Why is India so poor? A Korean Comparison.

Despite being a cradle of civilisation, the question that riddles the mind is, why is India so poor in the 21st century? This question still lingers as the latest Millennium Development Goals report by the UN suggests that one third of the world’s poorest people live in India. Making India home to the most poor people on Earth. While India’s latest Socioeconomic and Caste Census (SECC) reveals that in rural areas only 10% of the population have salaried jobs and just 3.5% of students graduate. Further dismally, over 600 million people have no access to a toilet and according to the World Bank 99.62% of the population live on less than $5 dollars a day.

To understand the underlying economic issues it is worth considering another Asian country, South Korea which also gained it’s independence from the Japanese Empire around the time India had from the British Empire in 1947. South Korea’s own neighbour, North Korea exemplifies the potential causes of the abject poverty still rife in many Asian states today. The source of cultural and economic failures seems to rise from the misappropriation of communist and extreme socialist economic principles resulting in decades of harm to the collective phycology of the populace and thus today an incapacity by all political parties to find liberal models to stimulate structural economic growth.

The comparison of India and South Korea is rather telling in terms of economic liberalisation and it’s results. Both republics have been burdened with high military expenditure in their recent histories. South Korea has had to manage decades of constant animosity with it's neighbour North Korea, while India has had to do so with Pakistan in the war for Jammu & Kashmir. South Korea has a population density of 505/sq.km while India has 385/sq.km. This means South Korea is 31% more populated then India in terms of land resources. India also has the world's second most cultivated land ahead of China and with only the USA having more. India’s cultivated land stands at 1,535,063 sq.km where as South Korea has 18,254 sq.km.  Which as a ratio to population gives India 788 people / sq.km and South Korea 2,810 people / sq.km. Meaning India has about 350% more cultivated land per capita then South Korea.

In 1961 India had a GDP per capita of $121.70 a little more then South Korea’s $105.13.  However, in 2013 India’s GDP stood at $1,498.87 per capita where as South Korea’s had reached $25,976.95 per capita. One thing that India did and still does differently from South Korea is it’s foreign trade. Oddly India the world’s second most populated nation with 1.2 billion people has the UAE as it’s largest trade partner with a population of just 9 million. While China’s biggest trading partner is the United States, and Russia’s is the European Union.

In 1960 total trade was 11% of GDP for India and 15% for South Korea.  India kept trade around 14% till 1990.  South Korea’s trade was around 55% of GDP through the 1970s to the 1990s and by 2013 South Korea’s foreign trade had reached 103% of GDP based on back of liberal economic polices. After the collapse of India's main ally the Soviet Union in 1991, India's trade eventually rose from 14% to 53% of GDP in 2013.

Prior to 1991, the Indian government policy was to close the economy.  The Indian Rupee could not be converted freely, while foreign imports were restricted by high tariffs and import licensing.  Central government planning controlled what sectors would receive investment as opposed to allowing markets to determine the flow of resources.  Businesses had to acquire licenses and approval to invest and develop. This could mean satisfying up to 80 agencies prior to approval of a licence and with the government deciding on what could be produced, it’s price point, quantity and source of capital.

However in 1991, India's attempted protectionist economy as essentially a Soviet satellite state failed miserably after the collapse of the USSR. The country was facing bankruptcy as it had been dependent on subsidised Soviet oil. As a result of a balance of payment crisis, during which India only had two weeks of foreign reserves left, the country urgently sought assistance from the IMF (International Monitory Fund).  In order to receive a bailout, India was forced by the IMF to make market economic reforms.  The then minister of finance, Manmohan Singh who had been one of the key architects of India’s failed extreme socialist economic structure was forced to comply with the IMF's conditions prior to receiving the bailout and thus a program of economic liberation started in which trade tariffs were lowered, government monopolies were broken and the private sector and market competition started to find it’s beginnings.

Yet the pace of economic reforms and privatisation is still excruciatingly slow, and the country still suffers from a debacle of extreme socialist bureaucracy and a central command styled economy. Indian politicians regardless of affiliation till date lack a modern understanding of market economics and business polices as they themselves had been subject to the extreme socialist state controlled media for decades. Even under the BJP (Bharatiya Janata Party) that rose to political power in 2014, and hold a more market oriented stance, economic reforms are painfully slow. With the BJP’s focus more centred on religious matters of Hindu nationalism rather then the economics. The lack of any political party genuinely focused on market economics stems from section 29A of the Representation of the People Act, 1951 that still requires all parties to adhere only to socialist economic policies.

The decades of soviet styled planning of domestic trade and agriculture and foreign investment restrictions continues till date. And this soviet legacy and political paralysis to modernise is perhaps the foremost cause of India’s mass poverty.  The negative impacts of such can be witnessed most evidently by the 2012 report that found 40% of children under 5 in India suffer from malnutrition. With child malnutrition levels twice as high as sub-Saharan Africa the then Prime Minister Manmohan Singh had called it a “national shame”, though he himself had been responsible for the government’s quasicommunist design of the economy since the 1972 when he was the Chief Economic Advisor. This is a travesty and highlights the long term incapacity of Indian economic planners considering that the nation has the world’s second highest total of cultivated land, and that India’s per capita arable land is roughly comparable to that of Italy or Germany.

India had become a vicious cycle of erroneous economic and cultural policies forced by a well meaning yet corrupt leadership on an illiterate majority resulting in the self deprival of the elites themselves in terms of exposure to competitive economic and cultural theories. Simply they believed their own hype. With the failure of the political and legislative system to allow for competitive economic policies in the past, there is also a simple political opportunity in India today. All political parties lack a real focus on competing economic policies required for the alleviation of poverty, and so leaves the playing field open for any organisation to shift it’s focus more towards promoting a market oriented economy over sectarian issues. Perhaps even the original extreme socialist Congress Party have an opportunity to realign themselves as New Labour had done so under Tony Blair and Gordon Brown altering Clause IV of it’s constitution to endorse market economics and going on to win the British General Election in 1997, 2001 and 2005.

Yet perhaps the greatest issue with India’s introverted economics is the impediment to cross cultural exchanges and the development of new ideas, arts and technologies that once had enriched this region and the world at large along it's ancient silk trade routes.

Ankit LoveComment