“India symbolises most powerfully both the productiveness of market capitalism and the stagnation of socialism… The reason FDI has lagged badly in India is perhaps no better illustrated than by its unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems… For Indian manufacturing to become globally competitive, a major scrapping of the remaining parts of the license raj is required.”
The US Federal Reserve’s longest-serving chairman Alan Greenspan, or ‘The Oracle’ as financial markets viewed him, had a nuanced view of India at the time he wrote his memoir, The Age of Turbulence: Adventures in a New World, published in 2007. While he credited India’s 1991 reform push for tearing a ‘modest hole’ in India’s regimented economy, and exemplifying that a little economic freedom and competition can exert extraordinary leverage on growth, he had blamed the lack of progress in the 15 years since then to an idea left behind by the British that had ‘captivated India’s elite’ — Fabian socialism.
“The pick-up in real GDP growth from 3.5 per cent between 1950 and 1980, to 9 per cent in GDP has been truly remarkable”, Greenspan said, but attributed the “reason for India’s failure to follow China off the lower rungs of developing nations” over the 15 years since 1991, to the grip of socialism in India’s polity and society.
“Jawaharlal Nehru… was firmly attracted by the rationality of the Fabians, and he perceived market competition as economically destructive. Because of him, socialism has retained a firm grip on Indian economic policy long after it was abandoned by Britain,” he argued. Nehru, he reckoned, was ‘entranced by central planning as the rational extension of human beings acting in concert to produce material well-being for the many rather than the few’.
“Socialism not only is a form of economic organisation but also, because of its fundamental premise of collective ownership, has profoundly important cultural implications, most of which have been embraced by a majority of Indians. The notion that government intellectuals, driven by the good of society overall, can far better determine the appropriate allocation of resources than can “erratic” free-market forces, dies hard in India,” Greenspan had posited.
As an example, Greenspan referred to the usual response of Indian policy makers to spikes in food inflation — ban exports and suspend futures trading to “curb speculation” — which he believed were the “very market forces that the Indian economy needs to break the stranglehold of bureaucracy”.
Calling then Prime Minister Manmohan Singh a “highly reputable reform-oriented economist, who introduced much reform”, Greenspan had, however, stressed that he was constrained by the enduring socialist inclinations of his governmental coalition in many critical areas.
In his memoirs, Greenspan also ventured into some crystal-ball gazing about the key players in the world economy in 2030, and wrote about India’s potential at the time.
“While India is an admirable democracy — the largest in the world — its economy, despite important reforms since 1990, remains heavily bureaucratic. Its economic growth rate in recent years is among the highest in the world, but that is off a very low base. Indeed, India’s per capita GDP four decades ago was equal to that of China, but is now less than half of China’s and still losing ground. It is conceivable that India can undergo as radical a reform as China and become world-prominent. But at this writing, its politics appear to be leading India in a discouraging direction.”
Acknowledging that Singh did not have the “authoritarian clout that enabled Deng Xiaoping to start China’s agricultural reforms in 1978”, Greenspan, however, believed that the Indian democracy is “up to this task”. “It needs only to focus on the urgent needs of India’s population. A very large dose of deregulation and competition can spread India’s IT revolution to the rest of the country,” the Oracle had averred.
