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Valuing freedom: India’s long strides

India has come a long way from the socialistic era; the challenges ahead are not intractable

The state itself disincentivised and, in most cases, penalised an increase in industrial efficiency and productivity.
The state itself disincentivised and, in most cases, penalised an increase in industrial efficiency and productivity.

By Bibek Debroy & Aditya Sinha

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The concept of waiting 6-12 months for a two-wheeler or a phone connection, prevalent just about three decades ago, maybe an outlandish one to Gen-Z. But that is a testament to how much India has grown in just 30 years since the economic reforms of 1991, much less in the 75 years. The 75 years stand testimony to India tackling some of the highest poverty, malnutrition and infant mortality rates, lowest literacy rates, switching from a socialist to a liberalised economy and in the process earning its rightful place at the metaphorical table of intergovernmental forums.

The socialistic era in India seemed to deny a lot to the common people that their peers in other countries seemed to have easy access to. Socialism was not part of the Indian constitution. During the Constituent Assembly debates, KT Shah pushed for calling India a Socialist Union of States. Ambedkar staunchly opposed it by saying, “If you state in the Constitution that the social organisation of the State shall take a particular form, you are, in my judgment, taking away the liberty of the people to decide what should be the social organisation in which they wish to live.”

Despite this, the word socialist found its way to the preamble of the Constitution through the 42nd Constitutional Amendment Act of 1976. Even before that, Indian economic planning in the Nehruvian era drew from socialist ideals. The small companies were not allowed to compete with large corporations. Industries were not allowed to produce more than what they were licensed to. The state itself disincentivised and, in most cases, penalised an increase in industrial efficiency and productivity.

Despite his immense admiration for India, Lee Kuan Yew did not shirk from criticising the bureaucrats for viewing businessmen as money-grabbing opportunists. He interpreted India’s socialistic economy as an opportunity lost. Gurcharan Das’s book India Unbound documents his interactions with bureaucrats and the government as a businessperson, where he highlights how legislations such as the Monopolies and Restrictive Trade Practice Act strangulated the growth of businesses. It also consolidated power in the hands of bureaucrats whose behaviour, at times, was no less than feudal overlords.

While there may have been honest attempts to regulate businesses and crony capitalism, they, in turn, bred corruption and an unusually unwelcome business environment. The red-tapism was at its peak. Nothing could be imported without import licences. India’s share in global trade went down to 0.45% in 1985 compared to 2.2% at the time of Independence. During the heydays of ‘licence raj’, nothing could be manufactured without having industrial licences.

However, there are no lost opportunities but delayed ones. India has climbed several notches in ease of doing business, attracts significant investments and FDI inflows on a regular basis, and has notched up its forex reserves, which were, ironically, the reason that coerced India onto a path of a liberalised economy.
The reforms in the last decade have been deliberate as opposed to the 1991 reforms, which were partly done under coercion. There have been six critical developments in the last decade.

—The JanDhan Aadhaar Mobile (JAM) trinity has led to curbing the wide-ranging leakages and has allowed for greater efficiency and transparency in the welfare delivery system. The digital revolution in the last few decades has significantly increased the state’s capacity. Interfaces and platforms like UPI and Cowin differentiate India from developed but ‘digitally backward’ countries.

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—Ease of doing business is not just about liberalising entry of firms but also about the liberalised exit. The enactment of the Insolvency and Bankruptcy Code 2016 has helped in firms’ survival or liberalised exit while safeguarding the interests of the creditors,
—While some reforms have caused short-term discomfort, they will be highly beneficial in the long run. The Goods and Services Tax and the Real Estate Regulatory Act (RERA) are some examples. RERA has been the single-largest reform in India’s history of real estate.
—India has invested significantly in physical infrastructure in the last decade. Access to tap water connections and electricity has increased. Under the Swacch Bharat Mission, toilets have been built across the country. Access to roti, kapda and makaan for everyone is not a distant dream anymore.
—India has made strides in the human development indicators. The efficient welfare delivery and delivery of tapped water, toilets, and gas electricity have translated into better health and nutritional outcomes. The NFHS-5 data shows that the infant and child mortality rates have decreased across all states.
—According to our estimates, despite Covid, poverty in India has reduced by 4% from 2011-12 to 2020-21. The reduction in poverty has been higher in rural areas as compared to urban areas.

A lot of challenges also lie ahead of India, but they are not intractable. (a) India will have to find ways to optimally utilise its demographic dividend. Unless a commensurate amount of quality jobs are created, it won’t be able to reap the benefits of this demographic dividend. (b) As a corollary, the country will also have to address the issue of skill mismatch. Several studies have suggested that many fresh graduates do not have the requisite skills to be classified as ‘employable’. (c) The pandemic has taught us that a lot needs to be done on the health infrastructure front. Stunting and wasting among children are still on the rise. (d) India’s statistical system also needs to be modernised. Timely and accurate data should guide any policy intervention. When we celebrate 100 years of independence, hopefully, we will be well past these challenges.

(Respectively, chairman, and additional private secretary (research), EAC-PM)

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