India’s backsliding on hard-won economic freedoms of 1991, with no reformers to protect them today

There are 3 perfectly timed triggers for this week's column: old, povertarian instincts are back; steel industry lobbying for more import duties; absence of reformers like AD Shroff.

Illustration: Soham Sen | ThePrint

There are three perfectly timed triggers for this week’s National Interest. First, the easy virality of a social media post somebody wrote mixing up India’s GDP and the wealth (as determined by market capitalisation) of its billionaires and talking about how it exposes the stark inequalities in our society.

Some really, really smart people fell for it. All good people, after all, have their hearts in the right place. India’s inequalities are deep, wide and in many ways getting worse, so what is the argument?

It is just that GDP is the sum of all national income, whereas wealth is what you’ve saved up and built over your past incomes, the market value or capitalisation of your equity holdings and your assets. Wealth is not income and vice versa.

Indian markets’ total capitalisation, closing in on $6 trillion, is way more than the country’s GDP. Ambani, Adani, Birla, Tata, all the billionaires draw their wealth mostly from it. Most of the rest of us 1.42 billion contribute a humble share of the GDP.

How could a mythology like this, however romantic, find such currency 33 years after the 1991 reforms? This gives us the first trigger: that old, povertarian instincts are back, assailing the hearts and minds of the smartest.

The second is the steel industry doubling up on lobbying for even more duties on imports, making India’s steel among the most expensive anywhere. The price is paid by the domestic user—you and me—who builds homes and buys automobiles; it’s passed on to the gig worker’s scooty, the farmer’s tractor or plough, the kadhai and humble chamcha (spoon) in your kitchen.

This, when MSMEs are crying about steel prices driving them to bankruptcy, and when the bigger ‘boys’, the automakers, whisper to you—looking left and right to make sure nobody is watching— about the imported containers sitting in our ports forever, awaiting clearance.

Their issue isn’t just the price. About 20 percent of the steel needed by the auto industry is of the kind not yet made in India. The government, however, doesn’t care, having gone full protectionist. Surjit Bhalla and Karan Bhasin highlight some of it in a cri de coeur in The Indian Express (‘Dreams of Viksit Bharat stumble over Nehruvian impulses’).

This shows how the old defenders of economic reform, supporters of the Modi government with great expectations, are also hurting. The year’s GDP growth has been cut by the RBI to 6.6 per cent. Our FDI more than halved from $56 billion in 2019-20 to $26.8 billion in 2023-24, and trending towards that much at best this year. Trade is stalled.

And the third was pure serendipity. Earlier this week, I had the honour of being invited to speak at the annual event of the Forum of Free Enterprises (FFE) in Mumbai. The FFE was set up in July 1956 by Ardeshir Darabshaw (A.D.) Shroff as an intellectual and philosophical counter to Jawaharlal Nehru’s hard drive to the Left with the Congress Party’s Industrial Policy Resolution that April, which strangled Indian entrepreneurship for three-and-a-half decades until P.V. Narasimha Rao broke the shackles in 1991.

This policy divided Indian industry into categories A, B and C. The first, the commanding heights, belonged entirely to the government (PSUs), category B could have the private sector in some areas where it already existed and C was open, but only with licensing. It had much sex appeal and the Congress continued to be re-elected in spite of the so-called Hindu Rate of Growth. Indira Gandhi completed her father’s Socialist putsch with mass nationalisations between 1969 and 1973. These included New India Assurance and Bank of India, both of which Shroff had helmed.

Shroff had been a member of the eight-member group of eminent Indians who drew up the Bombay Plan for India’s economy in 1944. He was also a non-official member at the first Bretton Woods gathering. He and the Bombay Plan lost the philosophical battle for the direction of our post-Independence economy. The fighter and free spirit in him responded by building the FFE, an institution that would teach Indians the virtues of unfettered entrepreneurship and the evils of government controls. You can read more about him in an excellent biography written by Sucheta Dalal.

Here is the irony. His institution fought Mrs Gandhi’s Socialist surge at her peak. Its supporters included Nani Palkhiwala and Minoo Masani of the Swatantra Party (read his prescient interventions in the Rajya Sabha debate on bank nationalisation). H.T. Parekh (former CMD of ICICI and later founder of HDFC) became a backer too. The Emergency did not deter him. There is a personal story in this.

In January 1976, at the peak of Mrs Gandhi’s Emergency power, I was a journalism student. As part of my curriculum, I was interning for six weeks at The Times of India newsroom in New Delhi. I’d come dutifully, walking from my favourite aunt’s place in Old Delhi’s Bazar Sitaram, and sit all day waiting for work. The chief reporter, the late B.K. Joshi, would give me none. He wouldn’t even look at me.

Once, I gathered the courage to ask him why. He said, “You’ve graduated in science with very good marks. I don’t want you wasted in journalism. Go back, enrol in the chemical engineering department at your Panjab University. Then I will help you get a licence to set up a factory to make paints or tyres.” He said he just couldn’t see a “bright young fellow” ruined by journalism. This was peak Emergency. No freedom, no news, no jobs and full censorship.

Because I was persistent, one day, his face twisted in that “you are so self-destructive” smirk, he bent and fished out an invite from his trash basket. “Go cover this,” he said, “and don’t think we’ll publish it”. It was to get me off his back.

I took a bus ride to the YMCA on New Delhi’s Jai Singh Road where M.R. Pai (then secretary of the FFE) was delivering a message on free markets, and eviscerating Mrs Gandhi’s licence-quota raj and mai-baap sarkar. He was also distributing little booklets, each discussing such specific issues in great detail. There was a register for you to enter your mailing address if you wanted to keep receiving these. How my own view on economy, or more specifically political economy, evolved subsequently is owed to that encounter with the FFE in no small measure.

It is possible that the 1991 reform took the energy out of the FFE. As if its cause had been achieved with the philosophical victory. The forum does live on with eminent lawyer and tax expert H.P. Ranina as president. But it’s no longer an intellectual powerhouse that will reach out to people young and old in all parts of the country to counter the relentless return of bad old ideas: import substitution, government-mandated incentives (PLI for example), retrospective taxation, protectionism, the return of the big state, goodbye to privatisation.

For those who might say it is risky to speak up given how powerful the establishment is, remember Shroff took on Nehru even on his central argument. Capitalism, Nehru said, was bad for democracy and political freedoms, Shroff said it was his kind of socialism that came loaded with that venom and that economic and political freedoms came together. India’s economic reform has lost steam, is sliding backwards in some areas and an institution like the Forum of Free Enterprise is missing just when it’s most needed. To protect our hard-won economic freedoms in 1991. Now you can see why this was the third and the most troubling of these triggers.