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The number of Indian families earning about $4500 to $22000 (Rs2,00000, Rs10,00000) per anum, which constitutes the middle class as per the World Bank’s definition of middle class in 1995-96 was 4.5 million, the number of such households grew to 0.7 million in 2001-02. Now India has 28.4 million such families by 2009-10. One can say that the Indian families are growing rich, from poor or deprived families; they are traversing towards the middle income group range. Irrespective of the higher inflation rates, one can justifiably state that the number of high-income households in India has exceeded the number of low-income households and similar is the assertion of National Council of Applied Economic Research (NCAER).1
Can India achieve richness?
The first issue is about the term India, how can a geographical region grow rich? Individuals in that region may surely gain prosperity but the region in itself is not able to achieve richness. Another issue is, even if India represents its people and not the geographical region, then how can a group or collective society or state grow rich? To grow rich is a Human Action,and a Human Action can be performed only by individual actors, only individuals possess ends and goals and the means to achieve those goals. A group or a collective society or a state cannot act, it even cannot decide. In fact a society cannot exist without the actions of individual members2 .” This certainly means that “India growing Rich” is a metaphor. India cannot grow rich, it cannot be poor, what is being said is that the number of individual families that are now in a richly or prosperous state is increasing. Obviously, it has nothing to do with the society or state or country that is represented by India. Yet, it certainly has a lot to do with the freedom individuals have in the Indian society and how is it influencing their person conditions.
This follows that although a society cannot exist independently without the actions of Individuals, the individuals and their actions can be affected by the society, state or country. That is, if a person in India or his family is growing rich, it is but obvious the result of his hard work and talent, but if a person is living in dire conditions, one of the many reason behind it can be the restrictions or the influence of the society or country he is living in. But how can a country restrict anybody from being rich or poor? Since country cannot act, it cannot restrict, nor can a society restrict. Yet, the “government” representing a society or community or country can surely restrict the individuals it represents. Yet again, what is government? It is a group of some individuals that take decisions and enforces their decisions and policies over the population of their state. When someone says that “government act” what he means is to say that certain individuals are in a certain relationship with other individuals and act in a way that they and the other individuals recognize as “governmental’3 .” The issue is very important to understand. To explain it further, take the issue of tobacco. Indian government pays farmers to grow tobacco; on the other hand, it forces all the companies selling tobacco products to include anti-smoking, anti-tobacco-chewing advertisements on their products. Both actions are contradictory, one may say government should make up their mind and take a consistent action. The thing is, government has no mind, it cannot think, it cannot act. Rather, there are individuals, politicians, judges, bureaucrats, etc. who thinks and take actions.
Thus, even a government cannot act; ultimately the individuals only can take actions; only individuals can have ends and the means to achieve those ends.
Is India really growing rich?
While talking about NCAER results, Martin Ravallion suggest that all these estimates by NCAER far exceed the likely number of people in India who are not poor by US standards. At the start, he simply ignores the importance of Purchasing Power Parity (PPP) and blatantly states that “I will not say that someone has entered the Western middle class until the person has reached the US poverty line”4 . Obviously it is not so easy to understand that a person cannot buy a Reynolds’s ball pen in Rs 5 (approximately $0.1) but one can buy the same ball pen in India at that price. Irrespective of that fact, one cannot say that NCAER’s research is free of errors.
Why India is growing rich?
Now when I have explained that India cannot grow rich, Individuals and their families certainly can grow rich if government (some other ‘individuals’) may not restrict them, I should talk about the current phase of change in the status of individuals in Indian sub-continent. Why are Indian individuals enjoying this progress? Are the new generation of India much better, intelligent or harder working then the individuals of subcontinent before 1991? What has caused this economic progress? Is it the government (the group of ‘ruling individuals’) that has brought this progress?
The fact that India (Indian government, a few individuals who thought they could decide the fate of all individuals in India and who did) deprived itself of many free market benefits for more than 40 years during the Cold War while it flirted with political “neutrality” between East and West, but sought to build much closer economic ties with the Soviet Union. It is only since the collapse of the U.S.S.R. that Indian government started realizing its failure and allowing individuals to act for their prosperity by their own.
The question is, if government is allowing individuals to act for their own prosperity, is it doing any good? Or was it bad when government (or the group of some individuals) restricted individuals to pursue their prosperity and happiness? It is undeniable fact that with the emergence of free market and libertarian approach in Indian sub-continent, Indian individuals are now much freer to think about their ends and to act to achieve those ends. Since they can think for their prosperity and they can act to achieve it too, they are becoming rich.
Is Government Facilitating this Prosperity?
All the welfare and redistribution attempts of Indian government failed in 1991 and it accepted the defeat of Nehru’s centralized socialistic system. After 1991, India accepted the path of decentralization and government started shedding the so-called responsibility of making Indians prosperous and rich. Privatization is the name of mantra; freedom is the message of prosperity.
Obviously, a government (set of ruling individuals) can hinder the progress of individuals, they can legally and coercively ban, restrict and punish individuals from trying to get rich by legislating some senseless national laws, social contracts etc. But when a government realizes its failure and starts decentralizing, allowing individuals to live at their own, then one cannot say that it is the government which is facilitating the prosperity of individuals.
Conclusion:
Individuals in Indian sub-continent are certainly growing rich, they are now freer and hence more able to grab the opportunities to use their mind and act to pursue their goals, their happiness and hence they are rich. No governmental group or political party can take the fame of making Indians rich. On the other hand, Indian government should be blamed for keeping Indian individuals under poverty for so long. With the current pace of anti-state trend in Indian sub-continent, as India will enjoy more privatization, decentralization, free market, economic, religious and political freedom, Indian individuals will attain more freedom.
These facts strongly suggest that all the welfare and income redistribution talks of Indian socialistic groups are futile. Lesser governmental control on individuals means lesser poverty, No governmental control over Individuals means No Poverty. Poverty will vanish in a no-government-state.
- Times of India, August 1, 2010, India has more rich people than poor now [↩]
- Murray Rothbard, “Man, Economy, and State”, Auburn, Ala.: Ludwig von Mises Institute, 2004, pp. 2–3. [↩]
- Murray Rothbard, “Man, Economy, and State”, Auburn, Ala.: Ludwig von Mises Institute, 2004, pp. 2–3. [↩]
- Martin Ravallion, January 2009, The Developing World’s Bulging (but Vulnerable) Middle Class, The World Bank Development Research Group [↩]
One Response to “India growing Rich”
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Manoj Says:
November 28th, 2011 at 1:47 amI think you got the fundamentals right but the arguments wrong. Beyond academic the discussions of what is ideally right or wrong, you have to understand that fortunately or unfortunately, we don’t live in a utopian world, but rather we live in a highly interconnected world and politics, both internal and external play a major role in what we as a society do.
To begin with, the purpose of a government is not to make people rich. In fact there is no form of popular govt that exists to make people rich. That does not mean dismantling govt is the solution. A reading of how societies ultimately destroy themselves when left unchecked (like an ideal capitalist system, with generous amount of human greed amongst others) will make commenting on parts of your argument useless. Nonetheless, the govt has to respond to political realities which are always unfavorable for a weak country.
Contrary to what you may think, the Indian govt financial planners in the post independence days were neither stupid nor sadistic. They were responding to ground realities of having to prepare long term economically viable plans that did not push India back to slavery (as UK wanted so as to maintain sort of de jure control on India). I disagree that what followed before pre-liberalization period was holding back Indians from becoming rich… the phase was in my opinion absolutely necessary because Indian industry was non existent. We didn’t even make needles. There were no markets. We were not competitive enough to open up our markets for foreign competition. We didn’t have enough savings, or capital markets big enough to produce huge amounts of credit required to start building industries from scratch. Capitalist systems do not function for the benefit of the people under those conditions. We had to borrow money to build industries from USSR and under their terms which were more favorable to India than the terms offered by other lenders like US. And like any smart lender, USSR made sure India follow policies that the USSR knew would fetch then return on their investment. This was fine from Indian standpoint as huge infrastructure projects were undertaken (just like the FDRs projects in US) as opposed to indiscriminate privatization. (The superb educational and industrial base compared to other countries developing at that time is a product of this period that forms a basis of the capitalist system today that we fail to acknowledge and would not have been constructed otherwise because they did not make economic sense in the short term window of capitalists but is beneficial for a nation in the long term).
For an economy to function in a productive capacity beneficial to society, it has to be established on a solid foundation based on resources, technology, skilled manpower and of course a political will to experiment and create opportunities. This only started in the mid eighties with the gradual emergence and transfer of political power to the newer generation which unlike the previous generation of unmotivated Indians (suppressed by colonial culture of serving and following), wanted new direction. I do not blame the govt for having followed a socialist model because a socialist system was required to bring up the majority of people quickly to a level to launch into capitalism. Capitalism does not work without markets and markets do not work with participants who have no money. Poor as majority of Indians were, socialist system was the most effective at that time. I would say the transition to capitalism was a lucky break courtesy of the collapse of the Soviet Union.
But the Indian govt did not open up Indian markets because the planners (we still have 5 yr plans because it makes sense) suddenly ‘realized’ the virtues of free markets – its because there was no access to dollars to facilitate imports following the dismantling of the Soviet Union. India had currency swap agreements with Soviet Union and also traded directly in Indian rupees (instead of dollars) to help reduce the dependence on dollar earnings. After the USSR collapsed the Indian govt was forced to liberalize to access the dollar based capital markets to continue with infrastructure development. The Indian industries were still not competitive but it could not be helped and after 20 years of liberalization is still not competitive with other developed countries in terms of efficiencies, which is why we have to cheapen the rupees to remain competitive in price.
And lastly, you must not be paying attention to the financial world these days to make a blanket statement that more ‘privatization’ will make Indians more free. That’s straight wrong. Economic freedom does make people rich but political freedom does not necessarily do so. And its kind of vague to correlate being free to being rich. Agreed that freedom helps people get involved in productive capacity as opposed to unproductive work under a communist system – the Chinese are richer but are they politically free?