Dr. Syama Prasad Mookerjee Research Foundation

A Compassionate Civilization, a competitive global economy

Prime Minister Narendra Modi’s Independence Day speech was definitely inspirational. But even more than that, it provided the underpinnings of a new policy roadmap for society and economy. This in itself is a departure from the past. Economic policy, defense and security strategy, and socio-political objectives have typically been discussed and formulated in silos. Prime Minister Modi consciously interwove all of these together, underlining the inter-dependence between them. This was therefore not just the celebration of the 75th year of India’s emergence as a modern nation state, but the firm commitment to India’s civilizational renaissance at the global stage. It was made clear that India’s coming of age is not just of the territorial entity carved out of a messy partition process 75 years ago, but of the civilization entity going back 5 millennia.

What are the some of the key messages of interest for an economic and strategic perspective that emerges from this holistic roadmap laid out by the Prime Minister on 15th of August, 2022. What follows below is this author’s interpretation of such priorities.

Let us start with the reference to the trishakti of 1) aspirational population, 2) a re-awakening of the people, and 3) increasing expectations from India of the global community. An aspirational population is perhaps a country’s greatest economic asset, especially if that happens to represent the world’s largest cohort of youth. India today accounts for almost 1 out of 5 of below 30 and 17% of below 15-year-olds in the world.

It is aspiration that drives parents across India to make enormous sacrifices to invest in their children, imbibe in them the skills that makes them ready for emerging economic opportunities. The role such inter-generational investment plays in economic development is under-estimated. But if one looks into the family history of most middle-class Indians, it would be a story of sacrifice of one generation so as to ensure that the next generation has better opportunities in life. The story of India’s growth, like most countries, is essentially the story of millions of families striving and aspiring for a better life, and making enormous sacrifices to achieve that goal. Earlier political dispensations, with their fixation on a top-down mai-baap sarkar never really understood or respected the role of individual families in India’s economic development.

Along with spiration has come a new awakening. The younger generations will not accept business as usual, and is challenging the status quo. They will not wait for twenty years for a hospital in their district or accept that 12 hour long daily power cuts. They are focused on economic development, and not on chimeras of social revolution, and caste and community-based movements. This is forcing state governments and local bodies to prioritize economic development and deliver on their policy promises. The effective use of budgets and state machinery for economic growth will in itself add wind to the sails of sustainable economic growth in India in this Amrit Kaal as we head towards 2047.

The world is taking serious notice of this power of collective aspiration of 1.3 billion people and paying heed to the underlying economic opportunity it represents. Board rooms across the world are not swayed by short-term dips on growth or other macro-economic challenges, they take a long-view. No other single economy in the world can give businesses the kind of long-term growth prospects over the next three decades. This has given India huge leverage. Indian government and businesses can negotiate better deals, insist on cutting edge technology transfer and play a role in product development globally. India is not a ‘rule taker’ in the global platforms anymore, but takes an active role in shaping global rules on trade, security, energy and many other areas. The world expects India to be a leader.

The transformation unleashed in society and by extension in the economy by the forces of this trishakti require to be harnessed towards the achievement of some key objectives. The Panch Pran represent these objectives. The first objective is for India to become a developed country. This is not a mere articulation of achieving certain levels of per capita income or consumption, though such yardsticks representing economic growth is integral to it. The wider idea is holistic achievement leading to a good quality of life for all Indians, with access to health, education, and economic opportunity.

This is where the other four elements of the Panch Pran come in. And this is where Prime Minister Modi’s vision requires further detailing out. In his reference to the second element of the Panch Pran, the Prime Minister clearly articulated that all traces of slavery should be eliminated from all aspects of our national existence. While the Prime Minister stressed more on the intellectual and ideological aspects of that slavery, there are significant ramifications that go beyond this.

Ending slavery requires all citizens exercising their freedom in truest sense. This would mean ending the lack of accountability of officials and power-brokers. This lack of accountability and transparency is the key reason behind India’s poor record through the decades following independence in delivering effective education, health and other social services to its citizens. Only fractions of allocated sums for socio-economic development reached the intended beneficiaries. The Jan-Dhan-Aadhar trinity is just one weapon to tackle this problem. Millions of our poor citizens have been pushed to abject poverty as they have tried to fund the healthcare of a loved one. The lack of access to quality education has closed the doors of opportunity to so many of our talented brothers and sisters. Our citizens have gone as servile supplicants to officials and other power-brokers begging for their basic rights.

Empowered citizens will not accept this status-quo anymore. And that will ensure that all of those public services that provide social safety nets and good quality of life will no longer be denied.  An awakened Indian citizenry would ensure transparency and accountability and get their rightful due.

But there is a wider economic dimension. Our nation’s entrepreneurial spirit was long held hostage to poor governance. Misuse of power and corruption marred the growth of Indian industry and agriculture. Businesses, especially SMEs, would approach officials and power-brokers as supplicants. The sheer cost of imposed by such poor governance is massive. Everyday in every corner of India, entrepreneurs have had to face humiliation. Everything, from getting a permit for a shop or factory, or getting trade license is subject to such harassment.

Consider this back-of-the-envelope calculation: if we take a conservative estimate of just 1 lakh interfaces between government and citizens everyday, and even half of such transaction requires an average bribe of just ₹1,000, that results in total bribe paid of ₹ 5000 crore per day, and 150 lakh crore a year — assuming 300 working days. Estimates show that the simple act of transporting goods by truck, which has an impact on costs of goods available to all Indian consumers is subject to high levels of harassment and corruption-annually close to 50 thousand crores are paid as bribes by truck drivers.

This is the reason that Prime Minister Modi had brought such sharp and sustained focus on governance and doing business reforms, especially the use of technology to eliminate as many manual interfaces as possible between officials and citizens and reduce the discretionary power of government officials. And this is working.

These reforms have begun the process of ending this submission and slavery of India’s entrepreneurs to poor governance and corruption. India’s ranking in the World Bank Doing Business Indicators went from 140 in 2014 to 63 in 2019! As an economist focusing on transaction costs and supply-chains I remember when most people would be pessimistic about India getting into the top 100 by 2020. This is the beginning of a new freedom struggle, to set free India’s entrepreneurs to pursue their dreams and aspirations. These silent, incremental changes happening below the radar will enable the creation of new firms and industries and generate new employment to allow India’s economic rise. Not all reforms are ‘big-bang’ as some western economists tend to believe, the most radical of changes are often gradual, but pack a huge punch.

Let us consider the next Panch Pran-Unity. One critical aspect of unity is the power of collective action and unity of purpose. It is interesting to note that the history of economic development and industrialization of countries like Japan, Germany, France, Netherlands and more recently South Korea underline this need for collective action and unity of purpose. Large Japanese companies worked closely with smaller firms to create integrated supply-chains making a long-term commitment in the growth of these smaller firms. This led to these smaller firms themselves becoming global champions on their own right. It might have been profitable for the large Japanese corporation to use foreign firms for their supply needs, but they decided to invest in longer-term competitiveness and growth of Japanese industry as a whole by working together with other Japanese firms.

Development of such close economic networks that benefit the nation lies at the heart of Atmanirbharta. Atma Nirbhar is not a mantra for protectionism and rejecting the world. On the contrary, it is about investing in the competence and competitiveness of the Indian economy over the long-run. Prime Minister gives an excellent example of this linkage between unity of purpose, atmanirbharta, and industrial development when he refers to the Indian solider confidently choosing Indian manufactured defense equipment in an environment where product quality defines the difference between life and death.

Successful development of a large and complex military industrial complex was central to the growth of the world’s economic powers. US spends USD 718 billion on defense every year, and exports USD 266 billion worth of defense equipment. The huge military-industrial complex is the source a vast majority of technology and innovations that allow US firms to dominate global markets. India today spends USD 71 billion on defense, being the third largest defense establishment in the world. This number would only grow. Therefore, atmanirbharta in the defense sector is not trivial, but would be a critical factor in India’s rise as a technological and industrial powerhouse.

Let us consider the next Panch Pran mentioned by the Prime Minister; Duty. The Prime Minister was not just mentioning duty in the spirit of President Kennedy’s ‘think not what the country can do for you, but what you can (or should) do for the country’. The Indic sense of duty is much more comprehensive. It encapsulates the ideals of kartavya and karma.

This call for duty is therefore a call to all its citizens to excel for the nation and with national interest in mind. This excellence can be through industry where businesses strive to create world class products with zero defect and zero effect on the environment. This is where the call for increased focus on anusandhan or research and innovation comes in. If India is to compete in the global economy of the future, its industry must be future ready.

This is also duty in the sense of sabka saath, sabka vikas being adopted by industry as a whole. MSMEs often suffer due to delayed payments from their larger customers, burdening them with cash flow challenges and debilitating credit. Businesses must therefore make it their duty to take care of their MSME suppliers to the extent possible. This same logic extends to businesses taking care of their workers. A productive workforce is a result of collaboration between employers and employees.

The duty extends to all citizens. Middle-classes in cities have a duty to be compassionate employers of domestic help to help them invest in their next generation. Such helping hands can ensure the transition of millions of lower income Indian families into the middle-class within a generation. This duty enjoins ethical action for every Indian. Every time a business or an individual pays bribes to jump the queue or take undue advantage for personal gains, it ends up adding layers of transaction costs and inefficiencies in our system that drags down the economy overall.

This overall duty to excel, with national interest in mind, taken in its true sense would see Indian workers strive to become the most productive, its artisans become the most skilled, its businesses emerge as global models for frugal innovation and efficient management, and lead to empowerment of all its citizens. This would be the force multiplier that will help propel India to become a developed nation.

Some might deride this as an unattainable ideal, especially in a vast, diverse, and relatively poor country like India. But there is a new force at work since 2014. Prime Minister Modi’s request to millions of middle-class Indians to give up on their LPG subsidy was hugely successful. All it took was an appeal to the innate commitment of the average Indian to the cause of the motherland.

The greatest economic force is human effort and enterprise. All it takes to unleash this force is inspiration and a sense of purpose. The success of rebuilding post-war Japan or Germany offers great examples of this. Prime Minister’s emphasis on duty was intended to tap into this force.

The fifth Panch Pran is heritage. The Prime Minister clearly delineated the economic aspects of celebrating our heritage. Taking pride in our heritage and patronizing our artisanal arts and crafts would create huge economic benefits for millions of Indian artisans. The economies of scale of the Indian market would allow these products to competitively target global consumers.

But it does not stop at just this. Our heritage in architecture and use of sustainable materials, the multiple traditional means of irrigation and water management such as baolis and beels, and knowledge of seeds and organic agricultural methods can play a transformational role in developing the rural economy sustainably. This traditional knowledge systems can be expanded and improved through research and innovation, i.e., anusandhan. But that again can only happen if such traditional knowledge systems are not ignored and looked down upon due to slavish acceptance of solutions coming to India from the west unquestioningly.

There is an increasing interest in the power of so called ‘nudge theory’ in economics and Public Policy where consumer and producer behaviors can be influenced by non-coercive means. Prime Minister Modi has effectively demonstrated that effectiveness of such nudge economics in driving consumer behavior. Whether the increasing adoption of yoga and ayurveda in healthcare, the aforementioned voluntary giving up of LPG subsidy by well to do consumers, or use of locally made decorations during festivals like Diwali.

Robert Thaler, and economist based out of University of Chicago, was awarded the Nobel prize in economics for his work on nudge theory in 2017. Traditionalist in the field of economics and public policy might find the concept of nudge theory fanciful, and usefulness of such ‘nudge’ oriented instruments being limited. They would argue that rational, self-interested individuals would largely pursue selfish goals at the expense of broader objectives of collective action and duty in the interests of nation and society.

This would be a mistake on their part. The conceptualization of what is ‘rational’ and what is ‘self-interest’ is fluid. If policy-makers and the political leadership can credibly demonstrate their own commitment to a larger national goal for the greater good of the entire nation, including all its citizens, then a vast majority of the citizens would internalize these objectives as part of their matrix of self-interest. It is the credibility of the leadership and its commitment that allows rational individuals to believe in the likelihood of success of these collective goals.

Prime Minister’s speech on Independence Day is a brilliant example of such a nudge. It is more than a nudge, it is a call to all Indians to strive to realize their destiny, and that of their motherland, and realize that the two are interdependent.

Dr. Pritam Banerjee is a Senior Research Fellow with Dr Syama Prasad Mookerjee Research Foundation.