India does not have a growth problem: its GDP is growing faster than other countries. The problems of the Indian economy are its inequitable growth and the harm caused to the natural environment. India’s policymakers must adopt new theories of growth.
Economic Development
In the prevalent theory of economic development, labor must move from agriculture into manufacturing, and then to services. Therefore, the productivity of agriculture must be improved with inputs provided by industry (fertilizers, pesticides, machinery), and surplus labor moved into manufacturing. India’s manufacturing sector is not able to provide enough employment to workers displaced from agriculture. This is the structural reason for large numbers in India remaining in agriculture.
Productivity
Economists measure the productivity of all sectors—agriculture, manufacturing, and services—by the amount of labor required to produce its output. The productivity of agriculture is improved by reducing the amount of human labor required to produce food from the soil, and substituting it with other technological inputs—machines, chemicals, etc. The productivity of manufacturing is improved by reducing human labor input, substituting it with technology. Similarly for services.
It is not the size of its GDP that determines whether a nation is more advanced than others: it is the per capita GDP that counts. Technology, including AI, can improve productivity in all sectors by increasing the output of human effort or eliminating it altogether. Economically advanced nations who have more financial capital can afford to use more technology than labor. The measure of productivity of Indian economic enterprises must be changed. More labor and less capital must be used for growth and improvement of the Indian economy’s performance.
Scale
Scale is a concept beloved by managers. Large scale factories and farms, each specializing in the production of a single item or crop, enable the use of standardized machinery and inputs (chemicals, components, etc.), also produced in large scale factories, thereby reducing overall costs. However, large-scale production requires larger markets for every factory and farm. Underutilized large factories and farms can be a waste of capital.
Globalization and Trade
International trade expands markets for specialist producers, each producing what it does best. In trade theorist Ricardo’s example, the Portugal should produce port wine and the British textiles, and trade with each other; rather than the British trying to grow grapes in their climate and the Portuguese learning to run mechanized textile mills. Global GDP is higher when each country produces only what it does best and imports the rest of its needs. Increased global trade with reductions in costs of transportation (containerized supply chains, giant ships, large cargo planes) along with reductions of trade barriers has enabled faster globalization and increased global GDP in the last thirty years.
Markets and Price
“Free market” economists say that a market is the most efficient way for fixing prices by matching supply with demand. Change in price also provides a signal to investors to adjust production capacities. This simplistic view of a market is blind to inequities in markets caused by unequal power between capital owners and providers of perishable resources. Workers who have only their time and work to sell must be employed regularly, and paid on time, or their lives are wasted. Workers and farmers with perishable produce cannot withhold sale to induce price rises, whereas their buyers can delay purchases and payments compelling them to sell at a loss.
With expansion of global trade, the power of consumers over producers (workers and farmers) has increased. Buyers threaten to find lower cost sources in other countries if they cannot obtain lower prices from current suppliers. Inequalities in incomes and wealth have increasing between those who earn their incomes and wealth from financial investments and workers and small farmers, even in advanced countries (unless farmers are heavily subsidized).
Local systems solutions
Environmental scientist Vaclav Smil analyses the use of fossil fuels in the modern economy in, How the World Really Works: A Scientist’s Guide to Our Past, Present, and Future. They are used in production and distribution of four foundational materials for modern civilization: steel, concrete, plastics, and food. He evaluates the "total system" requirements of fossil energy in the production of these.
Food is the most fundamental of these for human survival: more fundamental than steel, concrete, and plastics. Food systems are also the largest users of fossil fuel-based inputs. 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. Fossil fuel-based solutions became integral for increasing the scale of food production and distribution for meeting the needs of the human population, which increased in the last one hundred years from 2 billion to 8 billion (1.4 billion in India). The world does not have a problem with the overall quantity of food produced any more. The problem is inequitable distribution and wastage of food.
Smil calculates the benefits of locally circular, organic, multi-cropping systems. He says they could be the solution for the world. He wonders though: “Could we return to purely organic cropping, relying on recycled organic wastes and natural pest controls, and could we do without engine-powered irrigation and without field machinery by bringing back draft animals? We could, but purely organic farming would require most of us to abandon cities, resettle villages, dismantle central animal feeding operations, and bring all animals back to farms to use them for labour and as sources of manure. Are we prepared to do this?”
The solution for the twin problems of environmental degradation and inequitable economic growth is less globalization and more localization. 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. Local, systemic, small scale agricultural solutions, and small industries, cooperatively managed by communities in their own villages and towns, is the way to solve global problems of climate change and inequitable growth.