Economic reforms:India should avoid mistakes of Latin America

By Girish Mishra

New Delhi: In India, especially in the media and think tanks, there is no dearth of people educated in the formal sense of the term. It is, however, a different matter that many of them have nothing to do with rational thinking based on the principles of logic. This is quite obvious from their writings and speeches on which ‘conventional wisdom’ has a tight grip.

This term was coined by Prof. John Kenneth Galbraith, a leading American economist, in his widely read book The Affluent Society (1958) to describe certain ideas or explanations that are usually accepted, without examination, by people as true. People refuse to look into its logical validity even though new facts contradict it. It, thus, acts as a big obstacle to fresh thinking. It produces some sort of inertia because people continue to hang on to an outdated or fallacious idea or conventional wisdom because they find it convenient, To quote Galbraith, “It is used pejoratively to refer to the idea that statements which are repeated over and over become conventional wisdom regardless of whether or not they are true.” Seldom anybody dares to refute conventional wisdom.

In fact, conventional wisdom is a variety of argumentum ad populum, which rules that a proposition is true because most people subscribe to it. In logic it is fallacious because the truth of a proposition cannot be decided by the fact that most people believe it to be true. Centuries ago most people, except Copernicus and, later, Galileo, thought that the sun went round the earth, which was stationary. Thus the mere fact that a belief is widely held by the public and propagated by the media is no guarantee that it is true.

In India there has been no scarcity of conventional wisdom at any point of time. At present there are three examples of conventional wisdom having a strong grip over the educated. The first one is the so-called incumbency factor. The media as well as self-proclaimed election analysts largely base their prognosis and results on incumbency factor. They have no explanation to the fact that it did not lead to the overthrow of the Congress rule at the Centre during 1952-77 and it has failed to bring about the defeat of the Left Front in West Bengal, for many years and allowed the RJD government in Bihar for more than one term. If it is a law that an incumbent regime must go out of power, it must apply without exception. In fact, this is a convenient excuse to avoid looking into the social, economic, political and cultural factors behind the voting behaviour.

Second example is the concept of BIMARU states that stand for Bihar (including Jharkhand), Madhya Pradesh (including Chhatisgarh), Rajasthan and Uttar Pradesh (including Uttarakhand). Prof. Ashish Bose, an Indian demographer, put forth this concept. Except for the official language, Hindi, there is no commonality among them. While Bihar and a few areas of eastern Uttar Pradesh had agrarian system known as Permanent Settlement, the rest of U.P., M.P. and Rajasthan had completely different agrarian systems going by the names of Ryotwari, Mahalwari, Bhaichara, etc. Even after more than half a century of land reforms, land relations are not uniform throughout these states. While M.P. and Rajasthan had most of their areas under the rule of native princes, this was not the case with Bihar and U.P. This difference is even now reflected in cultural values, social behaviour and politics of these states. While untouchability, child marriages, widow burning or immolation and the tight grip of clans are rarely found in Bihar, eastern U.P. and Awadh while they persist in western U.P., Bundelkhand, M.P. and Rajasthan. Moreover, there was a discrimination against Bihar. Eastern U.P. and Awadh in army recruitment after 1857 and this adversely affected the incomes of these areas. Obviously, all the above-mentioned factors have not uniformly affected the course of economic development of the BIMARU states. Hence this concept is meaningless for any serious economic discourse relating to them.

The most currently propped up conventional wisdom is ‘Hindu rate of growth’. It has been brought into discussion by both the print and electronic media, currently at the beck and call of the corporate sector. Since almost the entire media and think tanks are highly influenced by American thinking they have been campaigning day in and day out for the adoption of the proposed Indo-US nuclear deal as negotiated by President Bush and Prime Minister Manmohan Singh, without changing even a punctuation mark at the earliest possible because the regime change in Washington, DC may create insurmountable problems.

The Left has been a target of all kinds of abusive epithets. It has been charged with working at the behest of the Chinese who do not want India to become strong. Thus the charge of long-forgotten ‘extra-territorial loyalty has once again been flung at the Left. The editor of the Birla-owned daily Hindustan, Ms Mrinal Pande in a signed article has charged the Left conspiring to keep the Indian economy firmly tied to Hindu rate of growth. One wonders whether she really understands the meaning of economic growth and all the debates pertaining to Hindu rate of growth. She is seemingly unhappy that the Left is obstructing the generation of ample electricity needed to accelerate the pace of economic growth and make India a superpower. Without the Indo-US nuclear deal, she holds, there is no prospect of ample energy generation.

The idea underlying the Hindu rate of growth goes to the late 1950s when Nehru became a target of attack by Indian political formations from the Jan Sangh and Swatantra Party to the Lohia-led Socialist Party besides the Forum of Free Enterprise and various outfits supported by the Americans. In this context Rajkrishna, an economist, heavily influenced by American rightwing thinking came out with the term Hindu rate of growth that ranged between 3 to 3.5 per cent per annum while the population was growing at 2 to 2,5 per cent. Hence, there was no prospect of India prospering economically so long as Nehruvian thinking dominated the strategy of economic growth. There was not even a remote prospect of India becoming a super power.

Ever since economic reforms based on the Washington Consensus have been initiated, the rate of growth has been going up. The latest figure indicates that it was 9.3 per cent during the first quarter (April-June) of 2007-08. Since Dr. Manmohan Singh, as finance minister, initiated economic reforms in 1991 he is being hailed as messiah by the corporate sector-influenced-media. His courage is admired because he has liberated the economy from the dead weight of Nehruvian strategy!

It is a different matter that scholars and serious researchers do not give any credence to the propaganda aimed at belittling the role of Nehru and they dismiss Hindu rate of growth as a variety of conventional wisdom. The paucity of space does not allow us to go into the debate at length. We shall, however, refer to the IMF Working Paper (wp/04/119), “Why India Can Grow at 7 per cent a Year or More: Projections and Reflections” (released on March 24, 2004 as “From “Hindu Growth” to Productivity Surge: The Mystery of the Indian Growth Transition”) by Prof. Dani Rodrik of the Harvard University and Arvind Subramanian of the IMF.

Prof. Rodrik is an internationally renowned economist whose independent thinking, professional competence and honesty have never been called in question. What they say by way of conclusion is worth quoting: “In the conventional view of Indian development process, there was a long and dark period-the period of controls and import substitution—followed by the burst of sunlight and reforms since 1991. The boom in the IT sector fast awakened observers to the facts that the dark age was not all dark; important cumulative elements (the fundamentals) were being built up that yielded rewards with a lag; and sparked the IT boom. In this case, the fundamentals were the pools of skilled human capital built up through the technology, management, and research institutes –a sort of import substitution effort in skilled human capital—that were integral to the Nehruvian vision.

“Nevertheless, the Nehruvian economic legacy went beyond the technical institutions. It included the meta-institutions of democracy, the rule of law, free press, and the technocratic bureaucracy that research shows are crucial to economic development to be sure, these meta- institutions have been buffeted and weakened over time by the vicissitudes of vested interests, time, and politics. It is also true that the potential created by these institutions went unexploited through decades of misguided throttling of private economic activity…. The house that Nehru and others painstakingly built before and after independence, wobbles and all, is now poised to seize the newly created opportunities.”

Rodrik and his associate underline that if India is to go ahead and make its economy a fast developing one, it has to follow the path charted by Nehru, notwithstanding all the foreign- inspired quacks, masquerading as big experts. To quote: “…it is important for India to avoid the mistakes that Latin America made in the 1990s by hastily embarking on an overly ambitious agenda of economic liberalisation and privatisation that ran ahead of the supporting institutions or is best sustained by keeping the private sector excited about investing in the local economy. This requires a pragmatic set of policies towards incentives for dynamic efficiency with market disciplines. The knee-jerk reaction of many economists to move as quickly and as broadly as possible in areas such as privatisation (especially in the infrastructure sector), labour market reform, and capital-account liberalisation has to be tempered with serious empirical analysis and an appropriate concern for social and distributional impacts. The habitual pragmatism and gradualism of Indian policy –making, dictated by the needs to manage pluralism and diversity—the organizing principle of the “idea of India”—is here more of an asset than a liability.”
-IPA (Sept.11,2007)

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