India’s policy establishment has often drawn the wrong conclusions from global downturns: India’s relative resilience was because we did not embrace liberal economic policy wholeheartedly.
The new chief economic adviser, Kaushik Basu, made an important observation in an interview with Mint published on Monday: “Enduring perpetual poverty... to ensure that we do not face fluctuations is not wise strategy.” In other words, our national ship is lulled by calm waters since we do not venture out of the harbour.
India needs high growth for several reasons: to attack mass poverty, to create some 10 million new jobs a year and to generate the high tax revenues that are needed for fiscal stability (because it is unlikely that our fiscal fitness strategies will ever be based on lower spending).
Basu also pointed out that “we do not have the history of sustained growth of the kind that China has had”. The empirical evidence is clear: The way to emulate China is to globalize and liberalize, even if it means having to endure short bouts of volatility.