Home / Opinion / Views /  Opinion | India needs a ground-up growth model for an inclusive economy

Listening to debates among economists following the budget, it is clear they agree that the Indian economy is not doing well. And that they do not agree upon what the remedy is. They seem to argue like the proverbial blinkered men around the elephant, each aware of only a part of the animal, yet convinced that he has the solution. Their views are coloured by their ideologies. Their debates also reveal the limitations of mainstream economics.

One group of economists is fixated on interest rates and fiscal deficits as the levers to improve the health of the economy. They debate the impact on economic growth of decimal point differences in interest rates and ratios of fiscal deficit to gross domestic product. All this, even though they do not have a good model of the role of money in an economy, as Robert Skidelsky explains in “Money And Government: A Challenge To Mainstream Economics".

Another group of “trade economists" sees opportunities for India in greater integration with global trade. These economists are alarmed by the weakening of the spirit of the 1991 reforms and the return of protection of domestic industries. But as economists like Dani Rodrik, Ha-Joon Chang and others have pointed out, countries that now promote free trade, like the US, had achieved growth by protecting their own infant industries.

A large group of economists is concerned that governments are interfering with the “magic" of the market. Their political heroes are Margaret Thatcher and Ronald Reagan, who promoted the thesis of Milton Friedman and the Chicago school of economics that governments are the problem and not the solution. They accept that the market is poisoned by a concentration of market power. In economies where the “business of business must be only business" and where private participants are expected to pursue their self-interest, self-regulation is an oxymoron. They reluctantly accept that governments must shape the rules of the game for the market to work its magic.

The dominant school of economics for the past 40 years has concentrated on framing regulations (and their reduction) to make economies attractive for investors. It measures an economy’s health by the size and growth of GDP. Countries, including India, have seen their GDP grow by adopting this ideology and the rules that flow from it. At the same time, the wealth of investors at the very top has grown much faster than the incomes and wealth of citizens in the lower half of the pyramid. This has fuelled the rise of anti-establishment, “anti-expert" populist movements around the world. Citizens are asking whose interests these economists, or the policymakers who accept their advice, serve.

Some economists question the dominant paradigm. They view economies “bottom-up" and “inside out" from the perspective of people at the bottom. Unlike the dominant school which takes a “top-down" and “outside in" view from investors’ perspectives. The ruling school derides them as “socialists" and “anti-growth". First grow the pie, they say, before you redistribute it. Whereas the bottom-up, people-first school’s view is that to grow the pie, there must be human development alongside, with significant public investment in education and health.

Economists of all hues now agree that structural reforms are necessary to revive the Indian economy. Fundamental reforms cannot be delivered by a finance minister in one budget. Nor by any government within a five-year term. Because deep reforms will require changes in economic structures that have been built up over decades.

The finance minister devoted many minutes of her long speech to tell Indians that India’s thought leaders over the centuries have supported the creation of wealth. She could have emphasized that even Mahatma Gandhi had clearly said that he supported wealth creation. Gandhi (and J.C. Kumarappa, his long-time adviser in economics) differed with Jawaharlal Nehru (and his advisers) on the best economic model for inclusive growth. Gandhi envisaged a model in which producers would be owners of their tiny enterprises. The charkha was a symbol. He wanted constructive workers to create wealth for themselves, and not be mere wage earners enriching remote owners.

Gandhi advocated policies that would support the growth of wealth in tiny enterprises, in which people would work and take risks to generate incomes and wealth for themselves. Nehru, urged by Indian capitalists, chose the other path of promoting large enterprises. And since private capital was not sufficient then, these were state-owned. In both—state owned enterprises and capitalist enterprises owned by remote investors—humans are merely workers and wage earners. The wealth created by their efforts accumulates with remote owners who decide what it will be used for. The State takes some for its maintenance and is expected to spend the rest for the benefit of people. Investors spend on their own welfare and may use what’s left to “give back" to society through philanthropy and corporate social responsibility activities (or taxes, which they are reluctant to pay).

Some Nobel laureates in economics recommend a new paradigm for inclusive growth. Joseph Stiglitz, Jean-Paul Fitoussi, and Martine Durand, in their book Measuring What Counts, suggest a model driven by the well-being of citizens, rather than an obsession with GDP. So do Abhijit Banerjee and Esther Duflo in Good Economics For Hard Times.

Economists must evolve new ideas. India’s economy is often compared with an elephant: large and plodding, and difficult to turn. The elephant in the room for economists is the insufficient increase in employment and incomes at the bottom and the slow pace of human development while GDP grows and millionaires multiply. Economists must listen to people on the ground, and to each other across their ideological differences, to understand how to make the elephant turn. They must develop ideas that may not look good to economists in Washington, Chicago, and London, but resonates with people in India’s villages.

Arun Maira is former member of Planning Commission and author of ‘Transforming Systems: Why The World Needs A New Ethical Toolkit’

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout