India’s economy is not healthy, Duvvuri Subbarao, former Governor of the Reserve Bank, has said in an open letter to the Finance Minister, Nirmala Sitharaman. More GDP does not improve the well-being of citizens if it does not put more income in their pockets, he says. They need decent jobs, which the Indian economy has not provided despite impressive growth of GDP.
The health of any complex system, whether the human body or a nation’s economy, cannot be determined by its size: what matters is the shape it is in. GDP growth has become the dominant measure of the health of all economies. The dominant paradigm is, first increase the size of the pie before its redistribution. It has replaced “socialist” models which were concerned with conditions at the bottom. Economists do not agree on how the well-being of citizens should be measured; and what are the best measures of poverty, employment, and adequate income. In their models, such hard-to-quantify conditions are taken care of by some invisible hand when GDP grows. India is becoming one of the most unequal countries in the world with this flawed model of economic progress.
Nirmala Sitharaman, the present Finance Minister, is not responsible for the poor shape of the Indian economy. All Indian governments, since the liberalization of the economy in 1991, have focused on GDP. GDP grew at 7.2% per year in the ten years of UPA rule (excluding 2008-09, when the global financial crisis hit); and also at 7.2% in the NDA’s ten years (excluding the 2020-21 global pandemic shock). No difference in growth. But structural conditions that cause inequitable growth have also not changed. In fact, they have worsened.
Inclusive and sustainable development
All countries’ economies develop through similar stages, according to economists. First, populations move from agriculture to industry, and then to services. Simultaneously, they move from rural to urban. In this, “one path for all”, model of progress, villages are bad, and cities are good; and farms are bad, and factories are good. According to this theory of progress, India has not developed sufficiently because both industrialization and urbanization have been too slow.
India must address the global climate crisis while growing its own economy to catch-up with developed countries. With the present model of progress, India must use more fossil fuels to propel economic growth. This has become a bone of contention in global climate negotiations, where all countries are expected to make equal sacrifices to save the global climate. Therefore, India must find a new paradigm of progress, for itself and for the world, for more inclusive and environmentally sustainable growth. What could be this paradigm?
Fossil fuels and the modern economy
The Czech Canadian environmental scientist, Vaclav Smil, provides a blueprint in his book, How the World Really Works: A Scientist’s Guide to Our Past, Present, and Future (Penguin Random House, 2022). He analyses the use of fossil fuels in the modern economy. They are used in the production and distribution of four foundational materials for modern civilization: steel, concrete, plastics, and food. Steel and concrete are required for buildings, roads, and bridges, which provide basic needs of habitation and transport. Steel is also the backbone of most machinery. Moreover, almost all mobile machinery used for transportation and farming runs on fossil fuels. Plastics in many compositions have become ubiquitous in the construction of machines, buildings, and appliances. They are light, easy to mold, and durable. Plastics also enable hygienic storage and transportation of foods and are widely used for sanitary protection in hospitals and homes. Plastics are formed from fossil raw materials, and fossil fuels are also required in plastics’ production processes. Smil examines alternatives to steel, concrete, and plastics that are in the pipeline, and calculates the overall requirements of fossil fuels. He evaluates the "total system" requirements of fossil energy (and steel, concrete, and plastics) for technological innovations for renewable energy solutions such as electric vehicles and solar panels. It will take many decades to replace these basic materials, and fossil energy, in their production processes.
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Food is the most fundamental need for human survival: more fundamental than steel, concrete, and plastics. (And more fundamental than digital communication services, Smil points out). Fossil fuel-based solutions have become integral for increasing the scale of food production and distribution systems in the last century, to meet the needs of the human population on the planet, which has increased in the last one hundred years from 2 billion to 8 billion (1.4 billion in India). Fertilizers are produced from fossil-fuel feedstock. Farm machinery is made of steel and runs on fossil fuels. Plastics are used for hygienic transportation of food in global supply chains.
Smil says “the greater the retreat of agricultural mechanization and reduction in the use of synthetic agrochemicals, and reduction of these fossil-fueled based services (which is necessary now), the greater the need for the labor force to leave cities to produce food in the old ways. Purely organic farming would require most of us to abandon cities and resettle villages”. “Are we prepared to do this”, he asks?
Local solutions work
Systems science reveals that local systems solutions, cooperatively developed by communities in their own villages and towns, is the way to solve global systemic problems of climate change and inequitable economic growth. This was the “Gandhian” solution for India’s economic and social progress, which was set aside to adopt modern, Western solutions for development since the 1950s. 64% of Indian citizens live in rural areas (36% in China; 17% in USA). A majority work on farms, and in small industries in rural India; not in large factories that use automated equipment. Rather than trying to catch up with rich countries on their historical development paths, India should take advantage of its present realities.
(Published in The Hindu, 24th February 2024) https://www.thehindu.com/opinion/lead/changing-the-growth-paradigm/article67879540.ece