So it has been twenty years since India embarked on what is widely described as the neoliberal phase in its economic history. The exigencies of the early 1990s probably justified this change in course. Economists and economic historians can be expected to debate this question for quite some time to come. Not only the Indian National Congress, which initiated this policy change, but the Bharatiya Janata Party too, embraced the new paradigm. For a while, all seemed well. However, twenty years later, a dispassionate assessment of the successes and failures of India's economic policies of the last twenty years shows that while GDP growth rate did accelerate, it did not translate into the kind of inclusive economic growth that is necessary for socio-economic cohesion in a country like India.
As GDP growth rate slows, the policy framers in New Delhi have decided to give the country more of the same medicine. They have decided to blame the slowdown in GDP growth on " global " factors and they have decided to initiate a slew of foreign direct investment initiatives which they think will restore Indian GDP growth back to its former robust trajectory. While global factors like the Great Recession in the United States and the debt crises in Europe have most likely played a role in the slowing down of GDP growth in India, the policy framers in New Delhi would do well to keep in mind the fact that the Indian economy still has deep structural flaws and that not all of these flaws are of a kind that laissez faire policies or globalized approaches can solve. Not only that, these policy framers have also conveniently forgotten the fact that retail is much more of a zero-sum game than, say, manufacturing. And allowing FDI in retail may just benefit foreign corporations at the cost of Indian businessmen. As for the " benefit to farmers " that these policy framers are shouting about, the people of India and the farming community in India desrve to know what is the additional advantage that foreign retailers will provide to farmers compared to indigenous retailing players. And these policy framers also owe the country an explanation as to the amount of extra net investment that FDI in retail will bring and the net benefits after disruptions to domestic retailing entities are taken into account. There is a similar problem with FDI in insurance and pension sectors too. The people in India who can afford insurance policies of different kinds are probably already buying policies from domestic providers. It stretches one's credulity to think that there are Indian consumers who are waiting for American or other foreign insurance providers to start operating in India before they start buying insurance policies or that those who are buying policies from domestic providers now will spend much higher amounts on policies from foreign providers. No intelligent debate on this issue can take place unless the policy framers tell us what is the amount of extra economic activity that will result from allowing FDI in these sectors and who will benefit from these moves and how much and over what period of time. And the people of India also deserve to know where these numbers are coming from, in other words, which economist or which group of economists or which government agency or which bureaucrat or which politician has done the cost-benefit analyses necessary to assure the people of India that these FDI moves are in the best interest of the country and they deserve to hear quantitative claims from the government given the fact that the government is advertising this as a major policy initiative. It is time for the political parties in India to start scrutinizing the claims of the policy framers in the best interests of the country and the people of India deserve more than vague assurances. Quantification of benefits is key to any serious and meaningful political debate on these questions. Embarking on such serious changes to the country's investment framework without good quantification can cost the country dearly later on if mistakes are made and if the cost-benefit implications are not properly understood. And if the government cannot come up with good quantitative analysis by experts, it needs to explain why the people of India should pin their hopes on these new policies.
by C. Jayant Praharaj ( send comments to [email protected] )
As GDP growth rate slows, the policy framers in New Delhi have decided to give the country more of the same medicine. They have decided to blame the slowdown in GDP growth on " global " factors and they have decided to initiate a slew of foreign direct investment initiatives which they think will restore Indian GDP growth back to its former robust trajectory. While global factors like the Great Recession in the United States and the debt crises in Europe have most likely played a role in the slowing down of GDP growth in India, the policy framers in New Delhi would do well to keep in mind the fact that the Indian economy still has deep structural flaws and that not all of these flaws are of a kind that laissez faire policies or globalized approaches can solve. Not only that, these policy framers have also conveniently forgotten the fact that retail is much more of a zero-sum game than, say, manufacturing. And allowing FDI in retail may just benefit foreign corporations at the cost of Indian businessmen. As for the " benefit to farmers " that these policy framers are shouting about, the people of India and the farming community in India desrve to know what is the additional advantage that foreign retailers will provide to farmers compared to indigenous retailing players. And these policy framers also owe the country an explanation as to the amount of extra net investment that FDI in retail will bring and the net benefits after disruptions to domestic retailing entities are taken into account. There is a similar problem with FDI in insurance and pension sectors too. The people in India who can afford insurance policies of different kinds are probably already buying policies from domestic providers. It stretches one's credulity to think that there are Indian consumers who are waiting for American or other foreign insurance providers to start operating in India before they start buying insurance policies or that those who are buying policies from domestic providers now will spend much higher amounts on policies from foreign providers. No intelligent debate on this issue can take place unless the policy framers tell us what is the amount of extra economic activity that will result from allowing FDI in these sectors and who will benefit from these moves and how much and over what period of time. And the people of India also deserve to know where these numbers are coming from, in other words, which economist or which group of economists or which government agency or which bureaucrat or which politician has done the cost-benefit analyses necessary to assure the people of India that these FDI moves are in the best interest of the country and they deserve to hear quantitative claims from the government given the fact that the government is advertising this as a major policy initiative. It is time for the political parties in India to start scrutinizing the claims of the policy framers in the best interests of the country and the people of India deserve more than vague assurances. Quantification of benefits is key to any serious and meaningful political debate on these questions. Embarking on such serious changes to the country's investment framework without good quantification can cost the country dearly later on if mistakes are made and if the cost-benefit implications are not properly understood. And if the government cannot come up with good quantitative analysis by experts, it needs to explain why the people of India should pin their hopes on these new policies.
by C. Jayant Praharaj ( send comments to [email protected] )