India’s economic goal(post)s have changed in the last fortnight, from a $5 trillion economy to Atmanirbhar Bharat (self-reliant India). Of course, in the end, what everyone wants is a prosperous India where nobody is left behind in poverty. But there are many pathways, and several speed gears, to get there.
That is why the overarching political economy narrative matters. It sets a context, ambition and direction for policy. Along with Atmanirbhar Bharat, what we need is Atmanirbhar Bharatiya (self reliant Indian).
Just as Atmanirbhar Bharat does not, by definition, mean autarky and import substitution — kudos to the finance minister for not raising trade barriers in her economic package — Atmanirbhar Bharatiya does not mean a utopia of millions of self-reliant villages. India does not need either the economics of socialism or the economics of the Gandhian variety. What it needs is a paradigm of old-fashioned conservative economics where individuals, businesses and (civil) society do not depend on the State for any largesse or support. They are Atmanirbhar, or self-reliant, in that sense.
Given India’s long history of a dominant State and poverty, Atmanirbharta may seem like an unrealistic or unreasonable ask. The State will not let go and the citizens will continue to demand and expect goods and services, either free or hugely subsidised. It is a damaging embrace. The most vulnerable citizens are often left to fend for themselves nevertheless, a point brought out sharply in the ongoing crisis of migrant labour.
And, the State uses the pressure of demand from citizens as an excuse to keep a tight control on economic activity taking an overly extractive and redistributive view of the wealth-creating sectors. India ends up with the worst of all worlds: inadequate and poor-quality delivery of public goods and services, and continued poverty.
The current crisis may be an inflexion point. On the one hand, the Modi government has shown clearly that it recognises the limits of government capacity, at least in fiscal terms. Even in a most dire public health-cum-economic crisis, it has refused to bust the deficit. On the other hand, quite remarkably, non-government civil society has shown that it can step up to aid its most vulnerable fellow citizens in distress, providing food, clothes, cash or transport. Are both sides ready to break out of the embrace?
The government would have to take the lead. In a country with India’s per-capita income, it would be unreasonable to expect the government to offer no support to the disadvantaged. But, instead of trying inefficient provision of semi-public and indeed private goods and services, the government should move all its support to a single direct cash transfer grant, linked to inflation, sufficient to cover all basic necessities to survive, but not high enough to disincentivise taking up jobs.
The highly evolved system of Jan Dhan, Aadhaar and Mobile (JAM Trinity) makes this eminently feasible. The transition can take place over a period of 12-24 months and will need to be planned properly.
Simultaneously, we need a gamut of structural reforms that enable the continued rise of entrepreneurship and investment, particularly in job-intensive sectors. The recent reform announcements made by the government, including in the previously untouched domain of agriculture, seem to suggest that there is much greater appetite to boost growth through structural reform and not pump-priming.
Earlier, this government has also brought down corporate tax rates to the levels of many East Asian countries to boost investment, which suggests the government recognises that lower tax rates will eventually lead to higher revenues. And, the best way for a corruption- and crony free India is to end State intervention in private economic activity.
If the average Bharatiya is enabled to become atmanirbhar, the government will easily and rapidly achieve the goals of Atmanirbhar Bharat and a $5-trillion economy. The writer is chief economist, Vedanta