India is one of the fastest growing economies in the World today. It is growing at the rate of almost 7%, even surpassing major developing economy China. Recently, India has also jumped up on the Global Competitive Index by 16 ranking 39. Also, India’s ranking moved up 12 spots in the Doing Business Index released in October by the World Bank. These reflect robust growth. Does this indicate India is on the right path of economic development. It is certainly on the path of economic growth, however, economic development is a question. Irony being India is still suffering Mosquito related Malaria, Dengue epidemics, while its neighbour, Srilanka much lower in terms of Economic Growth is a Malaria free country.
Rapid industrialisation, technology advancements, unsustained manufacturing, etc are excellent approaches for economic growth measured in terms of GDP, current account balance, etc. We know the repercussions of unbalanced growth leading to unemployment, climate haphazard, income inequality, suppression of minorities, etc. There is a subtle difference between economic growth and economic development. What is the right amount of dose required for both economic growth as well as economic development. What is the best way to build national wealth (it’s no more wealth today, wealth should be replaced with prosperity)?
The Objectives of Nation’s Prosperity can be
- Natural Capital – the value of land, water, minerals, timber and other natural resources
- Physical Capital – the value of machinery, buildings and public works
- Human Capital – the productive value of people
- Social Capital – the value of families, communities and various organisations that glue a society together
Building Wealth of Nations has been the most studied topic and various economic development concepts have been evolved with course of time. The earliest economist Thomas Mun articulated the ‘Mercantilist’ approach. He advised the reduction in the consumption of foreign goods using protectionist tariffs and to develop indigenous industries to supply most necessities and also to export them. This led to build gold reserves, which became the measure of the nation’s wealth. Francois Quesnay had the ‘Physiocratic’ view that national wealth is not the accumulated gold reserves but the quantity of raw materials it enjoys. He believed manufacturing and trade lead to creation of artificial wealth.
At the same time, Adam Smith advocated that the actual cause of wealth of nation was using the principle of division of labour. This lead to each worker becoming a specialist at a single task which promoted exchange of goods. Thus, he believed exchange, private property and free markets as the foundation for creating national wealth. Karl Marx opposed this view strongly because such free markets lead to recurrent business cycles and continuous impoverishment of masses. Hence, he advocated that private property should be managed by State in the interests of the proletariat. John Maynard Keynes viewed flaws in both free markets and planned economy. That’s when he strongly recommended governments to play positive role in reducing the severity of business cycle through regulations, money supply and fiscal policies.
So, that’s where we stand today. Every economy is a mixed economy controlled and balanced through public policies and regulations established by governments. A trade-off is a must while establishing these interventions by the government. There are dilemmas definitely at every juncture during policy making process. How do we evaluate the right amount of growth led by industrialisation versus environmental concerns. In poor countries, major concerns being the trade-off between income generation and income distribution. India’s gap between rich and the poor is widening. Rapid economic growth does not always lead to trickle down effect to reduce poverty.
India being predominantly agricultural sector wherein about 60% of population work in this primary industry. However, the GDP from this sector is meagre 4%. In what amount should the other sectors be encouraged and invested. Employment and inflation have always been interlinked and an appropriate balance between two is difficult to achieve. As per Philips Curve, the lower the rate of unemployment, the higher the rate of inflation and vice versa. One of the basic problems being how to allocate limited resources such as capital, skilled labour and raw materials to competing ends. These resources can be best advanced under perfect competition and free trade. They also bring out an efficient price structure. But at the same time, some sectors need interventions to overcome issues like barriers to entry, technological backwardness, rival foreign industry, etc.
With so many dilemmas and trade-offs, how tedious is it for the government to make the right public policies towards economic development. One needs to appreciate the Indian government, especially for it’s policy making abilities. Our government has policies for everything (Telecom, Spectrum, Digital, Manufacturing, Banking, Start-Ups, Education, Energy, Electronics, Renewables, Natural Resources, etc) and tried it’s best to regulate as less as possible. The only aspect, India lacks, is the ability to implement them and the rampant corruption negating the whole point.
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