Rethinking 1991: India's Economic Policy Demands Strategic Shift for Development
This year's union budget has been widely perceived as a safe and steady approach, aiming to maintain India's trajectory toward increasing GDP and realizing the 'Viksit Bharat' vision by 2047. However, it notably failed to tackle the critical strategic vulnerabilities outlined in the Economic Survey, highlighting deeper systemic issues in the nation's economic framework.
The Pincer Grip of Geopolitical Vulnerabilities
India finds itself ensnared in a complex geopolitical standoff between the United States and China. The economy relies heavily on trade with China, despite ongoing boundary disputes, and depends on Russia for essential oil and arms supplies. Concurrently, the United States continues its support for Pakistan, creating a delicate balancing act. This precarious position underscores the urgent need to bolster domestic industrial capabilities, which were weakened by the premature abandonment of industrial policies in 1991, allowing China to gain significant ground.
The Illusion of GDP Growth: Jobless and Inequitable
Since the pro-market policy shift in 1991, India's GDP has indeed expanded, and poverty levels have decreased. Yet, this growth has been increasingly jobless, with China achieving far superior GDP and per capita income growth rates over the same period. The employment elasticity of India's GDP growth—measuring good jobs generated per unit of GDP—ranks among the lowest globally. Estimates indicate that since 2001, India has converted GDP into jobs at only two-thirds the rate of other Asian nations.
To produce sufficient employment under this persistent pattern, India would need an annual GDP growth rate of 12%, far exceeding the feasible 6.5-7.5% range projected by economists. This disparity signals a fundamental flaw in the current growth model.
Structural Stagnation Across Political Regimes
Debates on India's economy often devolve into partisan comparisons between Congress and BJP-led governments, but the reality reveals no significant difference. GDP grew at 7.2% annually during two distinct ten-year periods, excluding global crises. More critically, the structural conditions driving inequitable growth remain unchanged. Employment elasticity has been in decline since the 1990s, dropping sharply from earlier rates to a mere 0.01 between 2004-05 and 2009-10—an ominous trend that threatens sustainable business investments and broad-based income growth.
Beyond GDP: A New Dashboard for Progress
The fixation on GDP must end. A reformed economic dashboard should incorporate two additional gauges: an environmental 'fuel' gauge to track the depletion of resources like clean water and air quality, and an 'RPM' meter to monitor social and political tensions that could derail growth. This holistic approach is essential for measuring true progress.
Learning from China's Adaptive Model
While India adopted US-style liberal-market capitalism in 1991, China adhered to 'socialism with Chinese characteristics,' emphasizing experimentation and continuous learning. This adaptive strategy, encapsulated by Deng Xiao Ping's phrase 'crossing the stream by feeling the stones underfoot,' has enabled China to make effective course corrections and outpace India in economic development.
Call for Bipartisan Reflection and Reform
International surveys confirm that each unit of India's GDP growth creates fewer jobs and causes more environmental damage compared to other economies. This unsustainable path necessitates a bipartisan reevaluation of the 1991 liberal market reforms. The agenda must now take a new direction, prioritizing faster income growth at the bottom and halting ecological destruction before it is too late. India cannot achieve developed status on its current trajectory, even with GDP growth, without these critical adjustments.
