Fix the Economy, Don’t Target Big Business
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”