India's modulated approach to economy

Economic-development choices and experiments in the last fifty years (e.g., China, India, Soviet Union) have now fairly conclusively demonstrated that mass economic prosperity is better achieved through a focus on the growth of wealth rather than its distribution.

However, there are many influential Indian intellectuals, policy-makers and elected officials who do not agree with this assessment. In some quarters, these policy-makers may be seen -- and they may be right -- as impediments to even faster economic growth in India. But the caution and wariness expressed by these officials have led to a more stable and predictable economy in India. And, here, are two prime examples.

(1) Caution on foreign capital investment: India has been more careful and sometimes even rigid in approving foreign capital investment -- particularly in some areas such as insurance, media, industries with implications for national security. These regulations -- though quite often a bit too restrictive -- have generally provided stability to India's economic growth. For example, there has never been run-away inflation (e.g., Latin American countries) or serious collapse of confidence in the currency (e.g. Asian crisis.) And now look at the serious challenges that the U.S. economy in regulating the hedge funds and sovereign wealth funds -- India's policy appear prudent in the context of this.

(2) Focus on the poor, and poverty: The unprivileged and those struggling in deep poverty constitute about 800 million, about two-thirds of India's population. Simple computations would establish that India's macro economic growth rate, and GDP would increase more dramatically even if a fraction of the 800 million Indians become part of the economic engine. That requires that they participate in the economy -- consumer investment is the engine -- which, of course, translates into policies that are likely to favor some level of redistribution even if it forsakes some growth. At the margin, the benefits of such policies are monumentally greater than any losses.

Overall, these Indian policy-makers who have not adopted the market-economic philosophy without substantial skepticism have contributed to a modulated approach to economic development and growth.