For the economy, the choice is to focus on 50 million or 400 million Indians

The people who ran India since Independence to 1991 had a consensus that the economy would be principally directed for first 25 years at securing India’s independence. Poverty only cropped up in the debates as late as 1969. Until then, the intention was to develop an import and agriculture-dependent economy to an economy that invested in heavy industry, science, technology and higher learning.

India was a rationed economy then when it came to consumption. Everything was rationed: food, railway tickets, airlines, automobiles, two wheelers, sugar, even alcohol, what you could serve in wedding, foreign exchange and so on. In the rationed economy, however, there was some kind of egalitarianism, because even the rich suffered equally. You couldn’t just get a telephone or buy a house even if you had money.

Was the rationed state of any benefit? Yes, it was. Because you saved more than your paygrade, you got your AIIMS and IITs.

In 1991 the rationing system fell apart because we ran out of foreign exchange. We had to open up the economy. That opening up is now what we call the “India growth story.” The fundamental change that happened in 1991 was that rationing the imports were stopped. We got the ability to produce without a license which meant you could produce more. There was a change in policy to the effect that things that were luxurious were now easier to buy if you had the money for example, phones, computer, AC, apartments etc.

The hallmark of this growth story or the leading indicators are automobiles, two wheelers, FMCG, air travel and high-end consumables. Unlocking the rationing meant that those at the top, those who earned 7 to 8 times the minimum wage, those who had the purchasing power could participate in the growth story. As they got prosperous their demands increased and that fuelled more growth.

But people, who earned minimum wages? Their story was different. I am not even talking about the poor. I am talking of those who earn minimum wage which is about 400 million Indians. These are the aspirational people who want decent meal, better clothing, a house, affordable education, and health care. But the five things that half of India are aspirational about are not part of growth indicators.

People who produce food commit suicide at a far greater rate than an average stockbroker. Food is not a consumer good and producing it is not deemed to be a business. There is an arrogant assumption that there are too many people on the land and we must get them off the land. But who are we to tell anybody to get off the land? When they migrate to cities they are treated badly. If you create opportunities they will migrate. But at the same time why can’t we create opportunities in the rural areas?

The Marks and Spencer shirt I am wearing costs Rs. 3000 and is mostly made in India. But the shirts you get at a local market like Sarojini Nagar costs Rs 400 but mostly made in China or Bangladesh. Why can’t we make a low-priced shirt in India? What is happening is that our economy is catering to the consumption of the top 50 million of our people but is incompetent to cater to the consumption of the remaining 350 million.

For the middle-class housing is another aspiration but while real estate is a growth indicator, housing is not. Only the salaried people high up the food chain can afford bank loans and EMI. The rest live in slums or shady localities.

India’s education system has collapsed. You have still not been able to make one extra IIT or AIIMS that works. Maybe we have an ISB or Ashoka University, which are good but apart from that, higher education has not excelled.

To sum up, the five things that 150 to 400 million people on the food chain aspire for are not indicators of the economy; in fact, they are rationed. So, the growth story we hear about is that of the top 50 million Indians. Unless we move to the five things that are the aspirations of the 400 million next in the food chain, we will enter a middle-income trap and the age of aspiration will be over.

If you measure the size of the Government of India as a proportion of its total spending of a proportion of GDP, the Government of India has shrunk from 21% of GDP in 1991 to less than 12%. The only department of government that has seen an increase in its proportion of the budget is the Ministry of Home Affairs because the number of para military forces has gone up from half a million in 1989 to over 1.2 million in 2016. Indian state is more invested in its coercive power because it is weak.

Along with a weak state, we have a society that has little fraternity; we do not treat each other well, we do not follow the rules. On top of that we have elite abandonment. The total amount of imports of education was 500 million dollars in 2013. Last year it was about 5 billion dollars. Health care imported from abroad have gone up by 400%. During a pandemic like COVID, our healthcare system has collapsed.

We are becoming a non-aspirational country, caught in a middle-income trap, unwilling to make structural changes. The structural changes we need is not to build SEZs and ‘export mode’ but to try and ensure that the output composition of our growth changes, say 60-70% of our output ought to come from the five things that 500 million people of the nation aspire for. To change the output composition of demands, we would need to change the way society operates. We can even solve the unemployment problem if we focus on these five structural changes.

Who is the largest land owner in the country, and who is the largest shareholder of the country? It is not Ambani or anybody else but the Government of India. Government has control over the nation’s assets but the question is how to utilise them and not just privatize them.

We need an India where rich people can imagine their children becoming philosophers, when farmers are secure enough not to feel the indignity of being alienated.

(Rathin Roy is an economist and Managing Director of Overseas Development Institute. Based on a talk he delivered as part of the Manthan series of lectures last year. The talk is available on YouTube. Transcribed by Sanjukta Basu)