THE TECTONIC SHIFT IN INDIA’S ECONOMIC POLICY
THE NEW ECONOMIC THINKING IS BASED ON THREE KEY PRINCIPLES: GROWTH AND EFFICIENT WELFARE; ETHICAL WEALTH CREATION; AND A VIRTUOUS CYCLE FOR ECONOMIC DEVELOPMENT. TOGETHER, THESE WOULD LEAD TO A DECADE OF INCLUSIVE GROWTH
TThe Indian economy witnessed a Vshaped recovery last year after the pandemic-induced decline in the first quarter as India was the only large country that experienced two consecutive quarters of positive growth; see this year’s Economic Survey and Monthly Economic Report (MER) May 2021 for evidence. After the Covid-19 second wave halted this recovery for a couple of months, the Indian economy is geared up for fast growth. This confidence stems from the fact that India is the only country to have launched path-breaking reforms and radically altered its economic thinking amidst the pandemic. As developed over the last three Economic Surveys of the Government of India, the new economic thinking for India relies on three key principles to achieve the objective of “Minimum Government, Maximum Governance.”
While we all romantically reminisce about the 1991 reforms today, we must remember that the then government faced stringent opposition from all corners, including the ruling party itself. Many did not foresee the enormous impact that the reforms were to create. The full import of the change in economic thinking was realised over time. Similarly, the benefits of the radical change in India’s economic thinking post Covid will manifest in India’s growth path over the coming decades.
To draw a parallel, India winning the 1983 Cricket World Cup was epochal because it came against all expectations. Almost three decades later, India winning the 2011 World Cup was as seminal because it heralded India’s arrival as a cricket superpower when India fulfilled the high expectations. Similarly, the 1991 reforms happened when there was no expectation of such a seminal turn. The path-breaking reforms post Covid — again almost three decades later as with the 2011 World Cup win — will fulfil the high expectations of India becoming an economic superpower.
1. PIVOTAL CHANGE IN INDIA’S ECONOMIC THINKING
As shown in the figure below, the first principle lays out explicitly the policy objective while the other two principles specify the models for achieving the policy objectives at differing levers of granularity.
First, complementing an exclusive focus on economic growth with efficient welfare so that growth generates the resources for welfare programmes and the efficiency of welfare programmes ensures that the resources are utilised optimally to not only reduce inequality but also to enhance aggregate demand in the economy. The explicit separation between economic growth with efficient welfare enables comparative advantage and thereby enhances efficiency. Specifically, rather than hobbling macro-economic policies with the objective of reducing