Shekhar Gupta / An Economic Survey like never before...

The Economic Survey 2020, presented a day before the presentation of the Union Budget, strikes out a path radically different from what the Modi Govt. has followed so far. Unlike the past, it talks about wealth, trust and the invisible hand of the market

"So far in India, we talked about poverty, we glorify poverty, we privilege poverty over wealth, wealth is bad, and poverty is good. So anyone to be virtuous has to be poor and anybody who’s wealthy is by definition suspect. There is a challenge to that thinking now because this economic survey puts wealth above everything"

As is customary on the eve of the Union Budget, the government’s Economic Survey is out. Now if you look at this Economic Survey, in tone, in emphasis, in direction, this is quite different from any that Modi governments have put out so far, beginning 2014, and this is a big shift. I like this shift and I like this Economic Survey and I am hoping that this shows the change in the direction of India’s political economy.

You can read the survey, it is in two volumes, it is a large one and if you are an economist, or even if you have basic academic knowledge of economics which I don’t-you can read those charts and you can understand the charts and those figures better. I am talking about the political messages I read here, and the political lessons we can learn from it because it is a democracy and behind everything from economics to warfare, behind everything, there is politics.

Wealth is good

What is the politics that this Economic Survey is indicating? As I go into that let me pick out some catchphrases from this survey. First, the three that catch my attention. One is wealth. So far in India, we talked about poverty, we glorify poverty, we privilege poverty over wealth, wealth is bad, and poverty is good. So anyone to be virtuous has to be poor and anybody who’s wealthy is by definition suspect or a usual suspect.

If you created money, if you created wealth, you are seen to be a suspect. There is a challenge to that thinking now because this economic survey puts wealth above everything and to make that point, it actually uses a lot from Indian culture and India’s own rich and very glorious past. It reminds us first of all that ‘For three-fourths of known economic history, India has been the dominant economic power globally.’ Then it says that it was the dominant global economic power when India’s economy was free when what Adam Smith calls ‘the invisible hand of the market’ was allowed to work and governments didn’t interfere too much. There are quotes liberally used both from Thirukural by Thiruval-luvar, the southern saint, and from Kautilya.

In fact, these are the shlokas that begin the survey:

“Wealth, the lamp unfailing, speeds to every land. Dispersing darkness at its lord’s command.”

—Thirukural, Chapter 76 verse 753.

Another quote from the same chapter of Thirukural:

“Make money there is no weapon sharper than it to sever the pride of your foes.”

—Thirukural, Chapter 76 verse 759.

All Indian

It tells you nothing non-Indian about capitalism, there is nothing non-Indian about making money, there is nothing non-Indian about free markets. A free market is not an idea that got transplanted to India from the evil West. In fact, it is a native Indian idea and as long as India followed it, India prospered.

It was a dominant economic power, and in the last seven decades, India had what is called a ‘tryst with destiny’. That is the second catchphrase I pick up, tryst with destiny, and the third is trust. I will come to that. I talked about Thiruvalluvar, there is also a quote from Kautilya. Not to leave anything to chance. It says, “The root of wealth is economic activity and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction...”

I think that’s what some of us have been writing in our editorials now for decades. But the answer always was, what about the poor? And we said, we will create wealth and it will reach the poor. But trick-le-down doesn’t happen. But this is Kautilya talking. It further reads, “...A king can achieve the desired objectives and abundance of riches by undertaking productive economic activity.” It further states that “Kautilya advocates economic freedom by asking the king to ‘remove all obstructions to economic activi-ty’.” (Sihag, 2016).

Pre- and post-1991 epochs

Now, this is exactly opposite to the kind of economy we have had for most of our history since 1947. Except for one phase, 1991. And that is the other important take away from the survey. There is a lot of mention of 1991. It is almost as if Independent India’s economic history can be divided into two epochs. One is pre-1991 and the other is post-1991.

The next point that I pick out is that Dr Manmohan Singh is not mentioned in this one. Because this Eco-nomic Survey is like a mega compliment to Dr Manmohan Singh and Manmohan-nomics because it goes to say that real growth in India was going downwards, it was really struggling, but real prosperity and growth came from the 1991 reforms when the invisible hands of the markets were strengthened, which means market forces were allowed to function, and when government intervention or the role of the state came down. And it goes on to show with data that those sectors which the government liberalised post-1991 have done much better than those that were not liberalised.

"It tells you nothing non-Indian about capitalism, there is nothing non-Indian about making money, there is nothing non-Indian about free markets. Free market is not an idea that got transplanted to India from the evil West. In fact, it is a native Indian idea and as long as India followed it, India prospered"

Trust the markets

To simplify this, I can tell you, look at telecom. It got liberalised, and how well it is doing. Look at railways, how not very well it is doing. That is where you see the difference: allow Indian entrepreneurship to function freely, of course, intervene when something is going wrong. Don’t let the government interfere too much, and what that means is trust people. Again, this is the key thing in the Economic Survey. Wealth, trust, tryst with socialism. The three big takeaways, which means the government should trust the citizens. The government should trust the businessman, the government should not commit the citizen essentially with an idea of suspicion. Because once you start with suspicion, then comes the licence quota raaj and then come things like spectrum raaj and then you see the worst kind of government intervention. In fact, the survey goes on to remind us that in many areas where the government might have intervened, it says, the government should intervene when there is market failure, but not when the market is functioning well.

So things like the Essential Commodities Act, which was needed when India was going through a period of famines and food shortages, has no relevance now. The survey lists that thousands of raids are carried out under this Act, it is something that is misused and achieves nothing. It should go, it was designed for times when market mechanisms had failed in food so the government had to do something. Now, market mechanisms are doing well, India has surplus food, it is not needed.

Similarly, the Food Corporation of India, which procures all the food. Today, it is not needed. You should trust the markets, you should trust the people in the markets to give the farmers the best value. Secondly, also create market forces whereby more of what is needed is produced, and not what the government will buy and put in some godown where half of it will rot.

So once again, a big vote for unleashing market forces everywhere. I will quote some lines from the survey. “The exponential rise in India’s GDP and GDP per capita post-liberalisation coincides with wealth generation in the stock market.” And that to me is a very interesting observation.

In fact, the first journey for the Sensex to go up from 100 points to 5000 points took 13 years, the next journey of 5000 points took only six and a half years, which is half the period. The next 5000 points, just one and a half years. The 5000 points after that, six months. So what took 13 years earlier, took six months now. The next 5000, there was a bit of slowdown, took seven years, then three years, then just nine months and now, one and a half years. So what it tells you is, as India’s markets grew, the Sensex grew, and accordingly, GDP also grows. The old idea that GDP grows in some isolation and the stock market grows in some isolation that is not true, those things don’t live in separate uni-verses, and they are all part of the same universe. That is an important finding.

"In just about three months, BPCL’s stock has added a value of Rs.33,000 crores since market capitalisation. Just the offer that you are going to privatise a public sector company led to an enhancement in value to the tune of Rs.33,000 crores. It is a lot of money, but it makes the point that even the markets, people, everybody believes these are solid companies with good franchises, if they are privatised, if the hindering hand of the government is taken away, they will acquire much more value"

Vote for privatisation

Another important thing is that when you privatise a PSU, the value of the PSU goes up. It gives you examples of companies that were privatised by Arun Shourie, as disinvestment minister, when Vajpayee was in power after 2000 onwards. It shows that all the good companies added much more value to themselves.

The survey gives you an interesting example. It has a comparison between HPCL and BPCL, how the government of India effectively sold one and is selling the other, just that HPCL was given to another government company, ONGC. The survey says, until September, the stock prices of both, HPCL and BPCL were following the same trajectory.

After September, once the government announced that they will privatise BPCL, its stock price started going up leaving the HPCL trajectory far behind. And since then, in just about three months, BPCL’s stock has added a value of `33,000 crores since market capitalisation. Just the offer that you are going to privatise a public sector company led to an enhancement in value to the tune of Rs.33,000 crores. It is a lot of money, but it makes the point that even the markets, people, everybody believes these are solid companies with good franchises, if they are privatised, if the hindering hand of the government is taken away, they will acquire much more value. There is a big vote for massive privatisation and I do hope that it happens.

This Economic Survey is one of the strongest cases for privatisation, free markets, minimum government, maximum governance and trust than I have seen in any government document since 1991. Some parts look too good to believe. Because that is not the way the Indian bureaucratic system or bureaucratic political complex usually puts out communication on the political economy.

No crony capitalism

This is the big change because if you read it in greater detail, you will also see that it’s talking about, not just that the government should be less involved in our lives, in businesses, it also talks about a more equal playing field for newcomers. Which means that when newcomers come in, and when the existing players feel threatened because they have connections with the government in the political class, they try to ask to increase tariffs, and because of cronyism governments intervene. The survey says, that is not good for Indian entrepreneurship that becomes crony capitalism. Which means no protectionism.

There are many areas in the survey where I see this, running contrary to the thinking of the Swadeshi Jagran Manch (SJM), which exercises a great deal of influence on economic decision making in this government. So let us see whether this government is able to defy SJM or not on some of these things.

Assemble in India

The next thing that the survey talks about is trade. It says trade creates wealth and trade creates jobs, and it wants India to be more confident about being able to export more. It says, Assemble in India another catch phrase. Assemble in India should be integrated with Make in India because India has a large population and a big demographic dividend. Instead of capital intensive growth, India needs labour intensive growth. So start assembling for the whole world, particularly as China is becoming less and less competitive because of rising wages.

In fact, the survey says that if you follow this formula of integrating Assemble in India with Make in India, then you can maybe create four crore more jobs by 2025 and eight crore by 2030. Those are the projections. I see this as a very good idea. India should stop worrying about imports, India should stop being under confident about exports, India should move in that area, there is no need for us to raise our walls and keep making them higher and higher around us. India should have the confidence to go out and engage with the world.

Less govt., more trust

To summarise, the reason I like this Economic Survey is that it bats for free markets; second, because it bats for less government intervention in our lives; and third, it talks about trust, trusting the citizen. I will quote a couple of lines from the survey, “Wealth creating happens in an economy when the right policy choices are pursued. For instance, wealth creation and economic development in several advanced economies have been guided by Adam Smith’s philosophy of the invisible hand. Despite the dalliance with socialism four decades is but an ephemeral period in a history of millennia India has embraced the market model that represents our traditional legacy. However, scepticism about the benefits accruing from a market economy still persists. This is not an accident as our tryst with socialism for several decades’ makes most Indians believe that Indian economic thought conflicts with an economic model relying on the invisible hand of the market economy. However, this belief is far from the truth.” This is really using Indian culture, Indian history, and Indian scriptures to bat for a free economy.

"As India’s markets grew, the Sensex grew, and accordingly GDP also grew. The old idea that GDP grows in some isolation and the stock market grows in some isolation that is not true, those things don’t live in separate universes, and they are all part of the same universe"

Trust begets trust

Talking about trust, I particularly like the line the Chief Economic Adviser has used in the survey and is also saying in his many interviews. He calls trust a public good like any other public good, but with one difference. Unlike any other public good that diminishes when it is consumed; trust actually increases as it is consumed. “Trust as a public good that gets enhanced with greater use.”

I liked this survey, and hope the economic direction will now reflect some of this. What we saw last year was a disaster, course correction is needed, and I do hope that this survey is the first step towards course correction.