India is in a unique position. The 2019 election has ensured a stable government for the next five years and it will be a bold or foolhardy person to predict a change of party in power in 2024.
Narendra Modi has the opportunity to shape India as he wishes. The vision he presents to India has to be a grand one, an inclusive, enriching vision which will make India a leader in the world.
Modi can pursue the most elusive but universally desirable goal of making every Indian healthy, well-educated and out of poverty forever.
India was known for the fabulous fortunes of its kings but also for its abysmal poverty, illiteracy, ill-health. It is this challenge of sustained economic growth which has been the most difficult. Poverty was not reduced to any significant extent for 44 years after Independence. That was the consequence of bad economic policy, pursuing the Soviet model unsuitable for India.
Narasimha Rao took the risk of deviating from the Nehru-Gandhi line in economic policy. He faced universal condemnation of the economists of the day who were wedded to Socialist economic policy. Inaugurating neoliberalism was a political gamble but it proved economically transformative.
Rao’s revolution has guaranteed 30 years of moderately high income growth in the 5-10% range. Poverty has fallen to single digit levels. But now there needs to be another bold step for India to jump further up in the growth league. India may be fifth largest economy in total income but it is 145th in terms of per capita income. The vision has to be that India will be in the top 100 if not top 50.
To do this, Modi has to take risks. Risks imply the willingness to suffer costs if you want benefits. It is not possible to have change which hurts no one. One must compensate the losers but not let them stop the positive change. It involves breaking with the old culture as Rao did.
The first break should come in the public sector. It was possible in the Fifties of the last century to believe in the superiority of the public sector over private sector. India created an aristocracy of public sector employees who faced no test of efficiency or of enhancing the return to the public purse. They thrived at the cost of the poor. It was a damaging mistake.
There was an Indian way of pursuing development. India had been a trading, private business-oriented economy for centuries. Sardar Patel and
C Rajagopalachari knew about the old business culture and would have chosen a different path, but Jawaharlal Nehru prevailed.
Narendra Modi once said government has no business being in business. He has to deliver on that now. Air India, PSU banks, hotels, shops, factories — any enterprise wasting taxpayers’ money should be sold off. This should be the next revolution in Indian economic policy. Modi has to erase the ill-effects of Old Economics.
Just think of the benefits of abandoning the Nehruvian model. It took India 20 years after 1991 to accept FDI without reservations. But its benefits have been immense. The slimming down of the public sector must be the next transformation. It will be the Modi Revolution in economic policy. India will win.
This article first appeared in the print edition on July 21, 2019, under the title ‘Out of my Mind: Modi must take risks’.