Build a new economic imagination
invested in, agricultural surplus has played an important role in driving industrialisation and moving people off the farm. The history of India’s industrial hubs such as Tiruppur, Tamil Nadu, which grew on the back of agrarian capital are testimony to this. Second, half of India’s manufacturing value addition and off-farm employment (Census 2011) is in rural areas. Third, urbanisation is fuelled by changing economic patterns in these rural areas as non-farm employment increases. Half of India’s new urban population growth between 2001-2011 (Census 2011) is in these rural areas that morphed into towns. Agriculture, non-farm rural and urbanisation are inextricably linked. In the policy preoccupation with moving people out of agriculture, the economic narrative failed to recognise these interlinkages treating agriculture as a residue, a drag on the economy and rural, nonfarm and urban as silos. We have separate agriculture, rural, urban and micro, small and medium enterprises departments and no mechanism for strategic planning and coordination across them. Urban policies and spending has prioritised “smart” cities and metropolises rather than investing in small towns (many of which are still classified as rural) and cities where the bulk of economic activity takes place. Local governments, which ought to play a critical role, are weak, leaving behind largely the more pernicious elements of the license raj State that exploit the very inequalities the lockdown made visible.
Addressing India’s structural inequalities and making markets genuinely competitive requires an integrated economic framework, which breaks silos and invests in the continuum of agriculture, rural, non-farm and urban. This means investing in and incentivising State capacities to collect better data on agriculture, non-farm sectors, and urbanisation, for decentralised, local economic planning and investment.
Finally, the lockdown must lay to rest the old debate on trade-offs between welfare and growth. Welfare, because of its political imperatives, was always treated as an afterthought in the post-1991 imagination, a compensation for the failure to bring people in as active participants in the economy. As is well recognised in economic literature, robust welfare builds human capabilities, enhances productivity and most importantly ensures dignity. Welfare needs to be re-imagined as the foundation of a strong economy and the capabilities needed for delivering welfare must be enhanced.
If India is to find its way back on a growth trajectory, economic policymaking will need to acknowledge the failures of its past. Yet, our current reform imagination, as indicated in the Covid-19 economic package, remains trapped in false binaries and old frameworks. India’s economic imagination needs to be refocused on the real economy. Crucially, growth needs a robust and capable State across all levels. Investing in State capacity and its regulatory institutions rather than wishing the State away will ultimately be the real driver of growth.