[UPSC Mains Focus] Building a better India

June 8, 2020 | Financial Express (Link)

Mains Paper 3: Economy

Prelims level: MGNREGA

Mains level: Indian economic policy paradigm and key challenges


  • India seems, in retrospect, to have gone to lockdown early and come out early.
  • India may yet find that it has adopted suppression, followed by the herd immunity approach unknowingly.

Challenges to doubling the GDP target:

  • India was supposed to be set upon doubling its GDP from $2.5 trillion to $5 trillion in the five years 2019 onward.
  • But, in the post-COVID scenario, it seems impossible.
  • Output could be down 25-30% before bounce-back begins.
  • As it was, the economy had been on the downswing of a growth cycle, and the last quarter of the most recent financial year has confirmed the continuing downswing despite the July 2019 Budget.

Indian economic policy paradigm:

  • Covid 19 has exposed fundamental structural and secular (i.e., long run) weaknesses of the Indian economic policy paradigm over the last 70 years.
  • In India, apart from the 10 good years of 1998-2008, income growth has not been steady or adequate to absorb the available labour power.
  • There has been persistent unemployment, open or disguised, of 25% for 70 years.

Socialism and self-sufficiency:

  • Two obsessions have hurt India sorely: socialism and self-sufficiency.
  • Socialism meant state ownership of ‘commanding heights’ of the economy, protection for domestic goods and domestic bureaucrats.
  • The state capitalism, benefiting the minority, perhaps 15% of the population, employed in the public-sector enterprises or in the government administrative and political machinery.
  • The crony capitalists, sustained by the nationalised banks. It is not socialism as welfare state for the poor, but bonanza for the privileged.
  • Self-reliance cost the country slow growth and persistent poverty.
  • Self-sufficiency meant import substitution, discouragement of modern technology and promotion of small enterprise over large ones, thanks to labour legislation.

Misreading of India’s long run of economic history:

  • These ideologies come from a misreading of India’s long run of economic history.
  • If India was one of the richest countries up until the 17th century, it was because it was a trading nation with an extensive global trade and finance network.
  • Until the steam power revolution totally changed productivity of labour on machines compared to handicraft, India was at the forefront of technology as well.
  • But, in mistaking modern capitalist industry with imperialism, the Indian elite subjected its masses to poverty.

Comparing India with East Asia:

  • Just compare India with East Asia, which neither interpreted self-sufficiency as rejection of trade nor capitalism as an alien Western ideology.
  • The East Asian state was in the vanguard, but it was a smart and pragmatic state rather than an ideologically-rigid state.
  • Japan set the model by cooperation between its big business and the state. It relied on an export strategy pursued by the business houses backed by the government. South Korea copied the Japanese model.
  • It also pursued smart land reform and literacy reform. Again, exports were the key. Singapore and Taiwan learnt from that.
  • Even China followed the Japanese example once it gave up Leninist economics.

Way ahead:

  • There is yet the scope for learning from COVID 19, especially on where the weaknesses lie.
  • Apart from MGNREGA which is currently dealing with nearly 30 crore households in rural areas (swelled by migrants returned home), there is no provision of unemployment benefit for the poor.
  • Strong interest groups such as farmers, dalits, OBCs, regardless of their actual economic status, and more due to caste status, enjoy sporadic benefits from the state.
  • What can be done immediately is to create a national version of MGNREGA for urban workers as well.
  • Give every man and woman above 18 a guarantee of 100-days-work. That will provide a solid floor level of support. Pay for it by selling off publicly-owned assets.


  • The misery of the migrant workers must never shame India again.
  • Then, there has to be a systematic completion of a welfare state covering health, housing and education. Some of these areas were covered under Modi 1.0. Time has come to finish that task.