A Little Reminiscencing: Economics in everyday life
Economics in everyday life is seen in a narrow spectrum. The Left versus the Right. The left includes a broad spectrum from the Socialists to the Communists. Each Country has added its own Nomenclature to the Left – Maoists, Naxalites, Khmer Rouge (literal meaning – Red Cambodians). The Nazis were Socialists (National Socialists)but Anti Communists. They were Ant-Big Business too. Which was the point I am trying to make. In life nothing is pure black or white- they are just shades of grey.
To understand what is the Right I think the best way forward would be to understand the Left. A Spanish Prince is supposed to have defined Communism (here an Euphemism for the Left) as “If you are less than twenty five and not a Communist, you don’t have a Heart. And if you are more than Twenty Five and still a Communist, you don’t have a Brain.” In some ways this puts in perspective the understanding of Political Economics that the lay man has. It is seen in terms of Individual and in a purely emotional manner. If one does not feel for the poor and open his Purse, he is not a Communist. This he does in the innocence of youth. The same man as grows becomes self absorbed and lives of the poor.
The Indian Story since Independence is a mirror of this Simplistic view of the world of Economics. I should really use the word Political Economics but use the word Economics for brevity. A simple definition of Political Economics is:
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy. It developed in the 18th century as the study of the economies of states, polities, hence political economy.
Nehru, the undisputed Inheritor of Mahatma Gandhi was caught between the two extremes of the Economic Divide. He was rabidly Anti Communist. He called back Rajaji from retirement to deny Communists forming a Government in Madras Province. After the split of Madras Province and formation of Kerala, the Communists won the first election in Kerala and formed the first democratically elected Communist Government in the World. Nehru dismissed the same on 31st July 1959. That he was Anti Communist needs no proof.
On the other hand, he was also Anti Big Business. He wanted the State to run big businesses, introduced Centralized Planning in India. This sowed the seeds for Indira Gandhi to later nationalize banks, introduce the MRTP Act, all done in the year 1969. She later went to the extent of adding the words “Socialist Secular” to the preamble of the Constitution.
What this ensured was that India was an economy of shortages. Common enough products like Horlicks and Threptin were in severe shortage and commanded high premium. While the rich could commandeer the products, the middle class had to use contacts to source them. When I said this, a friend of mine described how his father a college lecturer would take a day off and go shopping for Horlicks and buy them in the black market. This was the view of the comman man. But how did this affect Industries and shape the economy?
“Small is beautiful” is a collection of essays by British economist E.F. Schumacher written as a Critique of Western Economics. This phrase dominated India much more than another phrase of simillar vintage “Indira is India.” The Government made Industrial Licensing a way of life. A Bureaucrat in the Industries ministry decided which products could be made and in which quantity. T.N.Seshan famously refused licence to a company wanting to make Furfuryl Alcohol and was proud of it. He says in his memoir that he refused license because he could not name the chemical. In fact in the book he only says that chemical with funny name. Obviously this resulted in what Rajaji predicted – the licence, permit and quota raj. Products were of poor quality but costly. The customer had no alternative as they were the only available products. Imports were banned or Customs duty very high. Smuggling became rampant.
Rajiv Gandhi reversed the trend with certain policies like Automatic expansion upto 25% of capacity, broad banding of license etc. Still the fall could not be arrested as India slid to a position where it could not pay its import bills. Chandrasekhar and Subramanian Swamy took the decision that no elected PM or FM would have taken. Pledge the Country’s Gold Reserves. The next Government had no alternative but to open up the economy. Fortunately by then the Country had a reasonable large pool of technically qualified people. Banks thanks to nationalization had become stable and there was a reasonable stable economy in place.
Things have been moving forward, propelled by a mass hungry for commercial success. The unleashing of the potential of this mass has been the liberalization that this country needed.