Economics has
been a fascinating social science that has accompanied the industrial
revolutions. The first formal organization of economic thought, albeit in a
political setting, is attributed to Adam Smith (1776) for his book “An Enquiry
into the Nature and Causes of the Wealth of Nations”. Alfred Marshall’s text
book “Principles of Economics” (1890) laid the foundation to the microeconomic
branch of economics. The adverse economics of the Great Depression of the 1930s
spurred the development of macroeconomic thought. John Maynard Keynes’ book
“The General Theory of Employment, Interest and Money’ provided new
perspectives of macroeconomic thought. Over the years, almost every aspect of
human endeavour got its own economics perspectives; from industrial economics
to welfare economics, for example. Microeconomics and macroeconomics, however,
continue to be the more dominant streams of economics to date.
Microeconomics
deals with the economic behaviour of individual markets, firms, entities and
individuals, focusing on matters such as, but not limited to, production, cost,
scale and efficiency; supply, demand and equilibrium; scarcities, surpluses and
elasticity of demand and supply, costs and prices, and theories of firm and
industrial organization. Macroeconomics deals with the issues of economy from
the top, focusing on matters such as national income and output; jobs and unemployment;
price inflation and deflation; savings, investment and consumption. Flow of
money and business cycles as well as economic growth, international trade and
international finance are some of the other considerations. It studies the
impact of monetary policy and fiscal policy. Monetary policy is implemented by the central
banks to control the liquidity in the economic system to ensure economic
stability. Fiscal policy relates to the use by the governments of revenues and
expenditures, along with savings and taxes to influence economic growth.
Indian scenario
India, ever
since its independence in 1947, has been following established economic
theories to drive economic growth. The socialistic pattern of development
curtailed free market economics until 1991 but the macroeconomic liberalization
thereafter gave a new upward drift to the Indian economy. Regardless of the
economic system, monetary policy followed by the Reserve Bank of India and
announced in its periodic policy reviews, and the fiscal policy followed by the
Central government and effected through the annual union budgets influenced the
investment and consumption patterns of the society. The sensitivity of the
markets to banking liquidity and interest rates and to tax and allocation
policies has been only increasing with years. In addition, budget times have
also become important periods for economic reforms and policy stimulation
measures, including export-import policies, industrial development policies and
poverty alleviation programmes.
India has been
home to some of the sharpest economic brains. Amartya Sen, Amit Mitra, Arvind
Panagariya, Ashok Desai, Bibek Debroy, Bimal Jalan, C Rangarajan, D R Gadgil, D
Subbarao, I G Patel, J C Kumarappa,
Jagdish Bhagwati, Jairam Ramesh, Kaushik Basu, Manmohan Singh, Montek Singh
Ahluwalia, Nanabhoy Palkhiwala, Omkar Goswami, P C Mahalanobis, Raghuram Rajan,
Subramanian Swamy, V K R V Rao, Y K Alagh and Y V Reddy are some of the
well-known names. Several political leaders including Jawaharlal Nehru, the
first Prime Minister of independent India, and several finance ministers from C
D Deshmukh and T T Krishnamachari of the yesteryears to P Chidambaram and Arun
Jaitley of current years have been economically savvy leaders. Mahatma Gandhi,
the father of the nation, had articulated his own brand of Gandhian economics
targeted at economic self-sufficiency and growth of cottage and small
industries which is relevant even today.
Intriguing India
Although the
phrase “Incredible India” has been coined only a few years ago, India has
always been incredible. The scientific and technical thought that went into the
centuries old Indian heritage of Ayurveda, Yoga, Astronomy, Architecture
(especially temple and palace architecture) was indeed phenomenal.
Post-independence too, India demonstrated rare pluck to construct its own
massive dams, build its own heavy industry, establish its own banks and
financial institutions, develop its own educational infrastructure and creates
its own aerospace infrastructure. India may not have gained global
competitiveness but the country certainly acquired the capability for
self-sufficiency that is rare amongst the emerging markets. In all this, adoption
of micro and macroeconomics to an Indian context, in a somewhat serendipitous manner,
played a role. India’s development may
have lagged behind its true potential but a base has certainly been laid for
more accelerated development if right constructs are developed and relied upon.
At the same
time, India has indeed been an intriguingly bipolar country characterized, for
example, by paradoxes such as massive educational level but meagre skill level,
strong penchant for growth but constraints all the way, vibrant democratic
culture but strong vestiges of feudalism, and phenomenal wealth generation but
continued acceptance of poverty. Economic growth with social equity has been
the avowed objective of parties and governments alike but togetherness in
fulfilling the growth with equity objective has been missing. The paradox of
incredible growth potential constrained by intriguing plurality of thought
makes one wonder if India can benefit to the requisite degree only by Western
economic thought or would require a distinctly Indian economic constructs that
are tailor-made to solve indigenous socio-economic problems without losing the
global contexts. Even issues like quantitative stimulus or directed subsidies
are not discussed and framed with objective economic thought that addresses
India’s issues in a customized manner.
Success factors
India’s success
would lie in enhancing agricultural productivity with sustainable crop
economics, improving technological innovation with rapid commercialization,
developing infrastructural sinews with meaningful capital productivity,
expanding manufacturing capacities with global competitiveness, rural and urban
renewal with protection of ownership interests, and creation of jobs with
minimal migration pains. Economic policies and administrative actions of the
successive governments have tried to provide policies and budgets with
incentives and subsidies to tackle some of the above needs individually,
depending on the political perspectives. Most of these have been based on
established macroeconomic and microeconomic approaches which are buffered by
Indian socio-economic and cultural compulsions. Given that all of these
cumulatively have not helped India reach its full potential, it is time that
economic models that specifically address India’s development concerns are
created.
India’s
socio-economic needs would require an Indian social economics theory (and
practice) that addresses the typically Indian issues of (i) agrarian economics,
(ii) infrastructure economics, (iii) Make in India economics, (iv) renewal
economics, (v) employment economics, (vi) migration economics, and (vii)
behavioural economics. The reason for focussing on the first six aspects is
fairly obvious; if well-researched and well-modelled economic theory is
developed on these aspects, not only better economic policies that stimulate
gross domestic product and higher per capita income can be developed but also
they can be better implemented with widespread support. These aspects which are
independent as well as integrated can together provide better socio-economic
development in the country. All of these will, however, need to be supported by
a solid understanding of Indian behavioural economics with perspectives that
are regional as well as national. The seven branches of Indian social economics
are discussed below.
(i)
Agrarian economics
India, despite
decades of industrial development and the recent burgeoning of service economy,
is still an agrarian economy. The potential for capacity expansion and productivity
in agricultural production and distribution is impacted by crop economics on
one hand and irrigation economics on the other. Economic models which assess
the impact of crop mix on food grain and commodity self-sufficiency and the
impact of dams on year-round crop patterns are required. The microeconomics of
India’s debt ridden small farmer are affected by spot prices and distribution
margins. While farm subsidies mitigate the burden to some extent, an in-depth
study of crop economics for individual and national sustainability is required.
Similarly, the economics of dams and reservoirs are also poorly understood.
There is no reason why major irrigation projects like Polavaram (in Andhra
Pradesh) had to hang fire for decades; economic modelling of irrigation
projects could stimulate better allocations or encourage setting up of special
purpose vehicles.
(ii)
Infrastructure economics
That India has
lagged behind all the developed nations and key emerging economies in
infrastructure development is well known. The NDA government has admitted that
the public-private collaboration model has not had much impact, and needs
redefinition. Most private sector infrastructure firms carry huge levels of
debt from public sector banks. The economics of infrastructure development in
the Indian context are unique with long lead times and slow returns even after
project completion. From the project conceptualization stage through the
project appraisal stage the economics of each infrastructure project need to be
understood not merely in terms of the internal rate of return for the project
but the overall economic uplift because of the multiplier effects of
infrastructure projects. The study of infrastructure firms should be a special
branch of microeconomics while budgeting of such projects should be a special
branch of macroeconomics with appropriate monitory and fiscal policies to
support.
(iii)
Make in India economics
With India’s
low wage costs, large talent pool, frugal engineering and mass mobilization
capabilities, the world should embrace Prime Minister Narendra Modi’s Make in India mantra
enthusiastically. There are two caveats: India should evaluate and propose
objectively to the investors the sources of economic advantage of Make in India
strategy in respect of each industrial activity. Secondly, India should
evaluate and propose for itself the role of India’s large domestic market in
leading to globally competitive production. Typical economic thought teaches us
that high-end niche products subsidize low-end mass products. In the Indian
economic milieu, it could be the other way around; India’s bottom of the
pyramid can provide huge scale economics which can be leveraged for global
products. Tata Motors’ success with JLR is a corporate level economic behaviour
of this theorem. There is a need for a more rigorous understanding of the
unfolding Make in India economics.
(iv)
Renewal economics
India has an
enormous need, and hence offers immense potential, for rural and urban renewal.
There is no habitat that can be excluded from the renewal paradigm. Yet,
renewal is not easy in India. The way the residual government of Andhra Pradesh
is scrambling to build a new capital on a zero base as a multibillion dollar
venture is proof of the developmental needs. However, as illustrated by the
same example, any distributed renewal or new development – urban or rural – has
several implications for overrunning current land use and community avocation
practices, in spite of such renewal being essential. On the face of it,
continuous renewal offers the most economical way of developing habitats in a
distributed manner relative to big bang new constructions. Only when the
economics of renewal are understood can the overall spatial planning in India,
including development of smart cities and smart villages, can be brought to
global standards, consistent with the Indian socio-economic imperatives.
(v)
Employment economics
India needs
jobs for the democracy to work in a positive manner. The unemployment rates of
India varied between 5 and 10 percent historically, and is currently trending
at 5. 2 percent. This may be better than the Euro region which is trending at
11.2 percent but is only comparable with US and UK (trending at 5.5 percent)
and worse than China and South Korea at 4.1 percent and less. More than gross
employment, underemployment and overemployment as well as skill-need gaps are
causes for concern. Underemployment is characterized by people performing jobs
of lower level than they are capable of (for example, just digging trenches
rather than building reservoirs). Overemployment is characterized by more
people than required performing the same job (for example, three or more people
manning a toll plaza post). Skill gap is characterized by an individual failing
to work to a national or international standard (for example, a painter failing
to prepare a surface prior to painting). The elimination of underemployment and
overemployment and investment for skill development have economic implications
that need a uniquely Indian thought.
(vi)
Migration economics
Urbanization is
a concomitant of economic development, universally. Migration of people from
rural areas to urban areas is also a natural accompanying phenomenon. However,
unplanned and under-resourced migration causes urban squalor and triggers urban
unrest. India has an additional dimension of people migrating from States of
lower per capita income or lower economic activity to other States perceived to
be better. The economics of migration with people chasing minimal employment tend
to be mirages. Real economics would occur when economic activity moves into
regions where people reside, and touch their lives directly. Large scale
industrialization or large scale mining of natural resources with necessary
caveats is one solution. More importantly, such underdeveloped regions should
be stimulated with a small and micro enterprise start-up culture that brings
soft economic touch to indigenous evolution and promotes self-sustainability.
It must be a form of Gandhian Economics whereby the well-to-do regions and
people act as trustees for the underdeveloped regions (be it, Bastar forests,
Idukki river bed or Manyam agencies). Migration economics needs to be a
uniquely Indian requirement.
(vii)
Behavioural economics
Behavioural
economics as is well understood is the study of the impact of psychological,
social, emotional and cultural factors on economic decisions made by
individuals and institutions, and the consequences for microeconomic and
macroeconomic factors like costs, prices, savings and investments. Standard
economic theory suggests that as long as individuals understand the economic
consequences of their decisions they take decisions that are in their best
self-interests. The reality is that individuals (and even institutions) suffer
from biases and transient perceptions and do not necessarily have self-control
and objectivity. Given the plurality of the Indian society and the lack of
insightful literacy for vast sections of population (at all levels of the population
pyramid) and the divisive nature of political discourse, economic decisions tend
to be inappropriately made or even appropriate decisions tend to get stalled.
We have seen earlier that there is a paucity of economic theories that are
tuned to India’s indigenous problems. This inadequacy coupled with the vast
mosaic of Indian behaviours makes it mandatory that Indian version of behavioural
economics is urgently developed.
Indian social economics
The country is
in need of an integrated Indian social economics thought which applies all the
established disciplines of economics including, in the main, micro and
macroeconomics, to develop economic principles that are uniquely relevant to
India to enhance capacities, capabilities and effectiveness in the areas of
agriculture, infrastructure, manufacturing, renewal, employment, migration and
behaviours. These are typically Indian issues on which everyone is agreed in
terms of the overarching goal of economic growth with social equity. However,
lack of directed and issue-specific economic thought has prevented due progress
and fulfilment of potential. India does have its general and applied schools of
economics. Every premier college or institution has a department of economics.
There are also specialized institutions like Madras School of Economics,
National Council for Applied Economic Research (NCAER), Institute for Social
and Economic Change and so on.
The established
schools and centres, however, have not been focussed on analysing economic
issues that need to be specifically addressed in India. Nor has there been an
effort to develop economic principles that guide public policy and governance
at central and state levels. While several case studies have been conducted,
there has been no specific vision to develop an India-specific economic theory.
Intellectuals and administrators are more focused on variations in known policy
measures and instruments rather than develop India-specific prescriptions. Now
that the NDA government is keen to establish new centres of higher education
and research and the States are also keen to participate in such higher
educational initiatives, it would be appropriate to establish Indian Institutes
of Social Economics and Research in the principal geographical regions of the
country to develop India-specific economic thought and practice with a board of
economists with Indian and indigenous passion.
Posted by Dr CB
Rao on March 8, 2015
No comments:
Post a Comment