Connecting the Two Indias

Much has been made of the theory that there are “two Indias” – one that is experiencing rapid economic growth and progress, and the other that is being “left behind”, so to speak. The political rhetoric of these two images of India does find some resonance with an ever-increasing middle class which is usually at odds to explain this newly-found prosperity.

It has also never been more important to understand what caused the shift from anemic rates of economic growth to sustained economic performance, and more importantly, hope and positivity about the future – so much so that India is now witnessing a reversal of the brain drain, with the best talent flocking to it. This reverse brain drain will partly address the human capital needs that India will have as it moves to the next cycle of innovation-driven growth.

Most people agree that it was economic liberalization that unshackled India’s potential, but not all recognize what that means. The process of economic liberalization started in the summer of 1991 under Prime Minister P.V. Narasimha Rao and was carried forward by successive governments through that decade. Under the NDA Government led by Prime Minister A.B. Vajpayee, the liberalization push reached a new high. Government-owned companies were sold off for the first time in India’s history.

Much of the corruption we are witnessing in the housing finance sector would be eliminated if India’s financial industry allowed a more expansive role for private players, for corruption and government discretionary powers go hand in hand. Take away discretion, and corruption too would be eliminated.

The first step that should be taken to bridge the two Indias is to offer connectivity so that they can talk to each other. Roads and telephones, and increasingly high-speed Internet access and low-cost civil aviation, are the basic building blocks and tools required for the formation of what economists term “social capital”, without which we won’t be able to break the cycle of extremism and discrimination based on identity and religion. Bihar Chief Minister’s Nitish Kumar’s resounding victory should be seen in this context.

Have you wondered why the religion- and caste-based politics of the 1980s and 1990s is losing currency in the new, emerging India? Part of the reason is increased access and connectivity that is binding the nation together like never before. Today, Indians can travel across the country via road or air, explore the cultures and diversity that make India so unique and interact with fellow citizens from other parts of India. Never before has this been possible for an “ordinary” Indian before in our history, and it has an immense qualitative impact on creating a common sense of nationhood.

Roads, telephones, the Internet and aviation enable people to do business with and talk to each other. This basic infrastructure forms the bedrock on which economic development can take place, and development alone is the panacea for religious and identity-based extremism.

This too is driven by governance and public policy. During the NDA term, over 4.5 crore telephone connections were made in 5 years, compared to 2.3 crore the previous 50 years. The Highways Ministry built over 25,000 km of roads and highways, compared to less than 600 km (that’s not a typo) in the previous 50 years. In 2003-2004, for the first time India’s GDP growth rate exceeded 8%, a feat the then-Leader of the Opposition had termed “Mungeri laal ke haseen sapnay”, in response to the Government’s projection.

Today, 8% growth is considered to be a given and India’s true potential stands at 12%-plus.

Since 2004, the liberalization process has come to a virtual standstill. We cannot bridge the two Indias merely by populist economics of taxation and redistribution – what we need is massive amounts of wealth creation and liberalization to harness our demographic dividend.

A few days ago, editor of Outlook magazine Vinod Mehta was on television describing India as having a free-market capitalist economy. This is typical of the discourse in the mainstream media – nothing could be further from the truth. I have said before that there are large, important sectors of the economy such as railways, banking and mining that are still nationalized. Till they remain in the grip of the government, our economic performance will be constrained and we’ll never eradicate poverty and identity-based fundamentalism.

India has only taken baby steps towards a market-based economic system. There is no doubt that there are a large number of Indians who continue to suffer glaring poverty, but the cure is not less liberalization but more.

The longer our government delays liberalization and the more excuses it invents, the longer India will continue to be poor and the more fuel identity fundamentalists will gather. Only markets can connect the two Indias and transform the poorer India into a prosperous India, not government largesse.

Originally Published: http://navam.in/1pzv6wN

 

Rajeev Mantri is executive director of Navam Capital.