State versus Market Debate in India 2

Students are advised to study the notes in Test no 5 and Blog no 74 and what follows.

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The State Market Debate centers around the  following  questions:

You should discuss the following:

The Third World badly needs development.  What exactly constitutes development?

Secondly in this era of globalization and liberalization what exactly should be the roles of the State and the Private sector?

How much autonomy does the State have  in undertaking the developmental tasks in view of the World Bank and IMF compulsions?

What has been the experience of the Indian State in the Public Sector?

Is the bureaucracy capable of leading the process of development?

What is the political environment necessary for promoting development? Can development be at the cost of democracy as in China?

How far is  the Democratic State  capable of tackling corruption, red tape,  and inefficiency if bureaucracy led development is to be undertaken?

How far can we depend on FDI to bring in the money required for development?

Is FDI the door to a second colonization?

Can the Market be allowed to function in all spheres or should we adopt a mixed economy?

How far should the Market be made accountable?

How far should the State introduce  reforms so that all bottle necks to development are removed?

The end of the Cold War and the presumed emergence of the USA as the  sole SuperPower and the phenomenal success of US Capitalism saw the US advocating vigorously LPG (liberalization, privatization and globalization). Along side this was Thatcherism which held that there is no alternative to the dominance of Private enterprise. She strongly advocated the Roll Back of the State. Subsidies be damned! Let the poor strive for their development. There Is No Alternative  (TINA)

On the other hand advocates of Development Administration wanted a bureaucratic  led development . It assumed that the Democratic State and an enlightened bureaucracy could bring about all the development necessary . It was argued that the Nation State was capable of bringing about the needed development.  It was believed that the Nation State was capable of helping  the country to get out of the Hindu rate of growth and a low development equilibrium trap.

The development marker for a country which would help it to take off was set  at a  growth rate of 12 % of GDP. Such a rate of growth would also help the masses to rise above their abysmal levels of poverty. This was the trickle down theory of growth.

On the other hand the Neo Marxist dependency perspectives held that Development = Emancipation from Western Imperialist controls . Andre Gunder Frank emphasized the necessity for delinking from world economy in this processes

Another model of Develoment was suggested that there should be a  socialist type state takeover (based on Cuban, Chinese examples).  These shaped political movements in Guyana, Grenada, Nicaragua, Jamaica

It was argued that the market had failed to   to provide the most efficient and appropriate allocation of  goods and services. Also the world has been witnessing the deepening depression in the Western world. The USA had to spend the tax payer’s money to bail out the banks. So much for privatization.

Given pervasive ‘market failures and dualistic economies, now scholars
often recognize a role for strategic state interventions in supporting economic modernization and for securing social alliances in order to minimize conflict

Situations where markets fail to support  development include
> where monopolies (or monopolistic conditions) exist,
> where there is incomplete or imperfect information, limited
knowledge or uncertainty,

Unbridled free enterprise  may lead among others to  industrial pollution, but it could also procide  better health experiences because of private actions to reduce the individual incidence of communicable diseases, or a firm benefiting from higher productivity because of individuals investing more in health and education for themselves. We may note here the great achievements of Narayana Hridayala on the one hand and on the other the failure  of the Ambanis to exploit oil resources where their profits are not high. And when petroleum minister asked for explanations, the Ambanis saw to it that he was shunted out. That is the reach of un-controlled  market.

Where infrastructural requirements are absent, the State alone can step in.  We may ask whether any private sector could have built the  Delhi Metro.

The Private Sector s also blind to environmental safeguards.

Of course corruption is rampant. Rajiv Gandhi wondered whether even twenty paise in the rupee spent on development reached the common man. This should not blind us to the corruption in private enterprise. Nor should we forget the role of money power in US elections.

The State versus free market debate involves a structural adjustment.  However we need not take the WB model of structural development as the only model. One size cannot fit all. Wherever there are shortcomings we need to make the necessary adjustments and promote reform.  Even as we try to mprove exports and correct our balance of payments position , we also need to improve the supply chain within the economy. Only this will eradicate poverty and check inflation. Economic development  has no meaning when there are vast masses of poor , hungry and unemployed people.

The State should observe monetary restraints and avoid fiscal defects. If the father goes on borrowing and spending , it is his children and grandchildren who have to pay back the debts. We cannot burden future  generations with our present profligacy.

The State must aim at both Institutional integrity and  Institutional reform One area where urgent reform is necessary is tax mobilization  and  checking tax evasion. Singapore has shown the way. The maximum rate of income tax is 20% and there are no other taxes on income. As a sresult money is pouring into that contry.  And Singapore is no tax  haven.

Banking crises as it happened in the USA should be prevented. We in India with frequent writing off loans and banks with huge non-performing assets are the road to disaster.

Predatory States, dynastic policies, non-performing governments, the absence of accountability and transparency : all these must go if we really wish to develop.

Private enterprise has not always a clean record. It often subverts established governments for its own aggrandizement and a corrupt political class colluding with private enterprise leads to black money and hoarding in tax havens like the Swiss Banks, Mauritius etc.,

One thought on “State versus Market Debate in India 2

  1. The economy of the country is influenced by the policies of the government. These policies, in turn, are determined by the political ideologies of the parties in power. Thus a socialist or communist regime would traditionally like to control the factors of production and ensure that economy is centrally planned. On the other hand, a true capitalist or laissez faire regime would not interfere with production and distribution but would expect the market to determine such issues. In today’s world, such ideological polarisation is hard to find.

    The Great Depression in USA had led the country to liberalise, privatise and globalise their economy. Fall of the Soviet Union (socialist state) has given a false notion for other countries to follow the West. Communist countries like China and Vietnam also embraced the western ideas of economy development. The IMF and WB which was set up to help those countries which have high fiscal deficits by providing low interest loans have become puppets in the hands of the USA. They have been advocating the third world countries to open up their markets to foreign investments and urging the private sector to play a leading role in shaping up the country’s economy.

    After independence, India’s economic policy was more of a state dominated one. Welfare state and nation state was the mantra. Heavy licence quota permit raj prevailed which made it extremely difficult for private industries to be established and inflow of foreign capital. The burden on the state to satisfy every individuals needs increased. Welfare schemes and subsidies also increased. Government felt shortage of funds due to growing expenses and hence ended up in financial crisis in 1991. This situation led India to adopt the policy of liberalisation, privatisation and globalisation. Though aftermath of LPG, India did see a growth in the economy and did make many milliners it also witnessed the conditions of the weaker and poorer sections of the society become worse. Hence the increase in the economic growth was a false notion. It was not an inclusive growth. Private companies focussed only on profits and not on the greatest happiness of the greatest numbers. This led to increase in corruption and black money. Hence giving monopoly to the market was not a wise option.

    Giving total monopoly to the state has its own drawbacks. It makes the economy too rigid by applying unnecessary rules on private and foreign investment. The state sponsored industrialisation is a cumbersome process having to get many permits and licences. Public sector industries began to make losses. They had unruly labour and inefficient managements. We cannot become spendthrift by just throwing away money on so called welfare projects without enough social audit to find out whether what we are spending really goes to the poor. Rajiv Gandhi estimated that hardly 15 percent reached the people to whom they were intended. Too much of Socialism is bad. What we need is neither an omnipotent State nor total Liberalization. There should be enough regulations to see that private enterprise does not take the country for a ride. Nor should the State control all aspects of economy. The argument is no longer state versus market, but state and market together.

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