Manmohanomics, in His Own Words (GS Paper 2, Polity)
Introduction
- Dr. Manmohan Singh, who became India's Finance Minister in 1991, is widely recognized for his pivotal role in transforming India's economy.
- He oversaw the shift from a centrally-planned, highly regulated economy to one that embraced open, liberalized markets.
- As Prime Minister between 2004 and 2014, he guided India through a period of rapid economic growth and significant poverty reduction, marking an era of substantial economic progress.
Dr. Singh’s Views on Planning vs. Markets
Dr. Singh was neither an advocate for blind adherence to central planning nor oblivious to the potential pitfalls of relying solely on market forces. He understood the rationale behind the planned economic approach adopted by policymakers after India’s independence, especially considering the country’s initial conditions. Newly independent nations, including India, lacked essential infrastructure and a robust entrepreneurial class capable of taking risks.
- Historical Context: In such a context, Dr. Singh believed that exclusive reliance on market forces would not have led to rapid enough progress. Planning was seen as a necessary tool to drive economic development in the absence of the private sector's readiness to take on the risks of such development.
Views on Licence-Permit Raj
Dr. Singh strongly advocated for reducing the restrictions on private enterprise. He recognized that overly restrictive regulations, commonly referred to as the Licence-permit Raj, hindered industrial development in India.
- Promotion Over Regulation: Dr. Singh argued that rather than relying on cumbersome licensing systems, the government should focus on creating positive incentives to attract investments, especially in critical industries necessary for development. He saw licensing as an inefficient substitute for incentivizing growth through active promotion of key sectors.
On Inequality and "Soak the Rich" Policies
Dr. Singh was deeply concerned about the growing income inequality following economic liberalization. While acknowledging that poverty had decreased, he recognized that wealth disparities had widened significantly.
- Warning Against Populist Policies: He warned against the temptation to adopt "soak the rich" policies, where governments target wealthy individuals to redistribute resources. These policies, although electorally appealing, could have unintended consequences. They could encourage entrepreneurs to become speculators rather than productive, long-term investors, and drive them to evade taxes or move capital abroad. In his view, such policies would encourage short-term thinking and undermine the economy’s long-term growth prospects.
On Openness of Trade
Dr. Singh was a strong advocate for trade openness, and he criticized the protectionist policies that were prevalent during the early years of independent India. In his DPhil thesis from 1962, titled “India’s Export Trends and the Prospects of Self-Sustained Growth,” he argued that India’s policymakers had underestimated the country’s potential in global trade.
- Mistake of Protectionism: Dr. Singh believed that the trade protectionism of the Nehru era had hindered India's economic growth. His thesis emphasized that exports had the potential to drive growth and that India needed to embrace global markets to unlock its economic potential.
On PSU Autonomy and Unions
Dr. Singh recognized that political interventions in Public Sector Undertakings (PSUs) often led to inefficiencies. He highlighted that price controls and the role of trade unions in stifling innovation in struggling public sector firms were major obstacles to progress.
- Efficiency Over Job Security: He was particularly critical of trade unions that insisted on maintaining obsolete technologies solely for job security. In his view, such resistance to change not only held back the public sector but also hindered overall employment opportunities by preventing the necessary reforms.
On Education, Health, and Women
Dr. Singh was passionate about the importance of education, health, and sanitation in driving India’s economic progress. He believed that ensuring equal access to these basic public goods was essential for unleashing the latent potential of the country’s population.
- Human Capital Development: Dr. Singh emphasized that education and healthcare were fundamental to increasing the country’s productive capacity. He saw these as tools to help individuals reach their full potential, thereby contributing to the overall economic growth and social well-being.
Conclusion
- Dr. Manmohan Singh’s economic policies, often referred to as Manmohanomics, deviated from the traditional Nehruvian approach to economic planning.
- Even before his role in the 1991 economic reforms, Singh was advocating for liberalization and market-oriented policies.
- Over the years, he developed ideas that have now become part of India’s mainstream policy framework, reflecting his early recognition of the importance of economic reforms, global trade, and inclusive development.
- Dr. Singh’s leadership fundamentally shaped India’s transition into a modern, more globally integrated economy, setting the stage for its future growth.
