Why is India So Poor? An Economic Investigation.
NEW DELHI, INDIA >> Despite being the cradle of civilisation, the question that riddles the mind is, why is India still so poor in the 21st century?
After an immense effort for independence, what really went wrong for democratic Republic of India, nearly a century on?
These questions indeed do still painfully linger, particularly in light of the latest Millennium Development Goals report by the UN which indicates that one third of the world’s poorest people live in India. This makes India, the sovereign state, home to the largest population of poor people on the planet, ever in history. India’s Socioeconomic and Caste Census (SECC) dismally reveals, that in rural areas only 10% of the population have a salaried jobs and just 3.5% of students graduate. The tragic failure is even more sickening, when one discovers that over 600 million citizens of India, have no access to a toilet. And according to the World Bank 99.62% of the nations, 1.3 billion population live on less than $5 dollars a day. It's absolutely pathetic, that this modern republic, supposedly the world's largest democracy formed at the height of technological and industrial advancement, should turn to be so impotent in adopting successful macro-economic principles now far into the 21st century.
To understand the underlying fundamental economic issues, it is worth considering the example of another Asian country. South Korea.
South Korea, akin to India, gained it’s independence from the Japanese Empire around the same time as India, had done so from the Britain in 1947.
South Korea’s neighbour, North Korea exemplifies the causes of this abject and extended poverty, illiteracy and hunger still rife in many Asian states today. The source of cultural and economic failure, rose from the application of communist and extreme socialist economic principles. This has further implications, as it has resulted in decades of harm to the collective creative phycology of the populace, via exaggerated propaganda and media stifled by protectionist government control and censorship. Thus, nearly a century on from India's independence today, their exists an incapacity by all local political parties to practically apply liberal economic and social models to stimulate structural growth, in-order to end poverty for good.
The comparison of India and South Korea is rather telling, in terms of what positive results could have been achieved through economic liberalization, even under the duress of armed conflict. 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. India, since 1947, has been at a constant state of conflict with Pakistan, in relation to the sovereignty of the state of Jammu & Kashmir.
South Korea is more populated, with a population density of 505/sq.km, compared to India's 385/sq.km. In percentage terms, at 31% more populated, South Korea is far more populated per square kilometer, than India. Further, India has the world's second most cultivated land for farming and producing food, ahead of China, with only the USA having more. Cultivated land in India, stands at 1,535,063 sq.km where as South Korea has just 18,254 sq.km. This figure is better comparable however, as a ratio to population. While India has 788 people / sq.km of cultivated land, South Korea faces far more stress on it's resources with 2,810 people / sq.km. Despite India, having an astonishing 350% more cultivated land resources per capita than South Korea, India's economic productivity and growth has been massively stunned, and it is one of the worst afflicted nations in regards to child malnutrition.
In 1961, India had a GDP per capita of $121.70, which stood over 15% more than South Korea’s $105.13. However, by 2013, while India’s GDP per capita stood at $1,498.87 per capita, South Korea’s had grown to a staggering $25,976.95 per capita in comparison.
Despite being stressed by far more per capita population, and having far less agricultural resources, how could South Korea not only overtake India's per capita GDP, but exceed it by a colossal 1,600%?
One thing that India did, and still does differently from South Korea is it’s foreign trade.
Oddly India, the world’s second most populous nation, hosting a population of over 1.2 billion people counted the UAE as it’s largest trade partner in 2013. The UAE has a population of just 9 million people. In contrast India's bordering neighbor, China’s biggest trading partner is the United States of America. Once again more harmoniously the Russian Federation’s largest trading partner was the European Union.
In 1960 total trade stood at 11% of GDP for India, and 15% for South Korea.
India's trade grew to around 14% of GDP in the 1990s. In contrast, South Korea’s trade figure had grown to 55% of it's GDP by then.
In 2013, South Korea’s foreign trade reached 103% of GDP.
This rapid growth in trade, arose based on the back of liberal economic policies. After the collapse of India's main cold war ally the communist Soviet Union in 1991, India was forced to adopt market economic policies, by the IMF, in order to stay solvent, and it's trade eventually rose from 14% to 53% of GDP in 2013.
Prior to 1991, the Indian government policy was to close the economy, under extremist socialist and protectionist policies, and restrict the autonomy of businesses under a never-ending strip of red tape.
The Indian Rupee could not be converted freely, while foreign imports were restricted by high tariffs and import licensing. Central government planning strictly controlled what sectors would receive investment, as opposed to allowing markets to determine the flow of resources. Businesses had to acquire licenses, and approval through a draconian bureaucratic process, to simply invest or pursue development goals. This cumbersome feat, could mean satisfying up to 80 governmental departments, and agencies prior to approval of one single licence, and with the government still deciding on what could be produced, it’s price point, supply quantity and the permitted source of capital. Obviously corruption, under such impossible circumstances was rife, with politicians, bureaucrats, and business people engaging in cronyism, election rigging and monetary theft on a scale as never before witnessed in human history.
However in 1991, India's attempted protectionist economy, as essentially a Soviet subsidized satellite state failed miserably, and it's fatally miss planned economy completely imploded. As the Soviet Union headed for collapse, India was faced with bankruptcy. India had been dependent on the Soviet Union for its exports at the time, and most crucially, it had been dependent on subsidized Soviet oil imports. In 1991, not only was the Soviet Union heading for it's complete crash, Saddam Hussein invaded Kuwait, and sent oil prices sky-rocketing. India, being dependent on net oil imports was doomed, and a cumbersome command style economy could not react fast enough, and was thus doomed. As a result of the major balance of payment crisis, during which India direly had only two weeks of foreign reserves left, prior to going insolvent, the country was forced to urgently seek assistance from the IMF (International Monetary Fund).
The opportunity to request the assistance of the IMF, had existed since March 1988, when the Managing Director of the IMF, Michael Camdessus, had offered to aid then prime minister Rajiv Gandhi. However, the unscrupulous Gandhi, who at the time had been scandalously revealed to have stolen $9.3 million ($19 million inflation adjusted 2017), in Sweden's Boffer guns corruption scandal, choose not to take assistance initially as a general election was looming. Gandhi lost the election the the following prime minister V.P. Singh, who was supported by the communists too decided to take IMF aid. V.P. Singh's government lasted less than a year. It was then left to prime minister Chandershaker to agree terms with the IMF.
In order to receive a bailout, India had to compromise it's sovereignty, and under duress, was forced by the IMF to make market economic reforms, or else face collapse. The Prime Minister, was required to comply with the IMF's dictates, (in contravention to Section 29A), in order to receive monetary handouts, and thus a program of economic liberation started in India. Trade tariffs had to be lowered, government monopolies were finally broken, and the private sector and market competition started to find it’s fledgling beginnings.
This short period of fruitful IMF dictatorship, over a diabolically failed independent Indian republic, led to the greatest period of growth and success for the democratic nation since its formation in 1947. However, as the economic liberalization of India was induced by the IMF, against the will of the nations corrupt political elites, the pace of economic reforms and privatization post has remained excruciatingly slow and dismal to the detriment of its own citizen majority.
India to the gross detriment of its population, still gravely suffers from a debacle of extreme socialist bureaucracy, and the sizeable vestiges of a central command style economy.
Indian politicians for the majorly vast part, regardless of party affiliation till date, lack a modern understanding of market economics, and effective liberal business policies. Due to the long term government control of media, that disseminated radical socialist propaganda, to both the masses and elites. Thus, political leaders too were underexposed to liberal market and cultural models. In essence, these leaders too believed their own failed hype, and have been indoctrinated to defend their evidently failed socialist model as its tied now to their very core belief in their nationalistic identity. The short lived Chandra Shekhar government that agreed the initial terms with the IMF, was followed by prime minister Rao, who along with his finance minister Manmohan Singh, who implemented a further set of IMF fiscal dictates, including devaluing the Indian rupee currency, and raising fertilizer prices, lowering export subsidies, and raising of petro product prices. However, beyond the dictates of the IMF, these ardent socialist totally corrupted politicians, balked at further suggestions by the IMF, including the crucial reforms for the privatization of state-owned companies, and freeing labour markets.
India between 1991 to 1993 borrowed $3.6 billion ($6.5 billion 2017 inflation adjusted) from the IMF, to stay afloat.
Even under the BJP (Bharatiya Janata Party), that rose to political power in 2014, and professed a more market oriented stance, economic reforms are pitiably slow. With the BJP’s focus more centered on religious concerns, in promoting the supremacy of Hindu nationalism, rather than the emancipation of the citizen, through fast paced liberal economic reforms and privatizations. Ironically the extremist religious leaning, and superstitious behavior are themselves a by product of the failed economic conditions in India, and its neighbor Pakistan. This is no mere matter for the rest of the world to gloss over either, as the people's default to mass religious sentiment in Hindu majority India and Muslim majority Pakistan has created a real possibility of a globally apocalyptic nuclear war between the two impoverished nations, embroiled in decades long armed conflict for the sovereign state of Jammu and Kashmir. According to a report by Boston based, Nobel peace-prize winning body the IPPNW (International Physicians for the Prevention of Nuclear War), a nuclear war for Jammu and Kashmir, between India and Pakistan would contaminate global food supplies, and kill over two billion people. Scientists also believe that this nuclear conflict would destroy the Earth's ozone layer. All this would mean the end of civilization and the natural world as we know it.
This now desperate lack of any political party genuinely focused on market economics, that is holding the world to ransom, can be legislatively pinned, to section 29A of the Representation of the People Act, 1951. This law forcibly, and in gross contradiction to the constitutional freedoms of speech and expression, still till date requires all parties to hold allegiance, to only socialist economic policies in order to be lawfully registered with India's election commission. In other words, a party with liberal market policies, cannot simply be registered by Indian law. In other words, all political parties in India have to be socialist, or else is criminal.
Thus, under such circumstances one can actually question if India is even a real democracy? As by Section 29A, the entire nation was reduced to, what was in all practical implementation a single party socialist state, with multiple brand variations.
So tragically, nearly thirty years after the collapse of the USSR, the failed soviet style planning of domestic trade, agriculture and foreign investment restrictions continues till date in India. This atrocious soviet legacy and political paralysis to modernize, is the foremost cause of India’s mass poverty and child hunger.
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. India's then prime minister, admitted to this failure, and called it a “national shame.” This prime minister was of-course, Manmohan Singh, a failed and corrupt economist who had been responsible for leading the government’s extreme socialist designed economy since 1972, when he was appointed as the Chief Economic Advisor. Manmohan Singh had been educated by the British economist Joan Robinson, at University of Cambridge. To put this extreme socialist indoctrination into perspective, as more a lethal religious practice than a rational policy implementation. Joan Robinson, had most erroneously praised the North Korean prime minister as a "messiah", for the most grossly failed planned economic policies that have stolen the livelihoods and bright prospects of generations of North Koreans and Indians too. Tragically, these misplaced preachings and foreign influences from Cambridge, would enslave India's citizens to poverty, hunger and suffering on a scale as never witnessed before. Not to mention Manmohan Singh was the finance minister, during the the IMF bailout process in 1991, who did not abide with further suggestions of privatizing state-owned industries and labour reforms, which done then would certainly have reduced child malnutrition in India.
This most heinous and unnecessary suffering of children in India, criminally implicates India's corrupt political leaders and impotent economic planners. Here it is worthwhile noting that India has the world’s second highest total of cultivated farm land available for producing food for it's starving children, and that India’s per capita arable land is comparable to that of Italy and Germany. This, is a total disaster of democracy used to sell socialist populist policies to the poor and unwitting, for a few to maintain their corrupt feudal fiefdoms, in what had disintegrated into a medieval and reckless arena for the lust of immediate power and greed for a few overlord families.
The "Socialist Secular Republic of India", that was once over 600 royal principalities and kingdoms, has become a vicious cycle of sadomasochistic economic and cultural policies, forced by a corrupt anti-competitive, and inept leadership, on a majority kept vastly illiterate, resulting in even the self deprival of the elites themselves. Judging by these present conditions, and the history of cycles of political change in ancient Greece, a Tyranny or monarchy under military force is likely to ensue.
Unless, reforms are made urgently, and political parties begin to realign themselves as the socialist Labour party had done so under Tony Blair and Gordon Brown, altering Clause IV of its constitution to endorse market economics. Following which it went on to win the British General Election in 1997, 2001 and 2005.
Yet, perhaps the greatest issue and tragedy with India’s disastrous and introverted economic model was it's impediment to cross cultural exchanges and the development of new ideas, arts and technologies, that had once had enriched this region and greatly influenced the entire world. In India they still often reminisce of this period when the region was called the Golden Bird.
Today, it is a most ill and troubled creature.