Indian Economy, 5th edition (7 page)

Basically, the HDI could be considered as one possible way of measuring development which was evolved by the concerned group of experts with the maximum degree of consensus. But the index which calculates the development of economies on certain parameters might be overlooking many other important factors which affect the development of an economy and standard of living. As per experts, such other determinants affecting our living conditions might be:

(i)
Cultural aspects of the economy,

(ii)
Outlook towards the aesthetics and purity of the environment,

(iii)
Aspects related to the rule and administration in the economy,

(iv)
People’s idea of happiness and prestige, and

(v)
Ethical dimension of human life, etc.

Introspecting Development
6

Confusion about the real meaning of development did start only after the
w
orld Bank and the
i
nternational Monetary Fund came into being i.e post-war. As experts were studying the development process of the developing world, they were also surveying the performance reports of the developed world. As the western world had been declared the developed countries having top twenty ranks on the HDI, social scientists started evaluating the conditons of life in these economies. Most of such studies concluded that life in the developed world is every thing but happy. Crime, corruption, burglaries, extortion, drug trafficking, flesh trade, rape, homicide, moral degradation, sexual perversion, etc.—all kinds of the so-called vices were thriving in the developed world. It means development had failed to deliver them happiness, peace of mind, a general well-being and a feeling of being in good state. Scholars started questioning the very efforts being made for development around the world. Most of them have suggested a re-defining of development which could deliver happiness to mankind.

Why development has not delivered happiness to the developed world? The answer to this question does not lie in any one objective fact but touches so many areas of human life. First, whenever economists from the outset talked about progress they meant overall happiness of human life.

Social scientists, somehow have been using terms such as progress, growth, development, well-being, welfare as synonyms of
‘happiness’
. Happiness is a normative concept as well as a state of mind. Therefore its idea might vary from one economy to the other.

Second, the period in which development was defined, it was considered that with the supply of some selected material resources human life can be improved. These resources were pin-pointed as, a better level of income, proper level of nutrition, healthcare facilities, proper levels of literacy and education, etc.

Happiness is a broader thing than development. The so-called ‘development’ for which the world has been striving hard for last many decades is capable of delivering material happiness to mankind. Happiness has its non-material side also. It means while the world has been trying to maximise its developmental prospects i.e. material happiness, it could not attend the non-material part of happiness. The non-material part of our life is rooted in ethics, religion, spiritualism and cultural values. As development or human development was defined in material terms, it could only deliver us material happiness which is visibly available in the developed world. Due to partial definition of development the developed world has been able to achieve development i.e. happiness but only of material kind and for the non-material part of happiness we, naturally need to redefine our idea of development today or tomorrow!

Somehow a very small kingdom had been able to define development in its own way which included material as well as non-material aspects of life into it and named it the Gross National Happiness (GNH)—it was Bhutan!

Gross National Happiness
Bhutan, a small Himalayan kingdom and an economic non-entity developed a new concept of development in early 1970s—the Gross National Happiness (GNH). Without rejecting the idea of human development propounded by the UNDP, the kingdom has been officially following the targets set by the GNH. Bhutan has been following up the GNH since 1972 which has the following parameters to attain happiness/development:

(i)
Higher real per capita income.

(ii)
Good Governance.

(iii)
Environmental Protection.

(iv)
Cultural Promotion (i.e. inculcation of
ethical
and
spiritual
values in life without which, it says, progress may become a curse rather than a blessing).

At the level of real per capita income, the GNH and the HDI are the same. Though the HDI is silent on the issue of ‘good governance’, today it should be considered as being promoted around the world once the
w
orld Bank came with its report on it in 1995 and enforced it upon the member states. On the issue of protecting environment though the HDI didn’t say anything directly the
w
orld Bank and the UNO had already accepted the immediacy of sustainable development by then and by early 1990s there was a seperate UN Convention on the matter (follow up on this convention has been really very low till date which is a different issue).

It means the basic difference between the GNH and the HDI looks at the level of assimilating the ethical and spiritual aspects into our (UNDP’s) idea of development.

An impartial analysis sufficiently suggests that material achievements are unable to deliver us happiness devoid of some ethics at its base. And ethics are rooted in the religious and spiritual texts. But the new world is guided by its own scientific and secular interpretation of life and the world has always been suspicious about recognising the spiritual factor in the human life. Rather the western idea of secularism was defined after rejecting the very existence of anything like God and also rejecting the whole traditional hypothesis of spiritualism as instances of ignorance and orthodoxy. And there should not be any doubt in accepting it that the western ideology in the name of development has ultimately, dominated the modern world and its way of life. The idea of development which was followed by the larger part of the world has been cent per cent ‘this-worldly’. And anybody can assess today what kind of happiness the world has been able to have for itself at the end.

A recent study by a senior economist from the UNDP on the Bhutanese development experience under the GNH has vindicated the idea of ‘gross happiness’ which development must result into. As per the study, the period 1984–98 has been spectacular in terms of development with life expectancy increasing by a hopping 19 years, gross school enrolment reaching 72 per cent and literacy touching 47.5 per cent (from just 17 per cent)
7
.

After the terror attack on the
w
orld Trade
c
entre in the USA the whole world has gone for a psychic metamorphosis and at least euphoria of development from this world to that world has been shaken from its very base. The world which is in the process of globalisation at one hand has started introspecting whether multicultural co-existence is possible. The Human Development Report of 2005 was titled as “Multicultural Co-existence”. We may conclude that mankind is passing through a phase of serious introspection and transition where the dominant view in the world may metamorphose into redefining the very idea of development by including ethical values and spiritualism as important parts. But till now the proponents of development look shy in believing and accepting that there exists a non-material part of life too which needs to be realised to make our development result into happiness.

The Background

The economic profile of India was in complete distress at the time of independence. Being a typical case of colonial economy, India was serving a purpose of development not for herself but a foreign land—the United
k
ingdom. Both agriculture and industry were having structural distortions while the state was playing not even a marginal role. During the half century before India became independent, the world was having accelerated development and expansion in its agriculture and industry on the shoulders of the active role being played by the states, with the same happening in the UK itself.
1

There was not only the unilateral transfer of investible capital to Britain by the colonial state (the ‘drain of wealth’) but the unequal exchange was day by day crippling India’s commerce, trade and the thriving handloom industries, too. The colonial state practiced policies which were great impediments in the process of development in the country. Throughout the colonial rule, the economic vision the state had was to increase India’s capacity to export primary products, and increase the purchase/import of the British manufactured goods and raise revenues to meet the drain of capital as well as meet the revenue requirements of the imperial defence.
2

The social sector was a neglected area for the British rulers which had a negative impact on the production and productivity of the economy. India remained a continent of illiterate peasants under British rule. At the time of independence, its literacy was only 17 per cent with 32.5 years of life expectancy at birth.
3

Industrialisation of India was also neglected by the colonisers—the infrastructure was not built to industrialise India but to exploit its raw materials. Indian capitalists who did emerge were highly dependent on British commercial capital and many sectors of industry were dominated by British firms, e.g. shipping, banking, insurance, coal, plantation crops and jute.
4

The pre-independence period was altogether a period of near stagnation showing almost no change in the structure of production or in the levels of productivity—the aggregate real output during the first half of the 20
th
century estimated at less than 2 per cent a year or less.
5

The overall economic performance of India under the British rule was very low. According to economic statistian Angus Maddison, there was no per capita growth in India from 1600 to 1870—per capita growth was a meagre 0.2 per cent from 1870 to 1947, compared with 1 per cent in the UK.
6
The per capita incomes of Rs. 18 for 1899 and Rs. 39.5 for 1895 in current prices say the true story of the abject poverty Indian masses were faced with.
7
The repeated famines and disease epidemics during the second half of the nineteenth century and the first half of the twentieth century show the greatest socio-economic irresponsibility and neglect of the British Government in India at one hand and the wretchedness of the masses at the other.
8

The political leaders and the industrialists both were very much aware and conscious about the economic inheritance once India became independent.
S
omehow, these dominant lot of people who were going to lay down the foundation stones of the independent Indian economy were almost having consensual
9
view, even before the independence, on many major strategic issues:

(i)
State/Governments should be given a direct responsibility for development.

(ii)
An ambitious and vital role to be assigned to the public sector.

(iii)
Necessity for the development of the heavy industries.

(iv)
Discouragement to foreign investment.

(v)
The need for economic planning.

Once India became independent, it was a real challenge for the Government of the time to go for a systematic organisation of the economy. This was a task full of every kind of challenges and hurdles as the economy had hardly anything optimistic. The need of delivering growth and development was in huge demand in front of the political leadership as the country was riding on the promises and vibes of the nationalist fervour. It was not a simple task.

Now the decisions which were to be taken by the political leadership of the time were going to shape the very future of India. Many important and strategic decisions were taken only by 1956 which shaped Indian economic journey till date— undoubtedly they heavily dominated the pre-reform period but the post-reform period is also not completely free of their impact. To understand the nature and scope of the Indian economy in current times it is not only useful but essential to go through the facts, reasons and the delicacies which made the economy evolve and unfold the way it evolved and unfolded. A brief overview follows.

Prime Moving Force—
Agriculture vs. Industry

A topical issue of debate regarding India has been the choice for the sector which will lead the process of development. The government of the time opted for industry to be India’s prime moving force of the economy. Whether India should have gone for agriculture as its prime moving force for better prospects of development, is a highly debatable issue even today among experts.

Every economy has to go for its development through exploitation of its natural and human resources. There are priorities of objectives set by the economy which is attempted to be realised in a proper time frame. The availability and the non-availability of resources (natural as well as human) are not the only issues which make an economy decide to declare whether it opts for agriculture or industry as its prime moving force. There are many more socio-political compulsions and objectives which play their roles in such decision making.

The political leadership selected industry as the leading force of the economy after independence—this was already decided by the dominant group of the nationalist leaders way back in the mid-1930s when they felt the need for economic planning in India before setting up the National Planning Committee (1938). Given the available resource base it seems an illogical decision as India lacked all those pre-requisites
which could suggest the declaration of industry as its prime mover:

(i)
Almost no presence of infrastructure sector i.e. power, transportation and communication.

(ii)
Negligible presence of the infrastructure industries i.e. iron and steel, cement, coal, crude oil, oil refining and electricity.

(iii)
Lack of investible capital—be the case of either the government or the private sector.

(iv)
Absence of the required technology to support the process of industrialisation and no research and development.

(v)
Lack of skilled manpower.

(vi)
Absence of entrepreneurship among the people.

(vii)
Absence of the market for industrial goods.

(viii)
Many other sociopsychological factors which were negative forces for the proper industrialisation of the economy.

The obvious choice for India would have been the agriculture sector as the moving force of the economy because:

(i)
The country was having the natural resource of fertile land which was fit for cultivation.

(ii)
The human resource was not requiring any kind of higher training.

By only organising our land ownership, irrigation and other inputs to agriculture India could have gone for better prospects of development. Once there was no crises of food, shelter, basic healthcare, etc. to the masses, one goal of development could have been realised—a general welfare of the people. Once the masses were able to achieve a level of purchasing capacity, India could have gone for the expansion of industries. India was capable of generating as much surplus income for its masses as was required by the emerging industries for a market success. The People’s Republic of China did the same in 1949—taking a realistic evaluation of its resources, it declared agriculture as its prime moving force for the economy. The surplus generated out of agriculture was suitably invested to develop the pre-requisites for industrialisation and the country went for it in 1970s.

The emergence of industrial China was so vibrant that its impact was felt in the so-called highly developed and industrialised economies of the world—the industrial homework of China catapulted it into a giant.

Was the political leadership of independent India not able to analyse the realities as we did above and conclude that agriculture should have been the moving force of the economy in place of industry? Is it possible that Pandit Nehru in command could have missed the rational analysis of the Indian realities, a giant among the Asian visionaries of the time (Mao was still to emerge on the international scene)? How India could have not opted for agriculture as its prime moving force whose leadership had fought the nationalist movement on the Gandhian fervour of villages, agriculture and rural development. Even if Gandhi was not in the Government there were many devout Gandhians in it and no one should doubt that the main internal force which vibrated throughout the governmental decisions were nothing but ‘Gandhian Socialism’. There were many decisions which were taken under the influence of the main political force of the times, still some very vital ones were influenced by the visionary hunches of the political leadership mainly being J.L. Nehru. This is why the economic thinking of independent India is considered and said to be nurtured by the Nehruvian Economics still today. If we go through the major literatures on the Indian economic history, views of the critiques of the time and the contemporary experts, we may be able to feel the answer as to why India went for industry as its prime moving force in place of an obvious and logical choice of agriculture (we should not be happy to know that even today this is a highly debatable issue among experts):

(i)
Looking at the resources available, agriculture would have been the obvious choice as the prime moving force (PMF) of the economy (i.e. cultivable land and the manpower). But as Indian agriculture was using the traditional tools and technology its modernisation as well as future mechanisation (latter to some extent) would have been blocked due to the lack of indigenous industrial support. If we had gone for import this would have required enough foreign reserves and a natural dependence on foreign countries. By choosing industry as the PMF we were going to industrialise the economy as well as modernise our traditional mode of farming.

(ii)
The dominant ideology around the world as well as in the WB and the IMF was in favour of industrialisation as a means to faster growth which could be translated into faster development. These international bodies were supporting the member countries from every point of view to industrialise. Same was the case with the developed economies. It was possible not only to industrialise faster on these supports but a hope for emerging as an industrial exporter was also there. Such kind of supports were not being offered by them to an economy going to opt for agriculture as its PMF. Basically, going for the sector agriculture was considered a symbol of ‘backwardness’ at that time also. The political leadership wanted to carry India ahead, and not in the backward direction. It was only in the 1990s that the world and the WB/IMF changed its opinion regarding agriculture sector—and emphasis on this sector by an economy was no more considered a sign of backwardness.

(iii)
The
s
econd World War has proved the supremacy of defence power. For defence a country needs not only support of science and technology but an industrial base also. India also required a powerful defence base for herself as a deterrent force. By opting for industry as her PMF the economy tried to solve many challenges simultaneously—first, industry will give faster growth, second, agriculture will be modernised in time and third the economy will be able to develop its own defence force. Since the economy had opted for scientific and technological preparedness also, its achievements were to sustain the pace of modernising world out there (this seems taking place in India to a great extent.).

(iv)
Even before independence, there was a socio-economic consensus among social scientists along with the nationalist leaders, that India needed a boost towards social change as the country lagged behind in the areas of modernisation. A break from the traditional and outmoded way of life and cultivation of a scientific outlook was a must for the country. Such feelings also made the political leadership of the time go in favour of wholehearted industrialisation.

(v)
By the time India got her independence the might of industrialisation was already proven and there were no doubts regarding its efficacy.

Given above are some of the important reasons that worked to make Indian political leadership go in favour of opting industry as the economy’s prime moving force. Probably, the resource-related and temperamental realities of India got marginalised in hopes and wishes of a future industrialised and developed India. It is yet impossible to conclude whether the economy has completely failed to do so. Experts have divided opinions on this issue.

The last decade of the 20
th
century (i.e. the decade of 1990s) saw major changes taking place in the world economic idea about the agriculture sector. It was no more a symbol of backwardness for an economy if it had started emphasising its agriculture sector as the engine of growth and development. China had proved to the world that how agriculture could be made the prime moving force of economy and generate internal as well as external strength to emerge as an industrial economy. In the wake of ongoing reform process India was introspecting almost all economic policies it followed since independence. It was time for agriculture sector to have the prime attention. A major shift
10
took place in the Indian economic thinking when the Government announced in 2002 that now onwards, in place of industry,
agriculture will be the prime moving force (PMF)
of the economy. This was a policy shift of historic importance which was announced by the highest economic think tank of the country—the Planning
c
ommission—as the economy commenced the Tenth Plan (2002–07). As per the Planning Commission
11
such a policy shift will solve the three major challenges faced by the economy: