India is charting an independent course

Updated on Sep 18, 2022 08:11 PM IST

Many nations embarked on a fiscal splurge during Covid-19, leading to persistent inflation. India took a ‘wait, watch and then respond’ plan. The same strategy was visible in procuring oil after the Ukraine war broke out. This India-first policy-making is now paying off

India has a government today that is conducting itself with the confidence and independent-mindedness befitting a country that is likely to be the most essential rising international power over the next 25 years (ANI/PIB) PREMIUM
India has a government today that is conducting itself with the confidence and independent-mindedness befitting a country that is likely to be the most essential rising international power over the next 25 years (ANI/PIB)

The ongoing episode of persistent double-digit inflation in advanced economies presents a conundrum for policymakers, but also contains important lessons. For example, inflation is projected to exceed 20% in the United Kingdom (UK), and a balance of payments crisis is on the horizon. The escalation in energy and food prices due to the war in Europe is a proximate cause of these challenges. Still, the reality is that policy choices made by these economies in 2020 made them fragile. Moreover, those economic choices were in sharp contrast to India’s strategy through the most challenging periods of the pandemic.

While the commitment to self-reliance embodied in the Aatmanirbhar Bharat (self-reliant India) approach is now accepted and internalised in the industry, India is also practising the philosophy in economic management and foreign affairs. Even as advanced economies embarked on a fiscal splurge during the depths of the pandemic-induced lockdowns in 2020, India took an “agile approach”, to use then-principal economic adviser Sanjeev Sanyal’s analytic lens that has been expounded on in the 2021-22 Economic Survey. The strategy was to “wait, watch and then respond,” as he put it, without rushing to take decisions that could prove to be irreversible and disastrous. The sustained push to build on Jan Dhan-Aadhaar-Mobile (JAM)-enabled welfare delivery capabilities — an effort initiated by Prime Minister Narendra Modi in 2014 — paid off during those testing times, as India gave priority to food and cash transfers to the vulnerable sections, using the digitally powered direct benefits transfer platform.

According to calculations by European thinktank Bruegel, where countries like China, Brazil and the United States (US) focused anything from 60-90% of their pandemic response packages on fiscal spending, India’s programme allocated just 12% to this bucket. The bulk of it was concentrated on food provisions, direct cash transfers, and credit extension to provide short-term liquidity — the goal was to have effective shock absorbers to soften the blow from the fallout, rather than spend heavily even as lockdowns were underway.

India held the line from 2020-2022 with its studied and careful approach. Then-chief economic adviser K Subramanian had explicitly stated in May 2020 that “there is no free lunch” and monetising the deficit, as was being suggested, would extract costs later. Finance minister Nirmala Sitharaman affirmed in September 2020 that India was prepared to go for more stimulus programmes as the need arose, reiterating that the government’s objective was to go for specific and targeted relief instead of launching free-for-all handouts.

This went against the prevailing consensus of the time, given both the policy decisions of supposedly better governed, first-world countries and as dictated by several renowned economists and experts. Nobel laureate Abhijit Banerjee pressed India to go for a US-style stimulus and spend 10% of Gross Domestic Product. Former Reserve Bank of India governor Raghuram Rajan critiqued India’s approach and asserted that conserving resources — as the government was doing — was “self-defeating”. Former chief economic advisers Kaushik Basu and Arvind Subramanian too tried to goad the government to go for large spending programmes.

Not only is such reckless spending one of the causes of persistent inflation today for countries that followed this prescription, pandemic-era programmes applied bluntly have also been plagued by corruption and scams, wasting over $100 billion in the US alone. The notable exceptions in academia and policy analysis, who were counselling caution and flagging the longer-term dangers of large spending were Columbia University’s Arvind Panagariya, Harvard University’s Larry Summers, former chief economic adviser Arvind Virmani and International Monetary Fund executive director Surjit Bhalla. They have been proved right and deserve credit for not swaying with the mood of the moment.

By thinking independently from first principles, India’s policymakers managed the economic fallout of the crisis well when benchmarked against other countries. The same streak of independent thinking — and action — is apparent in foreign affairs now, where despite pressure from western governments and their media proxies, our policymakers are prioritising the welfare of Indian citizens by stating that India will procure oil at the best possible price in the world market. If Russia is that supplier, so be it. As external affairs minister S Jaishankar has put it, India will take neither the Russian, the American or the European side, but will choose to be on its own side. This approach was seen in action once again at the recently concluded Shanghai Cooperation Organisation summit, where Prime Minister Modi politely reiterated directly to Russian President Vladimir Putin that “today’s era is not an era of war”.

If, one of the most celebrated works by British novelist and poet Rudyard Kipling begins with the timeless lines: “If you can keep your head when all about you are losing theirs and blaming it on you, If you can trust yourself when all men doubt you but make allowance for their doubting too…”.

India’s leadership exhibited similar character during one of the gravest crises since Independence. With Aatmanirbhar Bharat already the mantra for industry, India has a government today that is conducting itself with the confidence and independent mindedness befitting a country that is likely to emerge as a frontline international power over the next 25 years.

Rajeev Mantri is co-founder of the India Enterprise Council, a public policy think tankThe views expressed are personal

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