Fix the Econ­omy, Don’t Tar­get Big Busi­ness

The Economic Times - - The Edit Page - Vi­van Sha­ran

With the ca­coph­ony of the 16th Lok Sabha elec­tion be­hind us, it is time to re­flect on the re­al­i­ties of the politi­coeco­nomic sys­tem that con­sti­tutes the set of ini­tial con­di­tions for the next govern­ment. The econ­omy is slug­gish and struc­turally weak. More than 60 years af­ter In­de­pen­dence, only a small mi­nor­ity can af­ford a de­cent liv­ing. Indira Gandhi had vowed to re­move poverty (“Garibi hatao”) while cam­paign­ing for the Congress in 1971, but the im­prove­ment has been so small, and the pol­icy dis­course is still in terms of free food grain and job guar­an­tee for 100 days. Per­haps the sys­tem as it ex­ists to­day and the in­sti­tu­tions that ser­vice it sim­ply can­not catal­yse a broad-based so­cioe­co­nomic trans­for­ma­tion. Take the ex­am­ple of the Re­serve Bank of In­dia (RBI). De­spite the RBI’s best ef­forts at en­abling cap­i­tal cre­ation, there is a se­vere in­vest­ment deficit in the coun­try. House­hold sav­ings are not chan­nelled to­wards pro­duc­tive as­sets due to low lev­els of fi­nan­cial in­clu­sion and a sys­tem­i­cally un­work­able model of uni­ver­sal bank­ing that the RBI has held sa­cred. The bank­ing model was lib­er­alised to an ex­tent, with the wave of back-tothe-wall re­forms that fol­lowed from near bankruptcy of the ex­che­quer in the early 1990s. Slowly, the RBI al­lowed new en­trants into the bank­ing sec­tor to en­cour­age com­pe­ti­tion, but never had the gump­tion to re­think the preva­lent model of bank­ing it­self. As a re­sult, only 40% In­di­ans have ac­cess to for­mal bank­ing. Of the 6,00,000 habi­ta­tions in the coun­try, only 1,00,000 have a bank branch. Does the RBI not re­alise that de­spite its pol­icy-driven in­clu­sion man­date (pri­or­ity sec­tor lend­ing), mil­lions can­not even dream of ac­cess to bank credit? Is it not suf­fi­ciently clear now that sim­ply open­ing a bank ac­count does not mean fi­nan­cial in­clu­sion? Whose in­ter­ests are be­ing pro­tected by not en­cour­ag­ing new mod­els of bank­ing based on in­no­va­tion and en­trepreneur­ship? Is fi­nan­cial in­clu­sion not at odds with the ex­tant spirit of “reg­u­la­tion” it­self ? The RBI is in­ca­pable of an­swer­ing these tough ques­tions. What is more im­por­tant is that the se­ries of mis­steps to­wards greater fi­nan­cial in­clu­sion in In­dia can­not be re­versed one by one. This would be akin to at­tempt­ing to re­verse global warm­ing, one light bulb at a time. In­deed, the RBI can­not bring about a fun­da­men­tal sys­temic over­haul be­cause it is not op­ti­mised to gen­er­ate such an out­come. The cen­tral bank is lauded for its mon­e­tary pol­icy in­de­pen­dence. How­ever, in other ways, it is too in­trin­si­cally linked to the min­istry of fi­nance, to ever be ca­pa­ble of un­fet­tered reg­u­la­tory de­ci­sion-mak­ing. Fresh op­por­tu­ni­ties are not get­ting cre­ated and, con­se­quently, asym­met­ric wealth has ac­crued to those with a sub­stan­tial cap­i­tal base.

There is a new po­lit­i­cal un­der­cur­rent due to the skew in wealth ac­cu­mu­la­tion. This un­der­cur­rent is tar­get­ing the no­tion of big busi­ness it­self. In­dia is an­gry, and right­fully so. But is there any prob­lem be­ing solved by tar­get­ing large cor­po­rates for ac­cu­mu­lat­ing wealth?

It is cer­tainly not solv­ing the in­vest­ment drought or the fis­cal deficit. It is not solv­ing the crit­i­cal chal­lenge of mak­ing In­dian MSMEs glob­ally com­pet­i­tive, or of cre­at­ing jobs for the 12 mil­lion youth en­ter­ing the work­force ev­ery year. Why hold large cor­po­rates re­spon­si­ble for a sys­tem that is it­self cor­rupted and com­pro­mised? The an­swer is easy.

Over the past year, the Aam Aadmi Party (AAP) has used such easy mes­sag­ing as “cap­i­tal­ism sucks” to garner votes and sweep emo­tions. Yet, what is nec­es­sary at this cru­cial junc­ture is for all stake­hold­ers to re­alise that they are col­lec­tively star­ing down the bar­rel of a gun.

This weapon is loaded with an un­ful­filled and young de­mo­graphic, with in­equitable ac­cess to ba­sic ser­vices, jobs and re­sources. It is loaded with an in­creas­ingly strained and di­vided so­ci­ety, which has been squeezed dry for all its po­lit­i­cal worth. It is loaded with the fear and des­per­a­tion of class con­flict, of re­li­gious fun­da­men­tal­ism, of in­sur­gency and rage. AAP too is a prod­uct of this sys­tem and, in­deed, a symp­tom of the un­der­pin­ning malaise that lim­its gen­er­a­tion of an an­swer from within. This book ar­gues that eco­nomic growth gen­er­ates — and is nec­es­sary for — broad im­prove­ments in hu­man­ity’s ma­te­rial well-be­ing. Be­cause eco­nomic growth marks a boundary be­tween wealth and hu­man flour­ish­ing, on one side, and poverty and degra­da­tion, on the other, it is no ex­ag­ger­a­tion to say that fewer is­sues are more im­por­tant…. Econ­o­mists use the term “eco­nomic growth” to mean a sus­tained in­crease in the econ­omy’s over­all out­put of goods and ser­vices — gross do­mes­tic prod­uct, or GDP — or a sus­tained in­crease in over­all out­put per per­son, of­ten called a coun­try’s “stan­dard of liv­ing”. Be­cause those pro­duc­ing out­put re­quire pay­ment, a na­tion’s out­put ba­si­cally equals its in­come, so GDP is of­ten called “gross do­mes­tic in­come”. When GDP per per­son rises, aver­age in­comes are ris­ing…. Whether the fo­cus is on equal­ity, the en­vi­ron­ment, mar­kets or de­mo­graphic pres­sures, ac­tual growth ex­pe­ri­ences of the past century sup­port the judge­ment that growth is good for hu­man flour­ish­ing. Though the record of growth’s ben­e­fits is com­pelling, eco­nomic anal­y­sis alone can­not sus­tain a so­cial con­sen­sus for growth. Rather, eco­nomic ap­proaches can­not in­spire the moral imag­i­na­tion. So­ci­eties must be con­vinced of growth’s moral le­git­i­macy, and of the mer­its of the mar­ket-ori­ented sys­tems in which growth blooms, if a con­sen­sus for growth is to de­velop.

From “Eco­nomic Growth: Un­leash­ing the Po­ten­tial for Hu­man Flour­ish­ing”

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