A heated debate has arisen among rich-country economists after the global economic crisis about how much should governments intervene in markets. This has shaped policy on stimulus versus austerity and on recession, unemployment and other economic ills. “Neoliberalism”, as an economic ideology that promoted unbridled consumerism and encouraged the excesses of capitalism without a concomitant regard to welfare, has become a dirty word in this debate. This ideology is said to have been promoted in developing economies by global institutions such as the International Monetary Fund (IMF), the World Bank and the Organisation for Economic Cooperation and Development, which called for increasing market reforms and global integration as a development model.
Today, neoliberal policies of free markets and free trade are being blamed for the rising numbers of billionaires and growing inequality, and advanced nations are stepping up the government’s economic role. Even IMF has conceded that capital controls may not be a bad idea under certain circumstances.
In India, this global step back from neoliberalism provokes two strands of thought. The first is that as a socialist economy, the deeply entrenched dirigiste role of the government has suppressed academic exploration of the various connotations of liberalism — classical, modern, egalitarian, neo or the rest of the spectrum that goes under this amorphous definition. The application of economic theories to the Indian economy has not elicited sufficient attention from researchers. Even after economic liberalisation in 1991, ingrained historical suspicion of free markets meant that reforms continue to be undertaken in an apologetic and “stealthy” manner, without matching support or articulation in academic circles.
“Neoliberal” votaries of freer markets exist mainly in the Indian economic media, which champions deregulation and private sector entrepreneurship through columns and spirited television programmes, or in universities abroad. And such ardent proponents of liberalisation are viewed askance by an overwhelming majority of the country, including economic academia. In fact, economic research institutions, often operating under the aegis of the government, are generally dominated by Left-leaning economists.
It is no surprise that economic action in the country operates in a theoretical and intellectual vacuum. The new line of thought that is recently gaining traction is that the free markets promote freedom for large companies. For example, the Institute for Studies in Industrial Development started research on “crony capitalism and contemporary India” in 2007.
The second strand that comes to mind is how far India is positioned on the “neoliberal” framework. And the answer, quite simply, is that the country is still far from a neoliberal market, where the government creates a well-functioning institutional framework that enables and encourages entrepreneurial activity. Most of the “institutions” that support efficient markets, such as strong property rights, free trade, law and order, security, access to opportunities and many others, are distorted in the Indian context. The task of strengthening these is largely incomplete, curtailing individual actions that would infuse competition into markets and raise economic efficiency.
Theorists in rich countries are troubled by the question of how much should the state intervene in areas such as education, health care, social security, infrastructure and so on, where private sector has made considerable inroads. But similar considerations do not apply in India, where public services are still largely absent for a large section of society. The government has neither provided adequate public goods nor has it created an enabling environment for the private sector to do so. On the other hand, ill-conceived regulation for the private sector may drive away legitimate business and investment.
The rich-country debate on neoliberalism will continue as this is what academics there do. But this is no reason for us in India to enlarge the role of an ill-functioning government in the Indian economy and impose additional burdens on businesses. It is not yet time for us to consign the tenets of neoliberalism to junk status while gleefully debunking the theory as having distorted capitalism. Such theorising could be dangerous for India’s growth prospects.
The writer has authored several business and fiction books