Road to India@100: Reviving India's golden era

India@100 can be a wealthy economy only by pursuing ethical wealth creation as its economic mantra. A recent change in India’s political economy provides the confidence that India indeed can pursue economic policies that enable ethical wealth creation.

On February 10, 2021, Prime Minister Narendra Modi underlined the importance of “wealth creation” and the role of the private sector in his speech at the Budget Session of Parliament. Acknowledging this pivotal moment that represented a seminal turn in India’s economic history, The Hindu Business Line titled its lead editorial on February 11, 2021, “Watershed Moment” and wrote: “On the floor of the Lok Sabha, [the PM] made two major points: One, the country needs wealth creators or producers in the first place for that wealth to be distributed, and that they should not be unfairly attacked; and, two, the idea of the government running public enterprises has outlived its time and that the bureaucracy, in any case, should not be running them. Scarcely ever has any senior politician, let alone a prime minister, spoken with such candour in Parliament.”

The change towards embracing wealth creation is a durable one because our policy now recognises that ethical wealth creation has been part of India’s DNA for millennia. The idea of ethical wealth creation as a noble human pursuit is rooted in India’s old and rich tradition ranging from Kautilya’s Arthashastra in the North to Thiruvalluvar’s Thirukkural down South. Given the demonstrated economic benefits that India reaped from pursuing wealth creation by enabling economic freedom—both historically and post the 1991 economic reforms—our conviction towards embracing wealth creation by enabling economic freedom is solid.

Interestingly, The Hindu Business Line highlighted in the same editorial: “Economic Survey 2019-20 made a detailed case for promoting wealth creators, making a crucial distinction between being ‘pro-business’ and ‘pro-crony’.” It is crucial to understand how Economic Survey 2019-20 helped bring about the change in the stance. It is not as if economists in India have not advocated the importance of enabling the private sector and reforms that enable the same. However, reforms enabling the private sector were done either in stealth or when faced with a crisis because the political support for the same could not be mustered.

The crucial reason for the change stems from the motivation underlying the advocacy of the private sector. In the past, economists and politicians that advocated enabling the private sector did so by (implicitly) appealing to Adam Smith and his descendants. In contrast, a crucial change that the Economic Survey 2019-20 brought was to look back at India’s own economic history and its own literature to rigorously make the case for ethical wealth creation. The Survey started by demonstrating that until 1750 AD, that is, for three-quarters of known economic history, India accounted for at least one-third of world GDP. While some critics argue that such prosperity stemmed from India’s higher population even then, this argument misses the point that populations endogenously moved to areas that offered economic prosperity. After citing this important piece of evidence, the Survey posed the question: Could such economic dominance have been an accident or was it the result of a well thought out economic model? After posing the question, the Survey provided evidence citing India’s literature that indeed India’s economic prosperity stemmed from pursuing ethical wealth creation as its economic mantra.

This model of persuasion that relied on India’s own experience is crucial to understand. Imagine a politician trying to convince the common person on the street saying “We should pursue policies enabling the private sector because Adam Smith said so!” The common person will respond “Adam Smith who?” And then retort back “Why are you westernising India and destroying our age-old culture and traditions?” It is this dynamic that possibly led to reforms by stealth. In contrast, think about the following conversation between the common person and the politician: “Do you know that India was a sone ki chidiya because philosophers like Kautilya and Thiruvalluvar advocated wealth creation and enabled private enterprise.” The common person would possibly say “Oh! Is that so?” and is likely to engage better when compared to the dismissive stance he would pursue when wealth creation is advocated by appealing to Adam Smith and his descendants.

This aspect is crucial for India to recognise as we move towards India@100. Economic policy in any democracy can never depart from politics. And convincing the common person about the wisdom of an economic policy is an extremely critical element of the politics behind an economic policy. As India moves ahead towards becoming a wealthy nation in 2047, it must avoid cut-pasting economic policies from the West and design indigenous policies that are rigorously conceptualised keeping in mind our culture and our economic realities.

In this context, to enhance economic freedom in the economy, it is important that governments keep out of business. Investments in businesses by the private sector create jobs, innovation, and economic growth. In contrast, involvement by the government in business creates bureaucracy, red-tapism and inefficiency. A key role of the government, therefore, must be to undertake reforms to usher in economic freedom and expand the scope of the private sector. To enable India to emerge as a top-three economic power in the world by 2047, India is now boldly jettisoning anachronistic ideologies about the large and pervasive role of the state as the provider of employment and producer of goods. In many spheres of the economy, controls still proliferate thereby inhibiting both growth and citizens’ welfare. Reforms to dismantle them are being undertaken to not only enhance growth but also enable citizens’ ease of living.

The reforms that India has implemented post-Covid-19 articulate this pivotal change in the country’s economic thinking. These include, inter alia: (i) Government of India’s enterprise policy focussed on enabling the private sector, under which the government will remain in a select few sectors and that too with only a handful of public-sector enterprises; and (ii) opening up of several sectors to competition including defence production, mining, power distribution, and cartography. India’s economic policy now aims to strengthen the invisible hands of the market by promoting pro-business policies to (i) provide equal opportunities for new entrants, enable fair competition and ease of doing business; (ii) eliminate policies that undermine markets through government intervention even where it is not necessary; (iii) enable trade for job creation, especially in the organised sector; and (iv) efficiently scale up the banking sector to be proportionate to the size of the Indian economy.

Given the grounding of the economic change towards wealth creation in India’s polity, I am confident India@100 will be a developed economy with per-capita GDP greater than $11,000.

The writer is Executive Director (India) at the IMF