To Rebuild the Economy, India Needs to Be Atmanirbhar in Ideas

India has for too long adopted imported ideas such as the recommendations of the Washington Consensus without assessing their intrinsic worth or suitability.

The people of India have by now come to expect the announcement of a new programme from the government at periodic intervals. Thus in the past six years, we have had Make in India, Swachch Bharat and Less Cash. Now there is something larger, a goal. In his address to the nation on May 11, Prime Minister Narendra Modi called for an Atmanirbhar Bharat. Actually, self-reliance was the stated goal of economic policy in India in the early years after 1947. The architect of this plan was Jawaharlal Nehru, whose record as prime minister – especially economic – intellectuals associated with this government have trashed relentlessly. Now, over half a century after his death, the fulcrum of his vision for India has been ceremoniously brought back with nary an acknowledgement.

Both the facts of economic development across the world and advances in the methodology of empirical research would help us make sense of the economic policies of early independent India. History suggests that India did not pursue a strategy entirely out of line with what was adopted elsewhere. More importantly, we have evidence that growth here first accelerated in the early 1960s. This could only have been a consequence of the policies adopted in the earlier decade, notably the ‘Nehru-Mahalanobis Strategy‘ of investing in capital goods production via newly formed public enterprises. This evidence cannot be jettisoned easily. It is based on a statistical procedure that is free from the predilections of the practitioner. It conclusively disposes of the stance that nothing really changed in India after 1947, a view once held at both ends of the political spectrum but now the preserve of the right-wing. The same procedure also reveals that growth did not accelerate after the Modi government has come to power.

Jawaharlal Nehru. Photo: Wikimedia Commons

However, while we know that the 1950s were literally path-breaking, we also know that the performance of India’s economy has for far too long left much to be desired. This is apparent when we look to our east, where all countries have surged ahead of us, raising national income and spreading it widely. We also know exactly how this has been achieved. Even as they had accumulated physical capital, our East Asian counterparts developed their human resources. The question staring at us is why a society with a highly educated elite in power failed to observe this as development played out over decades.

Swaraj in ideas

The answer may be found in the work of an Indian philosopher who showed us exactly where the problem lay. In an address to the students of Hooghly College close to a century ago, Kalidas Chandra Bhattacharya spoke of “swaraj in ideas”. By this, he had meant the importance for a people to aim for self-determination in thought. Implicit in this was the idea that political freedom, at that time seen as the liberation of India from colonial rule, was insufficient; Indians must free themselves from the yoke of Europe’s premises. He was not advocating cultural chauvinism but an intellectual autonomy when choosing what is best for India.

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In a striking demonstration of what can go wrong if we do not keep our own counsel, today India finds herself saddled with an economic model of unbounded growth that destroys natural capital and a political model based on the vision of a majoritarian nation-state that promises endless social turmoil. It is not clear that a course correction will emerge from India’s political parties competing for power. Only a collective effort can achieve it. However, India is severely challenged in doing so, and this stems from the absence of self-determination in the realm of ideas. It has meant that we are unable to see the intrinsic strengths that have served us so well for so long.

From a narrow economic point of view, it is easy to see that the failure to spread education has led India to the cul-de-sac where she finds herself. But the answer does not lie in expanding a flawed model unsuited to India. In his book Constructive Programme, Gandhi had already pointed this out when he said:

“Foreign rule has unconsciously, though none the less surely, begun with the children in the field of education. Primary education is a farce designed without regard to the wants of the India of the villages and for that matter even of the cities. Basic education links the children, whether of the cities or the villages, to all that is best and lasting in India. It develops both the body and the mind, and keeps the child rooted to the soil with a glorious vision of the future in the realization of which he or she begins to take his or her share from the very commencement of his or her career in school.”

Gandhi was able to identify the immediate consequence of adopting imported ideas without assessing their intrinsic worth, leave alone their suitability to India. An area in which India has had to pay a high price for following this practice is the economy.

The Washington Consensus

At the implosion of the Soviet Union and the end of its East European empire, the view that the world has arrived at the end of history triumphed. While Francis Fukuyama, the author of this view, had had in mind the installation of liberal democracy as the sole model of governance, he could not have imagined the sea change that was to come in the sphere of the economic architecture of societies. There occurred at that stage a wholesale shift to a set of economic ideas termed the Washington Consensus, eponymous with the centre of global power.

Public policy now came to be interpreted almost exclusively as macroeconomic policy, and among its tenets were the avoidance of budget deficits, flexible exchange rates and the pursuit of low inflation. The absence of microeconomic goals was not an accident, it merely followed from the view that there should be no interference with market forces represented by the actions of individuals. From the Washington Consensus emerged the idea of inflation targeting underpinned by central bank autonomy, which meant that there would be explicit inflation targets but none for employment. This implies that monetary policy must remain tight out of fear of stoking inflation even if a more accommodative stance can increase employment. It is not easily seen that this in effect privileges the owners of financial wealth, set to lose from inflation, over the aspiration of workers, who would gain from an expansion in output.

For fiscal policy, the Washington Consensus recommended low budget deficits, though the idea of fiscal deficit caps appears to have come from the architecture of the European Union. By the mid-90s, these ideas had reached India’s shores but it is the government of Narendra Modi that has adhered to them most closely by championing fiscal consolidation, the reduction of deficit, and institutionalising inflation targeting through an act of parliament.

Prime Minister Narendra Modi speaks in the Lok Sabha. Photo: PTI/LSTV

While the US has shown itself to be willing to re-look at the tenets of the Washington Consensus when it faced a financial crisis in 2008 and now in the face of the COVID-19 pandemic, India is locked into them. The principal indicator of this is the unwillingness to budge from a previously announced fiscal deficit target. It is, of course, difficult to conclude from this whether the government is motivated by the desire to adhere to the pre-announced fiscal deficit target on economic grounds or if it uses this arrangement as a convenient alibi for adhering to a non-interventionist stance that is its ideological lodestar. In any case, the so-called stimulus announced by the PM and detailed by finance minister Nirmala Sitharaman reflects the ideas contained in the Washington Consensus.

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India has paid highly for having abandoned the self-reliance in ideas that was the hallmark of its economic policy in the 50s. That experiment had drawn the best economists of the world to the country so that they could observe first-hand what was being attempted here. Right now, we are nowhere near regaining that situation as economic policy here is merely derivative of what was considered kosher in the US 25 years ago. It is striking that education did not figure among the five pillars that the PM identified as the foundation of an atmanirbhar Bharat: economy, infrastructure, system, democracy and demand. This could well turn out to be a momentous omission. Without overhauling our educational system, the prospect for self-reliance is limited.

Pulapre Balakrishnan is professor of Ashoka University, Sonipat and senior fellow of IIM Kozhikode.