India is in a strategically insecure position in the geopolitical conflict between the US and China, and the one between the US and Russia. India cannot annoy powerful China, with whom it has a long-simmering dispute along its Northern borders, and on whom it depends for support for its manufacturing industries—as does the US. India does not want to let go of Russia either. It’s a loyal friend whenever the US supports India’s belligerent neighbour, Pakistan, in its ongoing disputes with India.
Somewhere in the late 1980s, we lost our self-confidence and began to lose our path to our vision of a strong and independent nation. We began to stray from the distinctive, founding vision of India’s democracy as an equal country for people of all religions, distinct from Pakistan’s foundation as a country for people of only one religion, Islam.
When we took a loan from the IMF in 1991, we ‘liberated’ our economy from its socialist moorings and followed the US’ economic ideology of free markets and international trade without barriers. We also gave up our policies for building our own industrial capabilities.
Growth focus
Economists measure a country’s economic development by the pace of growth and size of its GDP. The faster GDP grows, the faster the country is said to be developing. By this measure, China has been the fastest-developing country in the last thirty years. Its GDP increased at an average of about 8.5-9 per cent per year in real terms; India’s grew 6.5 per cent per year. China is now the second-largest economy in the world, behind only the US. India is fourth, behind the US, China, and Germany. NITI Aayog, India’s national economic think tank, projects that India’s GDP will become larger than Germany’s in the next three years, provided India can maintain a growth rate of 6.5 per cent.
Whereas 6.5 per cent may be a feasible rate of growth according to NITI Aayog, enabling India’s GDP to exceed Germany’s within the next three years, India will need 12 per cent plus GDP growth with its present pattern of growth to solve its problem of underemployment, according to an analysis by Morgan Stanley. If employment and incomes do not increase in the lower half of India’s economic pyramid, consumption will not increase. When demand and consumption do not increase, investors will not invest, no matter how much India’s finance minister may plead with them to.
All Indian governments and their economic advisers, since the liberalisation of the economy in 1991, have focused on GDP. GDP grew at 7.2 per cent per annum in the ten years of UPA rule (excluding 2008-09 when the global financial crisis hit); and at 7.2 per cent in the next ten years of NDA rule (excluding the 2020-21 global pandemic shock). No difference in growth under the two regimes. But structural conditions that cause inequitable growth have also not changed.
GDP measures only the size of an economy, not its substance and depth. To achieve strategic autonomy, India’s economy must have more depth, more domestic industries, and faster growth of incomes at the bottom, as China has achieved.
Per capita incomes have increased six times faster in China than in India since the 1980s. China’s industrial capabilities, which were comparable to India’s then, are now much deeper and larger. In fact, China’s industrial growth has become a threat to the US, which propagated its economic ideology of free markets and global trade after the collapse of the Soviet Union in 1991. India complied, as mentioned before. China did not. It stayed on course to build its economy and industries on its own terms.
Employment elasticity is a measure of the number of jobs created with each unit of GDP growth. In 2012, the International Labour Organization and Asian Development Bank had warned that India’s economy is converting GDP to jobs at only two-thirds the rate of other Asian countries. The employment elasticity within India’s GDP growth has been declining since the 1990s. Between 1983-84 and 1992-93, i.e. before the 1991 economic reforms had kicked in, employment had increased by a little over two per cent per annum. Then, from 1993-94 to 2004-05, though the economy grew faster, employment growth decreased to 1.85 per cent per annum. After 2004-05, when the Indian economy was described by economists as ‘shining’, matters became worse. Employment elasticity, which had been 0.44 between 1999-2000 and 2004-05, decreased to only 0.01 per cent between 2004-05 to 2009-10. This was an ominous sign.
Underemployment and low growth of incomes in the lower half of the economic pyramid are structural weaknesses in the Indian economy. If employment and incomes do not increase faster for the masses, investments are not sustainable in businesses that are counting on India’s economic growth, even if GDP increases.
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Strategic autonomy requires internal strength
India must become strategically autonomous, not reliant on the US for its security. It must learn from the precarity of Israel, a nation of Jews created for Jews, surrounded by non-Jewish nations. Israel could not have survived so long without the unwavering military, financial, and diplomatic support provided by the US. The US is unlikely to come to India’s defence in disputes with its neighbours; in fact, the US has always supported Pakistan, India’s nuclear-armed foe.
A Hindu nation, run by Hindus, for Hindus, surrounded by non-Hindu countries (except Nepal, with whom India does not have an easy relationship) will not be strategically secure. For its strategic security, India must return to its founding vision: a nation for all religions, not only Hindus.
India is far from its vision of ‘Poorna Swaraj’— equal political, social, and economic freedom for all its citizens, whatever their religion or caste—which was the vision of a new India at its foundation in 1947. It must build its own strengths and steer its own course to the tryst with destiny it set out to then.
The famous Harvard development economist Dani Rodrik answers his own question, of whether “anyone can name the Western economists or the piece of research that played an instrumental role in China’s reforms”, by claiming that “economic research, at least as conventionally understood” did not play a “significant role” (Quoted by Isabela M. Weber in her book, How China Escaped Shock Therapy).
The Planning Commission, now the NITI Aayog, will not make a difference if the ideology driving India’s growth strategy has not changed. India will not obtain the strategic autonomy it needs, especially from the US, until it breaks away from the influence of Western, particularly US, academia and institutions in its economic policies. It must build depth within its GDP and also cohesion as one nation for people of all religions and castes.
Arun Maira is a former member of the Planning Commission. He is also the author of Reimagining India’s Economy: The Road to a More Equitable Society. Views are personal.
(Edited by Theres Sudeep)