Saturday, September 15, 2012
What is 'Hindu rate of growth'? - article by Prof R. Vaidyanathan.
The reforms debate has taken an interesting turn in the last few months. It consists of, according to our pink paper experts, allowing Wal-Mart in retail (now confirmed with a formal announcement) and the abolition of General Anti Avoidance Rules (GAAR), so that Vodafone need not pay the tax demanded. Now a third point has been added, that the opaque coal block allotments should not be tampered with. The argument has been taken to the extent where the interest of a couple of allottees is equated to the welfare of country by some experts.
So the entire reforms project has been converted to a three-point agenda and the general conclusion is that they had (till recently) been stalled by this government and a mulish (or foolish) Opposition.
An even more interesting aspect of the reforms discourse is the use of terms to abuse critics or opponents of some of the policy measures contemplated. The first prize goes to the term "unorganised sector". Anything which is not acceptable to the reforms elite is "unorganised" and "inefficient" – implying a sort of disorganised activity that needs global companies and hedge funds to try and fix it.
Will FDI in retail really be an improvement?
The word "unorganized", of course, raises visions of a terrible mess. But what exactly do we mean by unorganised no expert is willing to explain. For instance, in the retail trade, my neighborhood vegetable vendor and stores are unorganised. My neighborhood person starts his shop at 6 am and closes at 10 pm. He remembers almost every customer's requirements, offers credit if needed, and makes home deliveries anytime, but he is "unorganised" only because he is not a company with a logo to advertise and shareholders to cheat.
The terms "unorganised" and "inefficient constitute, what I call, terminological terrorism (TT), imposed on us by our colonial rulers, but we repeat the same without understanding how this usage has come about. To be sure, even among the so-called experts, there is no unanimity about the terms. One expert told me that all stock exchange-listed companies are "organised" and another told me that any corporatised entity is "organised."
The Central Statistical Organisation (CSO) defines "unorganised" as "all unincorporated enterprises and household industries which are not regulated by any of the acts (like the Factories Act or the Sales Tax Act) and which do not maintain any annual reports of profit and loss (P&L) accounts."
Well, I have news for the CSO. My kirana shop pays sales tax and so even though his is a proprietorship, the shop is "organised." So the definition is not about being corporatised.
In contrast, the government of India – and various misgoverning state governments – are classified as "organised," which is highly amusing.
India's terminological terrorists, who are leading the reforms debate without knowing the basics, are talking little sense when they say that the "unorganised trade" will become organised if Wal-Mart is allowed in. Not only that, they also use the term "inefficient" as TT and say the current supply chain is inefficient." My vegetable vendor carries half a mini truckload of goods on his TVS 50 moped in the morning at 5 am only to be told he is "inefficient."
Actually, small unincorporated enterprises use capital much more efficiently than big businesses, since big firms can expect banks to write off their loans or, in the worst case scenario, they may even skip paying shareholders.
The second important TT is about India being an "emerging power" and hence it should take all steps to become an "emerged" market. These pundits do not know that till 1820 – from the first century AD – India and China had half of Global GDP. After 1820, due to colonisation, etc, it has fallen. A path-breaking study by Angus Maddison clearly establishes that India and China are re-emerging powers, or retrieving their global economic position. They are not "emerging powers." (See Table-B-20, Appendix B; pp 263; by Angus Madison, OECD Development Centre Studies, 2007).
The third example of terminological terrorism is much more fascinating – it is calling the low economic growth rates of the sixties and seventies as the "Hindu rate of growth." Today, as growth in the Indian economy slows, there is regular wailing about slipping back to the "Hindu rate of growth."
Let us be clear. The term Hindu rate of growth has no theoretical or empirical basis. No economist has done any econometric study to establish that Hindus are responsible for the low growth of sixties. The term was coined in the 1970s by a well-known Left economist Dr Raj Krishna to describe the inability of the economy to grow at more than a modest 3 percent real rate per annum, when other economies were growing at a much faster pace.
He did not find anything wrong with the Nehruvian Socialistic pattern of economics adopted by us. Instead he attributed this to the philosophical temperament of most Indians, their belief in contentment and lack of killer instinct. C Rajagopalachari (or Rajaji), that far-sighted statesman, used to call the Nehruvian system as the licence-permit-quota raj. But the assertion by Krishna – a one-time editor of the - suited one section of sarkari leftists since it seemed to explain our low growth without finding fault with the wrong economic policies of Nehru which bankrupted our country for more than 40 years.
The other section of leftists and communists were happy since it gave them a handle to ridicule followers of the majority religion – though that was not Raj Krishna's intention. It encouraged them to demand more Nehruvian absurdities and socialism. In the eighties, when we were growing at more than 5 percent, or when, in the 1990s, after PV Narasimha Rao liberated the economy from Nehruvian socialism and we were growing at more than 8 percent, nobody called these rates as Hindu rates.
The interesting point is that even contemporary pro-capitalist or pro-market writers such as Surjit Bhalla or Swaminathan Aiyar tend to use the same terminology instead of calling it by its true name: a Nehruvian rate of growth.
There are other issues in using such TTs. For instance, most of my students, who were born post the 1980s, do not know much about the sixties or seventies or even the wicked sense of humour of Raj Krishna. They ask me repeatedly – why do reputed pink papers call the past growth rate as the "Hindu rate?" – when I try to talk to them about the permit/licence/quota raj.
Many of my American colleagues are intrigued by the usage of this phrase and recently one person sent me a mail asking me about it. Many of them read our business papers because of their interest in India and are puzzled by our masochism in deriding ourselves without justification. So let us be clear: the 3 percent rate was the Nehruvian growth rate and not the Hindu rate of growth.
I recollect the three most popular electives offered in economics during my college days. They were European economic "history"; American economic "systems" and Indian economic "problems". It tells us how much TT is embedded in our genes and how much we have internalised the same. May be the next generation of economists will start investigating issues pertaining to "terms" before jumping for reforms.