India remains a developing country, even after sixty-seven years of Independence. About a quarter or more of the population is living below the poverty line, based on different estimates. Agriculture, the sector on which the largest number of our fellow-citizens are dependent for livelihood, has been facing serious crisis, with thousands of farmers committing suicides.
The family based non-corporate sector comprising of the micro, small and medium enterprises, the largest contributor to the national wealth, remains largely unattended. NSSO figures show that the share of people depending on self-employment is declining 1. Employment generation is grossly inadequate, with the situation worsening during the last few years. Critical issues such as inequalities and environmental aspects loom large over our heads.
Fundamentals favour faster development
India as a nation has many positive features that could help the economy to progress faster. She is endowed with enough natural and physical resources. Besides, there is the ‘demographic dividend’, with the largest number of younger population in the world. The following are the important features that influence the economy to move forward:
1. Higher rates of saving
India has always been generating higher rates of saving. Even during 1950-51, the rate of saving was around 9.5 per cent 2. Since then it has been continuously on the rise, with the household sector contributing the dominant share. The rates remain more than 30 per cent of GDP since 2004-05 3.
2. Capital formation through domestic and local finance
Capital formation has been continuously increasing over the decades. It is significant to note that much of the funds are mobilised locally through close networks and personal relationships. It is estimated that 95 per cent of the total capital is being raised domestically. As a result the dependence of foreign funds is very less.
3. Self-employment remains way of life
Indian traditions accord a higher place for self-employment. It is a unique aspect of the Indian economy, as it is an alternative to both capitalism and communism. National Statistical Organization figures show that 51.9 percent of the rural and 40.6 percent of the urban households were engaged in self-employment activities during 2009-10 4. Its share is higher in bigger states such as Uttar Pradesh, Bihar and Rajasthan.
4. Higher levels of entrepreneurship
India has enormous entrepreneurial talents. Field studies show that there exists a very high level of entrepreneurship in different parts of the country5. India Brand Equity Foundation noted earlier that “with more than 85 million entrepreneurs, India is one of the most entrepreneurial countries in the world 6.” All our successful business and industrial clusters are due to the initiatives of the entrepreneurs.
5. Non-corporate sector as the core
The family based non-corporate sector is the core of the Indian economy contributing nearly two third to the GDP. Besides it provides about 93 per cent of the employment in the country. This sector is self-made, comprising millions of micro, small and medium enterprises (MSMEs) promoted and run by the ordinary sections of the society.
6. Clusters contributing at the national and global levels
Industrial and business clusters occupy a critical role in the Indian economy. Many of them are playing a significant role at the national and international markets, generating higher incomes and earning foreign currencies through exports. The Fourth All India Census of MSMEs notes there were 2443 clusters covering 321 products in the registered MSME sector during 2006-07 7.
Western approaches have failed to deliver results
But in spite of several advantages, India is not able to utilize her potential. With the result the country has not succeeded to the extent desired. What is the major reason for this?
After Independence, the Indian establishment adopted the socialist ideology as the guiding principle for framing policies. It was adopted without discussions at a wider level. Earlier when leaders like Mahatma Gandhi wanted debates to decide the right kind of policies in free India, the leadership of the Congress party refused. So when the nation got the chance to frame policies for the first time after several centuries of alien domination, our rulers failed to make use of it.
Subsequently for more than thirty years the country had to follow an ideology that was alien to this land. As a result we were not able to solve even the basic problems, after several rounds of planning. Ultimately the country landed in serious financial difficulties during the turn of the 1990s. Almost around the time, communism was accepted to be a failure across the world with the breaking up of the USSR into pieces.
So for the second time after Independence, there was another chance to adopt a suitable policy framework for the country. But again the establishment did not undertake wider discussions and instead went in for another western approach. The globalisation model, with markets and mega corporations at the centre, was adopted to guide the policy making process.
As a result, the country has been witnessing difficulties over the years. Though there are improvements in certain areas, they are not adequate for the all-round development of the country. Besides, the ideology suffers from serious limitations leading to multiple complications.
Thus the approaches followed since Independence are not suited to us, as they are they are the creations in the western environments with their limited experience and narrow outlook. Hence we are not able to make use of our strengths and get the desired results.
Western concepts are not sound
A study of the western economic history tells us that all their economic systems during the past five centuries have failed miserably without fulfilling the needs of people. Feudalism and mercantilism failed during the early centuries. Subsequently it was communism and capitalism. Why is it that all their concepts and approaches have been failing continuously? It is because they are not sound and lack the fundamentals.
The noted Gandhian economist Kumarappa in his seminal work Economy of Permanence notes: “The old civilizations of Egypt, Babylon, Greece and Rome are no more to tell their tale. They have vanished after a few centuries of brief, glamorous splendour because the standards on which they were built were predominantly self-centred and transient… 8”
The “modern economic development” beginning from the eighteenth century is attributed to the European capitalism. But economic historians note that this is far from true. Frank notes: “In reality, during the period 1400-1800, sometimes regarded as one of “European expansion” and “primitive accumulation” leading to full capitalism, the world economy was still very predominantly under Asian influences 9.” He mentions further that “the two major regions that were most “central” to the world economy were India and China 10.”
Experts point out that capitalism and communism are two sides of the same coin. The adherents of both the schools even follow the same methodologies to study them. Bhole notes: “Both of them have been engendered and nursed by the same mechanistic Western world-view, Western value system, Western life-view (life style) which lacks the holistic and ecological perspective. This world view has been developed by Newton, Descartes, Calvin, Darwin, Freud, Smith, Marx and other scholars of the same ilk. Both the philosophies are the product of the same age namely, the age of “enlightenment”, “renaissance”, “rationality”, and industrial revolution….. The mainstream economic theories of utility, margin, utilitarianism, division of labour, labour theory of value, falling rate of profit, disutility of labour, and so on constitute the basis for both of them. … They use the same mode of analysis involving binary, either/or, mutually exclusive, dualistic, reductionist, positivistic, and fragmentary thinking, concepts and methods. Both of them emphasize the necessity of the quantitative measurement or operational verification of the values 11.”
Experience shows that over the years both the ideologies have produced negative results. American author and former Harvard University Professor David Korten notes: “Both advanced social experiments on a massive scale that embodied a partial vision of society, with disastrous consequences 12.”
Macaulay education made Indians lose their originality
Centuries of domination by the Mughal invaders and the descendants of the alien interests resulted in destructions and disturbances. Later the Europeans brought India under their control, bleeding her to the maximum extent. Durant wrote in 1930: “ The British conquest of India was the destruction of a high civilization by a trading company utterly without scruple or principle, careless of art and greedy of gain, overrunning with fire and sword a country temporarily disordered and helpless, bribing and murdering, annexing and stealing, and beginning that career of illegal and ‘legal’ plunder…….. 13”
The systematic assault on the social, economic and cultural lives of the natives decreased the morale of the population, leading to undermining of the Indian systems. Aurobindo wrote: “ English rule … undermined and deprived of living strength all the pre-existing centres and instruments of Indian social life and by a sort of unperceived rodent process left it only a rotten shell without expansive power or any better defensive force than the force of inertia 14.”
The British interference extended to different fields of Indian society. Education was an important area for them, as they realized the significance of the time-tested native education system in shaping the lives of people. So they replaced it with the Macaulay system in the 1830s.
Swami Vivekananda mentioned the impact of the system after a few decades: “The child is taken to school… By the time he is sixteen he is a mass of negation, lifeless and boneless. And the result is that fifty years of such education has not produced one original man in the three presidencies …. We have learnt only weaknesses 15.” With such as system implemented across the country, the educated sections began to lose their originality and confidence.
Education system has no sense of ‘Indian economics’
The main purpose of the British education system was to teach the natives that the western history, systems and ways of life were superior. Besides, it emphasized that the native population had no history respectable history or functioning systems worthy to follow. As a result, the true economic history of India did not find a place in text books. Unfortunately the same position continues even today.
Similarly the functioning economic systems in practice are not taken up for discussions in educational institutions, as our education system refuse to look at them. But all that is western is accepted immediately, whether it is their history or contemporary theories.
India is an ancient civilization with strong economic base
India is an ancient civilization with thousands of years of backgrounds and experience. She remained a pioneer in diverse fields of human activity with exemplary performance. India, with all her superiority and world class achievements, could not have continued for so long without a strong economic base. Kumarappa mentions that the Indian and Chinese civilizations survived for a long time as the values of permanence remained as the base16.
Indian economy during ancient periods
India has a very long economic history. Writing about the history of business, Agarwala notes: “Commercial cities like Harappa and Mohenjodaro were founded in the fourth and third millennium BC. Trade centres had also come up in Western India in the fourth and third millennium BC…… India thus became a great exporting country 17.”
India is the nation where economics as a science developed. Kautilya quotes several authorities earlier to his times in his treatise. Rangarajan notes: “The study of economics, the art of government and foreign policy is thus very old; the developments of the science in India, according some scholars, may have started around 650 BC 18.” Arthashastra reveals the advanced nature of economic thinking and practices more than 2300 years ago.
India as a global economic power during 0 CE
Maddison’s study of economic history for the past two thousand years reveal the status of India as the top most economic power during the beginning of the Common Era. Table 1 provides the shares of India, China and Western Europe in World GDP during 0 CE 19.
Total Western Europe
The table reveals the predominant position of the Indian economy during 0 CE, with a global share of 32.9 percent. China was following us with 26.2 share. The contribution of the total Western Europe was less than one third of India’s share. India could not have contributed almost one third of global GDP, without strong fundamentals and superior performance of the different sectors of the economy.
India maintained her economic supremacy for the longest period
Another important point to be noted is that India had kept her dominant status for about three fourth of the time during the previous two millennia. It is the most sustainable performance by any country in the recorded history of the world. Table 2 presents the shares of GDP between 1000 and 1700 CE 20. In between, the share of India went below China during 1600.
Total Western Europe
Destruction by Colonialists and loss of Indian supremacy
Indian economy started declining fast beginning from the eighteenth century, due to the destructive approaches of the colonial powers. As a result India lost her long held status as the premier economic power. Simultaneously the UK and Western Europe emerged stronger. Later beginning from the nineteenth century, the US began to rise ultimately emerging as the dominant economy during the subsequent periods.
Free India witnessed economy moving, despite wrong state policies
Closer analysis of the performance of post-independent economy reveal that India has been emerging on her own, in spite of the wrong approaches of the policy makers. We have to remember that India is now the third largest economy in the World in terms of Purchasing Power Parity; second fastest growing nation after China; and the country with perhaps the largest number of entrepreneurs.
There has been a substantial improvement in the lives of people over the decades. Our businesses have grown beyond the borders, with many of the corporations and the local clusters becoming popular at the global level. Besides, experts predict that India has the potential to emerge as a very powerful economy in the coming years.
India’s resilience lies in her native functioning systems
The reason for India’s progress is her strong fundamentals and native functioning systems. Special features of the Indian economy such as the high saving rates, mobilisation of larger domestic funds, more self-employment, higher levels of entrepreneurship and the dominance of non-corporate sector are due to the inherent strengths our nation, namely the family orientation, social capital, lesser dependence on the state and higher value systems. It is these strengths that are responsible for the unique functioning models in place.
Family orientation and Social capital
Family orientation is a major factor playing a positive role in all our economic activities ranging from higher savings to entrepreneurship. Society plays a vital role in the economic development. Social capital is a critical asset that helps our businesses to grow fast based on mutual relationships.
Lesser dependence on the state and its mechanisms
A unique feature of our economic system is the self-dependent approach and lesser dependence on the state at all levels. This factor helps the country to move forward and grow, with the local societies taking the lead without waiting for the state.
Higher value systems, trust and goodwill
Higher qualities such as trust, faith and goodwill form an important part of our economic transactions throughout the country. This is a unique feature of our system, which helps the nation to move forward based on mutual trust and goodwill.
Culture plays the critical role in economic development
The failure of the globalisation model has forced some of the western scholars to think seriously about their positions. They now realize that culture plays the critical role in economic development. David S.Landes notes: “If we learn anything from history of economic development, it is that culture makes all the difference 21.” Hence it is accepted that there could be many ways of economic modernization and different models, based on the cultural backgrounds of countries. Hayami writes: “Indeed, the traditional culture or value system is an important basis of economic modernization. However, it does not appear that the value system consistent with modernization is limited to specific culture (such as Protestant ethic) 22.”
Unique Indian culture is taking the economy forward
The age-old Indian culture drives economic activities through its unique fundamentals and inherent strengths. It propels the economy to move continuously forward, despite all disturbances and difficulties. More than a decade ago, the American economist Galbraith noted: “We have seen many years of Indian progress, and that is attributable to the energy and genius of the Indian people and Indian culture 23.” Different studies during the recent periods acknowledge the role of the cultural and civilizational backgrounds in the onward march of the Indian economy.
Education system has failed to understand the economic realities
The post-independent Indian education system with all its power and strength has unfortunately failed to attempt and understand the true economic history of the nation. Hence there is no idea about the Indian thought process in economics, in spite of her superior performance over several centuries. As a result, Dasgupta notes: “Indian economic thought is relatively little known either in India or elsewhere 24.” But we are producing graduates and scholars who look at India as the colonial historians, negating India’s past despite concrete evidences. There is a complete failure on the part of Indian scholarship regarding economic history.
It is even more unfortunate that the Indian experts continue to look at the contemporary economic systems through the western glasses. There remain two schools of scholars, namely those who subscribe to the leftist approach and those who support the market ideology. There are hundreds of them in each group, in spite of their approaches failing everywhere. But there are not even a handful who could think of an ‘Indian model’ in spite of the superior performance over several centuries and contemporary successes.
Western experts acknowledge the failure of their theories
It is significant to note that several western academics and experts have begun to understand the limitations of their approaches and acknowledge the failure of their models. Analyzing the impact of the western economics over people and the societies, Harvard Professor Marglin notes: “But over the past four hundred years, the ideology of economics has fostered both the self-interested individual and the market system, and has undermined, and continues to undermine the community 25.” After witnessing the global economic crisis, Nobel economist Krugman admits: “Much of the past 30 years of macroeconomics was spectacularly useless at best, and positively harmful at worst 26.”
Financial models of US academics not used there
One of the most researched areas in the fields of economics and finance in Indian universities and business schools during the past three decades is financial markets and specifically the ‘efficient market theories.’ Because this was the area in which many top academicians in the US concentrated, producing several research works and earning multiple recognitions including Nobel prizes. Hence several academics and research scholars in India also attempted similar studies leading to thousands of projects, papers and theses in this area.
But the top professionals in US openly admit that such studies are not beneficial to them. Munger, the Vice-Chairman of the Berkshire Hathaway, the most successful investment company in the world, says: “Well, Berkshire’s whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form. And not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the capital asset pricing model, which we also paid no attention to 27.” In spite of the evidences, our education system is obsessed with the western theories without understanding their relevance to our economy.
Irrational development concepts due to wrong education
Irrational development concepts and alien ideologies continue to dominate the national discourse and policy making, in spite of the continuous failure of the western models. There are no serious attempts to understand the Indian economy from the national perspectives and develop India- centric approaches at different levels. The reason for this situation is the wrong system of education.
It may be useful here to look at the response of the educated elite in China during economic reforms and later when the western technology and culture entered the country. Mohanty notes: “Even in the height of economic reforms in China and spread of western technology as well as cultural forms in recent years the Chinese elite has emphasized “Chinese characteristics” on every front. On the other hand, the Indian elite has shortly assimilated itself with the various waves of Westernization in the spheres of culture, economy and politics 28.”
Need for Bharatheeya Model of development
We are in a crucial period in the history of the world. The western models have failed. India is a repository of economic wisdom as a traditional super power. Moreover, she has successful working models functioning at different levels even today, despite all confusions and contradictions at the policy making level. Field level studies conducted in different parts of the country indicate that unique models are in operation. Kanagasabapathi notes: “Fortunately for India there are performing models. It is these models that are responsible for taking the country to higher levels 29.”
India has enormous strengths backed by her native wisdom and immense potential to perform. There remains many aspirations to fulfil. The nation is capable of achieving all of them, sharing the fruits with all the sections of society.
National education and Nation-centric economic model
What we need urgently is to course correct the path of our economic trajectory, for the all-round development of the nation. We need to frame policies based on our experiences and the realities at the ground level. Early introduction of national education will pave the way for a faster and smoother nation-centric policy making. The main objective of both the national education and nation-centric economics is to help people progress and make our nation, the Vishwa Guru.
1. National Statistical Organisation, Govt. of India, 2011
2. Economic Survey 2013-14, Table 1.6, Govt. of India
4. National Sample Survey Organisation, Govt. of India
5. Kanagasabapathi, P., Indian Models of Economy, Business and Management, PHI Learning Pvt. Ltd., New Delhi, 2012
6. India Brand Equity Foundation, ‘ Hinterland India: The Real Source of India’s Entrepreneurship’ in www.ibef.org
7. Final Report: Fourth All India Census of MSMEs 2006-07- Registered Sector, Ministry of Micro, Small and Medium Enterprises, Govt. of India, New Delhi, 2011
8. Kumarappa, J.C., Economy of Permanence, 6th ed., Sarva Seva Sangh Prakashan, Varanasi, 1997, p.40
9. Frank, Andre Gunder, ReOrient: Global Economy in Asian Age, Vistaar Publications, New Delhi, 1998, p.166
10. Frank, op.cit., p.127
11. Bhole, L.M., Essays on Gandhian Socio- Economic Thought, Shipra Publications, Delhi, 2000, pp.47-48
12. Korten, David C., Agenda for a New Economy, Tata McGraw Hill Publishing Company, New Delhi, 2009, p.80
13. Durant, Will., The Case for India, Simon and Schuster, New York, 1930, p.6
14. Aurobindo, Sri., The Renaissance in India and Other Essays on Indian Culture, Vol. 20, p.58 in The Complete Works of Sri Aurobindo, Sri Aurobindo Ashram, Pondicherry, 1997
15. Swami Vivekananda on India and her Problems, Advaita Ashram, Calcutta, 1985, pp.38-39
16. Kumarappa, op.cit., p.40
17. Agarwala, P.N., A Comprehensive History of Business in India, Tata McGraw Hill Ltd, New Delhi, 2001, p.266
18. Rangarajan, L.N., Kautilya: The Arthashastra, Penguin Books, New Delhi, 1992, p.4
19. Maddison, Angus, The World Economy – A Millennial Perspective, Overseas Press India Limited, New Delhi, 2003, p.263
21. Landes David S., quoted in Meirer, Gerald M. and Stiglitz, Joseph E. ( Eds.), Frontiers of Development Economics – The Future in Perspective, World Bank and Oxford University Press, New York, 2002, p.30
22. Hayami, Yujiro, Development Economics – From the Poverty to the Wealth of Nations, Oxford University Press, New York, 1998, p.280
23. Galbraith John K., Interview, Outlook, August 20, 2001
24. Dasgupta, Ajit K., A History of Indian Economic Thought, Routledge, London, 2003, p.3
25. Marglin, Stephen A., The Dismal Science: How Thinking Like An Economist Undermines Community, Oxford University Press, New Delhi, 2009, p.1
26. Krugman, Paul., ‘What Went Wrong With Economics’, quoted in The Economist, July 16,2009
27. Munger, Charles ., “Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs”, Herb Kay Undergraduate Lecture, University of California, Oct 3, 2003
28. Mohanty, Manoranjan, “Colonialism and the Discourse in India and China” in Tan Chung, ‘In the Footsteps of Xuan Zang: Tan Yun-Shan and India’, Indira Gandhi National Centre for Arts, New Delhi, 1999
29. Kanagasabapathi. P., op.cit., pp.300-301
( Chidhi- Punarutthan Vidyapeeth Patrika, Punarutthan Vidyapeeth, Ahmedabad, Oct.2014)