Fresh frontiers in economics

In Breaking the Mould, noted economists Raghuram G Rajan & Rohit Lamba advocate for India’s economic transformation by challenging the existing economic models — urging a reorientation of the country’s journey towards a prosperous and equitable future. Excerpts:

Update: 2024-02-03 16:18 GMT

Perhaps it is in the nature of professionals to disagree with each other; thus, no two doctors or lawyers or theologians following the same scripture would have the same take on/for any given situation – but in the case of economists, the differences are more public, more bitter and more vehement. No wonder then that several moons ago, the great trade economist Jagdish Bhagwati pithily observed that countries which did not have outstanding economists as professionals often registered a higher growth rate! However, this point has also been disproved, for India today has a high growth rate, as well as ‘outstanding and dissenting’ economists like Raghuram G Rajan and Rohit Lamba who prescribe a different dose and a different measure for the economy. In their view, economic growth has to be seen in the context of its long-term equitable impact on people and their economic options and possibilities, for in the end, as Adam Smith had pointed out, “economics is also a moral proposition”.

‘Breaking the Mould: Reimagining India’s Economic Future’ by Raghuram G Rajan and Rohit Lamba has to be read in this context. What else explains the paradox of one of the fastest-growing economies of the world also recording the 93rd rank in the corruption perception index as well as being home to the largest cohort of undernourished children who will make up to one third of the workforce in 2047. This is a nation that wants to ‘break out of the mould’, but for every positive pronouncement, there are withdrawal symptoms as well. Thus, every political party has to offer freebies, for everyone in the game – from the BJP to the TMC to the INC and the AAP — has to address multiple constituencies, and the one with the largest vote share prefers “to get a bird in the hand, be it cash or some sort of benefit or a reservation, rather than press for better government services in the medium to short run which will equip (them) to do better”.

The authors acknowledge that the grand vision of a fully developed nation with a forty trillion-dollar economy by 2047 is fine, but they argue that the milestones along the way should be accompanied by serious economic thinking and be empirically verifiable.

They are no ordinary critics: they offer both the diagnostics, and specific prescriptions. Therefore, this review will examine the six key recommendations from their book.

First, on the political front, India needs to celebrate her democracy, not just in terms of electoral politics, but also in terms of a culture of vibrant debate, discussion, argument and contest of ideas. The authors make a case for decentralisation of decision making – the panchayats and municipalities have, over the years, lost their autonomy because they are bereft of any powers in terms of raising resources, hiring manpower and carrying out functions other than those they have been assigned to perform as an agency of the state or the Union. Taking the example of granular governance in UP, the authors argue “by itself the state is the fifth largest country in the world. We cannot have everything governed by Lucknow. It has to be decentralised; otherwise, there is no incentive to provide good public services, and there is no ability for the public to push for better services”.

Second, the book argues that India should focus on high-end manufacturing rather than low-end assembly which can never morph into advanced, complex systems. It will only be the replacement of one type of nuts and bolts with minor incremental improvements of scale. What India should do is to transform a ‘commodity’ into a value-added product for the consumer, just as Lenskart did. It identified a genuine problem and developed a business model of custom manufacturing attached to direct service delivery: “browse frames online, test eyes at a Lenskart store and order glasses, and the product is delivered to doorstep”.

The third takeaway is about research and partnership with industry. India must leverage the English language skills, which give her a definite competitive edge over China. Sixty per cent of the global websites are in English and all the datasets for AI will be in English. Management consulting services grew more than 31 per cent in the last few years and Indians can leverage this well, as face-to-face meetings are not needed except for the final presentation.

The fourth point is about investment in health and wellness. As against the global ratio of healthcare spend to GDP of 10 per cent, ours is just about 4.1 per cent. In fact, we need to invest in medical education, nursing and pharma colleges so that over the next decade, we have better ratios on this front. And we need innovative organisations like Aravind Eye hospital, CMC Vellore and others of their ilk which have done a phenomenal job of using technology to bring down costs while improving healthcare delivery.

The next is about our obsession with quantity; we take pride in big numbers but to be a truly competitive nation, we must prioritise quality over quantity. Our scale is a given, but our variable quality can trip us. Given our demographics, we will always be number one on many fronts – thus being the largest producer of milk only tells us half the story. We need to ask, what’s the per capita availability, and is the spread even?

The last takeaway is in the nature of a solution. Raman and Lamba argue that Digital tech is the silver bullet to get us out of this morass. “Our digital stack is a great innovation. Making payments interoperable and not keeping it restricted to a few banks has made UPI the most ubiquitous service in India. Digital technology can be India’s forte”. In fact, as reported in these columns a few weeks ago, this is also the prescription of Ajai Chowdhry in Just Aspire, but his is a more positive prognosis on the health of India’s economy. But then, he is an entrepreneur and not an economist!

The concluding chapter of the book draws its pattern and style from Mahatma Gandhi’s Hind Swaraj: it’s a question and answer between an imagined reader and the authors playing editor. “People are comfortable with an existing plan or idea or framework and rarely think differently. One needs a better plan or model to challenge an outdated model.” They argue that what got India to where it is today will not take it on its next journey. That next journey requires us to reimagine every aspect of how we conduct ourselves.

To understand their point of view, grab a copy for whether you agree to disagree with them: one thing is for sure — the book is certainly value for money. It will get you to think deeply about everything that is right and everything that is wrong, and it will certainly help you to understand the mould, if not break it!

The writer, a former Director of LBS National Academy of Administration, is currently a historian, policy analyst and columnist, and serves as the Festival Director of Valley of Words — a festival of arts and literature.

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