Thus it is that the first 40 years after independence were wasted in a delusional economic policy. While Indias poorer neighbours such as Malaysia and South Korea prospered as they were untutored by Laskian economics, India proudly followed the socialist pattern and stagnated. Even so the Nehruvian decade of the 1950s was not bad. Growth was 43% in 10 years by 1961. In the 1960s, there were famines and Shastri tried to abandon the old ideas. Alas, he did not live long enough and then came the Indira Gandhi period from 1969 to 1977 which was the worst of the politically motivated nationalisation, blackmail of private sector companies to extort money for the Congress party coffers, arbitrary change in regulations and shameless populism with appeals to the poor.
Even Indira Gandhi realised that the policy was failing by the time she returned to power in 1980. She borrowed from the IMF and abandoned the doctrine of self sufficiency, welcomed FDI in the guise of the Maruti Suzuki project. Rajiv Gandhi liberalised imports and borrowed from the NRIs. But the economy was not liberalised, enterprise was still suspect and exports did not take off to pay for the external borrowing. So the economy crashed in 1990.
The history of the 24 years since at first Yashwant Sinha briefly and then Manmohan Singh more prominently reformed the economy, with Chidambaram and later Yashwant Sinha redux is well known. Yet the Laskian distrust of the private sector has not gone away as the Vodafone decision showed. Indian businessmen have to be wary of arbitrary raids by the income tax authorities or CBI if they are out of favour with the powers that be. Money is still extracted for party funds over and above the legally declared funds.
This half-reform half-Laski economy has now crashed. Chidambarams budget signalled the abyss into which India has fallen by camouflaging the deficit in ways which were cleverly devised to be found out. Whoever becomes the finance minister will have to peer into the abyss and declare that the time has come to abandon the pseudo socialism of the last 67 years. The new government which I believe will be led by Modi who has none of the handicaps of having been charmed by Nehruvian ideas. Nor does he seem to have imbibed the crazy nationalistic economics of RSS.
Time therefore to dismantle the myriad regulations of the labour, land and commodity markets which retard growth. Time to disinvest massively to get rid of the many acts of nationalisation which were politically motivated such as the 1969 nationalisation of commercial banks which Indira Gandhi devised purely to spite Morarji Desai her rival and the then finance minister. The dire state of the economy not only allows but urges the new finance minister to sell public assets to fill the yawning gap in the public finances. What is needed is also desirable in terms of the long run structuring of the economy.
As the recent Accenture report, hastily disowned by the UPA, showed there is already a movement among the states to dismantle the old structures and pursue innovative reforms. The momentum is there. The new government does not owe any debts to Laskian Socialism. It has retarded the economy for long enough. It is time to bury it. The election has been transformative in many ways. The momentum it has generated must be harnessed to shape India into a successful capitalist economy which generates high growth, millions of jobs and allows good spending on health and education. It has happened in South East Asia and East Asia. Let India look Eastwards where best examples of successful economic policy are and abandon its Anglo-Saxon fascination with Fabianism.
The author is a prominent economist and Labour peer