Manmohan Singh and his economics
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Barely two years before he presented his maiden budget in July 1991, Prime Minister Manmohan Singh penned an unusual note in the Economic and Political Weekly (EPW, 7 January 1989, AS12-14). Titled North-South Trade: Issues and Opportunities, the piece painted a difficult export scenario of developing countries. Its tone was markedly different from Singh’s usual optimism and championing of export-led growth as an option for countries such as India.
In that piece, Singh—who was at that time secretary general of the South Commission in Geneva—highlighted the factors that made the 1980s a difficult time for export-oriented developing countries. Exports from these countries depended on growth of income in developed countries and the income elasticity of demand for the type of goods exported by developing countries.
Since 1973, after the first oil shock, developed countries experienced a pronounced economic slowdown unlike the period from 1950-1973, when Organization for Economic Co-operation and Development (OECD) countries grew by an average of 5% every year, stagflation prevailed for almost a decade. In the wake of this came protectionism by these countries. Those goods where developing countries had a comparative advantage—textiles, footwear and steel among others—were subjected to discriminatory tariffs in the West. On the one hand, competition between those wanting to enter Western markets was ferocious and on the other the doors of those markets were being shut.
For Singh, writing all this must have been depressing. After all, these were the very grounds that were cited for almost 30 years against exports as a growth option by economists in developing countries. Singh was a rare exception in India who believed in exports.
Yet, two years later, in the middle of a balance of payments crisis, Singh challenged and swept away these assumptions.
In a famous speech in Parliament on 24 July 1991, Singh said that, “The policies for industrial development are intimately related to policies for trade…the past four decades have witnessed import substitution which has not always been efficient and has some times been indiscriminate. The time has come to expose Indian industry to competition from abroad in a phased manner.”
This was a different Singh from the leader of the South Commission who sounded pessimistic about trade. In fact, in that speech he returned to another paper in EPW, written in July 1963. Titled Export Strategy for the Take-Off, the paper—seen from the vantage of 1990s—is an analysis of what India could have done in the 1960s to push exports. It could have turned India into another South Korea or a Taiwan or even a China.
Perhaps the Chinese did read that paper. Singh made the observation that exports could not take-off if the domestic market of the exporting country offered more profitable opportunities than export markets. His solution: curb domestic demand.
Then—when he was a professor of economics at Punjab University—as now when he is Prime Minister, curbing domestic demand is anathema to Indian politicians, policymakers and intellectuals alike. The masses, of course, love subsidized stuff.
So has Singh come full circle from an export-championing academic to the head of government under whom India unleashed gigantic government spending in marked contrast to what his economics dictated?
History will be fair
Singh has been pilloried by one and all in recent years. Much of that criticism is about his functioning as a Prime Minister and not as a thinking person. Even his foes in the Bharatiya Janata Party (BJP) acknowledge that he brings learning to all that he does.
The sad reality of India is that learned choices have little room for play against conventional wisdom. When Singh made careful arguments for promoting exports of traditional exports and agricultural commodities, Leftist economists said that exporting raw materials would perpetuate a colonial pattern of trade where developing countries end up importing finished goods from developed countries and gain nothing from exports. It was a line of reasoning that was defeatist: developed countries did not want manufactured items from developing countries and export of raw materials was useless. Autarky was best.
All it did was bring misery to Indians for many decades.
As Prime Minister, Singh resisted calls for linking wages in the Mahatma Gandhi National Rural Employment Guarantee Scheme to a minimum wage and wage indexation. As an economist, he knew this could only lead to an illusion of earning power in the hands of the poor. They would only get inflation. Facts on the ground proved him right. But the cabal in the National Advisory Council, ignorant of basic economics, could not understand this. It is them that history should condemn and not a professor-turned-prime minister who could not resist them.
Singh leaves behind him a mixed legacy. His tenure as Prime Minister is not only controversial but has left India in a weak economic condition. But his record as a person who served India will be remembered in far more kinder terms.
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