Ideas Whose Time Has Come in India

On 24th July 1991 when Dr Manmohan Singh was presenting the budget, he was cognizant of the
plethora of economic ills that plagued India; inflation hovering around 14%, cost of interest to total
central government expenditure touching 36%, foreign exchange reserves adequate for only a
fortnight’s import bill, adverse Balance of Payment & PSUs (Nehru’s temples of modern India)
performing very poorly. Unveiling a paradigm shift in fiscal policy from Fabian socialism to a freemarket economy Dr. Singh quoted Victor Hugo, the French Romantic writer: No power on earth can
stop an idea whose time has come. The idea that was espoused was that India will emerge as a
major economic power by liberalizing, globalizing & encouraging the private sector to be the new
temple of a liberal India. The role of the government was that of an enabler rather than a controller
of economic activities. Dr. Singh specifically referred to Nicholas Kaldor’s advice that the highest IT
tax rate should not exceed 45%. The highest tax rate which was 60% in the 80s was slashed by half by
the time Chidambaram became the FM in 1997-98. India was ideologically in sync with Reganomics,
molly-cuddling the rich & the wealthy.

The idea of India being nonaligned, secular, democratic & Socialistic was singularly shepherded by
Nehru. The first salvo to his economic philosophy was fired by Jagdish Bhagawati & TN Srinivan in a
seminal article in 1955 when they argued in favor of free markets & export promotion in lieu of
import substitution so that GDP grows at a fast clip. Pitambar Pant, an intellectual ally of PC
Mahalnobis in the Second Plan argued in favor of 7% growth, which will eliminate poverty in 15
years. Mabub ul Haq, who inspired Amartya Sen in his formulation of the Human Development
Index, on the other hand, strongly pitched for distributive justice & sharing the growth pie instead of
obsessing about increasing the size of the growth cake. It required the political astuteness of
Narasimha Rao, the PM & economic foresight of Dr. Mohan Singh to turn Nehru’s idea of socialism on
its head, to plant the seedlings of capitalism. Be it Manmohan or Modi, the idea of a free-market
economy has struck deep roots in India, transcending political schism.

One of the keen observers of India’s economic trajectory in the clash of ideas has been Prof Nitin
Desai, earlier Chief Economic Advisor, who brings out succinctly how India’s share of export & import
in GDP has gone up from 12% in the 70s to 41% by 2017, FE reserves going up from 15 days of import
to nine months, private investment going up from 1.5% to 11%& FDI inflow tripling. Besides, the GDP
growth rate doubled to realize Pant’s vision of 7% trumping the Hindu rate of 3.5% in the socialist
regime, and % of people below the poverty line went down from 45.35% (1993-94) to 21,9% in 2011-
12 as estimated by the Tendulkar committee. While in most of the growth parameters, economic
liberalization has been a boon, our overall performance in the development matters like Infant
Mortality rate, Maternal mortality Rates, mean years of schooling, and malnutrition among children
and adolescent girls have been very disappointing. As per the RSOC survey by UNICEF, 43.6% of girls
are severely thin. Malnutrition among children is 44% & anemia amongst girls of reproductive age is
around 53% (NFHS V surveys). Most distressingly, the quality of school education as per the latest
survey by ASER leaves a lot to be desired. The learning outcomes of reading are as low as 20.5%, 26%
in arithmetic& 24.5% in English.

Tagore while sailing back from USSR in September 1930 had written how the Russian education
system had impressed him, ‘not merely in numbers, but in thoroughness & intensity. ‘For Gurudeva,
caste divisions, religious conflicts, and precarious economic conditions can be transcended through
the dissemination of quality education. Despite school education being a fundamental right, poor
quality of education has a cascading impact on employability & productivity. Economic liberalization
in India shows a clear mismatch between growth & development

An interesting idea spawned by Arvind Subramanian as CEA in 2016-17 was to have a Universal Basic
Income Scheme (UBI), which will usher in both social justice and a productive economy. Interestingly
this idea is embraced both by left-leaning writers like Pranab Bardhan& Abhijit Banerjee and rightwingers like Vijay Joshi. It was Thomas Moore, who in his Utopia (1516) had suggested that some
means of livelihood should be given to every individual ‘to avoid the poor from becoming first a thief
and then a corpse.’ For John Rawls: a society that fails to deliver minimum income to all its citizens
will fail the test of justice.’ While the leftists consider UBI to be an antidote to poverty, the rightists
believe it will eliminate wasteful expenditure. However, the present CEA, Mr Nageswaran in a strong
riposte observed yesterday that UBI will create ground for perverse incentives for people and
dissuade them from seeking income-generating opportunities. Subramanian built his idea of UBI
based on the Gandhian vision of’ wiping every tear from every eye.’

The Economic Survey (2016-17) provides a counterpoint to major criticisms that UBI will lead to
spending on temptation goods like alcohol and spurring moral hazards like opting out of labor
market. Evans & Popova in a metanalysis bring out how temptation goods constitute a small share in
overall consumption. Further Abhijit Banerji (2015) in a study of six developing economies like
Honduras, Philippines finds that there is no sign of a reduction in labor supply due to government
cash transfers. This issue has assumed salience, the way the poll promises made by Congress like Rs
2000 monthly assistance to women heads of all families, 200 units of power, and 10 kg of rice has
gained political bonanza for the party. Earlier the Rythu Bandhu cash transfers to farmers had reaped
huge electoral gains to KCR in Telangana. Naveen Patnaik has the Kalia scheme to woo marginal &
small farmers. Not to be outwitted Modi also has also been transferring Rs 6000 to about 8.69 cr
farmers under the PM Kissan Scheme. These schemes can be called Quasi UBI schemes.

However, such cash transfers do not lead to improvement in agricultural productivity but work as a
palliative to garner votes. The long-term solution lies in improving the quality of school education,
and health care at affordable cost, and providing proper sanitation & nutrition to children. Prof
Musgrave called them merit goods, as they benefit society more than they benefit the individual.
Even a hardcore advocate of the free market Milton Friedman in a report in 1955 to CD Deshmukh,
the FM had advised that India must widen the opportunity for education and training as a basic
requirement of economic development. Two ideas, which must acquire center stage are; how to
improve the quality of school education and make quality Early Childhood Education and care a
fundamental right. From Socialism to Capitalism, the idea that is overdue in India for fructification is
a world-class social sector & growth & development being considered as two wheels of a nation’s

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