In May of this year, many analyses appeared of the first three years of India’s economic performance under the current government. Those that I recall were fulsome in their praise for the new leadership and its achievements. More recently, a much more critical piece has appeared in The Economist magazine, unsigned, but presumably written by one of their India-based correspondents. The article, and an accompanying editorial and companion piece on India’s democracy, all note the dangers of suppression of debate and of diversity that have increased in the past three years. It is sad to see the government and its supporters going down that dark path, and one can only hope that India’s people will reject such a direction, as they have tended to do in the past.
For the rest of this column, though, I want to focus on the economic assessment of India’s situation and prospects. The Economist speaks of the current Prime Minister as a “tinkerer,” and a competent administrator, but not a “reformer.” It goes on to discuss the shortcomings of what has been done (e.g., the GST, which is not as simple and easy to implement and enforce as it could have been), and the list of what has not been done (e.g., labour law reform). It emphasises the need for more rapid movement to a higher growth trajectory, something I have argued many times in my columns, and a point that was made even more forcefully and clearly by Shekhar Shah of NCAER over a year ago: if India’s growth does not accelerate, it may get slower, because of the interplay of demography and politics. In other words, the current growth rate may not be an equilibrium.
What I think is missing from analyses such as that in The Economist is a structural understanding of the Indian situation. Certainly, having good national leadership, including clear direction, is better than not having it. But it is easy to make too much of what one individual does or can do. Both praises and criticisms of the current prime minister (and the previous one, for that matter) tend to fall into this trap. As Pranab Bardhan pointed out over three decades ago, India’s political economy involves a complex balancing of multiple interests. Much later, Atul Kohli and others captured one aspect of this phenomenon in arguing that Indian economic reform has tended to be “pro-business” rather than “pro-market.”
Accepting this simplification, I think the current Indian model of “reform” is pro-business, but with a thread of inclusiveness that somewhat reflects the interests of the core base of the NDA’s main constituent, small business owners. That is indeed a departure, and potentially a positive one. Also, as many have pointed out, the current government has controlled the worst excesses of corruption that flourished in the last years of the UPA, also a type of “pro-business” orientation, but a damaging one of crony capitalism. In this case, weak leadership was a contributor to a corruption free-for-all. One consequence of this, along with the financial crisis and its aftermath, is still being felt in the rise of non-performing bank assets and collapse of private investment.
This brings one to the heart of the issue that faces India. Can the current government increase private investment? And can it create the infrastructure and public institutions that will make that private investment truly productive? If India follows some variant of the East Asian model, which seems to have an important place in the minds of its leaders, it will do several things. It will keep encouraging foreign direct investment, which it has already been doing in ways hitherto unseen in India, but also integrate into global supply-chains, build its capacity for educating its people, and pursue technological innovation. All of this comes back to refining its visions of Make-in-India and Digital India, and prioritising strategic investments. I have written about this before, in several columns. Reforms would be relevant as part of this strategic vision, and prioritised accordingly.
You might also want to see this:
To conclude, the first three years of the current NDA government have shown it has a different mind-set and vision with respect to the levers of economic progress. That is a big plus. On the other hand, India is a large and heterogeneous country, and the government has still to figure out how to make things happen: both in terms of the minutiae of how the national government operates, and also how it nudges state governments to do the right things.
Here, the NITI Aayog may yet play an important role, if it chooses. But on this count of translating big visions into productive policies and implementation, the verdict has to be unproven. One must wait and see. Finally, returning to those issues that transcend material progress, but are no less important, namely, a respect for dissent and difference, the evidence so far is overwhelmingly negative.
East Asia’s successes came at the cost of authoritarianism and conformity, though they were often the starting points. India’s starting point is different, and if it becomes a more difficult place for minorities, for nonconformists and for dissenters, it is unlikely to succeed in its economic ambitions.