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Bad economics is corrupting politics, undermining good governance in India

Economic reformers should not remain beholden to free-market ideologies, corporate lobbies, or the sentiments of fickle stock markets

Arun Maira

Arun Maira is former member, India’s Planning Commission and author of Shaping the Future: A Guide for System Leaders

Arun Maira

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All political parties, Left to Right, across the Indian political spectrum, are aligned on one agenda: the need for substantial reform of the economy. India’s impressive gross domestic product (GDP) growth has not sufficiently increased incomes at the bottom. Demand is slackening, and private investment remains sluggish despite government inducements. Farmers, workers, and unemployed youth across caste and religious spectrums are restless and actively protesting.
 
The capitalist Right wants the 1991 economic liberalisation agenda to be completed, with more freedom for capital in land, agriculture, and labour markets. The socialist Left seeks better governance of these ‘factor markets’ to ensure adequate prices for farmers and decent wages for workers to boost incomes. All political parties, whatever their ideology, are competing to compensate citizens at the bottom for market failures by giving ‘revadis’—direct money transfers to women, unearned pensions, and food price subsidies. While politically necessary, these measures are unsustainable, economists complain.
 
 
Before accelerating liberal reforms to boost GDP, economic reformers must pause and objectively examine how well the Indian economy has performed since the 1991 economic reforms. Economists on the liberal Right defend their theories by comparing the pre-1991 ‘socialist’ economy with the post-1991 ‘liberalised’ economy. By this yardstick, liberal economists from both the United Progressive Alliance (UPA) and National Democratic Alliance (NDA) agree that the economy has been on the right track since 1991. Their disagreement centres on whether employment and incomes grew faster during their respective periods in power—a contest they are attempting to settle with dubious statistics.
 
A scientific way to settle this ideological debate about the best economic strategy for India is to compare how GDP growth has increased the incomes of the poorest people in other developing economies since the 1990s. Compare India and China—two countries with over a billion citizens, both very poor until the 1980s, and both opening their economies around the same time to increase foreign trade and private investment. Consider Vietnam, which was even poorer in the 1980s and has now emerged as an Asian tiger, competing with India for investments as China’s labour costs rise due to its economic success. 
Bad economics is corrupting politics, undermining good governance in India
 
  Why have China’s and Vietnam’s economies performed six times better than India’s in lifting incomes at the bottom during the same period? India’s economic reformers should examine this scientifically and without ideological bias.
 
For one, China and Vietnam did not abandon the communist-socialist principles of their economic policies after the Soviet Union’s collapse in 1991, even as the Washington Consensus around liberal financial capitalism swept the world. Russia, persuaded by US economists to switch from communism to capitalism with a ‘big bang,’ faced disastrous consequences. Crony capitalists looted the country’s wealth, bought mansions in London and yachts in the Mediterranean, and corrupted Russian politics.
 
Life expectancy, a good measure of an economy’s health, typically increases with poverty reduction and improved public health and education. Shockingly, in Russia, life expectancy declined after the reforms. For men, it fell from 63.8 years to 57.7 years, and for women, from 74.4 years to 71.2 years. Mortality among men aged 24 to 64 years increased by 33 per cent by 1994, driven by economic hardship, alcohol, and drug abuse.
 
China and Vietnam joined the global economic system on their own terms in the 1990s. Deng Xiaoping adopted ‘socialism with Chinese characteristics,’ incorporating capitalist features into central planning to enhance public welfare. US economists complain that China ‘cheated’ when joining global markets because it retained socialism and state planning. It protected its public sector and nurtured private-sector giants now being sanctioned by the US, which, ironically, is undermining multilateral trade and financial institutions to protect its domestic producers.
 
Vietnam followed China’s precedent, implementing economic reforms while retaining its single-party governance system. Declaring it would adopt a ‘market economy with a socialist orientation,’ Vietnam signed 17 free trade agreements with the European Union, United Kingdom, and other countries. However, the US refuses to recognise Vietnam as a ‘market economy.’
 
‘Communists’ and ‘socialists’ are considered threats to the American consumptive way of life and national security. US ideologues view socialist systems, which visibly support citizen welfare, as existential threats to their privatised financial capitalism, which relies on an ‘invisible hand’ to ensure fairness.
 
“A rose by any other name would smell as sweet,” Shakespeare wrote. Instead of debating whether the word ‘socialism’ should be removed from the Constitution, India’s leaders should focus on fundamentals. The success of economic policies should be measured by increases in incomes, accessible healthcare and education, and social security—not by GDP growth and the ballooning wealth of the top 1 per cent.
 
After 35 years of economic reforms, Indians in the lower half of the economic pyramid still lag behind their Chinese and Vietnamese counterparts in living standards, despite starting from similar or worse conditions.
 
India’s theoretical economists argue that bad politics corrupts good economics. Yet, in India, bad economics is corrupting good politics for the people. Economic reformers should not remain beholden to free-market ideologies, corporate lobbies, or the sentiments of fickle stock markets. Before embarking on the next major reforms, they must pause to learn more from socialist countries in the East than from capitalist countries in the West, where movements from both the Right and the Left are challenging neo-liberal economic theories.
 
Arun Maira is former member, India’s Planning Commission and author of Shaping the Future: A Guide for System Leaders
 
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
 

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First Published: Jan 19 2025 | 6:22 PM IST

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