I was born in pre-independence India. I have witnessed from close quarters the ravages of economic exploitation resulting from colonialism. In 1947, India was a poor, under-developed, agrarian society steeped in gross poverty, near-total illiteracy, stark social inequality with very little infrastructure.
The colonised Indian economy was characterised, according to historians, by four features. First, the integration of India’s economy with the world economy in a subservient position. Second, a peculiar structure of production and international division of labour based on subservient nature of economic relationship with the UK. Third, the small size of net savings (2.75 per cent of GNP) and finally, unproductive consumption of social surplus/savings by the state and intermediaries. There was overwhelming support for the government taking a lead in creating the economic framework of a modern state which it did with great success and with results evident to every one at home and abroad.
This transformation, for which the foundation was laid by Mahatma Gandhi through his mass mobilisation of people and the creation of an alternate vision of our future, could not have been achieved without the government of independent India implementing a comprehensive and vigorous agenda for change. The management of change and societal transformation in a peaceful, cohesive manner helped our young country survive the communal holocaust, partition and administrative meltdown. Thanks to the strong democratic institutional framework, which was created in that process, India has successfully managed change within the country and faced challenges from external sources. This enlightened audience will remember very well the early anxieties amongst our business community about economic liberalisation. There was certainly a basis for these anxieties as evident from the example of several countries which could not withstand the resurgent tide of globalisation following the end of the Cold War.
This has been possible because India, today, is less socio-economically unequal than many of the western developed countries, as reflected in the Gini co-efficient, an index used by the World Bank to measure it. A high rate of growth and developed institutional and physical infrastructure prepared a vast and diverse society like ours better, than other countries, to face the current financial crisis, even though we should remain alert to its future course. Not wearing ideological goggles — of whatever colour — India does not suffer any lack of self-confidence in this crisis but feels that it can turn it into an opportunity. With an investment rate, which has until recently been close to 40 per cent, and a savings rate of close to 38 per cent of the GDP, I feel that India can face external factors with reasonable confidence.
The current crisis is increasingly being recognised as the result of a flaw in the ideology and model of growth which were considered sacrosanct. This failure in the West is of such a magnitude that governments cannot wish away their own responsibility. With a crisis in the financial sector, the role of the governments in the developed countries and elsewhere will only increase.
Government intervention should be to re-orient the direction and the complexion of economic growth. My broad prescription would be to make it more inclusive. This calls for a paradigm shift at national and international levels.
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The government has to play the role of an initiator, regulator and facilitator of change in varying degrees depending upon the internal and external environment. If I look at our post-independence experience, I am of the view that for most part of this period the government, by and large, did well in terms of managing the process of change in the society and the economy, given our initial conditions and the context.
Excerpts from an address by Finance Minister Pranab Mukherjee at the India Today Conclave, March 6, 2009