Photo: Mint
Photo: Mint

Opinion | Our economy needs ‘hard work’ as much as ‘Harvard’

India should rely on strong institutions as part of a new people-centric vision for its emergence

With India’s gross domestic product (GDP) growth slumping to 4.5%, concerns have arisen over how to grow the economy faster. Whether our principal concern should be GDP size, or human development and the environment, though, must be debated. For now, most agree that economic growth must be revived urgently.

Vijay Kelkar and Ajay Shah raise fundamental issues in their book, In Service Of The Nation: The Art And Science Of Economic Policy. From education, health and infrastructure to the judicial system, urban governance, environmental management, security services, etc, much must improve. With its limited capacity, the Indian state cannot achieve all at the same time. It is trying to, but falling short. This has reduced public confidence in the state’s institutions, which has deeper ramifications for the economy’s sustainable development than a growth dip.

India’s leaders must choose a few things to do, do them well, and only then move on to other things, Kelkar and Shah say. What should be these few things? How will they be selected? How will a political consensus be obtained for these priorities? The “science" of economics has no answers. Emotions, contentions among vested interests, and between them and new aspirants, as well as ideological differences (even among economists) tend to confound decisions. Therefore, economic policymaking is more political art than a rational science.

“Happy families are all alike; every unhappy family is unhappy in its own way," Tolstoy wrote. A difficulty for economists in rationally picking a few smart things to accelerate growth is that they do not have an accurate model of the economy. Countries are complicated social systems. They differ, and also change as they develop. Thus, constraints on growth shift. This means solutions cannot be imported from other places or adopted from another time. They need to be contextual. Therefore, a good understanding of current reality is essential for finding a solution that will work. India’s policymakers are handicapped by the quality of data available on growth, consumption and employment. However, these tell only one part of the story. The moods and sentiments of stakeholders must be understood, too, to understand and ease economic constraints.

Economists often complain that obstacles are posed by politics. Bad politics, they say, spoils good economics. The real problem is that their economics is out of touch with societal realities. It is too theoretical. All critical stakeholders in the country must participate in policymaking for issues to be widely grasped and policies to get support. The quality of this process determines the effectiveness of an economic policy, not its theoretical construction.

Economic development involves societal learning. Countries develop by learning to do what they could not. Those that learn faster grow faster. China and India were at similar levels of development 40 years ago. Now China’s economy is five times larger than India’s, and its capabilities in technology and infrastructure building are competing with the best in the world. The Chinese have proven to be better learners than us. Also, the pace at which Singapore has emerged as a fully developed nation shows that Singaporeans are even better.

The Nobel laureate economist Douglass North said nations develop by building strong institutions. These, he said, are not merely organizations, with constitutions, budgets and buildings, but much broader. Institutions are the ways in which, and the rules—written as well as unwritten—by which, societies collectively get things done.

India must learn rapidly and build better institutions. Knowledge can be researched by universities and think tanks. Capabilities, however, are built by doing the job. No doubt India needs a strong ecosystem for research, as Singapore and China have. But this is insufficient. India must build its institutional muscles on the job, and build them much faster too. Adapting Prime Minister Narendra Modi’s words, India needs both “Harvard" and “hard work" for faster growth.

Organizations and societies learn when they ask why there is a problem, not who is to blame. Public discourse in India has degenerated into blame games, from which nothing can be learnt. That’s a problem.

The structure of the Indian economy cannot be changed in a few quarters. It has been formed over decades, under the regimes of the United Progressive Alliance (UPA) and National Democratic Alliance (NDA). The policy paradigm has sought to induce overall growth by faster growth of incomes and wealth at the top. The hope was that the benefits would reach people at the bottom through large enterprises and projects that would create jobs. Private enterprises would provide people with public services like healthcare and education, and urban facilities. The paradigm of “minimum government" tried to circumvent the difficulty of building public institutions.

The Indian economy’s engine of growth is now sputtering. The future of India is being wasted. India lags poorer countries in human development. Millions of youth are unemployed, their aspirations turning to frustrations. It is time to create a new people-centred vision for the growth of the Indian economy. Public institutions must be strengthened, not short-circuited. A compelling vision will not emerge from academic debates among economists. A broad spectrum of citizens must participate in shaping a new vision.

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

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