Na­tional iden­tity and growth

The Pak Banker - - OPINION - Arun Maira

CHIEF eco­nomic ad­viser Arvind Subra­ma­nian ex­plains in the an­nual Eco­nomic Sur­vey what is re­quired for In­dia's econ­omy to grow faster. The sur­vey dis­cusses the fis­cal deficit, the need for in­vest­ments in in­fra­struc­ture to boost the econ­omy, and the pros and cons of stick­ing to the fis­cal re­spon­si­bil­ity road map. For fi­nan­cial mar­kets, th­ese seem to be the most im­por­tant is­sues. The sur­vey also dis­cusses pri­or­i­ties for de­vel­op­ment: agri­cul­ture, health and education, the small and medium en­ter­prises (SME) sec­tor, and oth­ers. Subra­ma­nian also uses the pedestal of the Eco­nomic Sur­vey to de­scribe ide­o­log­i­cal forces shap­ing the In­dian econ­omy- 'so­cial­ism with­out en­try' that has changed to ' mar­ket-ism with­out exit'- nei­ther of which is good for eco­nomic growth.

From this pedestal, Subra­ma­nian com­ments on broader in­sti­tu­tional forces that will de­ter­mine whether In­dia's gross do­mes­tic prod­uct (GDP) will grow at high rates for a long pe­riod, which it needs to as China's has done, to pro­vide eco­nomic op­por­tu­ni­ties for In­dia's bur­geon­ing pop­u­la­tion of youth and lift many more mil­lions of In­di­ans out of poverty. Ex­plain­ing that the In­dian econ­omy is more in­te­grated with the global econ­omy than it used to be, and that the global econ­omy is not do­ing well, he cal­cu­lates the ef­fect of the glob- al econ­omy on In­dia's GDP. He es­ti­mates that a 1 per­cent­age point change in the global GDP will cause a 0.42 per­cent­age point change in In­dia's GDP. Global growth, cur­rently at 3%, and sub­ject to many un­cer­tain­ties, can, most op­ti­misti­cally, rise to 4.5%. There­fore, In­dia can count, at most, on a 0.6 per­cent­age point change in its GDP from a bet­ter global econo- my. There­fore, if In­dia wants to in­crease its growth from the cur­rent 7% or so to 10%, an in­crease of 3 per­cent­age points, it will have to find in­ter­nal sources of growth for the re­main­ing 2.4 per­cent­age points.

Subra­ma­nian points to 'in­sti­tu­tions' as the source for sus­tain­able long-term growth. He presents an in­ter­est­ing chart show­ing the re­la­tion­ship be­tween in­sti­tu­tions and growth. The the­ory is that stronger in­sti­tu­tions should cause higher growth. How­ever, the chart re­veals two huge out­liers to the nor­mal: China and In­dia. It sug­gests that China with weaker in­sti­tu­tions (ac­cord­ing to the def­i­ni­tion he uses) has grown very fast, whereas In­dia with stronger in­sti­tu­tions has grown much more slowly than it should have. Ex­cep­tions, they say, some­times prove a rule. But th­ese ex­cep­tions are too large. Be­sides, in sci­ence, ex­cep- tions sug­gest that the the­ory must be im­proved to pro­vide for a more un­ex­cep­tion­able ex­pla­na­tion. Hence, the Spe­cial The­ory of Rel­a­tiv­ity had to be re­placed by the Gen­eral The­ory of Rel­a­tiv­ity.

The prob­lem with Subra­ma­nian's chart is eas­ily ex­plained. He has cho­sen to limit the de­scrip­tion of in­sti­tu­tions to 'demo­cratic' in­sti­tu­tions only. In­dia has stronger demo­cratic in­sti­tu­tions than China has. In­deed, com­par­isons of China's and In­dia's growth rates make it dif­fi­cult for econ­o­mists to es­tab­lish that democ­racy is al­ways good for de­vel­op­ment. How­ever, in­sti­tu­tions of par­tic­i­pa­tive democ­racy are only a sub­set of in­sti­tu­tions for gov­er­nance of a na­tion. The state must also have an in­sti­tu­tional ca­pac­ity to de­liver the ' pub­lic goods' that it is ex­pected to pro­vide to its cit­i­zens: safety, pub­lic ser­vices such as health and education, and ba­sic in­fra­struc­ture for wa­ter, trans­porta­tion, san­i­ta­tion and so on. In­dia has strong demo­cratic in­sti­tu­tions for elect­ing rep­re­sen­ta­tive as­sem­blies and a free me­dia. Yet, the In­dian state has been un­able to de­liver pub­lic goods and there­fore has been de­scribed as a "flail­ing state" by Har­vard econ­o­mist Lant Pritch­ett.

Political sci­en­tist Fran­cis Fukuyama traces the ori­gins of strong state in­sti­tu­tions in two re­cent books, The Ori­gins of Political Or­der and Political Or­der and Political De­cay. His­tor­i­cally, ' na­tion' build­ing has been crit­i­cal to the suc­cess of ' state' build­ing. The his­to­ries of Ger­many and Ja­pan are well known; Fukuyama presents many oth­ers too. He also points out that "if a strong sense of na­tional iden­tity is a nec­es­sary com­po­nent of state build­ing, it is also for that rea­son dan­ger­ous. Na­tional iden­tity is of­ten built around prin­ci­ples of eth­nic­ity, race, re­li­gion, or lan­guage, prin­ci­ples that nec­es­sar­ily in­clude cer­tain peo­ple and ex­clude oth­ers". His­to­rian Michael Cook car­ries the anal­y­sis fur­ther in An­cient Re­li­gions, Mod­ern Pol­i­tics.

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