India’s economic miracle faces new challenges

India’s economic miracle faces new challenges

India’s economic miracle faces new challenges
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“No power on earth can stop an idea whose time has come.” With these words, delivered in the Indian parliament on July 24, 1991, India’s then-Finance Minister Dr. Manmohan Singh set a new era in motion. His budget speech had just set out a set of sweeping reforms that would release the private sector from the shackles of the socialist Indian state. India, normally so slow to embrace change, would seek a new path to deliver prosperity to its people.

At the time, Dr. Singh — who in 2004 would become prime minister and direct for an entire decade, although not without many difficulties, the revolution he had inaugurated — was widely criticized. He was accused of overreacting to a balance of payments crisis after the Indian government came close to running out of foreign exchange reserves to pay for essential imports, such as oil. In hindsight, one could say that the finance minister was making use of an opportunity hidden inside a crisis. As India marks the 30th anniversary of “liberalization,” the date of July 24, 1991, has come to seem almost as important a day as Aug. 15, 1947, when India attained independence from British rule.

How might one sum up the revolutionary implications of that day? Very simply, it was an admission, perhaps two decades too late, that there could be no solution to the problem of mass poverty in India without a significantly enhanced role for private enterprise. India’s future development could no longer be directed from the capital, New Delhi. Instead it would be co-directed by the power of capital.

For many reasons — principal among them the experience of being subjugated economically for close to two centuries by the East India Company and then British colonialism — India had, at independence, been very suspicious of the private sector and the profit motive. Newly independent India, influenced by models like the USSR, chose to make the state the motor and not just the regulator of the economy. Large-scale private enterprise was highly regulated and subject to a number of entry barriers (which also helped the existing business houses of the day consolidate their power).

This spawned a paternalistic view of society that saw the poor as wards of the state, dependent on the government for food, education, jobs and healthcare. Meanwhile, productive economic activity by entrepreneurs attracted not so much admiration and respect as envy and high tax rates. The aim of every Indian family was to get at least one member of the household into government service: A guaranteed salary for life, then a pension. Unsurprisingly, economic growth was slow, uneven and unequal. The productive potential of one-sixth of humanity was trapped in a morass of bad ideas and bad incentives.

Contrast this with the India of 2021. In the last 30 years, the size of the economy has multiplied tenfold when measured by gross domestic product, from about $270 billion in 1991 to $2.7 trillion today. After three decades of economic growth at a fair clip, India is now the third-largest economy in the world. Per capita income has risen by a factor of six. Several hundred million people have risen out of poverty, although tens of millions still remain untouched by the new world.

The idea whose time had come — and whose course still had some way to run — is in danger of being supplanted by another storm of bad ideas and ideologies.

Chandrahas Choudhury

Major sectors of the economy, such as retail and fast-moving consumer goods, transport, and telecommunications have been transformed beyond recognition. With the rise in access to basic goods at prices moderated not by the state but by competition and an expanding market, a historic consumer revolution took root in the 1990s. In time, it has created a social and political revolution. Having a good pair of shoes can do wonders for one’s head and state of mind. The poor and middle class in India today have greater self-respect and confidence, a much broader range of experience, and thrilling dreams and ambitions that were unthinkable in the 20th century.

Hundreds of thousands of young Indians today dream not of getting a government job, but of starting a restaurant, a boutique or a travel agency, or of working for Wipro or HDFC Bank (or even McDonald’s). Indian businesses are heralded, studied and emulated around the world. To the iconic brands of old India — such as Reliance, Bata Shoes and Taj Hotels — have been added scores of distinctive new ones, like FabIndia, Infosys, IndiGo airline, Neemrana Hotels, Apollo Hospitals, and Cafe Coffee Day. Given a choice between the India of 1991 and the India of 2021, only a few disenchanted Gandhians, communists, monopolists, moralists and nostalgists would choose the former.

Recently, however, dark clouds have begun to mass overhead. India’s economic miracle — no other word will do — is threatening to come unstuck. Economic growth has slowed, partly because such a pace could not be sustained indefinitely, but also because India has not been able to productively invest its revenues from past growth into core areas of human development, such as primary education and healthcare. India’s ranking on the global Human Development Index last year was 131 out of 189.

Governance has become more emotive than evidence-based, with the focus in recent years increasingly on whipping up nationalist passions and cracking down on dissent — hardly the recipe for social cohesion or investor confidence. Rising wealth can also splinter the social compact. Where socialism once kept everyone poor, in the new gilded age, according to social scientist Arjun Appadurai, “the project of wealth creation has become radically unhinged from the project of poverty alleviation and social inclusion.”

And now the coronavirus pandemic has delivered a painful shock to jobs, consumption and the flow of money, and has widened the gap between rich and poor. In the last year, many millions who had risen out of poverty have fallen back in, and millions of children from poor families have not had a day of school.

The economic revolution of 1991 was a way of making India catch up with the world and of creating incentives for prosperity and progress, self-reliance and creativity. Thirty years on, the idea whose time had come — and whose course still had some way to run — is in danger of being overrun by another storm of bad ideas and ideologies.

  • Chandrahas Choudhury is a novelist and writer based in New Delhi. His work also appears in The Wall Street Journal and The Washington Post. Twitter: @Hashestweets
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