The reforms we urgently need

We have come a long way since India’s independence 75 years ago. We have a long way yet to go to reach our tryst with destiny of “poorna swaraj”, i.e., political, social, and economic freedom for all Indian citizens. 

Our great political achievements are freedom from British rule obtained without violence and the right to vote that our constitution has given to all citizens. However, India has a long way to go to grant equal social freedoms to all citizens.

Lower-caste people continue to be discriminated against and injustice against minorities based on their religion cloud over the rainbow formed by the diversity of India’s citizens. 

Meanwhile, our economy marches on. India’s GDP, amongst the fastest growing in the world, will reach the $5 trillion milestone soon.

Track full coverage of Independence Day here

However, our economy is not in good shape. India has the largest population of youth in the world. They are expected to provide a “demographic dividend” to growth by earning more and saving more in their younger years. They can do this if they have the means to earn enough. Tragically, the pattern of India’s economy is generating too few good jobs and the gap between where our economy is and where it needs to be is increasing. 

Between 1980 and 1990, every one per cent of GDP growth generated roughly two lakh new jobs; between 1990 to 2000, it decreased to one lakh jobs for every per cent growth; and from 2000 to 2010, it fell to half a lakh only. 

Fundamental reforms are required in the theory of economic growth: more GDP does not automatically produce more income at the bottom.  The paradigm of growth driving India’s economic policies rests on three theories: The size of the economic pie must be increased first so that there will be enough to share. Make it easy for rich people to increase their wealth and trust they will look after the rest.

Reduce the government’s role even in the public sector, because the private sector is more efficient.

These theories must change.

The size of the pie (GDP) has increased with these theories. But inequalities have also risen, within India and around the world. The perversity of this paradigm is revealed in the inequalities between the compensations of CEOs and other employees. 

Circa 1990, CEOs in India earned, on average, 20 times more than the median income of employees. Thirty years later, they make almost 200 times as much.

It defies imagination that only CEOs could have become 10 times smarter than others during the last 30 years. Rather, this is an egregious example of how market valuations have corrupted human values in the paradigm of turbo-charged global capitalism that has dominated economics since the 1990s.

In this paradigm, those who create more wealth for themselves, and for their corporations’ shareholders, are also described as society’s wealth creators. Their views carry great weight in shaping economic policies: indirectly, through campaign financing; and directly through the lobbies, think-tanks, and philanthropies they support. 

This economic-growth-obsessed pattern is increasing inequalities around the world and destroying the planet. In this model, greed is good, because that drives economic growth. Gandhiji had warned that while the world has enough for everyone’s needs, it does not have enough for everyone’s greed. 

Albert Einstein said it was madness to try to solve difficult problems with the same approach that has caused them. India must change its economic policies to achieve poorna swaraj for all its citizens.

The prime metric of India’s success must not be GDP. Inclusion and sustainability must be tracked as diligently. Secondly, corporations must be required by law to account not only to their shareholders but also to the public for the impact of their products and operations on the society and environment.

A good scorecard must be designed. Finally, more cooperative forms of enterprise must be implemented in which the workers — the real wealth producers — are also the owners who accumulate wealth for themselves. Thus, they can share the pie while its size is being increased.

(The author is a former chairman of BCG India.)