Full of charts, diagrams, correlation charts and theory, but largely devoid of the reality of India’s economy today, it is hard to make out who its intended readership might be. The trained economist or economic historian will readily acknowledge one basic premise laid out here: savings drive investment which drive growth. But they will be amused by the assertion that it is largely private investment that has driven growth in Asia.
The examples given, Japan, South Korea and China, each actually disprove the case for private investment-led growth. Postwar Japan’s rise through the 1970s and 1980s was regulated strictly by MITI, the all-powerful ministry that controlled every aspect of resource allocation, manufacturing, industry and trade.
Thus for example, MITI declared that Honda, Kawasaki and Suzuki would devote all their energy and resources to building bikes; Toyota, Nissan and Datsun on cars, Mitsubishi on heavy vehicles. These policies were relaxed decades later. South Korea developed its unique state-led chaebol system, which encouraged giant conglomerates with specific tasks.
Chinese industry, of course, is even now almost entirely state-owned, directly or indirectly. Telecom giant Huawei owes its origin to Deng Xiaoping’s impatience with its creaking Mao-era communications network. He assigned a small group of military engineers to beg, borrow, steal the latest technologies worldwide and implement them. It is a mark of ingenuity that Huawei has surpassed most western companies in technological and manufacturing ability.
In some ways, the Survey seems peculiarly out of sync with the times. It continues to harp on India’s so-called ‘demographic divided’, stressing that now 50% of the population is of working age, between 20-59 years old, to increase to 60% by 2040. Sure, but a working age population without work is not a dividend, but a recipe for social disaster. Only a government document can gloss over the increase in frustration and social violence among jobless youth.
It talks glowingly about the necessity of data ‘as a public good.’ Indeed, it correctly points out that the cost of collecting, collating, storage and dissemination of data has fallen exponentially with digitisation. But if this is true, why does the government hide inconvenient data, like that which shows current joblessness to be the highest in 45 years? Why has the list of the ‘Dirty Dozen’ the biggest, most-bankrupt companies in India, not been revealed? The Survey is mum.
Of course, the Survey does not acknowledge the dire joblessness in India. It falls back on the increasing number of Employee Provident Fund (EPFO) accounts to make a weak case for rising employment. This argument has been thoroughly discredited by economists and experts, not least because EPFO account holders are formal (largely sarkari) employees, less than 3% of the workforce.
And even in government, 2.5 million jobs are lying vacant as a minister responded to a query in the Rajya Sabha earlier this year.
If savings are the principal driver of growth, as the Survey states with empirical evidence from across the world, should we be alarmed that India’s savings rate has crashed from 38% in 2008 to a little less than 30% now? And what policies can reverse this trend? Expect no answer from this document.
The Survey makes a breakthrough of sorts by incorporating an entire chapter on ‘behavioural economics’, the accepted term for what its pioneers Daniel Kahnemann and Amos Tversky termed ‘prospect theory’ in 1979. Rather than assume people are expected-utility maximising robots, this approach introduces biases, cognitive shortcomings and behavioural inertia into decision making.
Kahnemann and Tversky tested their ideas out on a wide section of volunteers and realised their insights explained real world decision making better than the standard utility-maximising model of homo economicus. Kahnemann won the Nobel in 2002; Tversky had died by then.
It was an intellectual breakthrough, but why does it figure in a government policy document that has to focus on identifying and suggesting solutions for the most pressing problems of India?
Its presence is justified by arguing that policy implementation has to move away from the simple ‘problem-incentive/coercion-solution’ model towards something that seeks to change basic habits and social norms. Fair enough. But there’s little to suggest these ‘nudge’ policies have any chance of working in India.
Indeed, behavioural economics works best in limited context, like, say insurance or investment markets. Apart from a few rare – contested – claims about its utility in tax compliance, the theories are generally ineffective in large macroeconomic contexts.
Beti Bachao Beti Padhao (BBBP) is cited as an example. But studies show its relative success is due to the mid-day meal and anganwadi schemes introduced by the UPA regime, which boosted school enrolments.
However, surveys like ASER have shown learning outcomes remain dismal, and more and more families take kids out of state-run to private schools. This section will be a useful primer on the basics of behavioural economics for the curious; as a guide to policy it is woolly and irrelevant.
As a guide to policy, the Survey is of little use. But if you’re sailing to the Bahamas, make sure to take a copy with you.