Terms of Trade | What should the next big economic debate for India@75 be?
The first five decades of independence saw a far more vibrant debate on economic issues. Where will the next big political economy idea come from?
Is there really a major debate, at least among the players who matter, when it comes to economic policy in India? This is an important question to ask when the country is celebrating the 75th year of its Independence.
At the risk of romanticising the past, one can argue that the first five decades of independence saw a fat more vibrant debate on economic issues than the period after that.
A chronology of policy debates
The 1950s saw debates around planning, both its efficacy and priorities, and the challenge of marshalling domestic and international resources for achieving its goals. The 1960s saw debates around ways to achieve food self-sufficiency and the State significantly expanding its economic footprint in crucial sectors by policies such as bank nationalisation. Both have had far-reaching consequences for the economy.
The 1970s saw the first serious debate around economic stagnation and unemployment in India. The political fallout was the emergency. The 1980s saw the beginning of a debate on a country living beyond its means, especially on the external front. This is what ultimately culminated into the debate on economic reforms in India.
By the late 1990s, the pro-reform side had largely won the ideological battle. Most of these debates saw a fantastic mix of economic theory and empirical arguments with very high political stakes.
The broad consensus
The 2000s, and the decade after that have been quite underwhelming in terms of ideological polemics on economic policies. After the shock defeat of the Atal Bihari Vajpayee-led National Democratic Alliance (NDA) government in 2004, the Congress-led United Progressive Alliance (UPA) claimed to have ushered in an era of “liberalisation with a human face” as opposed to the “India Shining” model of the first NDA government. However, there was a catch here. The fact that the Indian economy had a dream run in terms of growth in the first decade of the 2000s, helped finance many welfare schemes the UPA rolled out.
This economic honeymoon came to an end after growth started slowing down after the 2008 crisis and macroeconomic stability became precarious. It was this economic downturn and the accompanying inflationary pain which paved the way for a Bharatiya Janata Party (BJP) victory in 2014.
While the post-2014 period has seen a lot of controversial economic decisions — demonetisation, roll out of the Goods and Services Tax (GST) and farm laws among them — these issues (with the exception of demonetisation) have enjoyed policy traction under the previous regime as well. The biggest proof of this lies in the fact that on many such issues — GST being the biggest example — the opposition’s critique has been more about the manner in which these policies were implemented than the nature of policy itself.
On a lot of other issues, the opposition’s critique has been about the central government not doing enough fiscal heavy lifting to provide relief to the people. Demand for tax cuts on petrol-diesel and guaranteed Minimum Support Prices (MSP) etc. are some such examples. Even during elections, promises revolve around more and more state support such as free electricity and even cash transfers rather than a radical change in the overall policy framework.
Should economic policy debates in India really be confined to the question of state-sponsored relief (or lack of it) to the non-rich in India? Is there no space for “big-ideas” in the study of the Indian economy? To be sure, it is unfair to blame the opposition for not being imaginative with economic ideas, when some of our best academics in the discipline seem to have given up on big ideas.
In the terrain of ideas
The first Indian economist to win a Nobel Prize is Amartya Sen, who is considered to be one of the best theoreticians in modern economics and among the pioneers of the sub-disciplines of social choice theory and development economics.
The only other Indian to win a Nobel Prize in economics is Abhijit Banerjee who along with Esther Duflo and Michael Kremer were awarded the prize in 2019 – for championing randomised control trials (RCTs) in economics. RCTs have traditionally been employed in medical sciences to test the efficacy of drugs. The larger idea is to first find a solution for a small group of the population and then scale it up.
Such an approach, in a way, undermines the ideological quarrel in the realm of economic debates. As long as an experiment can be conducted to decide on policy design, the truth shall never suffer, proponents of RCTs tell us. To be fair to Banerjee and Duflo, they do not claim that RCTs should be the be all and end all of economics. Their book Good Economics for Hard Times gives a good insight into the views of the authors about lot of important research and their larger implications in economics.
It goes without saying that there is a lot of good economic research being done on India by other economists as well. Will such research drive the future of economic debates in India?
Economic ideas gain salience only when they meet the force of politics. This is true for all major thinkers, from classical economists such as Adam Smith, David Ricardo and Karl Marx to proponents of neoliberalism such as Milton Friedman and Friedrich Hayek.
A comparable and more recent Indian example would be of activist economist Jean Drèze who has been instrumental in building consensus for legislations such as MGNREGS and the Food Security Act. At the risk of making a lot of people angry, it can be said that the Drèze-style economic welfare agenda is now slightly clichéd in India. Every government, provided it has the fiscal wherewithal to do it, would like to implement such a programme for the political gains they bring. This is indeed an important triumph of democracy in India’s political economy framework.
The next big debate
So where will the next big political economy idea come from?
The present government does not really seem to have a new one. Its economic philosophy can be described as a mix of supply side boost to infrastructure and formalisation push for the entire economy with a political insurance of targeted welfare schemes which focus on asset creation. The opposition, as of now, is trying to force the government to concede a larger part of its fiscal resources to provide relief to the people. If the BJP’s electoral success in the post-pandemic phase is any indication, this strategy has not had much traction with the electorate.
While there is occasional lip service to redistribution by increasing the tax burden on the rich, the TINA factor in political finance — this was discussed in detail in the previous column — will make sure that it continues to be more rhetoric than action.
If there is one economic question which has not received adequate engagement by the political class in the post-reform period in India it is how to tilt income distribution in favour of the “have-nots” without fiscal policy intervention. This is ironical given the fact that one of India’s biggest success stories, its dairy industry, has used the cooperative route to achieve this goal. The cooperative movement in India’s dairy sector is so strong that no multinational or large Indian corporate group has been able to get a foothold in the Indian dairy market. This has definitely had a positive impact on income equality.
Is there a scope to replicate this idea in the realm of both farming and possibly even medium and small scale industries? Delivering on this idea will require as much politics as economics. If given adequate attention, it could well be the next big political economy debate in India.
Every Friday, HT’s data and political economy editor, Roshan Kishore, combines his commitment to data and passion for qualitative analysis in a column for HT Premium, Terms of Trade. With a focus on one big number and one big issue, he will go behind the headlines to ask a question and address political economy issues and social puzzles facing contemporary India.
The views expressed are personal
