India chooses: But what will happen when it is the thinking of 2 leading economists being put to vote?

Wednesday 16th April 2014 Two contenders for leadership with stark differences India, the worlds supposed-to- e the-lar!est de"ocracy if one !oes y the nu" er of #oters, is now in the process of choosin! its ne$t leadership% The two leadin! contenders ha#e stark differences% The incu" ent !o#ern"ent party, &nited 'ro!ressi#e Alliance or &'A, is led y youn! (a" rid!e &ni#ersity )'hil *e!ree holder +ahul ,andhi, an heir of the fa"ous -ehru,andhi fa"ily orn to rule the country% The opposition .haratiya /anata 'arty or ./' is led y a co""oner, one-ti"e canteen runner at a us ter"inal and a street-educated politician, -arendra )odi, co""only known in India now as 0-a"o% )odi # +ahul eco"in! .ha!wati # 1en .ut ehind these two fi!ures, there are two leadin! econo"ists whose thinkin! on appropriate econo"ic policy has now een put to test a"on! Indian #oters% 2ne is -o el 3aureate A"artya 1en and the other is -o el 3aureate in waitin!, /a!dish .ha!wati% In 2014, as if they were writin! two

econo"ic "anifestos to the two contenders, they pu lished two ooks 5 6ust three "onths apart fro" each other% The first ook was pu lished y .ha!wati with another acade"ic at (olu" ia &ni#ersity in &1A 5 Ara#ind 'ana!ariya under the title 0Why ,rowth )atters7 8ow 9cono"ic ,rowth in India reduced 'o#erty and 3essons for other *e#elopin! (ountries% The other ook was pu lished y 1en with /ean *re:e 5 the .el!iu" orn naturalised Indian econo"ist 5 under the title 0An &ncertain ,lory7 India and its (ontradictions% The we 0li#e "int to!ether with The Wall 1treet /ournal has now ter"ed that the 0.attle etween +ahul and )odi is a 0.attle of thou!hts etween 1en and .ha!wati ;a#aila le at7 http7<<www%li#e"int%co"<'olitics<:#$k6#'=>-far,a!3d?w"><9#erythin!-you-wanted-toknow-a out-1en.ha!wati-de ate%ht"l @% .ha!wati7 ,rowth first and redistri ution later The .ha!wati-'ana!ariya 'olicy 'roposition or .''' is clear7 They ar!ue that efore anythin!, econo"ic !rowth should co"e so that the econo"y will produce enou!h to uplift the poor and redistri ute the wealth a"on! all the citi:ens in the for" of essential social ser#ices% If these two steps are re#ersed, the result will e the loss of oth% They ha#e found "any e$a"ples fro" Asia, includin! 1ri 3anka, Africa and 3atin A"erica to su stantiate their clai"% Aor instance, in 1ri 3anka, e#en efore the country thou!ht of producin!, the policy"akers were at the 6o of ensurin! social redistri ution throu!h the !o#ern"ent% The result was, once a prosperous nation, recedin! to o li#ion o#er a few decades% 2n the other hand, the countries that followed .''' in 9ast Asia were a le to "aintain a hi!h econo"ic !rowth for a nu" er of decades and reduce their po#erty le#els too in the process% 2ne classic e$a"ple is )alaysia which "ana!ed to reduce its headcount po#erty ratio fro" a little o#er ?0B in "id 1=60s to less than ?B in late 1==0s% 8ence, for .ha!wati and 'ana!ariya, !rowth "atters% (onseCuently, for India too, !rowth should "atter at the present sta!e of its de#elop"ent% 1en7 If redistri ution is i!nored, cala"ities will derail !rowth 2n the other hand, 1en-*re:e 'olicy 'roposition or 1*'' focuses on the need for "aintainin! a fair redistri ution of wealth throu!h the !o#ern"ent ri!ht fro" the e!innin!% This is in accord with 1ens lon! held thinkin! that de#elop"ent is si"ply freedo" that has three pillars% The first pillar is the political freedo" and transparency in all e$chan!es a"on! people% The second pillar is the freedo" of opportunities includin! the freedo" for access to credit% The third pillar is the freedo" in#ol#ed in econo"ic protection fro" a 6ect po#erty which is alle#iated throu!h pay"ents in the for" of supple"entin! the inco"es of the poor and pro#idin! relief to the une"ployed until they could find 6o s% 1*'' therefore seeks to "o#e alon! a !rowth path that assures !radual uildin! of a society which not only has hi!h !rowth ut also eCuity, fairness and 6ustice% It does not !enerate social tensions, insta ility or dishar"ony and hence pro#ides enou!h space for policy "akers to pursue econo"ic refor"s that ai" at rin!in! hi!h econo"ic !rowth to a society on a sustaina le asis% 8ence, 1*'' has a passion for !rowthD ut it has a !reater co"passion for the poor% &lti"ate !oal of econo"ic policy7 E1elf-perfectionF 9cono"ists today are reappraisin! the ulti"ate !oal of econo"ic policy% Aor "any decades, the !oal of policy was to produce "ore and "ore !oods and ser#ices in an econo"y, known as 0econo"ic !rowth, so that people will ha#e a hi!her le#el of "aterial well ein!% Then, it was

pointed out that while !rowth produces hi!her "aterial well ein!, it i!nores "any other Cuality aspects of hu"an li#in!% This led to the search for a new !oal called 0econo"ic de#elop"ent that co"prises econo"ic !rowth and "any "ore% In this "any "ore parts were included "akin! !rowth a#aila le to all called 0inclusi#e !rowth, eCuity in sharin! wealth, e"powerin! "ar!inalised !roups like "inorities and wo"en, protection of en#iron"ent and sustainin! !rowth, creatin! a 6ust society that protects freedo" of choice, thou!ht and e$pression on the one hand and 0property ri!hts on the other% A society aspirin! to e 6ust with hu"an freedo" should ha#e as its essential attri utes 0o ser#ance of rule of law and "aintenance of law and order associated with freedo" to elect suita le rulers or fire the" if they are not worthy% Then the Cuestion arose what should e the ulti"ate purpose of li#in! as a hu"an ein!% That was rele!ated to yet a wider !oal called 0de#elop"ent that includes econo"ic de#elop"ent as a necessary condition ut helpin! people to attain 0self-perfection that !i#es the" ulti"ate happiness% *ont en6oy fruits efore trees are e#en planted The difference etween .''' and 1*'' is not the co#era!e of what a society should do% It is a out what should e done first and what should e done later% .''' su!!ests that it should e done in two sta!es, that is, !rowth first and redistri ution later% They ha#e historical reasons for "akin! that su!!estion% In countries where redistri ution eca"e a priority, it eca"e a "onster o#er the ti"e eatin! up all the resources and "akin! econo"ic !rowth a near i"possi ility% At the end, neither was achie#ed, pro"ptin! 1in!apores leader 3ee >uan Gew to refer to 1ri 3anka, a country that "ade that darin! e$peri"ent for decades, 0as a country that had en6oyed the fruits e#en efore plantin! the tree% 8ence, fro" a nations lon! ter" point of #iew, .''' is well 6ustified% 1en7 I" not a pro-su sidy "an 2n the other hand, 1*'' su!!ests that oth !rowth and redistri ution should e pursued si"ultaneously% Their ar!u"ent is if !rowth is pursued to the e$clusion of redistri ution, societies will flare up and e#en the pursuit of !rowth o 6ecti#e "ay e "ade difficult% That was pro#en in the ,eneral 9lections of 2004 in India itself% In that election, the ./' !o#ern"ent that had pursued a hi!h econo"ic !rowth tar!et with the reCuired econo"ic refor"s which were Ideas play an i"portant role in fra"in! hu"an destiny for !ood or ad% At the Indian elections that are takin! place now, two ideas y two !reat Indian econo"ists ha#e een put to test y the electorate% 2f the", only one will e"er!e the winner% .ut the world in !eneral and Indians in particular will ha#e to wait for "any "ore years to learn of their final outco"e and the e#entual i"pact on the destiny of IndiaF considered anti-poor was #oted out and &'A coalition that had pro"ised e#en a "ini"u" nu" er of work days for the rural poor was #oted in% 1en has re6ected the idea that he is a pro-su sidy econo"ist% In "any discourses and as well as the launch of his ook in India, he has said that what he stands for is tar!eted su sidies and not for !eneralised su sidies% Aor instance, he says that "oney for !uaranteein! 100 day work in a year for rural people has cost the Indian ,o#ern"ent so"e H 1 illion% .ut the su sidy on power and fertiliser of which the enefits had een deri#ed "ostly y the rich has cost the !o#ern"ent "any ti"es "ore% 8is ar!u"ent is therefore directin! the su sidies for the poor and not for pro#idin! uni#ersal su sidies that enefit the rich as well% .ut, this is a #iew held y .ha!wati as well%

Indias widespread sha"e should not e continued 1en has een particularly concerned a out the wide-spread po#erty and depri#ation of Indians in !eneral% The nu" er of people earnin! elow H 1 a day in India has een 400 "illion or 2?B of the whole population% 8alf the Indians do not ha#e toilet facilities and 1en says it is so"ethin! a out which India should e asha"ed of% Illiteracy and undernourish"ent is widespread in India% -or"ally, when econo"ic !rowth takes place, its enefits are e$pected to trickle down to the low inco"e classes i"pro#in! their conditions% .ut 1en says that he does not elie#e in 0trickle-down effect and Indias hi!h econo"ic !rowth has asically enefited the rich classes% 8ence, 1en says that so"ethin! should e done ur!ently to arrest the situation efore it eco"es too critical and i"possi le to chan!e% 9cono"ists co"in! to the fore at national elections In any other year, the di#erse #iews e$pressed y the two leadin! Indian econo"ists could ha#e een dis"issed as 6ust another intellectual de ate% .ut it is not so when they ha#e een e" raced y the two political alliances that are seekin! an endorse"ent for their policy fro" the #oters at the elections% The !rowth strate!y proposed y .ha!wati and 'ana!ariya has een accepted y -arendra )odi while the sa"e proposed y the ri#al econo"ists, 1en and *re:e, has een accepted y +ahul ,andhi% 8ence, the lon! standin! intellectual attle etween .ha!wati and 1en has now eco"e a attle etween )odi and +ahul% )odi pro"ises Cuick !rowth and econo"ic refor"s )odis election "anifesto has proposed, a"on! others, continuous hi!h econo"ic !rowth, in#est"ent in infrastructure to facilitate that econo"ic !rowth and econo"ic refor"s to sustain the !rowth so achie#ed% .ha!watis "ain criticis" of the &'A !o#ern"ent is that it could not sustain the initial econo"ic !rowth ecause it failed to carry out the needed econo"ic refor"s, despite it ein! headed y the 0father of Indian econo"ic refor"s in 1==0s 5 )an"ohan 1in!h% Aor instance, Indias national fla! carrier, Air India, had een operated at colossal losses for "any years "akin! it totally ankrupt% Get, )an"ohan 1in!h-led &'A !o#ern"ent failed to refor" the airline and "ake it profita le% 1i"ilarly, Indias coal "onopoly, 1tate-owned (oal India 3td% or (I3, has een fi$in! prices hi!h and supplyin! low Cuality coal to consu"ers who are a!ain 1tate-owned power producers% 2n a co"plaint "ade y )aharashtra 'ower ,eneration (o"pany, (o"petition (o""ission of India had i"posed a thu"pin! fine of Indian +s% 1I illion or H 400 "illion on (I3 in 2014 with a reco""endation to the !o#ern"ent that it should end the state coal "onopoly y allowin! "ore players% Get, the )an"ohan 1in!h !o#ern"ent had failed to act on that% It is widely elie#ed that )odi, if elected to power, will consider pri#atisin! oth "onopolies as an ur!ent econo"ic refor"% The )iddle (lass7 The kin!-"aker The past econo"ic !rowth in India has oosted its )iddle (lass into a for"ida le force now% 8a#in! "aintained !rowth rates si!nificantly hi!her than the historical a#era!e of 4B per annu", oth the ./' and &'A !o#ern"ents in the past ha#e een responsi le for au!"entin! the "iddle class in India% 8owe#er, since it is a out 20-2?B of Indias population, it has now earned the status of kin! "aker in Indian politics% 8ence, it is the political leader who is a le to satisfy the aspirations of

the "iddle class that will e a le to co""and a distincti#e ad#anta!e at the elections% The "iddle-class not worried a out eCuity The "iddle class in any country is "ade up of people who cannot e satisfied easily ecause their aspirations are "ultifarious% Their i"patience in e#erythin! in life 5 whether it is dri#in! on the road or !ettin! a 6o or ad#ancin! in career or uildin! the drea" ho"e 5 "akes the" choose the !o#ern"ent that can act swiftly and resolutely% They are not worried a out whether the poor are uplifted or whether inco"e is redistri uted in their fa#our% All they are worried is whether they could e fattened as Cuickly as possi le% This type of a #alue syste" possessed y the "iddle class will not !i#e a #alue to any policy proposal that seeks to deli#er eCuity in the society% 8ence, 1en-type of econo"ic policies, thou!h e" raced y &'A contenders, are not #alued y an electorate "ade up of newly rich "iddle class people% Instead, they want hi!h econo"ic !rowth that will ensure in the short run "ore 6o s, "ore roads, "ore schools, and "ore facilities and so on% It is the .ha!wati type of econo"ic policy that will satisfy their aspirations% In this conte$t, it is )odi and not +ahul who is fa#oured y the "iddle class in India% )odi has two other tru"p cards in his slee#e to enchant the "iddle class% 8e stands for anti-corruption and 8indu nationalis" that ha#e flared up the senti"ents of #oters throu!hout the country% The "oderate stand taken y )an"ohan 1in!h !o#ern"ent on these two issues has een #iewed y "iddle class #oters as a si!n of weakness% 1en, the critic of 8indut#a, cannot endorse )odi 1en has een critical of 8indut#a "o#e"ent in his 0The Ar!u"entati#e Indian and 0Identity and Jiolence% In his 0The Idea of /ustice, he has ar!ued for the #irtues of secularis" for steerin! state action% 8ence, he cannot support the ./' which stands for e#erythin! he cannot appro#e of as a free thinker% As such, it is Cuite natural for &'A led y +ahul ,andhi, the (a" rid!e educated politician, to e" race his philosophy% Thou!h .ha!wati is also for secularis" as the !uidin! principle of state action, his e"phasis on econo"ic !rowth has appealed to -arendra )odi who has in fact tested it in ,u6arat 1tate fro" 2000 as its (hief )inister% 8ence, it is not .ha!wati who has !one ehind )odi ut )odi who has e" raced .ha!wati% /ohn )aynard >eynes7 Ideas are dan!erous for !ood or e#il It is the .ritish econo"ist /ohn )aynard >eynes who said in the concludin! pa!es of ,eneral Theory that ideas Eare "ore powerful than is co""only understood% Indeed, the world is ruled y little else ;%%@ 1ooner or later, it is ideas, not #ested interests, which are dan!erous for !ood or e#ilF% 8ence, ideas play an i"portant role in fra"in! hu"an destiny for !ood or ad% At the Indian elections that are takin! place now, two ideas y two !reat Indian econo"ists ha#e een put to test y the electorate% 2f the", only one will e"er!e the winner% .ut the world in !eneral and Indians in particular will ha#e to wait for "any "ore years to learn of their final outco"e and the e#entual i"pact on the destiny of India% ;W%A% Wi6ewardena, a for"er *eputy ,o#ernor of the (entral .ank of 1ri 3anka, can e reached at waw1=4=K!"ail%co"%@