Change the Paradigm of Indian Economic Policy

(A Humble suggestion to the Hon’ble Finance Minister of India on the 2018 Budget Day Eve)

The paradigm of Indian economic policy was last changed during the Budget presentation for 1992-93. Popularly touted as LPG – Liberalisation, Privatisation, Globalisation, the policy reforms and changes in 1992 and thereafter appear to have triggered a drastic divergence in incomes and wealth.

India has been very happy with economy as a whole growing at 5.6% over the last 25 years. But at the ground level, income for 90% of the citizens grew merely at 2.0% while income of the top 10% people grew by 11.5%.  There is no global competition going on for being the highest growth economy. If at all there is one, it should be for the economy where bottom 90% of the population registers the highest growth rate in income. It might be better economics and better politics to change policies where income for 90% of the citizens grows at 4.0% even if the economy as a whole registers a marginal decline in its growth rate.

LPG paradigm shifted the economic policy from full employment to inflation targeting; the pursuit of “flexibility”, often through deliberate weakening of worker organisations, became the watchword for labour markets.

A new emphasis on shareholder value triggered a move from retention and reinvestment of earnings to cost-cutting and distribution in corporate allocation strategies; and these combined with technological advance to launch a wave of globalisation activated a very different cycle, than the previous growth cycles, in which jobs and wages were at the heart of what can now be seen as a virtuous circle. In such virtuous circle, wage growth led demand which fuelled investment, employment and higher productivity, feeding back into higher wages. When this was followed by redistributing the wealth created, employment was also a powerful vehicle of social mobility and inclusion.

Liberalisation has delivered the opposite of inclusion – inequality, insecurity, and the feeling of being excluded from global and technological advance is beginning to simmer below the ground. There is a choice, and it is up to you as part of the leadership of government. As gatekeepers of the investment decisions that determine how the larger trends play out both macroeconomically and where it counts for individuals, in jobs and pay. Your decisions and measures envisaged will have to go far beyond conventional supply-side adaptation, such as investment in education and infrastructures, to include the much-neglected demand side of the labour market equation and what drives it- the incentives which have fuelled short-term focus, national finance as the descriptor of real economy and the race to the bottom in pay and conditions that have done so much to fuel insecurity and inequality.

Business has to be a positive-sum game – value creation rather than appropriation – and reframes companies, in the late Sumantra Ghoshal’s words, as “society’s main engine of discovery and progress”. In like vein, businesses can be seen as society’s problem-solvers and growth as a measure of the rate new solutions to problems become available. The genius of capitalism, in this view, is not allocation or efficiency but creation and effectiveness – evolutionary processes in which companies that fail to innovate eventually succumb to the rising tide of the market.

“Free enterprise cannot be justified as being good for business. It can only be justified as being good for society”. Corporate responsibility is to deliver growth and prosperity for everyone, period. And that changes almost everything. The CSR spend as incorporated in the Companies Act is a cess on profits – just an increase in cost of doing business and a cleanser for guilt of being good only for shareholders and customers but not being good for the society.

The big task before you Hon’ble Finance Minister is to make “the economy work for everyone”, to quote UK premier Theresa May, and this will require everything but business as usual.