find most profitable, they lose the incentive to invest and innovate. Thus, if the government puts a cap on house rents, landlords lose the incentive to maintain their properties or build new ones. Or, if the government restricts the kinds of financial products that can be sold, two contracting parties that may both have benefited from innovative transactions that fulfil their idiosyncratic needs cannot reap the potential gains of free contract. People must be left 'free to choose', as the title of free-market visionary Milton Friedman's famous book goes.
What they don't tell you
The free market doesn't exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions we fail to see them. How 'free' a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone.
Overcoming the myth that there is such a thing as an objectively defined 'free market' is the first step towards understanding capitalism.
So back to Singh's paper and the two key turning points in India’s industrialisation and growth record . . . .
In relation to the current economic, intellectual and ideological battles it is the second turning point of the early 1980s that is more significant. What is at issue is whether or not the acceleration in the Indian economic growth during the last two decades was a consequence of liberalisation of the economy or due to other causes. The essential difficulty here for those who advocate liberalisation and globalisation as the solution to the problems of the Indian economy, and regard import substitution industrialisation under state direction as the main reason for its poor or under-performance, is that the trend growth rate began its rise in the early 1980s rather than in the early 1990s. Serious liberalisation, particularly in trade and foreign investment occurred only in the 1990s; it could not therefore be easily regarded as a cause of the trend increase in economic growth which began a full decade before such liberalisation. If the trend increase in long-term economic growth in the early 1980s cannot be attributed to external liberalisation which the then finance minister Dr. Manmohan Singh instituted in 1991, how can it be explained? There are at least two plausible explanations, not mutually exclusive, which are particularly promising. One is the suggestion that, although in the 1980s there was very little external liberalisation, there was, nevertheless, very considerable de-regulation of the domestic investment regime; there were also other important domestic reforms including some liberalisation of the financial sector. These reforms, together with changes in the fiscal and monetary policy stance of the government, were sufficient to help raise the long-term growth rate. It must also be emphasised that these internal liberalisation measures were adopted in response to the reports of a half a dozen high-level government committees, which highlighted the negative outcomes of the investment regime and over-regulation of the economy. In that sense, the reform of industrial policy in the 1990’s was endogenous to the Nehru-Mahalanobis model.
The second plausible thesis is that the institutions which had been established in the post-independence period, particularly those in the field of science, technology and higher education, took longer than anticipated to produce results which would be reflected in GDP growth. It is important to emphasize that, India’s achievement in science and technology which came to be recognized throughout the world in the last 15 years or so, was accomplished by following an educational path dictated by the country’s own political economy rather than by implementing policies advocated by the World Bank. Under World Bank policies, India would have been obliged to give primacy to primary and secondary education rather than to tertiary and higher-level education. The country did the contrary, mainly because of the influence of the urban middle-classes in policy making and their desire for their offspring to have college education. Although the education standards in these colleges left a lot to be desired, they nevertheless helped produce a huge supply of university graduates in scientific and technical subjects. These colleges, often established by private sector initiatives, were complemented by the Government establishments of elite institutions, such as the IITs, which are world-class. This educational strategy although in conflict with ‘human development’ has clearly not harmed the long-term growth rate of the economy. Indeed, it laid the foundations for later Indian successes in information technology and other areas.Singh then analyses how industrial policy enabled India's export oriented IT industry to develop as a result of investment in education coupled with the international competitive advantage of the relatively low wages of highly skilled workers.
India’s comparative advantage in software development lies entirely in the availability of low-cost skilled labour. An important issue is how were these skills accumulated. Arora et al (2001) report that the comparative salaries for software professionals in India were less than a tenth of those of their counterparts in the United States. For example, a programmer’s salary in India was 6% of that in the US; a software developer in India, although comparatively high, was still 30% of that in the US. This comparative advantage of cheap skilled labour did not arise spontaneously but was helped in fact established by the government. The latter took a number of broad as well as specific measures to cultivate the comparative advantage and helped the industry in other ways, including the following:
In addition to these extremely important infrastructural factors for the development of the software industry, the government also took suitable specific measures to encourage exports from the sector at each stage of its development.
- Firstly, a vast number of engineering colleges were established in both the public and the private sectors, particularly in the South of India where the state governments were highly entrepreneurial. These colleges provided education, including in IT, that was greatly subsidized by the state and central governments. Indeed, the tuition fees were waived in case of both public and private colleges. This constituted an indirect subsidy to the nascent software industry.
- Secondly, the Nehru-Mahalanobis vision, referred to earlier, of creating a broad science and technology base to transform the Indian economy so as to bring about a greater degree of autonomous innovation and development was also fundamental in the development of the IT sector. This policy which, as many scholars have pointed out, led to Indian scientists learning by doing in a conscious purposeful manner that had significant public as well as private benefits. Efforts that were argued by many to be tantamount to reinventing the wheel, in the event made a major contribution to national development. This occurred not only in relation to IT but also in the case of the growth of the biotechnology and pharmaceutical industries. As the late Sanjaya Lall memorably put it, the Indian scientists and engineers not only mastered the know how of modern technology, but also excelled in its know-why.
- Thirdly, the government’s indirect measures significantly helped the industry. Specifically, the government’s role in the establishment of Bangalore as a hub attracting the bulk of India’s scientific and technological activity was salient to the development of the IT industry. Bangalore first became a centre for cutting-edge defence industries (MIG aircraft production, rocket technology for launching domestically-made satellites, giant computers, among other things). The reason Bangalore was favoured as a site was because of its distance from India’s perceived antagonists, Pakistan and China. Thus, the government’s development of a high technology critical mass of market opportunities and people in and around Bangalore greatly facilitated the emergence of an internationally competitive software sector.
Singh recognizes that for India, "there is a continuing need to guide the country’s industrial revolution towards abolishing poverty, providing employment and work to all those who wish to have them and raising living standards of a billion people while maintaining democracy".
Returning to the IT sector itself in the larger picture of industrial development in India he says: "although the sector has grown at a much faster rate, its quantitative significance in the overall picture of the economy is rather limited. The sector accounts at present for less than 1% of GDP; it employs less than one million people in a total labour force of 450 million".
However, Singh also points to the fact that the IT sector makes a very important contribution to the balance of payments, accounting for 20% of India’s exports at the time of writing his paper, and has fulfilled projected rises to the present day. India's IT exports are expected to grow at 7-9 percent and to be at $135-$137 billion in 2018-19, according to the industry outlook by the National Association of Software & Services Companies (Nasscom) in early 2018. In the context of job creation though there are significant and restricting factors:
It will be appreciated that, despite the IT sector’s fast growth and hence its potential for creating jobs, it will be able to directly employ only educated people.And this has obvious relevance when considering globalisation and income inequality in modern India where; "the country faces a host of difficult problems both in the short term and long term".
This is in part due to the fact the Indian economy has been one of the most protected economies in the world with some of the highest import duties and non-tariff barriers to trade. Tariffs since 1991, and much more so recently, have been dramatically reduced and other non-tariff trade barriers have also come down as a consequence of India’s membership of the WTO. There are, moreover, huge opportunities and challenges for the country in relation to the liberalisation of agricultural products currently under negotiations at the WTO. Similar freeing of trade and services is also being negotiated at the WTO.
Preparing the country for this gigantic task of integration with the world economy, so as to minimize the losses of integration and maximize the gains, is an important task that will require urgent attention from the Planning Commission as well as other public and private organizations. However, globalisation also has more subtle longer term implications that need the Commission’s attention, namely distribution of the gains and losses from globalisation. The main visible gainers from globalisation are the vast Indian urban middle-class which is numerically very large in absolute terms but
proportionately quite small, perhaps 100 million people, which amounts to less than 10% of India’s population. Whether or not there has been a reduction in poverty in the period since 1991 is still a matter of academic dispute. There is however, more consensus on the evidence which suggests that income inequality has been increasing rather than falling during the last decade.
Cornia et al. (2004) sum up the available evidence on changes in income inequality since liberalisation of the economy in 1991:
‘In sum, the experience of the 1990s points to a moderate rise in both urban and rural inequality, a larger rise in overall inequality due to a widening of the average urban-rural gap, and a decline in the poverty alleviation elasticity of overall growth (Ravallion and Datt, 1999).’
The effects of globalisation on income distribution have been compounded by the information technology revolution. The latter has led to a digital divide, inpart because its main beneficiaries are the English speaking elite. As mentioned earlier only 5% of the Indian population is conversant with English, which of course means that in a population of over a billion, there are as many as 50 million English speakers in India. If globalisation is to succeed in India with its democratic polity, the question of participation in the digital economy and in the distribution of the gains from the new technology will have to be squarely faced at the national level.As part of a solution Singh suggests that India's institutions be revamped:
Modern theory of economic development suggests that institutions are arguably the most important deep cause of the long-term increase in standards of living. India, because of its democratic system, rule of law and protection of property rights, is regarded by many scholars as being well ahead of China in its institutional development.
Rodrik and Subrahmanian (2004) estimate that, given
the level of Indian institutional development, the country’s per capita income should be three times its present level.
This suggests that India’s institutional arrangements have become less effective over time and need to be revamped. A good example of this is the Indian civil service which, in many respects, is no longer as efficient as it was in the 1950s and 1960s, due to politicisation of the career and promotion prospects of civil service officers. It is therefore hardly surprising that many civil servants have lost self-confidence and are demoralised. They need both to be motivated and, as servants of the people, imbued with a sense of accountability. Indeed, the reform of the civil service is essential for meeting the government’s short and medium term goals, including delivering health and education to India’s villages, but it is also necessary for the long-term development of the country’s economy.
The questions remain:
Why, over a period of five decades, has income inequality of the scale found today in modern India been tolerated by the political classes?
Where are the ideals of the founders of the state to be found amongst the current leadership in India?
The Indian five-year Plans of the first decades of an independent modern India were designed to bring about economic and social development within a ‘socialist’ framework. Has that dream has died?
Why do the current economic policies in India not pursue the agenda setting multiple objectives of industrialization, raising per capita incomes and achieving equity in the distribution of the gains from economic progress?
Far from seeking to reduce the existing concentrations of economic power and achieve a better regional distribution of industrial development, we see the complete opposite. Is it that the ideological approach to economic matters in India today is, in fact, the true betrayal of the hopes of 1947?
The Financial Times ran this Opinion piece in November 2017
Rahul Gandhi November 7, 2017
One year ago Narendra Modi bypassed the Reserve Bank of India, locked his cabinet in a room and gave the country just four hours notice before announcing his arbitrary and unilateral demonetisation scheme. Overnight 86 per cent of the value of India’s currency was withdrawn from circulation.
The prime minister claimed his decision was aimed at wiping out corruption. Twelve months on the only thing he has wiped out is confidence in our once booming economy.
Demonetisation has wiped out 2 per cent of India’s gross domestic product, destroyed the informal labour sector and has wiped out many small and medium businesses. It has ruined the lives of millions of hard-working Indians. The Centre for Monitoring Indian Economy has calculated that over 1.5m people lost their jobs in the first four months of 2017 due to demonetisation.
This year, a hastily imposed and poorly conceptualised goods and services tax dealt another blow to our economy. Bureaucratic and complex, it has devastated livelihoods, creating a modern day “Licence Raj” that imposes rigid controls and gives vast powers to government officials.
These two acts come at a time when global forces place particular demands on India’s economic model. One of the primary responsibilities of a state is to provide vocation to its people. China’s global monopoly on blue-collar jobs is a fundamental challenge to other states. This has created millions of disenfranchised and angry workers who express their frustration at the ballot box — whether in votes for Mr Modi, Brexit, or Donald Trump.
The rise of democratically elected autocrats, such as Mr Modi, is driven by two factors: a massive increase in connectivity and its profound impact on institutions; and, second, China’s dominance of the global job market.
In democracies, information once resided in institutional silos accessible only to a limited number of people. The internet has destroyed those monopolies. Connectivity and the transparency it inspires has positively transformed the world, but in doing so it has also irreparably damaged the machinery of our institutions. The resulting fragmentation has created an environment in which strongmen can flourish apparently unchecked.
On the jobs front, while the west promoted globalisation, free trade and open markets as the road to the promised land, it also hollowed out its own manufacturing communities. Instead of managing the labour conflicts in their factories, western and Indian capitalists decided to offshore manufacturing.
Meanwhile, the Chinese Communist party, sitting on an explosive social problem of its own in the 1970s, embraced the western world’s labour conflict. As Deng Xiaoping said, it doesn’t matter what colour the cat is as long as it catches the mouse. Today, the Chinese cat has firmly caught the global manufacturing mouse.
Chinese political organisation combined with communications technology to transform the factory. In the 1990s, Chinese manufacturing accounted for a mere 3 per cent of the world’s goods by output value, today that figure is closer to a quarter. Their costs are lower than any of their western competitors; they manufacture at scale; and are not burdened by dissent, workers’ rights or the interruptions of transparency. According to official figures, China currently creates on average 50,000 jobs every single day; India under Mr Modi manages only 500.
This advantage comes with a brutal cost — China’s people are not free to speak, to dissent or to question and those that do are swiftly and severely punished. This is not a model India should emulate.
With connectivity but no threat from Chinese productivity, there would still be blue-collar jobs in the west and India. With Chinese productivity but no connectivity, economies would suffer but institutions would still function unchallenged. It is the combination of the two factors together that is devastating.
For India, the real force capable of meeting the Chinese job challenge is our huge network of micro, small and medium businesses. They represent India’s innovative capabilities and have the skills, knowledge and understanding to take on China’s manufacturing machine. We urgently need to empower these networks and connect them to capital and technology. But instead of helping them grow, the Modi government has fatally wounded them with demonetisation and a flawed new tax.
The challenge for liberal democracies across the world is to compete with Chinese organisation in a world with 21st-century levels of connectivity, while maintaining our liberal values.
Mr Modi has damaged India by converting anger created by joblessness and lack of economic opportunity into communal hatred. He has chosen to hide behind a shallow, hate-filled political narrative. Anger might have brought Mr Modi to power but it will never create jobs or fix India’s institutions.
The writer is vice-president of the Indian National Congress
UPDATE
The Hindustani Times ran this story May 07, 2018
Modi’s economic policies disastrous, says Manmohan Singh
Former PM Manmohan Singh attacked the Modi government over a series of banking frauds, saying the money swindled almost quadrupled from Rs 28,416 crore in September 2013 to Rs 1.11 lakh crore in September 2017.
Vikram Gopal, Bengaluru
Manmohan Singh said farmers are facing an acute crisis, youth are not finding opportunities and the economy is growing below potential.(HT Photo/Arijit Sen)
Former prime minister Manmohan Singh on Monday attacked Prime Minister Narendra Modi over the state of India’s economy, saying the country was facing crises that were avoidable.
“Our nation today is experiencing difficult times. Our farmers are facing an acute crisis, our aspirational youth are not finding opportunities, and the economy is growing below its potential. The unfortunate truth is that each of these crises was entirely avoidable,” he said, addressing a press conference in Bengaluru ahead of the May 12 state polls.
Singh said it pained him to see the government stifle dissent when deficiencies were pointed out, rather than stand up to challenges. The former prime minister said it was important to pay careful attention to policy making as it affected people’s lives, and, hence, it was crucial to not act on “mere whims and fancies”.
“The United Progressive Alliance delivered an average growth rate of 7.8% despite turbulent global conditions. The NDA, on the other hand, has managed lesser growth rate despite a favourable international climate and low oil prices. In fact, growth rate under the NDA is lower in spite of the change in methodology, which paints a rosier picture than reality,” Singh said.
Singh criticised the move to demonetise high-value currency and the “hasty implementation of GST (goods and services tax)”, calling them blunders that severely affect micro, small and medium enterprises, causing “the loss of tens of thousands of jobs” in the process.
He also criticised the government for not passing on the reduction in international crude oil prices to consumers. “In spite of lower global crude oil prices, petrol and diesel prices are at a historic high because Modi government chooses to levy excessive excise taxes. Instead of passing on the benefits of low prices to the people, the Modi government has punished the people,” he said.
Singh said it did not behove the office of the prime minister for Modi to make adverse comments on opponents. “No other prime minister has used the office in such a manner,” he said.
Refuting the charges, state BJP spokesperson S Prakash claimed the former PM had left a depleted economy for the current government. “We have tried to rehabilitate the economy and are doing so successfully,” he said.
Prakash said Congress had no answers to Modi’s charisma and as a result was saying he was using foul language. “Indira and Rajiv Gandhi also used to campaign just as much for their parties. When it comes to language, Singh should take a look at the way the chief minister and some of his colleagues speak about the prime minister,” he said.
At the Bengaluru speech, Singh said since 2014, international crude oil prices had declined to 67%. “However, petrol and diesel prices have on average increased at 110% on both these products. Through constant increase in taxes and at the cost of the common man, the government is projected to have earned over Rs 10 lakh crore. India must demand answers as to what use this money was put to,” he said.
The former prime minister said banks were neither lending nor was the private sector borrowing. “The growth engines of the economy are spluttering. Perhaps it is here that the mismanagement of the Modi government is most evident,” he said.
“The proportion of gross non-performing assets (NPAs) trebled since Modi assumed office and frauds in the banking sector almost quadrupled from Rs 28,416 crore in September 2013 to Rs 1.11 lakh crore in September 2017,” Singh said, adding the “perpetrators of these frauds escape with impunity”. He said it was the government’s duty to have dealt with the NPAs, questioning why Modi attended an event in Davos where jeweller Nirav Modi was present.
Singh said the recent shortages of cash were preventable, but “instead of taking prompt corrective action, the government has been busy providing excuses and peddling conspiracy theories as to what led to the problem.”
“What took years of hard work to make the Indian economy the third largest in the world is being dismantled through systematic efforts that have no grounding in logic,” the former PM said.
“When asked to explain reasons for economic ills of the last four years, Prime Minister Modi tends to blame everything on the 70 years of Congress rule. He forgets the role of the Green Revolution. He does not mention the role of policies of economic liberalisation of the 1991-96 in transforming the industrial economy,” he said.
Singh said development of cities required sustained funds and innovation. “Instead, the Modi government has been content to simply come up with catchy tags like AMRUT and Smart Cities, which have underperformed spectacularly,” he said.
Contrary to Modi’s assurances, Singh said, in the age group of 15-24, about 7.2 million jobs were lost over the last four years.
“This usually happens when external factors are unfavourable. However, job destruction in India is due to mismanagement on the part of Modi and his team. True leadership creates opportunities, it does not destroy them,” the former prime minister said.
Singh warned that the country’s position as an IT superpower was under threat. “The situation could get worse if the Modi government fails in its duties at protecting H1, H4 and L1 visas for our professionals,” he said.
“Reduced budgets, administrative takeovers, and harassment of students and dissenting voices are a violation of our Constitutional norms. It does not help that ministers in Modi’s cabinet and even BJP chief ministers regularly make comments promoting irrationality,” he said.
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