Will the Finance Minister do what 'Works in and for India'?

Published: 19th February 2015 05:59 AM  |   Last Updated: 19th February 2015 05:59 AM   |  A+A-

The Budget for 2015-16 is the first after Prime Minister unveiled the Niti Aayog, his new development policy think tank. Most media has presented Niti Aayog routinely as just a substitute for the outdated Planning Commission. But the soul of the new body reveals something different. Indeed very different.

Bye to SKD, CKD Economics?

The Planning Commission mimicked Russia to import socialist economics in Semi-Knocked Down (SKD) condition into India. When the Socialist world itself discarded Socialism and defected to free market in 1991, its bluff was called.

The Indian establishment, which defected like others did, began importing US-led financial economics, but almost in Completely Knocked-Down (CKD) model to replace the earlier SKD economics. It deployed the ‘reform’ peppering it with local anti-poverty and SC, ST and minority welfare flavours. In both Russian and US-led imported copycat models, India figured only marginally. It is against this background that Narendra Modi’s new economic policy think tank, Niti Aayog, is born.

What is its central economic theme? Clearly, not economics imported in CKD or SKD form. It is explicitly against imported models â-- a point the media has surprisingly missed. Modi Cabinet directs the Niti Ayog ‘most importantly’ to “adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario. We need to find our own strategy for growth. The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development”.

The idea ‘what will work in and for India’ is a clear rejection of copycat economics followed since early 1990s in the name of economic reform.

Deform to Reform

Inspired by the socialist world, India went half-socialist in the 1950s with state planning as its pivot. When in the 1990s the socialist nations did a U-turn and moved to free market, which was celebrated as ‘reform’, India too gave up its part-time affair with socialism. Bidding good-bye to quasi-socialism, India embraced quasi, not full, free market.

Hesitant socialist pursuit ensured only quasi-socialism. Half-socialism did not ‘deform’ the Indian economy as much as complete socialism did elsewhere.

Result, while fully socialised economies needed total ‘reform’, what quasi socialist India needed more was course correction. This was because under part-time socialism nine out of 10 Indians were self-employed. This continued even under quasi free market. Self-employed were neither workers nor capitalists-- without either of them neither socialism nor capitalism will work. Yet Indian economists xerox-copied the idea of the World Bank-IMF concept ‘reform’ for India without realising that while small farmers were eliminated in Russia under socialism they were vibrant in quasi-socialist India. And while all self-employed were snuffed out in China and placed in government jobs, they grew fastest in India under quasi-socialism.

The half-socialist India did not destroy its entrepreneurial base like the fully socialised China, for instance, did and had to work hard to revive later as part of its reform.

Small is Big, Big is Small

In India, the idea of reform should therefore have meant, in addition to whatever it did, factoring in small entrepreneurs-- small farmers and small businessmen-- in the larger development policy apparatus. Yet the Indian economic thinkers imported the idea of reform which was centred on corporate sector.

Such approach was more relevant in, and for, fully socialised nations where small farmers or self-employed entrepreneurs were done away with. The West-centric Indian economic thinkers seemed to assume that reforms which bring in global finance and open India to global trade would eventually do away with small businesses and small farming.

Seventeen years after reform started the Planning Commission realised in 2007 that small farming will not die, but many small farmers will. The government also realised that small, not big, business has kept Indian economy going. It now knows that small farmers are more efficient than large ones. They cultivate 46 per cent of the land, but produce 52 per cent of cereals, 70 per cent of vegetables, 55 per cent of fruits and 69 per centof milk produced in the country. Big farms occupy larger land area and produce less.

The world too realised perhaps a trifle late that economics of scale does not apply to agriculture. The NSSO survey of unregistered businesses in India in 2007 revealed non-corporate businesses account for almost two thirds of the nation’s GDP. In contrast, the corporate sector even now produces just 15 per cent of nation’s GDP and accounts for just 8 per cent of the total jobs.

Shockingly, after absorbing Rs 54 lakh crore of foreign and domestic capital since 1991 and till 2013, the corporate sector has added-- believe it--just 2.2 million jobs. The reform process did not have in its radar the non-corporate sector, including the 58 million tiny businesses units, which account for 50 per cent of the nation’s GDP and 90 per cent of nations non-farm jobs-- that is over 460 million.

More shockingly, public and private corporate sector together produce employ just 15 million people -- less than a tenth of the non-farm jobs. The reformists were perhaps not aware that the banks supply only 4 per cent of the finance needed by the 58 million tiny businesses, which produce 128million jobs and a huge pool of entrepreneurship. Also that two-thirds of the tiny businesses are operated by OBSs, SCs, and STs.

Yet despite all slogans of ‘inclusive growth’, this sector largely operated by disadvantaged sections did not figure in our monetary economics. They do not want any state largesse. They only need finance at affordable interest. Corporates get low-interest loans and banks even write them off when they do not pay.

Will the Budget Follow Niti Aayog?

The Niti Aayog seems to be the first major step to realising the need to reform the distorted reform theories. Niti Aayog even talks about’Social Capital’-- an idea Marxism, believing in social engineering, would detest and capitalism, founded on (methodological) individualism, would abhor.

The Niti Ayog document says: “In fact, the ‘social capital’ that is present in our people has been a major contributor to the development of the country thus far and, therefore, it needs to be leveraged through appropriate policy initiatives.”

This is a complete repudiation of both Marx and Market. Marx believed that socialism would make the society irrelevant. Capitalism trusted the market to do what Marx felt the state would do. But now the new theories, articulated by thinkers like Francis Fukuyama, believe that Social Capital is society’s commons, like environment and ecology, which operates outside the state and the market.

The Niti Aayog also explicitly underscores what both state planning and market economics in India has missed -- the 50 plus million small businesses as a major source of employment creation. It says: “These businesses are particularly important in creating opportunities for the backward and disadvantaged sections of the society. Policy making must focus on providing necessary support to this sector in terms of skill and knowledge upgrades and access to financial capital and relevant technology.”

It is the first time that an institution of the ‘reform era’ talks about this reality of India. A decade back, a Planning Commission expert even dismissed the jobs provided by this sector as dirty, advocating the destruction of this sector to create clean jobs! In contrast, China does devised policies to make this sector generate 128 million jobs. In India without any policy support, without any financing, without any recognition, the sector is producing 128 million jobs. Yet Indian reformists would prescribe euthanasia for this sector. The Niti Ayog seems keen to correct this perverted reform-- that is to reform the reform process. The issue is whether the Budget 2015-16 will begin the course correction of the nation initiated by Niti Aayog.

S-Gurumurthy.jpgTo begin with, will the Finance Minister devise a new architecture to provide lifeline finance to the non-corporate sector and tiny businesses-- which produce over 60 per cent of the nation’s GDP and 90 per cent of the country’s jobs?

S Gurumurthy is a well-known commentator on political and economic issues.

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