For economic progress, learn from the Chinese

Is sovereignty overvalued? Our approach to sovereignty is parochial. The Union government wants it all, whilst sub-national entities like provinces and local governments have precious little in real terms. The fear of Balkanisation shores up the centralisation of sovereignty.

In the US, New Hampshire on the east coast and California on the west coast are islands of “liberty” from the “tyrannical” control and influence of Washington. But these are fringe regional emotions which kick-in at the margins. State governments pretty much follow the Central establishment. Possibly, almost a two-and-one-half century old record of governance makes for a special glue. More importantly, who wants to junk a machine which isn’t broken. Global domination backed by military assets, a strong business orientation to diplomacy and a largely open economy is what America marches to.

State governments matter in India too and size is not everything. Smaller states and those located along the coast or the border have better cohesion and economic performance than large hinterland states. Sikkim, for instance, has taken the lead in going completely organic. Goa is a tourism hub with a strongly internationalised ecosystem. Punjab, riding on the back of government investment and the entrepreneurial Punjabi community, is a vibrant agricultural powerhouse. Haryana, known for its growth orientation, hosts Gurugram — which is the new New Delhi — a modern service sector and residential hub. To the east of the capital, Noida is a modern, integrated export and service sector city, leagues apart from Lucknow — 500 km away from where it is tightly administered. And yet social and political change is slow to come by in India, unlike China.

The Chinese have taken to markets with Central control exercised via a single integrated party across all levels of government. Crony capitalism is the obvious risk with a Central government managing markets and people’s lives rather intrusively via the deep state. And yet, China appears to be powering through its fourth decade of high growth — at least 3 per cent more, in real terms, than the rest of the world.

How sovereign is China? The Middle Kingdom has come a long way from its xenophobia of the Anglo-China wars of the 1800s. It unpeeled the onion of sovereignty strategically. In 1980, it joined the World Bank to access capital and know-how to catch up with the developed world. The first economic zone was started in Shenzen in 1980. Fourteen more copycat zones were to follow on the coast with entire cities being similarly designated “open cities” in the late 1980s.

The objective was simple — use foreign capital, expertise and supply chains to grow business, create wealth and develop the economy. It was not till internal restructuring and reform was completed over the next two decades that it chose to join the World Trade Organisation (WTO) in 2001. Fourteen years later it promoted an international development bank, in cooperation with Russia, India, Brazil and South Africa. The New Development Bank is located in Shanghai — a multilateral bank to give the established World Bank — dominated by the US and the Asian Development Bank — dominated by Japan — a run for their money.

How do we compare? Structural reform came late to India in 1992 — decades after we had become experts at maintaining the status-quo under the garb of sovereignty, by taking the World Bank’s money but dodging their conditionality for essential economic reform. We have hung onto a one-way open economy, which encourages the exit of brains, skills and capital but devises a hundred rules to stop these three commodities from coming into the economy from abroad.

We refuse to accept that our core governance and representative systems are broken. That poverty remains a curse in India. And that Byzantine battles are still raging, where entire communities are set at loggerheads and non-meritocratic elites rule the roost in politics, business and government.

Wealth creation and income generation are still second rung occupations, which are taxed heavily, even though a right-wing government — the BJP — is in power. We have a yen for adopting advanced economic practices, but only through a highly distorted, localisation prism.

Consider the Union government’s sensible scheme for direct transfer of benefits to poor farmers using, as a proxy for easy identification, ownership of up to two hectares of land. What could possibly justify its extension to all farmers — including rich ones, in a year of extreme fiscal stress, when there was no mirror scheme for transfer of benefits to the landless poor in rural areas?

We assert that our growth path, moderate though it may be versus China, is likely to be more politically and socially stable. The basis for this claim is belief in democracy as a safety valve for the losers to vent their steam, without toppling the entrenched elites. Like the US, we allow the unstoppable few, who push their way through the glass ceiling — like Prime Minister Narendra Modi — honorary elite status and hope to socialise them thereafter. But the crush at the gate is only going to increase as we liberalise further. Sovereignty, in our case, has become a handicap, not an asset. It has frozen us in a comfortable time warp. But the compact is coming apart at the seams, starting with the economy.

We should shed our fear of losing sovereignty, because it deep-freezes entrenched inequalities. Agriculture and the government are the core economic areas which have resisted liberalisation. If we can pop these corks, the rush of meritocratic entrepreneurship is likely to overwhelm the core of India — the rural, industrial, political elite.

We should learn from China. Deep social change is at the heart of economic progress. It is economic strength and equity which confer sovereignty and attract the loyalty of citizens, not gunships or border walls. Fix social barriers to fix India.

The writer is adviser, Observer Research Foundation