Lessons from how Western economies got ahead of us (Mint)

Mains Paper 3: Economy
Prelims level: Not much
Mains level: Economic growth and development

Context:

• The coronavirus is a capitalist conspiracy to stop the convergence of the Chinese economy with that of the developed West" is a possible headline one of these days.
• Regardless of whether or not it is a capitalist conspiracy against China, the outbreak of the virus and the response of all countries illustrates the risks that today’s developing countries face.
• It could be an upper middle-income country like China, or India, which is still trying to achieve that status. They face a tougher task to converge towards high income status.

Effects of climate change:

• Some of the workhorse models of global warming are now showing a higher degree of global warming that modellers are unable to understand.
• They hope that this is a case of models misbehaving and that they would start behaving normally soon.
• However, climate change concerns, threats and environmental as well as ecological degradation are occurring for developing countries well before they have caught up with the living standards in West.

How did Western nations pull away?

• In modern times, military conflicts between existing and rising powers are rare.
• However, war machines are fine-tuned in other areas. It could be germs and viruses, both of the biological and the cyber varieties. Actually, the West weaponized trade too.
• When Western nations were graduating from agrarian states to industrial states, tariffs and restrictive trade practices were the norm. Once they grew and developed capacities, they batted for free trade.
• When they became less competitive in manufacturing because wages had risen along with economic prosperity, they championed free trade in services, including in financial services.
• Free and unrestricted capital flows became as axiomatic as free trade in goods. However, the point is that free trade in goods was never axiomatic but episodic and deployed according to convenience when the West was rising.

Way ahead:

• India needs to learn that it cannot fight shy of adopting restrictive trade practices when needed. The Union budget for 2020-21 does it well.
• At the same time, nurturing domestic industry should be understood as demanding performance in terms of productivity, and responsible corporate citizenship in return for protection from external competition.
• Also, India needs to invest in state capacity at all levels. The government has begun considering lateral hiring. It is a trickle.

Conclusion:

• The country needs a deluge. That includes not only appointing private sector talent in civil services but also engaging them in task forces, in imagining industries and growth engines of the future and in shaping regulation for the 21st century.
• Further, building state capacity means enforcing accountability. This means ushering in a culture of goal-setting and performance measurement.

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Prelims Questions:

Q.1) With reference to the Monetary Policy, consider the following statements:
1. In order to ensure availability of adequate liquidity in the banking system, the RBI Governor announced that it will soon start conducting long-term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of 1,00,000 crore rupees.
2. Banks have been exempted from maintaining the cash reserve ratio (CRR) for home, auto and MSME loans that are extended from January 31 to July 31.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both
(d) None

Answer: C
Mains Questions:
Q.1) The current economic slowdown will reverse itself soon enough but without a strong and capable state, a sustainably strong economy will continue to elude India. Elucidate the statement.