Sometime soon in 2018, India’s annual GDP will cross England ($2.6 trillion). Is this a milestone to celebrate? Or a milestone that triggers honest questioning of why it has taken 71 years for 1.2 billion people to cross the output of 66 million people? Poet Maya Angelou said “The Universe is not made of atoms but stories” and I believe our pathetic productivity is a child of the nutty economic stories we told ourselves after 1947.
Not all our stories have been unhelpful or unchanging; our political stories have spectacularly delivered, and the British empire story is under review. The political story told by Gandhi, Nehru, Patel and our 299 remarkable constitution writers — poor, diverse, and large countries at birth could give everybody a vote — has thrived; India and Pakistan born on the same night have had different destinies partly because 3 million people win an Indian election.
Edmund Burke said the “The British empire was legitimately acquired and is justified because it pursues a civilising mission”; this eulogising was continued by Rudyard Kipling, Philip Mason, EM Forster, Winston Churchill, and Niall Ferguson. Even my 1980s school education covered the black hole of Calcutta more than the Bengal famine and suggested gratitude was due to the British for the Railways, neckties, laws and the English language.
The recent re-evaluation of the empire by Shashi Tharoor, Jon Wilson, Roy Moxham, Francois Gautier and Peter Frankopan cannot right a wrong — in 1947 our life expectancy was 31 and our per capita income about the same as 1820. But they are delightful because, as writer Chinua Achebe said, “Until the lions have their own historians, the history of the hunt will always glorify the hunter”.
Post-mortems have a certainty that prescriptions don’t but our post-1947 economic stories targeted the symptoms of poverty rather than the disease of productivity by distrusting decentralisation (strong states lead to a weak nation), disrespecting institutions (corruption and informality are cultural) and sabotaging competition (public sector entities and monopolies are better for consumers). The 1955 Avadi resolution gave us crappy phone service, chose colleges over schools, exploded the public sector, and kneecapped capital markets.
These stories poisoned our productivity; we only have 52 cities with more than 1 million people, only 50 per cent of our labour force works outside farms, only 25 per cent of our labour force has formal wage employment, only 43 per cent of our 14-18 aged kids can solve a basic division problem, only 5 lakh of our 30 crore students get an apprenticeship, only 7 million of our 63 million enterprises were registered for indirect taxes before GST, and only 1.5 per cent of our 1.2 billion citizens paid income taxes before demonetisation.
Global GDP is churning — the UK was 10 per cent in 1900, USSR was 14 per cent in 1960, and Japan was 17 per cent in 1990 — they are all now down 70 per cent from those peaks. China’s GDP is now four times England because of leadership, luck (its 1978 reform start caught a three-decade supercycle of global growth, global trade openness and manufacturing offshoring), political context (it doesn’t have the fixed costs of democracy), and a powerful story (the appropriate response to colonial exploitation is pursuing wealth and power; chronicled in a great book by Orville Schell).
India in 2018 can’t do export driven manufacturing so our prosperity lies in what Harvard’s Ricardo Hausmann calls economic complexity. We make everything and do everything; we don’t always do it well or at scale because of regulatory cholesterol in land, labour and capital.
India began healing in 1991 but our new economic stories of formalisation, urbanisation, industrialisation, financialisation and human capital come from recent population scale policy disruptions — GST, demonetisation, Aadhaar, RERA, competitive federalism, DBT, etc. Deepening these reforms will accelerate formalisation (we can reach 25 million GST registered enterprises and income tax payers with a simpler GST and honest tax collectors), urbanisation (we can get 200 cities with more than 1 million people with real mayors), financialisation (we can stop diverting resources from education and health to public sector banks if we make them real banks with governance, culture and consequences), industrialisation (we can get to 10 per cent farm employment with lower regulatory cholesterol and labour reform) and human capital (we can get employability by dumping our higher education regulatory mentality of prohibited till permitted).
India is a new nation with an ancient past; our challenge is thinking about our future with stories that don’t ignore or glorify our past. Zulfikar Ali Bhutto told the United Nations in 1965 that “It is not the law of god that people in Asia should be poor and Pakistan is destined for greatness”. But the toxic economic stories of Quaid-e-Awam (leader of masses) perpetuated mass poverty and Pakistan’s GDP today is less than Maharashtra.
India’s old stories were also toxic; landing in America for my MBA in 1994, I was outraged but not shocked to read in The Wall Street Journal that “India is more interesting than important”. But 24 years later, our new stories of formalisation, urbanisation, industrialisation, financialisation and human capital suggest what is happening in India is not once in a decade, or once in a millennium, but once in the lifetime of a country. I was going to borrow Alexander Hamilton’s description of America as “young, scrappy and hungry” for India but reminded myself that we don’t have to be western to be modern.
But we do have to be productive to be prosperous. Bal Gangadhar Tilak said “Freedom and prosperity are my birthright. No weapon can dry this spirit, no fire can burn it, no water can wet it, no wind can dry it”. India’s new economic stories expand our economic and personal freedom and recently made us the world’s fastest growing economy. Now for the more important — and more difficult — climb of per capita.