How Much Is India's Economy Actually Shining?

How Much Is India's Economy Actually Shining?
Given the parlous state of the Pakistan economy these days, it might not be appropriate to review a book in Pakistan whose central thesis is of ‘a people betrayed’; the people being Indians. Schadenfreude is all very well but critics will justifiably say: “sort out your own affairs first.” Nonetheless, the book is striking in that the author is Indian. Striking also because the book goes against the ‘shining India’ narrative that is currently in vogue not just in India but across the Western world. In the latter, the primary motivation is to find as many recruits as possible to counter the growing economic and political heft and, hence, fear of China that now prevails in the West. These days therefore praise for India easily drowns out criticism or even any genuine misgivings about its economic performance or how its government conducts itself.

In Pakistan, however, since much of the punditry is the amplification of drawing room gossip and of the latest tittle-tattle doing the rounds on social media, many – if not most – of the analysts/observers of the wider world in Pakistan have started to look at India with considerable awe. This, despite the growing menace of BJP’s Hindutva ideology and what it might mean for India’s neighbours. There is, too, envious admiration for Mr Modi as a leader who ‘gets things done,’ notwithstanding the manner in which he has normalised autocracy in India and successfully browbeaten opposition to the BJP wherever it might manifest itself.

In the interest of sanity, it would be useful to know what exactly has been achieved by India under the BJP and to go beyond the media hype and humbug that goes for the so-called objectivity of the Western media and Western intelligentsia. India is not only Pakistan’s next-door neighbour, but remains disconcertingly similar in aspirations, culture and values, including the acceptance of widespread corruption and bad governance. In fact, even its ‘democracy’ is more like Pakistan’s rather than, say, that of the West. And although there has never been a formal military coup in India – notwithstanding Mrs Gandhi’s State of Emergency between 1975 and 1977 – its general pattern of development led by a smug political and corporate elite has been more like that of Pakistan than of East or South-East Asia, i.e., Asia’s tiger economies. India’s history and experience should therefore be highly relevant with important lessons for Pakistan.
Title: India is Broken, A People Betrayed, Independence to Today
Author: Ashoka Mody
Publisher: Stanford University Press, Stanford, California, USA
Year: 2023

First, some broad facts. From independence in 1947 to the Manmohan Singh reforms of 1991, most commentary on India used to refer rather mournfully to the ‘Hindu rate of growth.’ In other words, India’s culture would always adversely affect the country’s economic performance and it was futile to hope for anything better. Compared to that period, the Indian economy has certainly pepped up over the last three decades. But this improvement should be seen in perspective. Yes, there are new shopping malls in the major cities and some new investment in public transport infrastructure that the Indian middle class is willing to share with its much poorer cousins, the overall picture is significantly less encouraging. The average annual GDP growth rate has improved from the pre-1991 3% to 5%, impressive but hardly transformational. Indeed, when compared to the more dynamic East and South-East Asian economies, India is still one of the laggards.
In fact, according to Ashoka Mody, far from there being any reduction, poverty might have actually gone up since 1990. And, as in the rest of the world, there has been a massive increase in inequality with its adverse effects on political and social cohesion

Take China, which is India’s only comparator in population. Until 1990, India’s per capita income was higher than that of China; now it is about a fifth. In South-East Asia, Indonesia’s per capita GDP, in market values and in PPP, is nearly twice that of India while Vietnam’s is 50% higher. India has undoubtedly outpaced Pakistan over the last two decades but has itself been overtaken by Bangladesh during this period in GDP per capita. Moreover, other East Asian economies such as South Korea and Taiwan are comfortably in the ranks of the developed, as are the island economies of Hong Kong and Singapore, while in South-East Asia Malaysia and Thailand are on the verge of doing so. So, despite its recent progress, no one can say that India is about to become an economic superpower. Indeed, it will be many years before it can even claim to have reached middle income status.

So, what is Ashoka Mody’s thesis and why does he think that India is broken?

Some will quibble that the evidence he produces is not ‘rigorous’ in that it is not backed by quantitative analysis and research. But his sweeping historical survey of India’s economy is weighty and bracing. In 1947, given the endemic poverty in the Subcontinent and with little or no new investment during World War II, the high expectations that independence had given rise to could only be met by creating a huge number jobs for vast numbers of people who were mostly illiterate. Hence, for this to happen, millions of Indians would have to be made literate first. But, between 1947 and the mid-1970s India followed a model of development with an emphasis on capital-intensive heavy industry – based on ideas that Pundit Nehru had borrowed from Britain’s Fabian socialists. Pundit Nehru was also fascinated by the development of the Soviet Union and the rapidity with which it had industrialised. But, Pundit Nehru, unlike the East Asian governments, appeared to be more interested in headline-grabbing policies and projects, such as research institutes and steel mills, rather than in providing schools to the masses, especially in the rural areas where two-thirds of the population lived. Moreover, both the government in Delhi and the state governments in this period either ignored or were indifferent to investment in public goods generally, not just in basic school education.
Until 1990, India’s per capita income was higher than that of China; now it is about a fifth. In South-East Asia, Indonesia’s per capita GDP, in market values and in PPP, is nearly twice that of India while Vietnam’s is 50% higher

The economy remained mired in low rates of GDP growth. Indeed, poor harvests in the 1960s and 1970s aggravated poverty in both urban and rural areas, to such an extent that scarce development resources had to be diverted from infrastructure investment towards the prevention of mass starvation. The poor harvests also generated inflationary pressures and led inevitably to widespread social unrest in the country culminating in Indira Gandhi’s State of Emergency from 1975 to 1977.

Till 1991, the economy continued to grow slowly. A severe balance of payments crisis in 1990 brought the Manmohan Singh reforms of 1991. These reforms were based on the neoliberal ideology called the Washington Consensus for managing the economy. The reforms involved a sharply reduced role for the State, with the private sector, instead of the government, to drive growth. The reforms were received with huge enthusiasm not just in India but across the West. Three decades later it can be said that the reforms have certainly delivered a boost for the Indian economy, at least at the macro level. The transition from the ‘license raj’ of the first four decades of India’s history post-1947, when virtually everything that an investor wished to do required bureaucratic compliance, to a more open, less bureaucratic economic environment, which also includes the dispensation of significant favours to chosen corporate groups, such as Gautam Adani, undoubtedly raised the headline GDP growth rate.

But, thus far, India’s performance vis-à-vis the rest of the world has been unimpressive. For example, its share of global GDP has gone down from 4% in 1990 to 3% in 2020. This compares with China’s share which has increased from less than 2% to over 17% of the global economy over the same period. However, neither a bigger GDP, nor a more rapidly growing one, automatically translates into an improvement in overall standards of living. We know enough about development now to accept that a bigger GDP does not of itself lead to better or even more jobs; nor does it lead to improved welfare for the bulk of the population if the State does not intervene with the provision of public goods in the form of schools, clinics, clean water and affordable housing. And, it is in this respect that there is a question mark over India’s economic performance in the eyes of Ashoka Mody.

A sample of his misgivings are: first, the bulk of the jobs created between 1991 and 2021 have been in the informal economy. Even India’s celebrated software sector in ICT employs only 2 million people out of a total workforce of 430 million in the country of whom 130 million is in the cities. Second, more seriously, there has been minimal progress in reducing poverty especially measured with the $3.80 a day benchmark. In fact, according to Mody, far from there being any reduction, poverty might have actually gone up since 1990. And, as in the rest of the world, there has been a massive increase in inequality with its adverse effects on political and social cohesion. Third, closely associated as it is with the increasingly dominant role of one person, Prime Minister Narendra Modi, who bestrides the country as a colossus, India’s economy and society is in the hands of a leader who can easily bypass accountability checks – allowing him to use the State’s resources for his own favoured, sometimes eccentric, purposes. One example given by the author is the construction/erection of a massive statue of one of India’s leaders from pre-independence days, Sardar Vallabhai Patel, a fellow-Gujarati as it happens, costing an extraordinary $400 million. The ‘shining India’ slogan is effectively based on nothing but the vanity of Mr Modi.

For Pakistan, the lessons from Ashoka Mody’s description and analysis of India are self-evident. Almost without any serious debate, Pakistan has also either been seduced by the neoliberal ideology or has had to accept it in the form of conditions laid down by international donors. This approach has, however, provided neither economic growth nor broad-based development in the country, nor any improvement in the country’s social indicators and inequality has increased. Indeed, both the public and private sectors of the economy have singularly failed in their respective roles. The former by running up huge losses, higher prices for end-users and poor services, the latter by failing to emerge from the mollycoddled cocoon of the textile industry and failing completely to compete internationally in any production sector, as reflected in the country’s stagnant exports. In fact, Pakistan over the last three decades has become a mirror image of India with a multitude of shopping malls in its big cities displaying popular Western consumer goods, including luxuries, while the majority of the population ekes out a living in poorly paid jobs that have little or no long-term sustainability.

Finally, given what we now know of ‘shining India’ and the travails of the Pakistani economy the question arises: why is development worth pursuing? The answer is that development is a catch-all term for progress. But there can be no real progress if there is no social justice. If progress means that only the upper decile of the population benefits, then such lopsided development is contrary to both ethical norms and welfare economics. Such concentration also negates the principle of diminishing marginal utility, a fundamental precept of welfare economics. An extra car or foreign holiday for a rich household provides less utility to that household than even a modest increase in income to someone who has nothing. Equitable development is therefore both more just and more sustainable.

The modern development agenda is the outcome of work led by the United Nations, assisted by the international development community, including academics, development practitioners with field experience and governments of all hues. The work began with the Millennium Development Goals in 1990 and has been superseded by the Sustainable Development Goals in 2015. Both goals are focused simply on the overwhelming need to end global poverty within a defined time span. As the renowned development expert Jeffrey Sachs once stated so eloquently: “no newspaper ever reports: more than 20,000 people perished yesterday of extreme poverty” although this statistic is chillingly, factually true. It is a tragic reality that people living in poverty die namelessly without public comment.

Most people are unaware of the daily struggles of the poor and of the vast numbers around the world, including Pakistan, who lose that struggle every day. We need constant reminding that the prevalence of poverty blights all societies where it is present, not just the poor. We should also realise that fighting poverty is not an add-on to the development effort. Nor is it something that will happen once growth begins – through trickle down, for instance. Fighting poverty should be the core of the development effort, as East and South-East Asia have proved to us so eloquently. Without winning this fight development itself will be impossible.

The author who is based in London is a former UN official. He is the author of two books Rentier Capitalism: Disorganised Development and Social Injustice in Pakistan and Ruling or Serving Society: The Case for Reforming Financial Services, both published by Palgrave Macmillan, London