India’s
Traditional Economic Systems
India is an ancient civilization with outstanding
contributions in diverse fields of life. India was a pioneer in economic
initiatives and remained the dominant economic power at the global level for
several centuries. Long periods of domination by alien forces, especially which
of the Europeans for about two hundred years, resulted in the systematic
destruction of the time-tested Indian systems that were in use.
With the
introduction of the new education system during the early nineteenth century,
the British were able to lay the foundation to disconnect the elite and the educated
sections from their roots. As a result
modern India finds it difficult to understand the country and connect it to the
realities. Besides the imposition of western ideas and thoughts over all these
years has created an impression that India does not have the fundamentals to function
on her own. But this is not true.
The recent developments at the global level confirm the
failure of the western models. Their own experts admit that their economic and social
models have largely failed. At the same
time, the slow and steady rise of India after independence shows that her functioning
models are much better than those of the richer countries.
Indian
economy – Ancient and pioneering
India has a proud economic history. She was engaged in
different economic activities. There were exclusive commercial cities and trade
centres dominated by the merchant classes catering to the world markets, more
than five thousand years ago. Evidences indicate that different forms of
business organizations, including srenis
(ancient corporate form) and partnerships, existed at least 2800 years earlier.
Economics, as a subject of science, is believed to have originated in India
more than 2600 years ago. Arthashastra,
the first book on economics in the world, underlined that the basis of wealth
of the nation was economic activity and that the state should run a ‘diversified
economy.’
India
remained the most powerful economy
Maddison shows that India remained as the economic
super power for most of the time during the previous two millennia 1. India had the highest share in the global
economy, accounting for 32.9 per cent of world GDP, during the beginning of the
Common Era (CE). India continued to maintain her status as the premier economy and
was dominating the world along with China till the nineteenth century. Even repeated
invasions and the consequent disturbances could not affect her functioning much.
India was made poor
The Europeans destroyed India systematically. Their fatal
assault on the vital sectors of the economy and the drain of resources had
completely shattered India. The native systems that were built up over the
years lost their significance. As a result India was made a poor and
underdeveloped country. India’s share of global GDP came down to 4.2 per cent
in 1950. During 1950-51, about 45 per cent of the people were living below
poverty line; 18.3 per cent was the literacy rate and the average age of life
was just 32.1 years 2. Industrial and business sectors were very
weak. Most of the people were dependent on agriculture which had become
unviable several decades ago.
India
emerges amidst difficulties
Now after sixty five years of Independence, India is
fast emerging as a crucial player in the global order. She is widely recognized as a potential nation
possessing the capacity to reach the premier position in the coming years. The
International Monetary Fund notes that India is the third largest economy in
the world in 2011, with a GDP of $4.46 billion 3. Besides India
remains the second fast growing nation after China. From being a poor country without
much recognition, how did India become a nation commanding all round respect within
a period of six decades? Almost all the estimates predict India to occupy a
bigger space at the global level. How is this happening?
One has to remember that all these developments have been
happening, despite the state adopting policies based on the ideologies evolved outside.
Initially for more than thirty years the socialistic ideology guided our policy
makers and since the 1990s, the US driven market capitalism remains their
inspiration. Hence the development over the years remains uneven, with large
sections of people facing serious difficulties in critical sectors such as agriculture.
Poverty and unemployment remain to be
addressed seriously. Inequalities and consumerist tendencies are on the rise.
But India is progressing in spite of the confusions
and contradictions at the top and the myriad problems surrounding her people.
Studies reveal that it is all due to the functioning systems that are based on
stronger foundations.
Cultural
values as the bedrock of economy
India’s
greatest asset is her cultural backgrounds. The traditional institutions of close
knit families and societies are the products of our culture. Hard work, frugal
living, high rates of saving, higher levels of entrepreneurship, higher social
capital and relationship- based activities are all part of our value systems that remain as the foundations
of the economy. Indian culture treats everyone as part of the larger family.
Faith, goodwill, integrity, mutual understanding, norms and ethics are the basic
elements of Indian life that impact on the activities of our people, including the
economic transactions.
Family,
community and traditional values
Families are the basic social, cultural and economic units
in India. They are the prime source of savings in the country. These savings remain
the basis for all the productive and entrepreneurial activities. Indian
families are built on close relationships based on love, affection, faith,
dedication and sacrifice. For much of
the economic initiatives, families remain the source of inspiration, providing
the entrepreneurs the much needed support during the crucial periods. Studies show that mothers, grandmothers,
wives and sisters help accessing savings for entrepreneurial initiatives. As a
result, major part of the initial investments comes from families, close
circles and local sources. Economic Census 2005 reveals that the in about 95
per cent of the instances, promoters mobilize funds through their families and own
sources in the unorganized sector 4.
Communities function
as the extended families in different parts of the country. As a result, there is high social capital in
the society. It enables economic transactions on the basis of mutual
understanding, faith and good will. World Bank 5 notes that the
emergence of Tirupur as a global textile centre has been facilitated by the easy
availability of funds at lower costs to the exporters through ‘credit rotation’
during their times of need. It is possible due to the close relationships that
prevail in the local societies.
Self-employment
and higher levels of entrepreneurship
Long back, sage Vidhura noted that ‘self-employment is
the best status in life’. Indian tradition considers self-employment as a
virtue and accordingly it was given the highest status in the society. The
concept of self-employment is unique to the Indian system that we find few parallels
elsewhere. It is significant to note that in spite of the changes in the
economic and social structures over the years, self-employment remains the most
preferred form of activity among Indians. The Project OASIS Report notes that
53 per cent of the total workforce in the country was engaged in
self-employment 6. At the same time, the self-employment rate in all
the richer countries was 16.8 percent, while it was 7.5 per cent in the US
7.
Higher levels of entrepreneurial qualities prevailing in
the society are a distinct feature of the Indian economy. Quoting Global
Entrepreneurship Monitor Report 2003, India Brand Equity Foundation notes that
“with more than 85 million businesses, India is one of the most entrepreneurial
countries in the world 8.”
Economic Census 2005 notes that there were 41.83 million enterprises
functioning in the unorganized sector with 100.90 million persons working. As
of 2009-10, there were more than 29.8 million units in the Micro, Small and
Medium Enterprises sector providing employment to more than 69.5 million
persons 9. Ministry of Company Affairs notes that there were nearly
8, 73,000 companies at work during 2010 10. Earlier, the Ministry of Small Scale
Industries, Government of India had estimated that there were 2042 clusters functioning
across the country 11. Many of these clusters such as Surat,
Ludhiana, Agra, Tirupur and Kanpur play a significant role at the global level.
Self-made,
self-financing and not state dependent
It is relevant to note that the family based
non-corporate sector contributes about 57 per cent to the national output. The
promoters of much of these enterprises are ordinary people from humble
backgrounds, with lesser qualifications. A study of diamond exporters in
Gujarat showed that around 66 per cent of them have studied less than fifth
standard 12. But these are the people who dominate their fields at
the national and global levels. They have mastered businesses, technology and
management through dedication, experience and native wisdom.
As a result, they
compete with the mega corporations at the international markets and succeed.
Their business models are entirely local. Theirs businesses are self- made, self-financing
in nature and not dependent on the state.
Studies show that more than 95 per cent of the corporate sector is family
based. During the recent periods, an increasing number of Indian companies are going
to many countries to play bigger roles.
Higher
values in business transactions
It is important to understand that higher values
dominate the business transactions to a large extent. Most of the transactions
in the non- corporate sector, which constitutes the major part of the Indian
economy, take place on the basis of faith and goodwill. In a study of the
non-corporate finance sector in Karur, the textile export centre from Tamil
Nadu, it was found that almost the entire financial transactions revolved
around goodwill and faith 13.
Mutual understanding and higher value systems prevail
across the country, irrespective of the backgrounds of the people. Dutta writes:
“The cultural artifacts- the languages spoken, gods worshipped and the numerous
other details – differ from business community to business community across the
country. But the value systems are
surprisingly similar.14” Studies in clusters reveal close personal relationships,
cooperation and trust among businessmen from different religious communities.
There
are higher norms in practice in most of the industrial and business centres. Dwivedi
presents in the context of Kanpur saddlery cluster: “Norms function in the
cluster irrespective of the personal relationships that entrepreneurs have with
each other and have an implication in providing stability to the entire
cluster. We reported earlier that there are no legal contracts held among
businessmen in this cluster. This practice seems to be based on normative
behavior rather than a matter of having personal experience with the other
party. Even in case of new ties, a contract is not demanded because it is
simply not considered a way to do business.15”
Indian
models emerging at the global level
India has been growing steadily over the years. She is
one of the countries least affected by the recent global economic crisis. The Indian economic, business and management
models are emerging at the global level during the recent periods. For example,
Arvind Hospitals and Narayana Hridayalaya were studied by several international
institutions for emulating their practices in other countries. In this respect many
foreign universities, management institutes and research organizations have
been visiting India to study the Indian systems.
Culture remains the basis of development
India was a dominant economic power for most of the time
during the earlier periods. She is emerging once again during the recent
periods. The main reason for this is the unique functioning models that are
built around the cultural foundations and traditions of this land. These models
are the efforts of the native the Indian genius born out of the beliefs,
lifestyles and practices of our people.
The economists and management experts of the west acknowledge
that the foundations of Indian economic development lie in her culture and unique
backgrounds. Earlier John Kenneth Galbraith, former ambassador of USA to India
and an economist, noted: “I wanted to emphasize the point, which would be
widely accepted, that the success of India did not depend on the government. It
depended on the energy, ingenuity and other qualifications of the Indian
people. …… We’ve seen many years of Indian progress, and that is attributable
to the energy and genius of the Indian people and her culture 16.”
Recently a team of management professors led by Peter
Cappelli from the Wharton Business School, US analyzed the leadership practices
of Indian companies. Pointing out the superior practices in India, they note: “The
Indian leadership approach arose from the unique circumstances of the Indian
economy and society 17.”
Decades ago, the Gandhian economist Kumarappa who
wrote on the ‘Economy of Permanence’, noted that the Indian and Chinese
civilizations had survived long as they were based on the values of permanence.
He said further that our forefathers had laid down this kind of a foundation purposely
with great vision. Kumarappa underlined: “The enduring qualities of these
civilizations are pointers to the great farsighted standards of value our
forefathers had made use of, in laying the foundations of a lasting society 18.” Studies prove that the age-old Indian
civilization, with her deep rooted values and traditions, remains the basis for
economic development.
References:
1.
Maddison,
Angus, The World History, Academic
Foundation, New Delhi, 2007
2.
Economic Survey 2010-11, Government of India
3.
World
Economic Outlook Database, International Monetary Fund, 2012
4.
Economic Census 2005, Government of India
5.
World Development Report 2001, World Bank, Washington
6.
Project
OASIS Report, Government of India, 1999
7.
OECD
Fact book 2011, Organization for Economic Cooperation and Development, Paris
9.
Fourth All India Census, Ministry of Micro, Small and
Medium Enterprises,
Government of India
10. Annual
Report 2010-11, Ministry of Company Affairs, Government of India
11. Final
Results: Third All India Census of Small Scale Industries 2001-02, Ministry
of Small Scale Industries, Government of India
12. Patel, Sharad and P.Kanagasabapathi, ‘ A Study
on Gujarat Diamond Export Industry’, P.S.G. Institute of Management,
Coimbatore, 2005
13. Kanagasabapathi, P., Unorganised Finance Sector: The Engine for Economic Growth- A Study
with Reference to Karur, Swadeshi Academic Council, Coimbatore, 2002
14. Sudipt Dutta, Family Business in India, Response Books, New Delhi, 1997
15. Dwivedi, Mridula, ‘ Nature of Trust in Small
Firm Clusters: A Case Study of Kanpur Saddlery Cluster’, Paper presented at
conference, Modena, Italy, 2003
16. Galbraith, John K, interview, Outlook, August 20, 2001
17. Peter
Cappelli and others, ‘Leadership Lessons from India’, Harvard Business Review, March 2010
18. Kumarappa,
J.C., Economy of Permanence, Sarva
Seva Sangh Prakashan, Varanasi, 1997
(Vedanta Kesari Spotlight
Issue, Ramakrishna Math, Chennai, Vol.99, No.12, Dec.2012)
