Creating an India Consensus for growth

Mains Paper: 3 | Economics 
Prelims level: Not so important
Mains level: Economic reforms and related consequences 

Context 

• A principal cause of the global politico-economic malaise is the widespread breakdown of people’s trust in the political establishments that have been ruling them in the past few decades.
• Another force disrupting the Washington-dominated march of globalization is the remarkable rise of China. “Death by China” is the title of a book by Peter Navarro, chief of trade and policy in the Trump administration.
• The US, shaken by what China achieved by its industrial policies to become the factory of the world, is alarmed by what it may achieve by its Made in China 2025 policy whereby it aims to also dominate emerging technology sectors, such as robotics and artificial intelligence. 
• The US in the ongoing trade war between the two countries is that China should dismantle its Made in China 2025 policy. 

Economic development a comparison between India and China 

• The China’s and India’s economic development since the 1990s is stark.
• Now China’s manufacturing sector is 10 times as large, and machinery production in China is 50 times more than in India.
• India and China have taken different paths to industrial development since the 1990s.
• India was coerced into adopting the path of the Washington Consensus when it turned to the International Monetary Fund (IMF) for support because its foreign exchange reserves had become precariously low.
• India had to open its economy for more imports and more investments by foreigners. Free market ideologies, on which the Washington Consensus was founded, forbade government supported industrial policies. 
• Whereas China stayed on its own course of building domestic capabilities.

What has been India’s overall economic achievement? 

• India’s current account deficit has averaged 1.9% over the past five years, hardly less than the 2% in 1990 when India had to go to the IMF. 
• India does not have to turn to the IMF now because inflows of foreign direct investment (FDI) and foreign institutional investment (FII) since 2000 have been over $600 billion. 
• Central depository data show that foreign investors (FDI and FII) own a combined 56% of the value of all shares outstanding.
• It is estimated that more than half of all profits generated by the organized private sector accrue to foreign investors. 
• India, meanwhile, is confronted with a big economic and political challenge. 
• Good times for its masses will come only when their incomes rise faster, with jobs and ownership of enterprises. 
• The numbers of jobs generated by each unit of gross domestic product (GDP) growth—is among the lowest in the world. 
• Small enterprises find it difficult to do business and grow. 
• Even large enterprises have not been investing much in recent years. 

The principles of the Washington Consensus 

• No boundaries for flows of trade and finance.
• Rights of investors privileged over rights of workers.
• Limited role for governments in economies.
• Social security is a ‘socialist’ idea, and therefore bad.
• National governments subordinated to international organizations (WTO, World Bank) and to demands of international investors and companies.
• National industrial policies forbidden.

Way forward 

• India needs sound economic policies to grow more production, more enterprises, and more jobs in India. 
• A strategy is necessary to integrate trade, industry, labour, finance, and other policies to achieve the country’s goals.
• Economic reforms whose thrust is to provide consumers more stuff to aspire for, but do not provide them the means to earn and pay for, are short-sighted. 
• They will result in social and political problems, as India is experiencing now.
• The litmus test of India’s economic strategy must not be whether it is attractive for foreign investors (which seems to matter too much now to many Indian economists and policy-makers), but whether it is attractive for small, Indian entrepreneurs. 
• When Washington has dumped the principles of the Washington Consensus, it is time for India’s economists and policy-makers to wake up to a new world order. 
• It is high time that India creates an India Consensus for its own development. 
• Shorter term benefits, of satisfying customer needs (in this case the armed forces) and accepting suppliers’ conditions so that deals can be done continue to weigh over longer term requirements of building the country’s own industrial base. 
• India  need to be taken more seriously in shaping global trade and geo-political policies, as China is now, India must change the policy framework applied to its own development. 

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General Studies Pre. Cum Mains Study Materials

UPSC Prelims Questions: 

Q.1) Which among the following is/are the qualitative tools to control credit creation by RBI?
1. Open Market Operations
2. Repo Rate
3. Margin Requirements
4. Credit Rationing Policy
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 3 only
(c) 1, 2 and 3 only
(d) 3 and 4 only
Answer:  D

UPSC Mains Questions:
Q.1)   What has been India’s overall economic achievement?