Propelling India’s Development The Right Way

Relevance: GS3 - Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment. Inclusive growth and issues arising from it. Investment models. GS2 - Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

(Source: The Hindu, 09/22/2023)

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Why in the news?

This article discusses India’s development strategy, how it has been impacted by the persistence of inequalities in society, and the need to revive state support, particularly in emerging sectors.

India’s moonshot approach to development

• A moonshot approach refers to one in which a huge and apparently insurmountable problem is solved by proposing a radical solution using disruptive technology,
  • In India’s case, the problem faced was the stagnation of the economy as a result of the two decades of colonization.
  • The solution proposed was to deploy modern industrialization to quicken the country’s development.

What did it entail

• India was determined to become a leader in advanced technologies despite the economic and technological challenges faced by it.
• Education: Between 1951 and 1961, India established five Indian Institutes of Technology which gradually became scientific institutions of global renown.
  • Similarly, two Indian Institutes of Management were set up in 1961.
• Industry: In the 1950s and 60s, India established numerous public sector units for industrial production in sectors such as steel, fertilizers, machine tools, electric machinery, drug production, and petrochemicals.
• Space: The Indian Space Research Organization was set up in 1969, prior to which India’s space programme was coordinated by the Department of Atomic Energy.
  • India had recognized very early, through the vision of Dr. Vikram Sarabhai, that satellites could help build a nationwide telephone network and provide agricultural and health support and education.

Criticism

• Reliance on public investment: The initial stages of development in India were driven by public sector enterprises and government spending.
  • Critics have suggested that the private sector should have been encouraged to lead the development process with the state not interfering in the market.
• Misdirection of investments: As India was a labor surplus country, some economists have argued that India should have attempted to leverage its advantages in labor-intensive industries (garments & footwear) instead of focussing on capital- and technology-intensive industries.

Public nature of development

• Technology is a public good, which makes public investment a critical factor in technological development.
  • For example, the Internet was developed as a US government-funded research programme.
• In India, the technological capacities that were set up through state support served as the base that allowed private enterprises to flourish.
• This is evident in the growth of Indian private sector enterprises in sectors such as pharmaceuticals, IT, and even space.
• Professionals trained in Indian universities set up through public funding (IITs, and IIMs) have secured global leadership positions, contributing to India’s soft power and strategic importance.
• Therefore, it is inaccurate to place the blame for India; 's unsatisfactory development solely on the government by claiming that it is not spending on technological development.

Why was public sector-led investment unlikely?

• Investment: The time and investment required to successfully develop and provide a new technology is often very high, which makes it unviable for private enterprises.
• Consider the case of India’s space prorgramme.
  • In the initial decades, the programme faced numerous setbacks but public funding was not halted over concerns of short-term viability, allowing the programme to achieve success in the long term.
• Profits: The public good nature of technology makes it difficult to maintain exclusivity, which reduces the ability of the private concern to profit from the product.
  • This discourages private sector enterprises from participating in or leading technological development.

Inequalities, a hurdle for progress

• The major reason why India’s moonshot approach to development has only been partially successful is that the government has been unsuccessful in reducing inequalities and ensuring social development.
• Assets: Independent India has not been able to implement a successful programme of land redistribution.
  • As a result, asset ownership among socially marginalized communities, such as the SCs and Dalits, has been very low.
• Education: India has underinvested in ensuring basic education for its citizens, making it more difficult for oppressed citizens to educate themselves or their children.
  • The lack of assets further compromises their ability to acquire an education.
• Labor: Historically determined inequalities in society have been duplicated in the labor market.
  • Privileged groups with better access to higher education often get the best-paying jobs.
  • According to the PLFS, 28.3% of all SC workers were casual workers while only 11.2% of workers belonging to the general category were casual workers.
• Growth: The inequalities in the social and economic sectors have negatively affected the industrial and economic growth of the country.
  • Domestic demand has been skewed in favor of the upper-income categories, despite them accounting for a small section of the population.
  • As a result, the growth of high-quality mass-consumption goods such as foods and garments has slowed considerably.
• Innovation and Entrepreneurship: The spread of inequalities from the social sector to the economic sector has limited the opportunities for more inclusive development.
  • This has meant that entrepreneurship and innovation activities in India were largely driven by the economically and socially advantaged.
• In contrast, East Asian societies like Japan implemented land reforms and other social measures, resulting in the creation of a relatively egalitarian social structure that drove social and economic progress in the region.

Way forward

• Assessment: India must stocktake its developmental journey so far to obtain a clear understanding of its successes and failures.
• Need for state support: It must reinstate the strategy of building technological and industrial facilities and capacities with generous state support that will allow it to take the global lead in emerging sectors such as semiconductors, biotechnology, etc.
• India must emulate the U.S.A. and China in providing government support for its industries instead of continuing with the assumption that there is no role for an industrial policy in a globalized economy.
  • India abandoned planning for industrial growth on this assumption in 1991.
• Inclusive Growth: This must be accompanied by inclusive and broad-based economic growth strategies.
  • For example, Education must be made accessible to all.

Conclusion

• India's achievements in technology and space have highlighted the need to factor in public investment in development strategies, particularly the challenge of addressing social inequalities.
• Inclusive development by helping the country’s population acquire social and human capabilities for upward mobility has the potential for a "lunar takeoff" in economic progress.

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FAQs

MCQs

Question: In India, which of the following can be considered as public investment in agriculture?

1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital Development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments.

Select the correct answer using the code given below: (UPSC CSE 2020)

(a) 1, 2 and 5 only

(b) 1, 3, 4 and 5 only

(c) 2, 3 and 6 only

(d) 1, 2, 3, 4, 5 and 6

Question: Which one of the following statements appropriately describes the “fiscal stimulus”? (UPSC CSE 2011)

(a) It is a massive investment by the government in the manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth.

(b) It is an intense affirmative action of the government to boost economic activity in the country.

(c) It is the government’s intensive action on financial institutions to ensure the disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation.

(d) It is an extreme affirmative action by the government to pursue its policy of financial inclusion.