Pulling India out of presently perilous financial straits will require implementation of a planned market economy which will propel the nation towards self-sufficiency
The health of the Indian economy has been a cause of concern for quite some time past. It is now not even responding to the fiscal and monetary incentives that the Government has offered. The situation is difficult. The only consolation is that the economies of many other countries are also not doing well. The problems that these economies are facing existed even before the COVID-19 pandemic broke out. Hence, these cannot be attributed to the spread of Coronavirus, though, it has only worsened the overall situation. The developed countries of the west which had once thrust upon the world the policy of globalisation are now themselves building trade barriers around themselves. Economic nationalism is fast gaining acceptance in the developed world which are showing up the features of economic downturn. They are all witnessing rising unemployment, falling wages and increasing income inequality resulting in a lower level of consumption and economic recession.
It is not that the above problems did not surface in the past and that these could not be handled at least for securing temporary solutions. However, the approach had always been to treat the symptoms, not the disease. It happened in the 30s of the last century and even in 2008 when the world had sunk into recession. Every time, in order to generate demand, more money was pumped into the economy irrespective of its need. In 1933, in order to overcome the Great Depression, US President Franklin D Roosevelt pumped billions of dollars into the economy to create jobs in activities like forestry services and flood relief as well as to provide unemployment relief. Even now, many experts suggest direct cash transfer to the poor as a measure of relief and for lifting the sagging demand. These are useful ideas but are not expected to yield any long term results by way of bringing structural changes that the economies need.
Historically, economic structures were built on the concept of either capitalism or socialism, though the third concept of a mixed economy was tried in many countries including India. Of these, as the global experience reveals, socialism suffers from the problem of low longevity because of certain intrinsic issues which it could not overcome socially and politically. Capitalism or market economy passes through unending waves of prosperity and recession resulting in enormous wastage of resources, huge income disparity and miseries of people. A mixed economy, on the other hand, has failed because it operated by putting two legs on two boats and as a result, it spent all its energy in keeping a balance rather than making a forward movement.
Various experiments of economic models attempted across the world and the experience that the Indian economy has gained before and after 1991 when the principles of liberalisation were adopted lead us to the following conclusions:
The potential of our vast economy is not likely to be realised in a socialist economic structure. The flow of entrepreneurial initiative will soon dry up in the cobweb of bureaucracy.
The structure of the mixed economy is not going to be an effective economic model for India now.
India's experience with the free-market economy has also not been very encouraging. To a large extent, it produced crony capitalism instead of competition. Its impact on economic growth and employment generation has not been commendable. Whatever success it achieved in asset creation also needs to be discounted by the pile of NPAs the banks have been left with as a consequence.
In India, we dwell in a make-belief world of economic prosperity which has started showing its hollowness threatening the structure to collapse.
No amount of short term relief is going to bring about any fundamental change but for which there will be no growth with stability.
The need of the hour is to develop a new strategy which will be most suited for India. It has to be built on our experience of the past and our expectation of the future. It has also to take care of our needs — the need of overcoming the problems of poverty and hunger, the need of generating employment, the need to nurture and promote domestic and export markets and the need to unleash the innovative spirit of Indians. The market economy which we practice at present is too weak to address these issues because 'price' is not the appropriate guide to channelise the economic resources to the desired directions.
On principle, what needs to be highlighted is that what is good for the nation is also good for business. The picture of national needs is never very clear to an individual entrepreneur who chases the movement of price for taking her investment decision. Often it turns out to be wrong. The market economy is supposed to unleash entrepreneurial energy and promote creativity. What it needs is the support of the State to assess the long term demands of the society, to get its business synchronised with the long term State policies including fiscal and monetary plans and to secure firm guidance from the State on availability of inputs and resources including skilled manpower, market and infrastructure. The State will have to provide these and for this it has to equip itself through proper survey, study and planning. The market economy will operate within the knowledge and guidance that the State will provide. The State may not be in business but it has to be with business.
Now, how will the planned market economy operate? It is easier to say what it will not do so. It will not bring back quota or 'licence raj'. Nor will it reintroduce permits. It will not bind the hands of industry, it will hold its hands to guide and support. The planning body will carry out a rolling survey to assess the market potential and identify the investment space in each sector. It will work on identifying the available skill and arrange to develop it, if necessary. It will assess the need for infrastructure and work on providing power and connectivity. The lending institutions will then find it easy to provide funds to the entrepreneurs. Thus, the State will work on the integration of various segments of society which actually is its task. An example of the health sector may provide clues of how the planned market economy can operate. The State may identify the potential for setting up new hospitals in India, especially at the district level. It will then assess the number of hospitals needed in terms of requirement as well as financial viability. It will assess the availability of doctors, nurses and paramedical staff and plan for bridging the deficiencies, if any. It will also evaluate the infrastructure needs and assess the scope of linking the social initiatives like 'MGNREGA' and 'Pradhan Mantri Gram Sadak Yojana' with the infrastructure requirement. The hospitals may be linked with the 'Ayushmann Bharat Health Scheme' in order to give benefits to the people. Finally, the banks will come forward to finance the projects with better comfort. Similar examples can be drawn for other sectors too.
Planned market economy will be a great aid to the private entrepreneurs and a greater benefit to the economy. It is a strategy that will yield results much faster than one can expect and will bring us closer to our goal of 'Aatmanirbhar Bharat'.
The writer is the author of 'The Sleeping Tigers' and former CMD of NMDC. Views expressed are personal