Breaking the Mould revisits Indian economy’s inequalities, and its possibilities

Nor should it be read because it is unequivocally the best book on the Indian economy; it is not, and there is a lot in the book that even those who agree with Rajan and Lamba can quibble over.

But that, oddly enough, seems to be the point of the book: To engage readers in a debate, to force them to reflect on one central topic — how should India’s economy grow in the future? That is a very political question and makes this book the most political one on the Indian economy. Not bad timing given that India is heading for another general election where close to a billion people will vote to essentially express their approval/disapproval on that very question.

The ‘how’ of India’s economic growth is a fairly nuanced question for lay readers. These days, people are mostly debating whether the GDP (the total economic output of the country) data is credible or not. But, unlike some segments in developed countries which are increasingly questioning the idea of forever-growing economies and promoting notions such as de-growth, there is unanimity in India that the GDP must go up, and at breakneck speed. India and Indians are impatient about becoming a ‘developed’ nation. The PM has set a target of 2047.

But achieving a fast-growing GDP and that too in the short-to-medium term is only one thing. What about the quality of growth? What about the health and education standards of the median Indian? What about jobs and wages of an average Indian? What about inequalities, both economic and social?

The problem is that countries like India and China have been trying to reach levels of income and prosperity in a few decades that most developed countries achieved over the better part of two or three centuries, slowly and steadily. It is like making runs worthy of a Test cricket innings in 20 overs. As China has shown, it can be done to a great extent, but not without rather unpalatable distortions. It may involve political, financial and social repressions. India, on the other hand, has had a proud record of democracy and political freedoms as well as social justice but the past three decades of economic liberalisation has also widened inequalities in the country at an alarming rate. Mass unemployment and underemployment among Indian youth as well as poor health and education standards among children threaten to undermine the sustainability of India’s growth story.

The question is: How should India grow? What policy choices should it adopt?

For instance, should the government use the taxpayer’s money to essentially ‘subsidise’ Indian businesses and distract the same taxpayers by calling it a ‘Production-Linked Incentive’ scheme? Or should it use the same money towards bolstering India’s educational and health outcomes?

The authors give many concrete examples. The Micron semiconductor plant, slated to come up in Gujarat and expected to create 5,000 jobs, will involve a total investment of $2.75 billion. But 70 per cent of it is a direct subsidy by the Union government. “So, we are spending nearly $2 billion for 5,000 jobs, which is $400,000, or Rs 3.2 crore per job… That $2 billion, or Rs 16,500 crore, is effectively a grant to a foreign company for crumbs. It is over a third of the Central government’s entire annual budget of Rs 44,000 crore for university education!” write the authors.

The questions don’t just stop at specific policies. The authors raise broader queries: Should India put all its hopes in low-skilled manufacturing jobs as a strategy for future growth? They point to the so-called ‘smiling curve’ of value addition. Simply put, the way global supply chains work today is that more value is created at the two ends of the spectrum: In the early stages of a product’s life (read: Research and Development) and in the final stages (read: branding, marketing, advertising, sales etc.). The middle stage of actual manufacturing adds the least value and earns the least as well. A case in point is the difference in the market capitalisation of Apple (over $3 trillion), which dominates the two ends of the smile curve, and Foxconn (just below $50 billion), which does the manufacturing.

It is not as if the authors want India to give up on manufacturing but they prod readers to envisage a scenario where India truly exploits its demographic dividend by empowering people not just by investing in the best health and educational outcomes but also by providing the freedom to be “irreverent, diverse and argumentative”. That, in turn, raises questions about the quality of political leadership in the country. Cue elections.

Should you buy it? Perhaps just borrow it from your friend, if not for anything else then for the innovative last chapter where the authors share an imagined Q&A session with their detractors.