On July 24, all newspapers in India commemorated the budget speech of a quarter of a century ago by the then Finance Minister, Manmohan Singh. It had ushered in the era of neoliberal economics to our country. Commentators were euphoric about our post-reform growth rate and dramatic increase in the level of consumption of the urban educated middle class, while mentioning as an afterthought our hapless countrymen and women who have been left behind. There were some vague suggestions on how to tackle that problem in the future. The commentators must have instinctively known that the economic laggards must be left behind in order to have rapid consumption-led growth. Some newspapers were even lyrical in their praise of Manmohan Singh and reported enthusiastically about his quotation from Victor Hugo. It is not surprising that Dr Singh and his bureaucrats, the best and the brightest of Macaulay&’s children, could not find any quote appropriate for the occasion from our past or present thinkers.
The Nehru baiters, whose number is increasing by the day, used this anniversary as just another opportunity to denigrate one of our greatest leaders and freedom fighters. Most of them have no inkling about the difficult policy choices faced by Jawaharlal Nehru and some of the brilliant minds of our country advising him right after our Independence. We were under foreign (Anglo-Saxon) rule for almost two centuries that left us darn poor, with hardly any industrial base or technological competence. The only historical evidence our policy makers had of a backward country making rapid industrialisation was that of the Soviet Union. It was the New Economic Policy of Bukharin, despite some drawbacks, that enabled the Soviet Union to withstand incessant western efforts to sabotage the Bolshevik revolution and eventually destroy it by using Adolf Hitler. This economic policy was based on capital accumulation by temporarily squeezing the peasants and using that capital to industrialise an impoverished and mostly illiterate country.
The Mahalanobis model of rapid industrialisation was largely influenced by this success story of the Soviet Union. This meant promotion of heavy industries, at the cost of importing the proverbial Wilkinson Sword blades for smoother shaving. The policy makers were also aware that our businessmen are primarily traders, have mostly feudal mind-set and were unlikely to invest in capital goods with long- term prospects for profit. The only option left to develop the indigenous industrial base was through the public sector. The result was, as the economist Ajit Ghose pointed out, that “many resources went into building of institutions of tertiary education and to subsidisation of students in these institutions, even while primary and secondary education remained neglected. Capital too was subsidised in a variety of ways (cheap credit, low import duties, overvalued exchange rate). These policies made both skilled labour and capital relatively cheap.” According to him, this was the secret behind India&’s services-led growth from the 1980s.
We are happily pointing out the unsustainability of China&’s export-led growth that was preceded by spectacular growth in investment. The question is whether our consumption-led growth is also unsustainable in the long run. This question is very important when our Prime Minister is day-dreaming about 8 per cent growth of our economy on a sustained basis for thirty years. In a report that appeared last year and was entitled India&’s Rise: A Strategy for Trade-Led Growth, the author C. Fred Bergsten, director of the Peterson Institute of International Economics in Washington D.C., asserted, “India must sharply increase its exports of both manufactured goods and services to achieve its target growth rate (of 8 to 10 per cent).” The main motive of C. Fred Bergsten was to coax India into joining various transnational trade deals initiated by he United States. Being an economist, he failed to foresee the groundswell of discontent among a vast number of ordinary Americans who suffered from this myopic policy in his country for a generation. This policy did result in job growth in India for the computer savvy better-educated urban middle class till now, but is expected to reach its limit in a not-too distant future.
The absolute necessity to increase our export performance to reach a higher growth path on a sustained basis was also echoed recently by our Chief Economic Adviser, Arvind Subramanian, who worked under C. Fred Bergsten before joining the Modi government. C. Fred Bergsten also rightfully stressed that India lagged way behind in competitiveness and the merchandise trade deficit is at an all-time high. To counter this trend, he advised us to export manufacturing goods on an aggressive basis. But it is easier said than done. Our neglect of primary and secondary education for all Indians after Independence has now come to haunt us, and it will be years before we would have the necessary percentage of our population with adequate skills to manufacture quality products and boost our exports. But even if we were to produce adequate skilled workforce, our small and medium scale enterprises would continue to hire unskilled (contract) workers in order not to disturb their immediate profit margins. Our businessmen would rather buy cheaper products from China for selling with profit in India instead of setting up factories to produce goods that are competitive internationally. No wonder that our business-backed present government is keen to swallow all overt and covert insults from China to keep our import line open with that country. Our shadow fighting with Pakistan does not affect those traders in any case.
Two days after the 25th anniversary of the historic budget speech, on July 26 of this year our country made news in the western media after a while. But that had nothing to do with commemorating our economic liberalisation.
In a report published by Water Aid on that day that was appropriately entitled, Cut Short, the researchers clamed that India has the largest number of stunted children in the world. In fact, more than half of our citizens are stunted. Relative improvement of nutrition did not have a tangible effect on the percentage of our stunted children. The reason, according to Water Aid, is primarily due to lack of safe water, sanitation and hygiene (WASH).According to the report, half of all cases of malnutrition in India are linked to diarrhoea. In fact, if a child experiences five or more cases of diarrhoea before the age of two, he or she may be stunted, and “the effects are largely irreversible.” In a highly sympathetic article published by The Guardian newspaper on that issue with the title, “India&’s Poor Sanitation is damaging Millions of Children. There is No Excuse,” the author Rose George saw the appalling apathy of our middle class through the eyes of a young Indian boy named Ram. Ram&’s eyes told what my granddaughter tells whenever she is wrongly accused of something, “That is not fair.” It reminded me of Bengali newspapers reporting on a daily basis about the number of people dying of cholera in Calcutta and surrounding districts in my boyhood days. I was not bothered, let alone feeling outrage, as I did not know of any bhadralok dying of cholera in Kolkata. Not much has changed since then, as I gathered from The Guardian report.
In his first book, The Affluent Society, published in the mid-fifties that changed the whole discourse of political economy, the American economist John Kenneth Galbraith had a memorable quote about his country in the heyday of American capitalism as one of “private wealth and public poverty.” This is the best description of India a quarter century after adopting the neoliberal economic model of growth, as was evident in an incisive article by Harsh Mandir entitled, “Twenty-Five Years of Liberalisation: India must realise that wealth is not development unless it is shared.” Without sharing the wealth generated after economic liberalisation, our consumer-led growth is bound to reach its limit and we must be prepared for the consequences.
The writer is former dean and emeritus professor of applied mathematics, University of Twente, The Netherlands.