To say that India’s post-independent economic history has been a varied experience would be an understatement. There are some fascinating insights in official documents of the United States, where they had considered South Korea as a “basket” case and had identified India as an economy that was on the verge of “take off” during the time of India’s independence.
Clearly, there appeared to be a lot of hope about the Indian economy’s potential, not just from within, but also from across the world. Among other factors, this optimistic hypothesis was predicated upon two intangible basic premises: India had a very enlightened early leadership and two, deep commitment to democracy.
1947 was a break-out year, not just because India became a free nation, but also because the domestic economy moved into a higher flight. From about 1-1.5% a year, India’s gross domestic product (GDP) growth moved to the 3-3.5% range. Unremarkable as it may appear in the current context, this jump in the rapidity of expansion, does indicate that apart from the innate political goodness, Independence also aided an economic turnaround of sorts.
This excitement, however, fast tapered off as disappointments set in. As opposed to taking off as many had anticipated, India’s growth rate remained stuck at the 3-3.5% range till the mid-1970s — a listless feat given the hopefulness at the time of independence. Why and how did India lose its way?
Ironically, the democratic structure that enforces checks and balances often militated against the economy’s expansionist ambition and potential. As distinguished journalist and former editor of Business Standard, says in The Turn of The Tortoise, “if multiple objectives are to be pursued simultaneously, compromises have to be made on the main objective…the result has been that none of the objectives was achieved to any degree of satisfaction.”
In China faltering policies can be quickly adjusted to bring them in line with the stated goals. That’s not quite the case with India, where the absence of bi-partisan political support has resulted in many critical policy reforms remaining jammed in seemingly endless debates. The goods and services tax (GST) is a case in point. Both the major political parties — the Bharatiya Janata Party (BJP) and the Congress — agree on the need to stitch a common national market, dismantle fiscal barriers among states and replace a welter of regressive local levies with a single tax. Yet, each party tries to stop the other from getting is passed in Parliament. The inherent peculiarities in India’s democratic structure — the separation of powers between legislature, executive and judiciary — can also decelerate decision-making.
The result is that India is the last major poor country on earth, “the Galapagos-size tortoise that has been left behind by mostly smaller, speedier countries of Rapid Growth Asia and other regions.” India is today the world’s fastest growing major economy and, also the poorest large economy, with lowest per capita income among the 40 large economies accounting for 90% of the world GDP.
Nearly a quarter of a century after India introduced reforms in 1991, it still remains a difficult place to do business in. From energy shortages and land problems to vague tax laws and multiple labour regulations, a raft of obstacles have kept large-scale investments from coming to India, which should have been counted among the most attractive markets.
As Ninan points out since 1991, successive governments have attempted to reform India’s complex factor markets. The second generation reforms, as these are sometimes broadly clubbed as, are distinct from the overriding policy matrix of 1991, which primarily concentrated on product markets.
It was relatively easier to turn the clock back on the text-book infant industry protection that the state had created for more than four decades, hoping that the local businesses would eventually mature capable of standing shoulder-to-shoulder with global peers.
Eventually, capacity curbs on local producers were lifted, tariffs were brought down and the service-oriented sectors such as aviation and telecommunication were opened for private participation. Competition raised standards, brought down tariffs, offered consumers a wider choices, fetched greater investment and subjected public monopolies to the ruthlessness of market discipline.
This, however, was the easier part. What mostly went unreformed, as Ninan points out, were four factor markets: land, labour, capital and entrepreneurship. Over the last 18 months the world has been peering curiously at the stuff bubbling in India’s policy laboratory, looking for signs on how the Narendra Modi-led government, which won a landslide poll promising to usher in good days, plans to hasten reforms in complex factor markets.
The signature “Make in India” campaign, launched last year cheered by the country’s top billionaires, vows to turn India into a manufacturing powerhouse.The prevailing strand of thought is that big transnational corporations, seeking an alternative to the Asian giant as costs there rise, will be tempted to move to India. This thesis remains to be tested empirically. As Ninan warns “most producers looking for alternatives to China are not looking at India…almost all countries in East Asia offer easier working environments”.
Ninan’s analysis about three underlying mega trends are insightful. First, India is on the verge of a “scale” explosion. If the economy grows at an annual average of seven per cent, the markets for all manner of goods and services will explode. Second, it is about time to recognise the quiet, withdrawal of the state. Already 43% of schoolchildren go to public schools. This isn’t quite a flattering statistic as it mirrors the state’s failure. Third, the mass of economic power is quietly shifting from New Delhi to the state capitals. For policy makers, professional economists and the non-initiated, Ninan’s volume offers a useful analytical framework to understand the multiple variables that influence India’s economy, polity and society.
The Turn Of The Tortoise
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