Life beginning at 60 for the Indian economy?
Friday, 17 August 2007
Amartya Sen
PABLO Picasso once remarked: "One starts to get young at the age of 60." Something rather like that seems to be happening to India right now, at least on the economic front. There is much more sign of life there today than could be seen when political independence came to the ancient land in 1947, when its strait-laced economy moved at a slow and imperturbable pace -- the famous 3.0 per cent rate of growth. The feebleness of the economic pace was in sharp contrast with the speed of political change in the new republic: India became overnight the first poor country in the world to be a full-scale democracy.
Democracy has indeed flourished well in India since then, with few hiccups and with regular and orderly elections, free and flourishing media, independence of the judiciary and, no less importantly, the willingness of ruling parties to vacate office when defeated in general elections, rather than calling in the army. This would be remarkable enough for any poor country, particularly one the size of India, but it was a much harder task in a land of so many important languages (each with its long and proud history) and such diversity of distinct religions (all placed under a secular but tolerant umbrella). Secularism has been threatened from time to time by sectarian groups, but massive support for secularism across India has asserted itself repeatedly.
On the economic side, India's comparative success is rather new. Some changes came slowly and the growth rate of the economy did move up to 5.0 per cent a year in the 1980s, which was much faster than in the early decades of independence, not to mention during a century of colonial semi-stagnation. But the decisive moment for the radical changes that have made the Indian economy so dynamic today occurred in the early 1990s, led by reforms introduced by Manmohan Singh, then the newly appointed finance minister (he has been prime minister since 2004, after a period out of office in between). It is useful to ask, in taking a long view of the Indian economy, what changes were needed in India and what really happened over the period of gradual transformation initiated by the reforms of the early 1990s.
India faced two huge problems of governance. The first one was government over-activity in areas of work in which its presence was overbearing, but where its ability to mess things up was truly gigantic. The so-called "licence Raj" made business initiatives extremely difficult and put them at the mercy of bureaucrats (large and small), thereby powerfully stifling enterprise while nurturing corruption. The going has sometimes been rough but the direction of policy change has been unmistakable from the early 1990s onwards (if still a little slow in many assessments), endorsed even by successor governments run by other political parties.
But India also had a second problem that needed to be addressed urgently. This was the problem of government under-activity in fields in which it could achieve a great deal. There has been a sluggish response to the urgency of remedying the astonishingly under-emphasised social infrastructure -- for example, the need to build many more schools, hospitals and rural medical centres -- and developing a functioning system of accountability, supervision and collaboration for public services. To this can be added the neglect of physical infrastructure (power, water, roads, rail), which required both governmental and private initiatives. Large areas of what economists call "public goods" have continued to be under-emphasised.
The radical changes in the 1990s did little to remedy the second problem. If things have begun to change here too (though rather slowly), a part of the credit for ushering in that change must go to India's democratic politics. There is a growing appreciation of the electoral relevance of the unfulfilled basic needs of people (related to schools, healthcare, water supply and other facilities) and there are also pressures generated by better-informed media discussions and by the activities of civil society movements demanding elementary rights.
So where does India stand now, after all this? The economic growth rate, now about 8.0 per cent (sometimes touching 9.0 per cent), is, of course, agreeably high, but the sharing of the benefits that flow from this is still remarkably unequal. Poverty rates have fallen, but are nowhere near what could have been achieved had the distributional side got more attention. Some failures are huge, such as continuing undernourishment, particularly of children, and of course the continuing scandal of a quarter of the population (including half of all women) remaining illiterate in a country with such high-technology achievements based on excellent specialised training and practice. A democratic country can hardly want to maintain a divisiveness that makes it part California and part sub-Saharan Africa.
The unequal distribution of the benefits of economic progress is not unrelated to continuing gaps on the social side, since the human capabilities that make it easy for people to use the new economic opportunities can be vastly enlarged by enhanced public services, such as universal -- and good -- school education, efficient and accessible public healthcare and good epidemiology. Remedying this calls for much more economic resources and better organised public services.
This is not, however, an argument for considering economic growth to be unimportant. Indeed, quite the contrary, since economic growth also generates government resources that can be powerfully used precisely to expand public services.
Government revenue will grow very fast if it keeps pace with the rapid growth of the economy. In fact, government revenue has persistently grown faster than the growth of gross domestic product: in 2003-04, the economic growth of 6.5 per cent was exceeded by revenue growth of 9.5 per cent and in 2004-05 to 2006-07, the growth rates of 7.5 per cent, 9.0 per cent, and 9.4 per cent have been respectively bettered by the expansion rates of government revenue (in "real terms", that is, corrected for price changes) of 12.5 per cent, 9.7 per cent and 11.2 per cent. Money will continue to flow very rapidly into the government's hands and what is critically important is to use these resources intelligently where they are most needed.
When Picasso said we start to get young as we turn 60, he also expressed the bleak belief that it may be "too late" by then. But changing the neglect of public goods and public services is in no way too late for a country that has already done so much with youthful energy. With a bit more deliberation and purpose, the best may be yet to come.
...................................................
The writer, who received the 1998 Nobel Prize for economics, is Lamont university professor at Harvard University and former master of Trinity College, Cambridge.
— Ft Syndication Service
PABLO Picasso once remarked: "One starts to get young at the age of 60." Something rather like that seems to be happening to India right now, at least on the economic front. There is much more sign of life there today than could be seen when political independence came to the ancient land in 1947, when its strait-laced economy moved at a slow and imperturbable pace -- the famous 3.0 per cent rate of growth. The feebleness of the economic pace was in sharp contrast with the speed of political change in the new republic: India became overnight the first poor country in the world to be a full-scale democracy.
Democracy has indeed flourished well in India since then, with few hiccups and with regular and orderly elections, free and flourishing media, independence of the judiciary and, no less importantly, the willingness of ruling parties to vacate office when defeated in general elections, rather than calling in the army. This would be remarkable enough for any poor country, particularly one the size of India, but it was a much harder task in a land of so many important languages (each with its long and proud history) and such diversity of distinct religions (all placed under a secular but tolerant umbrella). Secularism has been threatened from time to time by sectarian groups, but massive support for secularism across India has asserted itself repeatedly.
On the economic side, India's comparative success is rather new. Some changes came slowly and the growth rate of the economy did move up to 5.0 per cent a year in the 1980s, which was much faster than in the early decades of independence, not to mention during a century of colonial semi-stagnation. But the decisive moment for the radical changes that have made the Indian economy so dynamic today occurred in the early 1990s, led by reforms introduced by Manmohan Singh, then the newly appointed finance minister (he has been prime minister since 2004, after a period out of office in between). It is useful to ask, in taking a long view of the Indian economy, what changes were needed in India and what really happened over the period of gradual transformation initiated by the reforms of the early 1990s.
India faced two huge problems of governance. The first one was government over-activity in areas of work in which its presence was overbearing, but where its ability to mess things up was truly gigantic. The so-called "licence Raj" made business initiatives extremely difficult and put them at the mercy of bureaucrats (large and small), thereby powerfully stifling enterprise while nurturing corruption. The going has sometimes been rough but the direction of policy change has been unmistakable from the early 1990s onwards (if still a little slow in many assessments), endorsed even by successor governments run by other political parties.
But India also had a second problem that needed to be addressed urgently. This was the problem of government under-activity in fields in which it could achieve a great deal. There has been a sluggish response to the urgency of remedying the astonishingly under-emphasised social infrastructure -- for example, the need to build many more schools, hospitals and rural medical centres -- and developing a functioning system of accountability, supervision and collaboration for public services. To this can be added the neglect of physical infrastructure (power, water, roads, rail), which required both governmental and private initiatives. Large areas of what economists call "public goods" have continued to be under-emphasised.
The radical changes in the 1990s did little to remedy the second problem. If things have begun to change here too (though rather slowly), a part of the credit for ushering in that change must go to India's democratic politics. There is a growing appreciation of the electoral relevance of the unfulfilled basic needs of people (related to schools, healthcare, water supply and other facilities) and there are also pressures generated by better-informed media discussions and by the activities of civil society movements demanding elementary rights.
So where does India stand now, after all this? The economic growth rate, now about 8.0 per cent (sometimes touching 9.0 per cent), is, of course, agreeably high, but the sharing of the benefits that flow from this is still remarkably unequal. Poverty rates have fallen, but are nowhere near what could have been achieved had the distributional side got more attention. Some failures are huge, such as continuing undernourishment, particularly of children, and of course the continuing scandal of a quarter of the population (including half of all women) remaining illiterate in a country with such high-technology achievements based on excellent specialised training and practice. A democratic country can hardly want to maintain a divisiveness that makes it part California and part sub-Saharan Africa.
The unequal distribution of the benefits of economic progress is not unrelated to continuing gaps on the social side, since the human capabilities that make it easy for people to use the new economic opportunities can be vastly enlarged by enhanced public services, such as universal -- and good -- school education, efficient and accessible public healthcare and good epidemiology. Remedying this calls for much more economic resources and better organised public services.
This is not, however, an argument for considering economic growth to be unimportant. Indeed, quite the contrary, since economic growth also generates government resources that can be powerfully used precisely to expand public services.
Government revenue will grow very fast if it keeps pace with the rapid growth of the economy. In fact, government revenue has persistently grown faster than the growth of gross domestic product: in 2003-04, the economic growth of 6.5 per cent was exceeded by revenue growth of 9.5 per cent and in 2004-05 to 2006-07, the growth rates of 7.5 per cent, 9.0 per cent, and 9.4 per cent have been respectively bettered by the expansion rates of government revenue (in "real terms", that is, corrected for price changes) of 12.5 per cent, 9.7 per cent and 11.2 per cent. Money will continue to flow very rapidly into the government's hands and what is critically important is to use these resources intelligently where they are most needed.
When Picasso said we start to get young as we turn 60, he also expressed the bleak belief that it may be "too late" by then. But changing the neglect of public goods and public services is in no way too late for a country that has already done so much with youthful energy. With a bit more deliberation and purpose, the best may be yet to come.
...................................................
The writer, who received the 1998 Nobel Prize for economics, is Lamont university professor at Harvard University and former master of Trinity College, Cambridge.
— Ft Syndication Service