By Nipun Malhotra
It was in London, October 1932 that two economists came to the forefront of public discourse starting with an exchange of letters in The Times. The atmosphere was one of an economic crises, and this was a debate between a group led by John Maynard Keynes propagating more government spending and a group led by Freidrich Von Hayek countering them. While in the wake of the crises Keynes is the one who seemed to win, global stagflation in the coming decades rekindled faith in Hayeks philosophies of free markets and liberalization.
It is July 2013 in India, an interesting week in India politics. Rahul versus Modi has been replaced by Sen versus Bhagwati. Here again, two sets of economists debating on what would be the best path for India going forward. If one is to simplify their arguments, Sen believes in State intervention, Bhagwati has been a strong proponent of free market growth arguing it eventually helps resolve all economic problems.
To evaluate which of the two models would suit India, it is important to relook our post independence history.
After we gained Independence in 1947, our first Prime Minister was Jawaharlal Nehru a Fabian Socialist. Pandit Nehru was a centralized economic planner, setting the agenda for the country through centralized five year plans. large scale enterprises under government control and huge investments in public sector infrastructure projects. However, India was still living in a honeymoon period and the celebrations of India being an Independent democratic republic overshadowed everything else.
Indias real experiment with socialism came in the Indira Gandhi era starting 1967 following the sudden death of Lal Bahadur Shastri. Indira Gandhi was the choice for Prime Minister for the syndicate group the Centre Right group within the congress. And she was their choice, primarily for two reasons: Firstly, the electoral benefits that would be achieved because of her being Nehrus daughter. Secondly, they felt that her lack of political base would allow the Syndicate to rule by proxy. They were to be proved wrong Indira joined hands with the Leftist group, gained control of the party and showed how shrewd a politician she could be. The 1971 elections were fought on the slogan garibi hatao, with a ten point agenda which included: nationalization of insurance, nationalization of foreign trade, limits on urban income and property, tightening of controls on large firms and end to privy purses of former princes. This was after 14 major banks had already been nationalized in 1969, followed by oil companies and coal mines. The campaign might have been called garibi hatao, but gariba badao is what the actions did. So much so, that there was huge unrest leading to an emergency in 1975 withdrawing all fundamental rights from citizens for a period of time.
Industry faced a license raj during this time, where even to produce more, add machines one required governmental permission. Something wonderfully shown in the movie Guru where even the survival of a business meant going against the law with corruption being the only thing that flourished.
By the late 80s borrowings from abroad for subsistence increased, India had fallen into a fiscal trap. This initiated the economic reforms, opening up of the economy and liberalization in 1991.
The economy opened up, new jobs were created, aspirations rose and India finally had a healthy middle class. What also happened was that new careers opened up, ones that paid handsomely in the service sector alongside manufacturing where more jobs meant higher salaries. The state was out, and the private sector was in. Every Indian aspired to be a Sunil Mittal, Narayan Murthy or a Sanjeev Bhikchandani. India had place for dreams that anyone could accomplish if they had the capability irrespective of the families they came from or the contacts they had.
India grew rapidly, and opportunities grew manifold. One felt India had learnt its lesson, with good governance and opening up of the economy being the twin mantras for the nation. This was till recessionary trends that were seen in 2008. One expected India will react by introducing tyre 2 reforms, what instead was seen was a shift back to welfarism, retrospective laws, increased public expenditure, stalling of private projects (Arcelor Mittal and POSCO being two projects that have been called off) and a complete loss of investor confidence. Welfarism was back and so was rising inflation, uncertainty of jobs and a currency crises.
Agree with them, or not its always good when intellectuals are at the forefront of debate. Such debates also bring to the forefront things that really matter to a country growth, employment, poverty and opportunities for the youth amongst many others. Today the Argumentative Indian has a choice, I for one hope history has taught him the right lesson
Nipun Malhotra is an alumnus of St. Stephens College and Delhi School of Economics. He works in the auto component industry, runs his own foundation and is a public policy wonk. He can be contacted on nipunmalh@gmail.com and @nipunmalhotra on twitter