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In a democracy, reforms must be sold—first to the people, then to the bureaucracy, and finally to the opposition. In a market economy, it is often difficult for ordinary citizens to accept that a relatively small number of profit-seeking entrepreneurs can lift an entire economy. Yet history shows that this is precisely how economies are transformed.
Macroeconomics, at its core, is about money, government, and the relationship between the two. Most unresolved questions in macroeconomic policy arise from deep disagreements over the role money plays in economic life—and, crucially, over how money is created.
Money is anything but unimportant. It occupies our dreams, our songs, and our anxieties. Across the world, it lies at the heart of today’s most pressing public policy debates: the cost of living, intergenerational equity, fiscal “austerity,” and the financing of the global transition to a low-carbon economy.
Money is also indispensable to governance itself. In a democracy, it is required to contest and win elections even before a government is formed. From time immemorial, money has been integral to every ruling dispensation—monarchy, empire, dictatorship, or democracy.
Much of the confusion in macroeconomics stems from misunderstandings about how money is created, by whom, and in what form, along with related concepts such as bank reserves. These are not academic quibbles. Their implications are profound, shaping monetary and fiscal policy and determining how effectively citizens can hold governments and banks to account.
The creation of bank money is both surprisingly simple and deeply counter-intuitive. The overwhelming majority of money in modern economies is created through private-sector bank lending. When a bank issues a loan, two things are created simultaneously: First, the borrower’s obligation to repay, which appears as an asset on the bank’s balance sheet; second, the loan amount credited to the borrower’s account, which is a liability of the bank.
When these obligations and responsibilities are ignored—or deliberately blurred—scandals follow. Mallyas and Choksis are not accidents; they are symptoms.
Over time, the ability to borrow large sums, especially in a democracy, becomes constrained by the ability to repay, or at least by the capacity to convincingly demonstrate that ability through collateral, credibility, and governance.
In India, the decades following independence saw policies that discouraged the private sector. This produced two damaging consequences. First, entrepreneurship was never adequately nurtured. Second, private investment in research and development remained weak.
As a result, entrepreneurship became concentrated in a small group of business houses—the Tatas, Birlas, Ambanis, Adanis, and a few others. Governments, by themselves, are incapable of building competitive businesses or sustaining innovation ecosystems. Entrepreneurship does not fail for lack of talent; it fails when systems are designed to distrust it.
Even communist China recognised this reality. Its wealth creation began only after opening up to the private sector in the early 1980s. The approach was deliberately bottom-up. Private firms were initially allowed to operate with no more than ten employees. Over time, these constraints were relaxed, scale was permitted, and the private sector flourished. Today, China boasts one of the largest populations of millionaires in the world.
India’s current influx of entrepreneurs, driven by a similar bottom-up momentum, offers hope. If nurtured rather than suspected, this wave can create many more nationally scaled business houses, broad-based wealth creation, and stronger economic resilience.
But entrepreneurship is not merely an economic imperative; it is a strategic one.
Relying on foreign suppliers for critical military equipment is a gamble that history repeatedly exposes. When major powers such as the United States, Russia, or China sell military hardware to smaller nations, it is rarely delivered with full operational autonomy. Software—the most critical component of modern weapon systems, particularly air-defence networks—is tightly controlled, frequently restricted, and sometimes deliberately degraded.
The consequences are predictable: aircraft that cannot fly, radars that cannot see, and defence systems that function only at the discretion of the supplier.
Strategic autonomy cannot be imported. It must be built—patiently, domestically, and without shortcuts.
The only sustainable answer lies in developing a robust domestic defence industry that integrates private entrepreneurship, long-term capital, indigenous design, and accountable governance. Without this ecosystem, economic growth remains fragile, and national security remains conditional.
Money creates markets. Markets create enterprises. Enterprises create capability. And capability, both economic and military is what ultimately underwrites sovereignty.
(The author is an Indian Army veteran and a contemporary affairs commentator. The views are personal. He can be reached at kl.viswanathan@gmail.com)
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