In mid-1991, the entire world was at a crossroads. The Berlin Wall had fallen over a year ago and the collapse of the Soviet Union was imminent. The age of neo-liberalism was dawning, buttressed by the political underpinning of a post-Cold War unipolar world. This phase in current history ended with the financial crisis of 2008, which exposed the inherent instability of the global financial architecture. A period of slow growth in global income and trade has followed but more importantly the dominant economic beliefs of the last two decades have been questioned.
A course correction in both practice and thinking seems necessary and is underway. For India, capital account convertibility is no longer seen to be devoid of a downside and a must-do. The emerging Indian policy mix is more pragmatic. Keep discarding detailed controls that are inefficient while continuing to build reserves as dykes and have the willingness to slam the sluice gates in case of need.
More fundamentally, the reality of global warming and the threat of climate change have taken centre stage and the emerging dominant theme is: development and growth are goals bound by practices which make the process sustainable. Indian policymakers need to realise that high growth fuelled by unfettered consumption of non-renewable natural resources is not an option. So, it is about time the public controversy over whether current estimates of seven per cent plus growth are correct ended. Such growth is in any case unsustainable; the environmental cost of it would be ruinous.
If single-minded pursuit of growth is out, then what's in? There is no consensus over this, but my sense is there will be increasing focus on well being defined by a set of human development indicators of which income is only one. Income is not an end in itself but the means to a better life. This has enormous implications for both the public and private sectors.
A sea change has to come in developing countries in governance so that the way to improve the delivery of public health care and education is not to throw more resources at them (those resources will not be there as growth moderates) but to spend the resources well. As for the private sector across the world, it will have to give up aggressive pursuit of top line growth. The practice of introducing new models with more features, requiring the junking of durables which are just a few years old, will have to end. The world will have to go back to the age when a car and a refrigerator lasted for many years and begin to make a laptop last not five years but 10. All this has policy implications for India.
If these big changes are not there yet but likely coming, a more fundamental change has already taken place in the realm of ideas which needs formal acknowledgement and consequent course correction. Thomas Piketty has woken up all to the danger posed to the world and capitalism by inequality. When he created a disruption in global discourse in 2013 many disputed his central idea. But, to find the damage done even in a prosperous society by inequality, you need only look at the anxieties of those who feel left behind being capitalised upon by Donald Trump.
There is a deeper philosophical underpinning to this. The modern world began to leave behind feudalism with the French Revolution in the late 18th century. The triad that emerged was "liberty, equality and fraternity". The pursuit of liberty with greater focus on human rights keeps getting stronger. The pursuit of arithmetical income equality has been discarded with the demise of communism. What is now emerging is the age of fraternity, when the dominant concern is to ensure no one is left behind as that creates social instability. In the west, civil society has increasingly sought and obtained gender parity and the right to one's own sexual orientation. In India the agenda ahead is to fight caste discrimination and the humiliation of Dalits. Simultaneously, policy has to ensure that children from poor and backward homes get the right education, including higher education, so that they can get good jobs and end their social backwardness.
If most are agreed that the reforms have saved the country, then it is important to get a measure of precisely how well they have done and devise a more immediate agenda. During the period 1990-2015, India's per capita gross domestic product (GDP) in PPP (purchasing power parity) current US dollars rose by 5.3 times, whereas China's rose by 14.5 times (World Bank figures). From being slightly ahead of China in per capita income, it is now at less than half of China's!
Clearly, more reforms of the right kind are needed. Junking mindless controls and reducing the discretionary role of the politician-bureaucrat nexus has to go on. Removing restrictions on foreign direct investment has not gone far enough. FDI creates factories taking forward 'Make in India'. Liberalisation of FDI cannot go faster because of the entrenched interests of India's business class. If New Delhi has over the years partly defaulted on this, then the states mostly stand guilty of defaulting on allowing free interstate movement of goods and the right of the farmer to sell his produce to whoever he hikes.
Reforms must evolve as they go forward.
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