The optimism for India, both within and outside the country, can propel the nation towards great heights as the marketplace for ideas becomes fertile ground for innovation
Bullishness about India is in the air. Noted columnist Noah Smith, wrote in a recent post, “India has arrived on the world stage, in a big way.” Smith is hardly alone in pointing out the monumental shift in India. From Apple CEO Tim Cook to global investment banks like Nomura, there is substantial enthusiasm about India and its economy.
Is the excitement warranted? Do the “numbers” justify the optimism? India bears pose these questions. They cite various persistent challenges such as India’s dismal record in education, its supposed unemployment problem, and other areas of relative underperformance. The bulls counter these by presenting their own sets of indicators, from the rapid buildout of infrastructure and emphasis on capital expenditure by the Union government—both precursors to high growth— to declining shares of extreme poverty, prudent fiscal management, and favourable demographics.
Economic statistics indicate economic activity, and the nature and extent of this activity is largely affected by the economic actors’ beliefs about themselves, their wealth, their surroundings, as well as the future.The debate is vigorous and interminable. After all, hard economic data, as important as it is, only tells part of the story. Economic statistics indicate economic activity, and the nature and extent of this activity is largely affected by the economic actors’ beliefs about themselves, their wealth, their surroundings, as well as the future. In this sense, numbers themselves are a lagging indicator. What comes first, and what is conspicuously missing in the debate because it is harder to measure, is a general belief and prevailing sentiment about the country and its economy. One only needs to spend a few days roaming around in some markets of Indian cities to understand the structural change in people’s outlook, with its pace accelerating in the recent past. India is at the cusp of (if it hasn’t done so already) throwing off the shackles of the past—a past of the soft bigotry of low expectations. Talking about this transition, Tata group chairman, N. Chandrasekaran, who has a special vantage point on the Indian business and economic landscape as head of the sprawling US$120 billion Tata group, said“…what has fundamentally changed is the belief and the aspiration of every Indian and every citizen. We can feel it in the urban; we can feel it in the rural; we can feel it in the poor people, rich people, educated, uneducated…it is there everywhere.”
…why did it matter to the development of the economy in the long run? ...it was a movement that believed in social progress and the improvability of mankind…It stands to reason such a belief interacted in many ways with the actual facts on the ground, both in terms of technological advances and institutional changes<1>.He says,
A critical cultural belief that drives economic growth and complements the belief in the “virtuousness of technology” is a belief in progress, and specifically in economic progress<2>.That is, a belief in the possibility of material progress created a virtuous cycle of technological advances leading to material progress, thereby increasing optimism that made further progress possible. Mokyr is not the only scholar with this view. Deirdre McCloskey, a distinguished scholar of economics and history, in the expansive work, Bourgeois Trilogy, echoes similar sentiments. McCloskey rather forcefully expounds how ideas (and changes in them) had historically led to the great enrichment in Britain and Western Europe:
…point is that the ideas and ideology and ethics changed. The institutions did not. It is quite wrong, I repeat, to think that the institutions faced by British entrepreneurs in 1800 were radically different from the ones they faced in 1685. But ideas of what was honourable, appropriate, allowed among right-thinking folk, did change, radically. And the economic point is that ideas are intrinsically subject to economies of scale and therefore can yield dynamic effects able to explain factors of thirty or one hundred, but institutions are often as not deeply conservative, and able to have only static effects having little oomph<3>.While the perspective that institutions in 1685 and 1800 were not substantially different may be up for debate, we broadly think it is of secondary importance. What concerns us is the immensely important role ideas and beliefs play in begetting a virtuous cycle of innovation and prosperity.
Economic historians have written about the importance of ideas and beliefs in propelling countries into periods of sustained growth.But how do these beliefs come about, and just as crucially, how do established beliefs change? Society’s beliefs or the ideas they believe in cannot be altered at will. Firmly established beliefs in a society evolve in response to the ideas that the public is exposed to. In this regard, it was a healthy competition of ideas that, according to Mokyr, was responsible for shaping British thinking on some of the key economic issues that led to the foundation for material progress. As he says, “Britain’s intellectual sphere had turned into a competitive market for ideas…In the marketplace for ideas, economic factors play a role in both the demand and the supply side”..<4>
“Surprisingly, in northwestern Europe and later elsewhere, betterment tested by success in domestic and foreign trade…in scientific, artistic, sporting, journalistic, and political “markets” as well—came to be seen as splendid heroism<5>”India has now enabled itself to successfully practice this trade-tested betterment: There is a frantic pace in the evolution of technology and institutions, tested by the voluntary exchange of ideas and practices among all parties involved. Consider the following case.
Central planning was the singularly dominant school of thought, and other ideas and philosophies of economic development were marginalised.A few years after independence, Jawaharlal Nehru famously said to JRD Tata, “I hate the mention of the very word profit” when the latter urged Nehru that public sector enterprises should be made profitable<6>. In the 1980s, when India had a chance to deploy mobile phone networks, Sam Pitroda turned down the idea saying, “luxury car phones were obscene in a nation where people were starving.” From then to witnessing the 5G rollout at nearly the same time as developed nations, India has come a long way. The tremendous success of books like A New Idea of India, a book on individual rights in a civilisational state by two scholars, Hash Madhusudan, and Rajeev Mantri, or J Sai Deepak's India, that is Bharat would have been unthinkable until a few years ago. These literary achievements underscore the shifting landscape of intellectual discourse and the increasing enthusiasm for redefining the Indian narrative.
Mr. Nehru had once observed that a danger in India was that poverty might be deified. Gandhianism had had that effect. The Mahatma's simplicity had appeared to make poverty holy, the basis of all truth, and a unique Indian possession<7>.But Naipaul softened by the end of the 1980s, perhaps because India itself was gradually changing in ways that Naipaul wished when he first visited India in 1962 and wrote An Area of Darkness. In India: A Million Mutinies Now, written in 1990, he observed:
I had carried in my bones that ideaThirty-three years later—having won over the older mutinies, and facing some newer mutinies, still of the old nature—India continues to be on the move. But the transition feels more complete, as if there was, amidst all the chaos, a central theme behind this restoration. Living through the times of great upheaval, it is easy to miss the scale of change. But that is the beauty of time. It presents an opportunity to look back, reflect, and marvel at how big a change it has been.of abjectness and defeat and shame. It was the idea I had taken to India on that slow journey by train and ship in 1962; it was the source of my nerves….What I hadn’t understood in 1962, or had taken too much for granted, was the extent to which the country had been remade; and even the extent to which India had been restored to itself…What the mutinies were also helping to define was the strength of the general intellectual life, and the wholeness and humanism of the values to which all Indians now felt they could appeal. And—strange irony—the mutinies were not to be wished away. They were part of the beginning of a new way for many millions, part of India’s growth, part of its restoration <8>.
Economic liberalisation and the intellectual transformation powered by the internet have had a major role to play.What caused this tectonic shift is a question that is unlikely to have a single easy answer. Undoubtedly, economic liberalisation and the intellectual transformation powered by the internet have had a major role to play. Along with that, a section of India’s political leaders has also increasingly espoused pro-market liberal ideas. As Cornell University’s Kaushik Basu, India’s Chief Economic Advisor during the Manmohan Singh government, argues in his book The Republic of Beliefs, political leaders serve as focal points in determining what norms become prevalent in societies, and that impacts the success or failure of laws. He says:
This leads us to an interesting realization—an understanding as to why, over and above the law, we may need to specify a leader. A leader is simply a focal player, who directs the group to a certain outcome, by asking people to behave in certain ways, as and when the game they are playing becomes evident<9>.Of course, the extent and direction of the impact of the political leadership in this transition may be debatable. More importantly, this question is of secondary importance to our central point. The only question is, will this frenzy propel us into a self-fulfilling cycle? That is a question only time will settle. But if a dose of optimism can make it more likely, why not?
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Aditya Kuvalekar is a faculty in Economics at University of Essex UK. He works on microeconomics.
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Kishen Shastry is a PhD candidate in Economics at the University of Cambridge UK. He works on topics in institutional economics.
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