From trickle-down to bottom-up, India needs to rethink its economics
Investing in human capabilities will yield sustainable growth in the long-term. Delhi is showing the way
India is ranked 102nd in the Global Hunger Index, 2019. It is way behind the other Brics countries: Brazil is 18th, Russia is 22nd, China is 25th, and South Africa is 60th. India is also behind all its neighbours: Sri Lanka (66), Nepal (73), Bangladesh (88), and Pakistan (94). A Unicef report on stunted growth in children also puts India towards the bottom of the global list. Now that India’s GDP growth is floundering, the blame game has begun. Who is responsible for the declining growth of the GDP and the slackening of consumer demand — the National Democratic Alliance government running into its sixth year, or the United Progressive Alliance government which ruled in the 10 before?
The truth is that India’s problems are much deeper, and are not visible through the measurement of its GDP. India’s citizens have been let down by a flawed economic model which both political dispensations have adopted. Its premise is that growth at the top will pull the bottom up. It has not. India’s economic policymakers should consider the other way: The growth of human development at the bottom will push up growth at the top. It is worth noting that China reached the levels of human development (health and education), which India is still striving to, 30 years ago when China’s economy was much smaller than India’s is now. Human development provided the foundation for China’s remarkable growth.
The principal cause for the slump in India’s growth is the slackening of consumer demand, even for basic things like packaged foods. Delhi’s Aam Aadmi Party government has directed its efforts to improving the citizens’ ease of living by providing them basic necessities like education, health care, electricity, and water at little or no cost. It computes that savings per family are ~4,000 per month. The increase in disposable incomes has resulted in additional consumer-buying power, estimated at ~24,000 crore per annum in Delhi.
Employers in India complain about the poor quality of India’s abundant human resources, a fundamental cause of which is poor education in government schools. The Delhi government’s mission to improve education in government schools, which serves the masses, has produced impressive outcomes. Thus, its citizen-centric policies are improving the economic fundamentals for investors by increasing consumer demand and building human capabilities too.
Delhi has the lowest power tariff among all Indian cities. The state government has also been expanding access to cheap power with special concessions to the poorest consumers. The consumer base of the distribution companies has expanded by over 20%. Despite constant reductions of tariffs for five years, the financial performance of the three (all private) distribution companies has improved, and they have been upgraded to stable by rating agencies. It is a win-win for citizens and businesses.
Debates about the economy cannot reveal the fundamentals when ideas mooted are promptly dismissed with ideological labels, such as capitalist, socialist or populist. When the Delhi Metro proposed an increase in its fares, the Delhi government mooted a subsidy for women travellers. “Populism again, and economic ruin!”, some economists lamented. The government’s case was that women find it very unsafe to travel by other public transport, such as taxis and three-wheelers, in which they are crammed in with men, groped and humiliated. The Metro is enabling more women to go to college and to work safely. Policies to improve citizens’ ease of living may, prima facie, make it more difficult for the Metro to operate as a business. However, all economists agree, whatever their ideology, that education of women, and more women at work, are good for the economy. Better yardsticks are required to evaluate the health of economies than merely the ease of doing business.
Only two women have won the Nobel Prize in economics so far, while 82 men have. The first was Elinor Ostrom, in 2009, for her work on “the governance of the commons” — community management of shared resources. Some mainstream economists had sniggered that her work was not even economics. For them, good economic science must be about the macro picture represented in numbers and explained by mathematical equations. The work of the second woman who got the prize, Esther Duflo this year, is also about the behaviour of people in micro-systems. Duflo and Abhijit Banerjee, who won the prize with her, have studied what actually happens on the ground in the delivery of education and health in some of India’s poorest districts. They also worked with the Delhi government on its school system. India’s commerce and industry minister has dismissed their ideas as Leftist and not relevant to India’s macro-economic problems.
India cannot muddle along with a failing economic paradigm any longer. Local systems solutions are required to solve global systems problems. The solutions must be formed with bottom-up perspectives of citizens on the ground, rather than top-down perceptions of investors and policymakers who try to understand the fundamentals of the economy through stock-markets data and movements of GDP.
India must adopt a human-centric, and ecologically-sensitive, paradigm of development before it’s too late.