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Mainstream, VOL LII No 5, January 25, 2014 - Republic Day Special

India’s Failed Development — Create a New Model Rooted in Cultural Ethos

Tuesday 28 January 2014, by B P Mathur


Sixtysix years after independence, India continues to be a country with widespread poverty and backwardness and finds a place only at the bottom of the development index in the international league of nations. The euphoria generated at the time of independence, when Pandit Jawaharlal Nehru proclaimed that ‘India is waking up to life and freedom’ and ‘the soul of nation will find utterance’, has disappeared. The national mood today is of pessimism, frustration and anger. Corruption is eating into the vitals of the nation like cancer. The economy is tottering and the government is virtually bankrupt due to fiscal profligacy. There is wide-spread poverty, unemployment, illiteracy, and malnutrition causing huge suffering to the people. Much of our problems are due to the model of development we have adopted, blindly imitating the Western ideas and economic ideology without giving thought to their relevance to India’s economic and social reality. There is total disconnect of our development model with India’s civilisational and cultural ethos; as a result we are not able to inspire the people to build an economically strong and vibrant nation.

Part I

Economic Well-being 

Our policy-makers consider the Gross Domestic Product (GDP) growth as a measure of success of their policies and constantly blare out figures and statistics to prove that the economy is growing and the country is making progress. This is a fallacious approach. The GDP is basically a measure a country’s overall economic output, the amount of goods and services produced and consumed in a country and has no relationship with the country’s economic well-being. In order to judge the country’s economic health we should take into account the socio-economic factors such as poverty and unemployment, level of literacy and health care, the state of agriculture, industry and infrastructure and similar other parameters.


Poverty in India is estimated on the basis of the norms laid down by the Tendulkar Committee (2009). Taking 2004-05 as the base year, the Committee found that 37 per cent people were below the poverty line (26 per cent in urban and 42 per cent in rural areas). The Committee has taken the household consumption of goods and services, which include food, education and health, as the norm to determine the poverty line. By updating the Tendulkar Poverty Line, the Planning Commission has worked out that the poverty line in the rural areas is Rs 26 and for the urban areas Rs 32 per day for the year 2009-10, which implies a consumption level of Rs 3900 per month in the rural areas and Rs 4800 in the urban areas for a family of five. The Planning Commission lauds itself that poverty in the country is declining by 1.5 per cent per annum from 2004-05, as compared to 0.74 per cent in the previous decade. This is ludicrous. The fact that 35 crore people, 30 per cent of the entire population of the country (2010), live in abject poverty and destitution is a severe indictment of the Indian state, our governance and economic policies.


The unemployment scene in the country is very grim. The NSSO’s 66th round for 2009-10, estimates a total labour force of 46.88 crores (rural 34.19 crores, urban 12.69 crores), out of which 45.9 cr are working (33.64 crores rural and 12.26 crores urban), with 98 lakhs unemployed and an unemployment rate of two per cent. These employment figures present a misleading picture. Ninetythree per cent of the labour force is employed in the unorganised sector, mostly on non-skilled jobs at whatever wages they can get, instead of sitting idle at home, which is captured as ‘employment’ by the government statisticians. The National Commission for Enterprises in the Unorganised Sector (2009), chaired by Arjun Sengupta, has found that 83.6 crore Indians are poor and vulnerable, living on less than Rs 20 per day and experienced hardly any improvement in living standards since the early 1990s. The Commission noted that 39.49 crore workers, who constitute 86 per cent of the working population, are in the unorganised sector from agriculture to micro-industries to self-employment. They work under utterly deplorable conditions, have few livelihood options with no job or social security.

The real employment growth should be measured in terms of the people employed in the organised sector, where employment is of high quality, employing skilled and educated force, giving them some kind of job security and social security benefits. As per the NSS Survey, only 3.07 crore persons are working in the organised formal sector (2009-10), and employment in this sector has declined by 27 lakhs in the last five years, as it was, to 3.34 crores in 2004-05.

The employment data presented by the government is completely flawed. The unemployment rate is determined on the basis of the NSO survey which is done once in five years and does not capture job creation in the organised sector and in the case of educated youth, in the absence of which it becomes meaningless. In the USA and Western countries the employment rate is tracked every month and high unemployment becomes a major issue of national concern. Our present economic policies have completely failed in creating jobs in the economy.

Agriculture and Rural Distress

The problem of poverty and unemployment in the country has its roots in agriculture becoming a totally unremunerative occupation causing huge rural distress. While more than half the work force in the country is engaged in agriculture, its contribution to the GDP is only 15 per cent, as compared to 50 per cent at the time of independence. This is largely due to the development strategy adopted by the country, whose impact is to ‘create an indentured agriculture to serve the interests of a powerful urban populace’. This is evident from the fact that the GDP from agriculture had increased four-fold between 1950-51 and 2006-07, but the increase per worker in real terms was only 75 per cent, while at the same time there is four-fold increase in the overall per capita GDP.

The farmer in India has shown great resilience and dynamism, given the right incentive. The Green Revolution, launched in the late 1970s, resulted in spectacular growth in foodgrains production, and the country attained self-sufficiency, from chronic shortage and imports, which characterised the economy for three decades from the 1940s to 1960s. The production of foodgrains increased from 108 million tones in 1970-71 to 176 mt in 1990-91, 197 mt in 2000-01 and 245 mt in 2010-11 and was 257 mt in 2011-12. A large number of factors contributed to the increase in agricultural production, such as land reforms, increase in the net sown area, irrigation facilities and, most important, techno-logical innovation due to introduction of high yielding variety of seeds and pragmatic price policy based on minimum support prices.

Unfortunately post-liberalisation, the agriculture sector has lost its dynamism. While during 1981-82 to 1990-91 the agricultural GDP grew at 3.5 per cent per year, from the Ninth Plan—1997-98 onwards—growth has decelerated to only around two per cent. However, the growth has somewhat picked up during the 11th Plan (2007-12) and was three per cent against a target of four per cent. There are a large number of structural and social factors due to which agriculture has become an unrewarding occupation: changed pattern of land-holdings; changed cropping patterns due to shift from light crops to cash crops; growing cost of cultivation due to heavy dependence on high-cost inputs; volatility of crop output and lack of remunerative prices. More than 80 per cent of the farm population operates on small holdings of less than two hectares, the average size of holdings being 1.23 ha and they are by and large economically unviable. The biggest problem is shortage of water and much of agriculture continues to be rain-dependent.

There is a huge agrarian distress due to declining productivity and higher costs of input. The government’s policy-intervention is limited to giving input subsidy on some products and minimum support price for some category of foodgrains and agricultural products. Over the years public investment in agriculture has come down—agriculture and irrigation’s share was only six per cent of the Plan Budget in the 10th Plan, seven per cent in the 11th Plan and has been allotted eight per cent in the 12th Plan. The liberalisation of the economy has compounded the problem and prematurely pushed Indian agriculture into global markets without a level playing field. The farmers are getting squeezed on both sides, due to the high cost of seeds and pesticides imported by foreign companies and heavily subsidised agricultural products dumped by the Western and other countries in the Indian market.

To ensure that the farmers get a fair price for their produce as also enable the government agencies to procure sufficient quantities to meet the food security concerns, the government announces a Minimum Support Price (MSP) for wheat, rice and certain other commodities, which serves as a ruling price for public sector agencies engaged in procurement. While this helps farmers in preventing them from distress sale, the price support mechanism hardly gives a decent income as the MSP is very conservatively fixed. When there is a bumper crop, prices slump, when there is fall in production due to the vagaries from which agriculture suffers, the farmer is not able to take advantage of the market forces as the government intervenes to check the prices and often resorts to imports, in the interest of the consumer and other interest groups. Indian agriculture is facing a serious crisis whose most visible symbol is the spate of suicides committed by farmers across the country during last ten years—a very tragic and disturbing phenomenon.

Nobel prize winning economist Theodore Schultz1 observes that there is discrimination against agriculture due to the political influence of the urban population which enables them to extract cheap food at the expense of the poor rural people. Analysing the causes of rural distress, agricultural economist K.C. Suri2 observes: “Businessmen, traders, industrialists, professionals etc. are all interested in extraction of ‘surplus’ from agriculture, as their profits and earnings are inversely related to net retainable incomes of those engaged in agriculture. Farmers do not have the wherewithal to lobby in the corridors of power.”

People have a wrong notion that agriculture cannot be a source of prosperity for the country. We have to learn from Israel, which increased agricultural production seventeen times in twentyfive years, despite it being a largely arid land.Shimon Peres, the President of Israel,3 observed: “Agriculture is more revolutionary than industry. People don’t realise this. Agriculture is ninetyfive per cent science, five per cent work.”

The low prices of agricultural products, due to a number of factors, is the biggest cause of rural distress.Farmers must be given remunerative prices to prevent rural distress. There is also the need for massive public investment in agricultural infrastructure such as irrigation, farm machinery and equipment, seeds, post-harvesting handling and processing, storage and R and D to make agriculture dynamic and the mainstay of the economy. 


Throughout history, the manufacturing industry has provided the driving force for economic development. In India, the share of manufacturing is only around 14 per cent of the GDP, as compared to other newly emerging countries such as Malaysia—25 per cent, Thailand—30 per cent, South Korea—31 per cent, and China—32 per cent. (2011) Though manufacturing’s share in the GDP has declined in developed countries such as Britain and the USA, its share in the GDP in the major industrial powers such as Japan is close to 20 per cent and Germany is 23 per cent.

Manufacturing in India employs 50 million persons, which is around 10 per cent of total employment. This is very low as compared to 15 to 30 per cent in the newly emerging countries. A disturbing trend in recent years is the decline in employment in the manufacturing sector, with the sector shedding five million jobs between 2004-05 and 2009-10, and employment decreasing from 55 million to 50 million. While the organised manufacturing sector has come up and become competitive as a result of liberali-sation of the economy in several high technology sectors such as automobiles and automobile parts, drugs and pharmaceuticals, heavy machinery and equipment, steel and textiles and is not only exporting to developed countries but has acquired/set up industrial units, it has not created new jobs and workers as a class have lost both in terms of additional employment and real wages. Economist Amit Bahaduri4 says that the existing model of corporate growth and industrialisation has a depressing effect on employment generation and terms it as ‘a process of internal colonisation’.

Worldwide Small and Medium Enterprises (SMEs) have been recognised as engines of economic growth. In the USA half the jobs are in the Small and Medium-sized firms (SMEs). In the Euro area they play a bigger role. In France SMEs employ 60 per cent workers, in Spain 67 per cent and in Italy 80 per cent.5 In India Micro, Small and Medium Enterprises (MSMEs) account for 45 per cent of the manufacturing sector’s output, 40 per cent of its exports and contribute eight per cent of the country’s GDP. The MSMEs are the largest employer after agriculture and provide employment with low investment. They manufacture over 6000 products ranging from handloom sarees, carpets to drugs and machine parts for large industrial products. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services produced and the levels of technology employed. While one end of the MSME spectrum contains highly innovative and high growth enterprises, more than 94 per cent of the MSMEs are unregistered, with a large number established in the informal or unorganised sector.

The SME sector has been neglected from the time planning began in India. Some of the basic problems of the sector are: non availability of easy credit, marketing of products, non-availability of raw material at competitive prices, low technology and lack of skilled manpower. Small firms do not issue bonds or sell equity in the market, they rely on banks for borrowing. In view of the very high cost of capital, they cannot become competitive. The biggest problem the manufacturing sector faces in India is dumping of goods by China; as a result even established industries are getting wiped out and a spectre of de-industrialisation is confronting the country. There is an urgent need for reorienting the government policies, and give massive support to the MSMEs, so that they become an economically viable and dynamic sector of the economy.

Electric Power

Electric power is one of the most important components of the rapid development strategy. Lenin had declared: ‘Soviet power is socialism plus electricity.’The country is woefully short of power. The present generating capacity is about 2,00,000 MW, with 70 per cent coming from thermal and 20 per cent from hydro sources. There is an immediate need of additional 1,00,000 MW, but there is no possibility of fulfilling this demand.

India’s energy problems cannot be solved through the conventional mode of production. Thermal plants suffer from major constraints due to coal supply problems and big hydro-projects face serious environmental issues. Nuclear power has also limited scope due to safety and environmental concerns. Renewable energy sources, such as wind power and solar energy, as well as bio-mass power plants based on agricultural residue, hold great potential for power generation as they are based on environ-ment-friendly technologies, but our policy-makers do not have the vision to harness them and make them the main source of future power generation. Sweden has invested heavily in search of alternative energy sources, and produces 45 per cent of its energy from renewable sources, with a target of 50 per cent by 2020. In Germany 25 per cent of electricity is generated from renewable resources—solar panels, wind turbines and bio-gas plants. It has taken a policy-decision to shut down nuclear power generation by 2022, and to get 80 per cent of its power from renewable energy by 2050.

Decentralised renewable energy projects can supply off-grid electricity and transform the face of rural India. An expert, Anil Rajvanshi,6 says that India produces 600-800 million tonnes/year of agricultural residue which, burnt in bio-mass based power plants, can produce 80,000 MW of electricity and meet a substantial portion of the country’s need. Solar power produces hardly 1200 MW of electricity. The domestic equipment manufacturers of nascent solar power industry receive lukewarm support from the government. There is no fundamental and applied research done in our universities and CSIR labs to harness cheap affordable power from solar, wind and bio-mass resources and we are content to borrow technology from the West, which does not come easily. Strategic rethinking to go in for renewable energy resources, heavy investment in R and D and massive government support is needed to meet the country’s pent-up demand for power.

Social Sector

Education and Literacy

Literacy is essential for survival and development in modern society but India’s educational development record since independence is deplorable. India’s literacy level is only 65 per cent and even among those who are classified as ‘literate’, a good number can hardly do basic reading and writing. The primary schooling is bedevilled with poor quality of teaching and learning, high drop-out rates, and low enrolment of girls. Coupled with this there are problems such as inadequate school infrastructure, high teacher absenteeism, large scale vacancies of teachers and inadequate teaching aids. A number of incentive schemes like provision of mid-day meals, free uniforms and textbooks, better school infrastructure, teachers training etc, have been introduced to increase enrolment, prevent dropouts and enhance learning ability, but they have not made any significant dent.

According to the 2012 Annual Status of Education Report (ASER), conducted by Pratham, while school enrolment has increased—96 per cent of children in the age-group of 6-14 go to school, the overall ability of children to read and do simple mathematical exercises is not only poor, but has declined since the Right to Education Act came into effect. The RTE has compounded the problem, as all examinations and assessments have been scrapped and a child’s failure to grasp what is being taught does not sound any warning-bell, since students cannot be detained in the same class upto class VIII. Simply passing legislation as political gimmickry will not make the children of the vulnerable groups ‘truly literate’. Imparting quality education, so that every child attains the minimum literacy level, needs a great deal of commitment and dedication on the part of the political leadership, educational planners and teachers, but these are presently missing. 

Secondary and higher education is bedevilled with numerous problems. There is very little emphasis on vocational education and skill development which can be job-oriented. There is a huge requirement of technical manpower for industry, agriculture and services. There is a mismatch between the manpower which our educational institutions produce and what the market needs. The privatisation of higher education has made education beyond the reach of common citizens as the promoters charge exorbitant fees. Hundreds of private engineering, management and medical institutions have mushroomed all over the country without proper infrastructure and qualified teachers. Their standard is abysmally low, run as they are by politicians and businessmen for minting money.

The trend towards commercialisation of education is unfortunate and defeats its purpose. Education is meant for character-building and developing the personality of a student and fostering in him values of a responsible member of society, a point repeatedly emphasised by our leaders such as Swami Vivekananda, Rabindranath Tagore and Mahatma Gandhi, as well as Western educationists. 

Medical and Health Services 

Public health services in India are in a poor and pathetic state although a huge health infrastructure funded by the government, both in the rural and urban areas, has been built. Health centres in the rural areas are not able to attract qualified doctors and nurses, and lack equipment and medicines even to provide rudimentary medical services. In the urban centres government hospitals and dispensaries suffer from chronic mismanagement: they are overcrowded, filthy, lack basic medical equipment, perpetually remain short of medicine and the medical staff is indifferent to the patients’ needs. The result is that members of the public bypass the government’s medical services and go to private doctors and hospitals, even if they have to pay exorbitant charges for the service. Health spending in India is estimated to be 4.5 to six per cent of the GDP, out of which public health spending is only around one per cent of the GDP, woefully inadequate to meet the needs of the population. There is a need for public provisioning of health care which should be affordable as there is a strong link between poverty and ill-health. 

One of the major programmes of health care in the rural areas is the National Rural Health Mission (NHRM), which concentrates on preventive health care, assisting people to reach the health care facilities at the primary health centres (PHCs) and community health centres (CHCs). As there exists hardly any curative services like hospitals and dispensaries at the primary level, it has failed to make any impact. Most rural centres suffer from absence of doctors and para-medical staff, with the result that the rural population does not get even the most basic medicare.

Health indicators, such as infant and maternal mortality rates, life expectancy, nutrition as well as incidence of communicable and non-communicable diseases, are extremely miserable and India is at the bottom of the international league, even lower than Bangladesh. The present public health system is complexly dysfunctional. It is highly centralised and its approach towards disease control is to have a vertical programme for every disease, and these all work in isolation from each other, and do not take a holistic approach to medical and health care.

Post-economic liberalisation, the government has abandoned its responsibility for medical and health care and depends almost entirely on private players for citizens’ needs. While sophisticated and state-of-the-art medicare centres and hospitals have come up in metropolitan towns, they charge exorbitant fees for treatment and are well beyond the reach of the common man. Government hospitals have neither the equipment nor qualified doctors and supporting para-medical staff, and the common man has nowhere to go in case of critical illness. The whole policy needs to be reoriented with the objective of providing high quality, affordable health care system to every citizen of India. 

The Population Burden 

India is facing a huge burden of a 1.21 crore population (2011) putting severe pressure on its overstretched resources. While there is a welcome trend of life-expectancy rising from 33 to 64 years and the infant mortality rate falling from 148 to 58 per thousand in the last sixty years, this adds to the population burden. The total fertility rate (TFR) has fallen from six in the early 1950s and to 2.6 in 2009, but it is nowhere reaching the replacement-level goal of 2.1, which was the target fixed a decade earlier. The population growth is uneven across the States. While there is visible decline in the population growth rates in the southern States, which have reached near replacement levels, five States, namely, Bihar, UP, MP, Rajasthan and Orissa, accounting for nearly 40 per cent of the population of the country, continue to have high rates of population growth. Most poor families have four-five children, whom they cannot support. This leads to their increasing impoverishment and sub-standard condition of living. The government is not making any serious effort to promote family planning amongst these vast swathes of impoverished population. After the Indira Gandhi Government’s election debacle, post-Emergency in 1977, family planning has gone off the government’s radar.

People should be persuaded to voluntarily take to family planning and adopt small family norms, by launching massive educational programmes and provisioning of good medical services in the remotest parts of the country. The population explosion is the single biggest reason for holding back the country’s development. 

Social Upheaval—Deprivation of Land and Natural Wealth 

The policy of economic development adopted by the government is leading to violation of the fundamental rights of the people relating to land, water, forests, mineral and other natural wealth. Land is being forcibly acquired, rivers are being privatised, forests being sold to private companies and the tribal people are being displaced from their traditional habitat, with the result that the weaker and vulnerable sections of the population are being deprived of their only means of livelihood and survival. Nothing exemplifies this better than the story of SEZs7 (Special Economic Zones). In the name of industrialisation SEZs are being created for construction of commercial complexes, residential areas, hotels, shopping malls and entertainment centres. SEZs are responsible for displacement of people, loss of livelihood; these threaten food security due to diversion of fertile agricultural land and loss of revenue due to tax concessions. People affected by SEZs have launched agitations all over the country. The Nandigram agitation in West Bengal (2007) turned violent and many people were killed. People have expressed huge dissent and are agitating against the aggressive mining and industrialisation policy of the Orissa Government, wherein land and water sources of farmers and forest dwellers have been given to powerful corporates for setting up steel and aluminum plants.

The government very often acts in an illegal and arbitrary manner, as became evident from the judgement of the Allahabad High Court, which cancelled the land acquisition made by the Noida and Greater Noida Authority, on a petition by the aggrieved farmers. Farmers in Gopalganj village in Khandwa district in MP launched jal-satyagraha by standing in waist deep water for 17 days to protest against displacement and submergence of their land by the Omkareshwar hydroelectric project (September 2012). This forced the MP Government to respond and offer a suitable rehabilitation and resettlement package. A countrywide land reform movement has been launched by the Ekta Parishad headed by P.V. Rajgopal8 and the participants are demanding protection of the land rights of Dalits, adivasis and the weaker and marginalised sections and provision of agricultural land and homestead rights to the landless poor. A new land reform policy is stuck in Parliament.

People’s anger and agitation over deprivation of land and natural wealth which they and their forefathers enjoyed over centuries, is a symptom of a deeper malaise. Economist K.N. Kabra9 finds its root cause in the current neo-liberal model of economic development. According to Prabhat Patnaik,10 in the pre-liberalisation era the state stood above classes and protected the interests of the common man from excessive encroachments by the capitalists, but the hallmark of the neo-liberal model is promoting the interests of the Big Capital and collaborating with them. Land should not be acquired by the government, except for genuine public purposes, such as construction of road or railway lines which serve larger public good and farmers and tribals’ land and livelihood should be protected. 

Inflation-Confiscating Income

One of the biggest problems that the common man faces in the country is high inflation in the economy which erodes his real income. During last fifty years the average inflation rate has been seven to eight per cent annually. The problem has got aggravated in the last five years 2008-12—the inflation, based on the Consumer Price Index, averaged 10.36 per cent. (The CPI is measured as the prices of the goods and services of the same month in the previous year.) Thus in five years, the value of the rupee has got depreciated to 50 paisa. According to the formula adopted by the Income Tax Department for levy of Capital Gains tax, the cost index for 2010-11 is taken as 711, with 1981-82 as the base year for which it is 100. Thus in a 30-year period the real value of the rupee has come down to 14 paisa. Such runaway inflation has a disastrous effect on the poor and fixed income groups. While the real income of the poor goes on decreasing, the assets of the rich and powerful, who are holders of physical assets and major borrowers of money from banks, go on increasing, and the borrowing cost keeps on decreasing. 

Inflation is largely a monetary phenomenon and cannot occur without a more rapid increase in the quantity of money than output. Huge wasteful public spending and budgetary deficits are largely responsible for inflation in our country. In developed countries, which manage their economies sensibly, the average annual inflation rate over a long period of time has remained within a range of one to two per cent. In 2012, the annual CPI was 0.69 per cent in France, 0.78 per cent in Denmark, 1.06 per cent in the USA, 1.15 per cent in Germany, 2.44 per cent in Britain and 2.30 per cent in China, and was negative in Japan -0.90 and Sweden -0.46—which means the prices somewhat came down.11 Compare this with the CPI of 11.6 per cent in India. There is a complete failure of the government in controlling price rise. Celebrated economist Keynes12 had expressed the consequences as follows:

By continuing the process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of its citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. Those to whom the system brings windfalls become profiteers, who are the object of hatred of the bourgeoisie.

Public Finance

Debt Explosion

Over the years the government has been financing its massive public expenditure by recourse to heavy borrowing (almost a third of its expenditure), resulting in a huge public debt burden.13 During 2012-13 the government expenditure was Rs 14.30 lakh crores, out of which Rs 5.20 lakh crores came out of borrowing (36.5 per cent). The interest payment liability runs as high as 35 per cent of revenue receipts, seriously curtailing the resources available for development work. During 2012-13 out of the revenue receipt of Rs 8.71 lakh crores, interest payment accounted for Rs 3,16,674 lakh crores (36 per cent). The government expenditure has been ballooning due to the huge increase in the wage bill of public employees and massive expenditure on various socio-economic schemes such as the NREGA. On the other hand, the government has shown no will to raise revenue through harsh and coercive measures. Tax-revenue finances only 50 per cent of the government expenditure. In 2012-13 tax-revenue was Rs 7,42,113 lakh crores constituting 51 per cent of the overall expenditure.This results in a huge deficit and debt liability. For the last five years the fiscal deficit is running between five to six per cent of the GDP. Besides the Central Government, the States are also running a fiscal deficit of around three to four per cent.

Thus the combined fiscal deficit of the Central as well as State governments, is around eight to 10 per cent of the GDP which is totally unsustainable and may land the country in a debt trap. There is an urgent need to reduce the crippling burden of debt and restore the fiscal balance. 

Foreign Exchange and Current Account Balance

India suffers from a huge trade imbalance and over the years, exports have been able to finance the import bill only to the extent of 60 to 75 per cent. In recent years the position of trade deficit has worsened. During 2012-13, while exports were $ 301 billion, imports were $ 501 billion, with the trade deficit of $ 200 billion—exports meeting only 60 per cent of the import bill. Heavy imports on account of petroleum—$ 155 billion and gold—$ 60 billion have contributed to the worsening trade deficit. In the past, a measure of stability in the foreign exchange front had been provided by IT earnings and NRI remittances (IT earnings $ 62 billion and NRI remittances $ 65 billion in 2012-13). However, continued trade deficit and slowing down of the flow of Foreign Direct Investment has exerted severe pressure on the rupee. The current account balance, which was somewhat lower than three per cent in the last few years, jumped to over five per cent in 2012-13. This has sent the rupee in a tailspin against the dollar and its value declined by over 20 per cent—from Rs 45 to around Rs 55 to a dollar.

Serious national efforts are required to boost exports and reduce imports and bring a measure of stability on the foreign exchange front.A huge trade imbalance implies that we are exporting jobs abroad, and are unable to create a competitive economy and employment opportunities in the country.

Part II

The Problem with the Current Global Economic Model

Most of our problems are due to the adoption of wrong economic policies, based on the Western economic model. Following ideas propounded by Adam Smith in Wealth of Nations (1776), an influential group of Western economists have been advocating the free play of market forces as the best strategy of economic development. This ideology was embraced by the USA, UK and other developed countries in the 1980s, with emphasis on deregulation, liberalisation, privatisation and globalisation with the state exercising minimal interference, in economic activities. The philosophy, known as neo-liberal economics, derived its inspiration from the Chicago school, whose chief protagonist has been Milton Friedman, and it was powerfully advocated by the World Bank, IMF and WTO. It was given practical shape by Ronald Reagan in the USA and Margaret Thatcher in the UK when they came to head their respective governments. The global economic meltdown of 2008 has exposed the hollowness of the philosophy of unfettered capitalism with its belief in free and unregulated markets. The economic model of the Western countries is based on a continuous growth of the GDP, production and consumption of goods and services, irrespective of its social and economic utility. The corporates and business’ vested interest dictates this model. They are driven solely by the profit motive. So long as production and sales are increasing, the GDP number would grow and keep the corporate and business sector happy.

When India attained independence and launched its developmental plans in the 1950s, it was caught between two conflicting ideologies, that of free market led by the USA and West European countries and the socialist economies led by erstwhile Soviet Union. She chose the middle path, leaning towards the Left, with the state controlling the commanding heights of the economy. Forty years of state-directed economy resulted in a slow growth of the economy—GDP grew only four per cent per year, and India abandoned this model and adopted the New Liberalised Economic Policy in 1991, with deregulation, privatisation and globalisation as the new mantra. While this helped in accelerating growth, the GDP growth was 6.5 per cent in first ten years and later increased to eight to nine per cent, it needs to be understood that growth is not the same as development, in the sense of general improvement of the people’s living and well-being (the GDP growth has slowed down from 2011-12 and is currently below six per cent). The UNDP as well as economists such as Amratya Sen have been pointing out that the purpose of development is to build human capability and create an enabling environment to enjoy long, healthy and creative lives. How to create a development model which fulfills this aspiration is a huge challenge that we are currently facing.

With the collapse of the Soviet Union and its satellites between 1989 to 1991, it was thought that socialism is doomed and capitalism has triumphed. Francis Fukuyama wrote a treatise, The End of History and the Last Man (1992), lauding free market as the only economic system to create a prosperous society. Later events have proved the absurdity of such a viewpoint. The severe recession facing the USA and Western European countries from 2008 has shown the hollowness of the free market ideology. Historian Eric Hobswam14 observes that believers of the market system were also left helpless and ‘the possibility of a disintegration, even collapse, of the existing system is no longer to be ruled out’, and ‘an alternative system is nowhere in sight’.

Today the world is confronted with serious socio-economic problems which a free-market system creates. They are (i) inequality in society; (ii) consumerist culture; (iii) unemployment, particularly of educated youth; (iv) ecological disaster.

Economic Inequality

A free market economy creates vast disparity in income and wealth in society. In the USA in 1980, the CEO of a typical major corporation received 42 times the compensation of an average factory worker, by the end of 2000 it became a whopping 475 times more.15 After World War II until 1980, the bottom 90 per cent Americans earned about 65 per cent of the national income, and the top 10 per cent earned about 35 per cent, of which 10 per cent went to the top one per cent. From 1981 to 2010, the numbers changed, as the bottom 90 per cent’s share fell to 52 per cent, and the top 10 per cent’s rose to 48 per cent, with almost all those gains going to the top one per cent whose income share increased to 21 per cent.16 This was largely due to the fact that corporate owners and executives appropriated most of the profit for themselves, sharing very little with the workers, and the latter’s wages remained stagnant despite rising labour productivity.

The most disquieting fact about the economic growth in India is that it is following the same pattern as in the USA and other Western countries, creating vast income inequality. Studies by the ADB show that during the last two decades, income inequalities have vastly increased. According to the UNDP Human Development Report 2009, while the poorest 10 per cent had 3.6 per cent share of the national income, the richest 10 per cent enjoyed a disproportionate 31.1 per cent share in India. The Gini coefficient, which measures relative inequality, stood at 36.8 and has been showing a rising trend. (UNDP 2011) The benefit of economic growth is unevenly distributed. Studies have shown that economic inequality in India is widening across regions, across the rural-urban divide and across class lines, especially in cities.

According to Forbes, India has as many as 69 dollar billionaires, with the combined net worth of 100 richest Indians equal to $ 300 billion, more than one-fourth of the country’s GDP (2010). According to a survey (2012) by Ramstand,17 a global recruitment firm, the average annual salary of an Indian CEO below the age of 50 stood at Rs 7.9 crores, and was higher than that taken by his American and European counterpart. In 2011-12, more than 100 CEOs took home an annual compensation package of more than a million dollars (Rs 45 crores).18

A survey by Economist19 on inequality, notes that rising inequality is a worldwide trend and in America, Britain, Canada, China and India, the share of national income taken by the top one per cent has risen dramatically in recent years. The Gini coefficient has gone up in most countries.The Credit Suisse Global Wealth Report20 estimated 24.2 millionaires (one whose net assets exceed $ 1 million) in mid-2010, about 0.5 per cent of the world’s adult population. They control $ 69.2 trillion in assets, more than a third of the world’s total. Some 41 per cent of them live in the USA, 10 per cent in Japan and three per cent in China. The richest one per cent of adults control 43 per cent of world’s assets, of which the wealthiest 10 per cent have 83 per cent. The bottom 50 per cent have only two per cent. Credit Suisse reckons that there are about 1000 dollar billionaires in the world.

Two British epidemiologists, Richard Wilkinson and Kate Pickett,21 in a recent book, The Spirit Level: Why Greater Equality Makes Society Stronger, argue that greater inequality tears the human psyche, creating anxiety, distrust and an array of mental and physical ailments. Supported by a mountain of data, they say that the toll of stunning inequality is not just economic, but melancholy of the soul. Inequality undermines social trust and community life and causes stress. The upshot appears to be a high rate of violent crime, high narcotics use, high teenage birth rates and even rates of heart disease.

Consumerist Culture 

Consumerism is a cultural pattern that leads people to find meaning, contentment and acceptance primarily through the consumption of goods and services. Erik Assadourin of the World Watch Institute22 says: “While this takes different forms in different cultures, consumerism leads people everywhere to associate high consumption levels with well-being and success. Consumerism has now so fully worked its way into human culture that it is sometimes hard to even recognise it as a cultural construction.” Today consumerism has become a transactional way of life—everything has been reduced to a price and things which cannot be reduced to a price have been marginalised. The continuing growth in production inputs caused by excess consumption is fuelled by economic and social pressures and advertising causes confusion between needs and wants in a consumer society. This growth outstrips eco-efficiency, resulting in rapid ecological deterioration. In India, the consumer culture is spreading fast as incomes rise. The disparity in wealth with large parts of it being cornered by a privileged section of society is leading to conspicuous consumption. The springing up of luxury villas all over the country, rising sale of expensive cars, the culture of the shopping malls and five-star hotels are obvious symbols of fast-spreading consumerism.

No Correlation between High Income and Life Satisfaction 

The goal of all human activity is happiness but various surveys show that increase in income is not leading to a more happy and fulfilling life. The World Value Survey23 has found that in countries with average incomes in excess of $ 15,000, there is virtually no co-relationship between increased income and life satisfaction. Real income per head has tripled in the USA since 1970, but the percentage of people reporting themselves to be happy has declined since 1970. In Japan, there has been little change in life satisfaction over several decades. In the UK, the percentage reporting themselves as very happy dropped from 52 in 1957 to 36 today. Unequal societies systematically report higher levels of ‘distress’ than more equal ones. A recent British Household Panel Survey24 found out that money can buy out happiness, only when he or she has lot more than neighbours. The envy of being lower in the social pecking order tarnishes the satisfaction of being well-off. Philosopher Alain de Boton has shown how an unequal society leads to high levels of ‘status anxiety’ amongst its citizens. Striving for self-esteem through material wealth appears to be a kind of zero-sum game in which the constant need for betterment and approval only serves to entrench people in an almost neurotic spiral of consumption. The cost of consumerism includes a stressful inducement to consume more even if the quality of life declines.

We need to question the values that underpin a consumer culture and ask whether material values have overtaken life-values, such as love, sharing and community spirit. There is need for a balance between material values and life-values. Mahatma Gandhi had said: ‘There is enough in the world for everyone’s need, but not for their greed.’


One of the most serious problems facing the world economy today is that of unemployment particularly of the educated youth. According to the ILO Global Employment Trends 2013, the number of unemployed worldwide was 19.7 crores in 2012, and is likely to increase by 51 lakhs in 2013, rising to 20.8 crores, with no prospect of reduction in the immediate future. The problem is particularly severe in the developed economies and EU region. In April 2012, the Eurozone’s unemployment rate reached 11 per cent, constituting 17.4 million job-seekers. Around 31.5 per cent of the working-age population in the Eurozone were either unemployed or inactive. The youth unemployment rate in the Eurozone is over 22 per cent. (April 2012) It exceeded 30 per cent in Italy, Portugal and Slovakia and was over 50 per cent in Greece and Spain.

According to the Economist,25 the number of youth (age-group 15-24) unemployed globally (“NEET”, not in employment, training or education) is around 29 crores, out of which 2.6 crores are in the rich world and 26 crores in the developing countries, constituting a quarter of the planet’s youth. Two factors have contributed to this mass unemployment. Long-term slow-down in the West and population explosion in the developing countries such as India and Egypt. Growing unemployment, particularly of the youth, is largely due to structural problems in the global economy. Big firms and MNCs, which account for a substantial portion of the global production and trade, have profit as their sole motive and due to competitive pressure, constantly cutting costs, upgrading technology and shedding labour.

The Looming Ecological Disaster

The vast expansion of human economic activity in the world, together with growth in population is proving disastrous for environmental sustain-ability.26 In five decades consumption has risen six-fold, people spent $ 30.5 trillion on goods and services in 2006, compared to $ 4.9 trillion in 1960 (in 2008 dollar terms). During this period human numbers grew by a factor of 2.2—thus consumption expenditure per person almost tripled. As consumption rises more fossil fuels, minerals and metals have been mined from earth and more trees have to be cut down and more land ploughed to grow food. Huge growth in human activities have pushed the atmospheric carbon-dioxide up by more than one-third and has started the dangerous process of warming the planet and climate change. Every-where the earth’s ice fields are melting. The current global industrial system is leading us to a situation where we are running out of resources that support life such as clean air and drinking water.

Many people recognise at the local level that the human footprint has grown beyond the sustainable level. Jakarta emits more air pollution than the human lungs can bear. The forests in the Philippines are nearly gone. The cod fisheries of Newfoundland have been nearly lost. The NCR of Delhi, which is bursting at the seams with a vast migrant population, is a classic example of unsustainable growth of a fast expanding metropolis. The quality of life in Delhi has fast deteriorated over the last three decades.


Developing A New Matrix 

The Gandhian Alternative

A dent on India’s myriad problems can be made only when we fundamentally rethink our economic policies. The Gandhian philosophy, provides some of the answers. Gandhi’s vision of an economic system was as follows:27

According to me, the economic constitution of India, and for that matter of the world, should be such that no one under it should suffer from want of food and clothing. In other words everybody should be able to get sufficient work to enable him to make two ends meet. And this ideal can be universally realised only if the means of production of the elementary necessities of life remain in control of the masses.

Gandhi equated private property in excess of the basic needs of human existence with exploitation. As private property is not a natural right but man-made privilege, it could be modified and altered by social action. Gandhi simultaneously proclaimed his profound belief in the rightness of economic equality.He did not visualise a world where there will be no property but he would restrict the right of private property to what was necessary to yield an honourable livelihood, while for the excess he prescribed the principle of trusteeship. He asked those who own money to behave like trustees holding their riches on behalf of the poor. The fundamental objective underlying the trustee-ship is to create a non-violent and non-exploitive property relationship.28

Gandhi was opposed to mindless industrialisation as it displaces labour and causes unemployment and is the main reason for rural poverty. Gandhi was a strong advocate of rural-centric development with agriculture and small scale industries getting pride of place, as this is the only way the unemployment problem can be solved in a labour the abundant country like India. Gandhi strongly believed in the decentra-lised development model as this helps the fruits of development reach everyone and promotes equality and social harmony.

The Gandian approach to economic development is not simply theoretical, but has been practically demonstrated by some great men of vision. Schumacher, the author of Small is Beautiful, has successfully demonstrated how use of simple and intermediate technology can help small and medium industries, becoming a rewarding and profitable occupation in which millions of people could be employed. Muhammad Yunus of Bangladesh, with his social business model, has set an example how successful businesses can be run without profit as motive, and can lift people out of poverty. The Gandhian ideology,29 under-stood in its true spirit, is very much relevant today when the world is facing a severe crisis due to mass poverty and unemployment side by side with conspicuous consumption and exploitation of natural resources.

We need to construct a new model of economic development, in which public policy should give massive support to agriculture, on which more than half the population of the country depends for their livelihood and make it a remunerative occupation on par with industry and the service sector. State policy should also support, in a big way, thousands of micro and small scale industries through investment in R and D and upgradation of the capability of people working there in terms of education, knowledge and skill, with provision of credit and other facilities. To create an egalitarian society the Big Business should be strictly regulated and converted into Social Business, so that they plough their profits back into the business for socially productive activities and are not allowed to extract surplus by way of salary, dividend, bonus and other means except what they need for a reasonable standard of living. 

New Paradigm of Development—A Truly Socialistic Society 

A new model of development can be created only when we embrace the creed of socialism in its true spirit. There is considerable misunderstanding about socialism. Unfortunately it is often equated with the state controlling all aspects of the economy as in the erstwhile Soviet Union resulting in a stagnating economy. Philosopher Ludwig Wittgenstein warned us how language can mislead and trap our thoughts. We should understand that ‘socialism’ is not limited to the manner in which economy is managed, its fundamentals are rooted in human values. The key features of socialism are the doctrines of equality, social justice and individual liberty.30 Socialism underlines, first of all, creation of an egalitarian society, meaning that everyone should enjoy equal social, political and economic rights and opportunities. Socialists maintain that under capitalism vast privileges and opportunities are derived from hereditary ownership of capital and wealth, which leads to deprivation and lack of opportunities for the vast majority of people. A second feature of socialism is a system based on solidarity and cooperation. Socialists have always rejected the views that stress individual self-interest and competition as the main motivating force in society. Third, socialists believe in individual liberty.

Socialist thinkers like Robert Owen and Proudhon were not well-disposed towards the state and felt that all systems of government were oppressive. However, the way socialism grew in the Soviet Union, the state controlled all the economic activities and got identified with centralised power, tyranny and curbs on individual liberty and entrepreneurship. Lenin made ‘dictatorship of the proletariat’ the central feature of Marxian socialism. When Lenin assumed power in 1917, he nationalised all the means of production and distribution by one stroke and laid the foundation of a monolithic state structure controlling every aspect of the people’s life. Noble prize winner economist W. Arthur Lewis31 observes: “Socialism in particular, contrary to popular belief, is not committed, either by its history or by its philosophy, to the glorification of the state or to the extension of its powers. On the contrary, the links of socialism are with liberalism and with anarchism, with emphasis on individual freedom, and in opposition to the extended state. The 19th century socialists were not predominantly well-disposed to the state, and in the blueprint to the socialist society which they constructed, the state receives frequently only a minor role.”

Democratic Socialism

There was a strong socialist movement in Britain in late 19th and early 20th century, led by an idealist group known as the Fabian Society. They rejected Karl Marx’s violent methods and believed in the ‘inevitability of gradualism’. It was the Fabians who influenced the ideology of the Labour Party and when Clement Atlee came to power after the Second World War, the laid the foundation of a welfare state. The implementation of the Bevridge Plan provided social insurance, covering old-age pension, medical care, unemployment allowance etc. to every citizen. Simultaneously all the key industries were nationalised and placed under public control. Similar measures were taken by other advanced economies of Europe, such as France and Italy, and they made provision for social security to all their citizens.

Margaret Thatcher, when she became the Prime Minster (1979), felt that the socialist policies of the Labour Government were largely responsible for the sluggish growth of the British economy and launched a massive drive of privatisation and reducing the size of the welfare state. Nevertheless, it was not possible to shrink the state beyond a point—as welfarism has become a universally accepted creed. In Britain public expenditure, which was 43 per cent of the GDP in 1980, came down to 40 per cent by 1990 as a result of ruthless cutting, but has again jumped to 50 per cent (2010)—largely due to massive public spending to fight the recession. Keynesian economics has dramatically trans-formed the nature of ‘capitalist’, ‘free-market’ economies of the West. Keynes explained in theoretical terms how a government could stimulate economic expansion during a period of recession through demand management. This ideology was successfully put into practice in the 1930s to fight depression and is again being practised since 2008 to fight the meltdown afflicting the Western economies. Today, we can say that most of the advanced countries of the West, with the possible exception of the USA (where President Obama is making a bold attempt to introduce a state-supported welfare system), have become social democracies and incorporated the values of social democracy in their system.

Sweden’s Social Democracy 

Sweden and other Scandinavian countries have set an ideal of social democracy worthy of emulation by other countries. There are five components of Swedish socialism.32 First, ‘integrative democracy’ with democratic decision’-making as the ultimate standard of legitimacy. Workers participate on equal terms in the organisation and governance of society. Second, the concept of ‘people’s homes’, whose goals are solidarity, togetherness and equality of treatment. Third, socio-economic equality and economic efficiency as complementary rather than contradictory goals. Fourth, socially controlled political economy, rather than nationalisation. This means abandonment of preoccupation with ownership, giving primacy to the market forces and emphasis on bargains between industrialists and labour. Fifth, proper expansion of the public sector which helped enhancing security for ordinary people.

Sweden is a world leader in quality of life, has one of the highest per capita incomes, practically no unemployment and one of the most competitive economies in the world. In Sweden, the government expenditure as percentage of GDP has been over 60 per cent over the last several decades, but this has been brought down to the 53-55 per cent level in the last few years, to contain welfare spending and enhance competitiveness. The high public expenditure is sustained through high taxation—the personal income-tax rates are over 50 per cent, one of the highest amongst the advanced industrial economies. Sweden combines generous welfare benefits with what one can term as free enterprise economy. Besides universal health care, old-age pension, unemployment cover, Sweden provides benefits such as free education upto higher secondary, paid maternity leave for two years after the birth of a child and has the highest percentage of women in the work force amongst the Western countries. Sweden provides a conducive atmosphere to private enterprise and is home to some of the most prestigious corporates such as Ikea, Volvo and Ericsson. Sweden prides itself as having the least economic inequality amongst all the nations of the world—the Gini coefficient being just 0.25.


Economic Development, Values and Cultural Heritage 

Fallacy of the Western Economic Ideology

The problem with the free-market ideology, which India is currently following in blind imitation of the West, is that it is based on a wrong value-perspective. Post-industrial revolution, mass production of goods, emergence of a capitalist economy and ideas propounded by Adam Smith, a materialist, self-centred value-perspective emerged in the West. Henceforth it was not ethics but self-interest which seemed to hold society together. Self-interest promoting competition, competition promoting markets, and markets promoting provisioning of goods and services and creation of wealth. Markets in this theory are supposed to provide automatic corrective to greed and other human failings. Over the years this ideology has grown into what may be called ‘economism’.33 At the indivi-dual level economism means a value-perspective which regards earning income as the most supreme goal of one’s life, disregarding other goals of life such as love, compassion and altruism. According to Prof M.V. Nadkarni, this ideology, which separates ethics from economics and glorifies self-interest and Mammon worship, has been responsible for the recent scams in the world economy, as well as India.

While there is nothing wrong with making legitimate profit from an economic activity to satisfy basic needs, the problem arises when making money becomes an obsession alongwith making it by unfair and unethical means and exploiting others. Economic development, which results due to this philosophy, ignores values like social justice, human rights, environment sustainability, and treats the GDP as the only indicator of the progress of the country. Most of the ills of modern economic development are the result of the non-ethical character of economism and free-play of the market forces.

Taking a holistic view, Gandhi had rejected a pure economic man. He felt that economics cannot be divorced from ethics:34

True economics never militates against the highest ethical standards, just as all true ethics to be worth its name must be at the same time be also good economics. An economics that worships Mammon worship, and enables the strong to amass the wealth at the expense of the weak, is a false and dismal science. It spells death. True economics on the other hand promotes social justice, it promotes the good of all equally including the weakest, and is indispensable for decent life.

The current ruling economic ideology, based on production and consumption of goods, euphe-mistically called ‘economic growth’, cannot solve the problems of human beings and creates conflict and instability in society. As the wants are limitless and can never be satisfied, it promotes selfishness, greed and exploitation of man by man. Human beings are not simply ‘economic animals’, they have social, psychological and spiritual dimensions. Realising this fact, Nobel prize winning economist Gunnar Myrdal35 observed:

The main responsibility for this failure (of Indian planning) should be squarely laid on my own profession, the economists, and in this respect there is no difference between Western economists, the Asian economists, indeed the economists from the communist countries. All were too narrow minded in their approach, too ‘materialistic’ in a sense. When research on planning for development in underdeveloped countries began on a massive scale after the hurricane of liberation from colonial bondage, the economists all thought in terms of physical investment, mainly in industry, and financial and fiscal appropriations. ... It thus meant a non-consideration on a large scale of the ‘human dimension of economic growth’.

The modern economic theory based on wants and not on needs, is the source of the rat race that debases human beings by keeping them subject to their animal spirit. Want-oriented economies create a psychology of scarcity and poverty, as all wants can never be satisfied. Therefore an organisation of human beings, which does not fulfil mankind’s psychological and spiritual urge, cannot provide him a healthy, happy and fulfilling life.

Indian Culture—Ethico-Spiritual Dimension 

A development model, to be successful, should take into account not only material but the psychological as well as spiritual dimensions of human beings. In the Western cultural tradition, earning wealth is the summum bonum of life. On the other hand, India’s ancient philosophy, while recognising money and wealth as important, never regarded it as the ultimate aim of life. The Ishavasya Upanishad36 cautions: ten tyakten bhunjitha ma gridha kasya swid dhanam—enjoy wealth but in a detached manner and do not covet it. While earning wealth and prosperity is desirable, the enjoyment of such wealth for limitless personal wants and without sharing it with others, is something to be frowned upon. India’s ancient wisdom does not deny the importance of wealth. Mahabharata emphasises that dharma cannot be secured without artha. It says: dhanaaddhi dharmah sravati shailaadapi nadee ththaa—dharma flows out of wealth and pros-perity like a river out of a mountain.37 But there has to be a balance between artha and dharma. Indian wisdom enunciates the principle of trivarga—three goals of life: arth,kama and dharma—wealth, pleasure and righteous action. While the desire for arth—wealth and kama—pleasure are perfectly legitimate activity, they must remain within the bounds of dharma. Dharma is that which sustains and ensures progress and welfare of everyone in this world andembraces every type of righteous conduct essential for the suste-nance and welfare of the individual and society.

The foundation of the Indian culture rests on an ethico-spiritual view of life. The salient features of Indian culture38 can be described as tolerance and accommodation of everyone; oneness and solidarity of universe and all life; essential divinity of the human being; family as the basic unit of the social system; purusharth—the human aspiration as artha, kama, dharma, moksha. The Indian worldview is fundamentally pluralistic. This is expressed in the Vedic saying: ekam satya, vipra bhauda vadanti39—truth is one, but the wise describe it differently. Throughout history India has assimilated various religions and culture with which it has come in contact. Scriptures and teachings of other religions, such as the Bible and Quran, have profoundly influenced the Indian mind and are an integral part of the Indian wisdom. India has thus developed a composite culture where various religious and cultural groups live in peace, harmony and brotherhood in a spirit of co-existence and inclusion. All faiths, races, language, customs and tradition overlap in the salad bowl of India. This is reflected in the statement: Vasudhaiva kutumbakam—the World is one family.

The Indian culture is distinct from the Western culture. Analysing the Indian ethos, Prof G.D. Sharma,40 opines that what distinguishes the Indian culture from the Western culture is the approach towards life. The Indian culture is predominantly a ‘spiritual culture’, which requires control over one’s passions and senses and development of the qualities of sympathy, empathy, comradeship and brotherhood. The orientation of a spiritually-dominated culture is that of ‘welfare’, the ‘social good’, or the ‘good of the greatest numbers’. On the other hand, the Western culture is predominantly ‘materialistic’. A materialistic culture is guided by ‘economic orientation’ and their approach is the ‘bottom-line approach’. The Western culture gives rise to values such as ‘individualism’, ‘competition’, ‘survival of the fittest’, ‘economic orientation’, and ‘self-centredness’.

Humanism of Indian Culture 

The Indian culture supports humanistic values such as freedom of thought, taking responsibility for one’s action, compassion and service to fellow beings. The kernel of Indian wisdom and philosophy, known as Vedanta, has its foundation in the Upanishad whose essence is expressed in the Bhagwad Gita. The Gita’s central message is of karma-yoga—perform your duties diligently and enthusiastically, with knowledge and devotion, but without any expectation of the results. A key message of the Gita is lokasangraha—securing welfare of human beings and working for public good—lokasangrahamevapi sampansyan karamakartum arhasi. (Gita III.20) Indian wisdom considers every living being as a manifestation of the divine—not only human beings, but animals and the plant kingdom. This means the doctrine of equality and fraternity among human beings and healthy respect for ecology.

Swami Vivekananda41 termed Indian philosophy Vedantic socialism and felt that it should emerge as a desirable world order. He envisaged a socio-economic order which should provide for the bare necessities of every man, instead of allowing a few to corner all the wealth and the rest to perish in penury and hunger. Mahatma Gandhi42 called socialism ‘a beautiful word’ and contended that ‘socialism, even communism, is explicit in the first verse of Ishopanishad’... ‘Today there is gross economic inequality. The basis of socialism is economic equality. There can be no Ramrajya in the present state of iniquitous inequalities in which a few roll in riches and the masses do not get even enough to eat.’

Great scholars and philosophers in the West—such as Ralph Waldo Emerson, Henry David Thoreau, Schopenhauer, Max Muller and Will Durant—were full of admiration for Indian philosophy and derived inspiration from it. N. A. Palkivala43 says that India’s ‘timeless teaching was that man’s true progress is to be judged by the moral and spiritual standards, and not by material and physical standards. The citizens ranked in society, not according to wealth or power, but according to standard of learning, virtue and character which he had attained.’ Arnold Toynbee,44 after surveying the story of the entire human race, observed:

At this supremely dangerous moment of human history, the only way of salvation of mankind is the Indian way. The Emperor Asoka’s and Mahatma Gandhi’s principle of non-violence and Sri Ramakrishna’s testimony to the ‘harmony of religions’: here we have an attitude and spirit that can make it possible for the human race to grow together in a single family—and, in the Atomic Age, this is the only alternative to destroying ourselves.

A New Socio-economic Order 

Unfortunately in our drive for ‘modernisation’ and ‘pursuit of economic development’ we are abandoning our cultural values and imitating Western values and an economic ideology which is creating serious dichotomy in the society and developing a culture of corruption, greed and violence. The current model is increasingly irrelevant and out of touch with great humanitarian and environmental costs at which development takes place and masks inequities in the distribution of income and fails to register declines in well-being that stem from loss of community, culture and environment.

We should therefore design policy initiatives which take care of the welfare of the poorest members of the society, fulfil their basic wants and give them a dignified and respectable living. In the new matrix of economic development, progress should be measured in terms of development of human capability, dignified employment for everyone, equitable distribution of income and wealth, ecological sustainability and social well-being of the community. This is possible only when the development model embraces the basic philosophy of socialism and its foundation rests on our rich and multi-dimensional cultural heritage.


1. Theodore Schultz, quoted by B.P. Mathur, Foreign Money in India, New Delhi: Macmillan, 1989, p 150; Also see Ch 6 regarding the role of price incentive in foodgrains production.

2. K.C. Suri, “Political Economy of Agrarian Distress”, in Economic and Political Weekly, April 22-28, 2006.

3. Quoted in Dan Senor and Saul Singer, Start-up Nation—The Story of Israel’s Economic Miracle, New York: Hachette Book Group, 2009, p. 226.

4. Amit Bhaduri, “Alternatives in Industrialisation”, Economic and Political Weekly, May 5-11, 2007.

5. For data source, see “Europe’s Credit Crunch”, The Economist, May 4, 2013, p. 11.

6. Anil Rajvanshi, “Sustainable Development—The Gandhian Way” in Raghunath Mashelkar (ed.), Timeless Inspirator—Reliving Gandhi, Pune: Gandhi National Memorial Society, 2010, pp. 71-73.

7. For a detailed discussion, see Aseem Srivastva and Ashish Kothari, Churning the Earth—The Making of a Global India, New Delhi: Penguin-Viking, 2012, pp. 193-230.

8. Mainstream, September 22, 2012, pp. 8-16; and Mainstream, October 27, 2012, pp. 3-4.

9. K.N. Kabra, “Economic Growth and Development in India: Multi-dimensional Divergence” in Alternative Economic Survey 2011, New Delhi: Yuvsamvad Prakashan, 2012.

10. Prabhat Patnaik, “In the Service of Capital”, Frontline, October 5, 2012, pp. 6-13.

11. For rates of inflation, see

12. M. Keynes, Economic Consequences of Peace, 1919

13. For a detailed discussion, see B.P. Mathur, “India’s Public Debt Explosion—Heading Towards Bank-ruptcy”, in Mainstream, Vol L, No 15, March 31, 2012; for data refer to Government of India, Budget, various years.

14. Eric Hobsbawm, How to Change the World—Tales of Marx and Marxism, London: Little Brown, 2011, p. 418.

15. Ira Katznelson, Mark Kesselman, Alan Draper; Thom-son Wadsworth, The Politics of Power, Belmont, CA, USA, 2006.

16. Figures cited in Bill Clinton, Back to Work, London: Hutchinson, 2011, pp. 85-86.

17. Report in The Times of India, New Delhi, September 19, 2012, p. 22.

18. Report in The Times of India, October 26, 2012.

19. The Economist, October 13-19, 2012, Special Report, ‘World Economy—For Richer, for Poorer’.

20. The Economist, January 22-28, 2011, Ibid.

21. The Economist, January 22-28, 2011; Indian Express, January 3, 2011.

22. Erik Assadourin, “The Rise and Fall of Consumer Culture” in The World Watch Institute: State of The World 2010, New York: WW Norton & Company, 2010, p. 8.

23. Tim Jackson, “The Challenge of Sustainable Lifestyles” in World Watch Institute: State of the World 2008.

24. Report in The Times of India, New Delhi, March 24, 2010, p. 21.

25. Generation Jobless, The Economist, April 27-May 3, 2013, p. 9, 49-52.

26. For a detailed discussion, see Peter Senge, The Necessary Revolution, New York: Double Day, 2008; and James Gustave Speth, The Bridge at the Edge of the World—Capitalism, The Environment, and the Crossing from Crisis to Sustainability, New Haves: Yale University Press, 2008.

27. U.S. Mohan Rao, The Message of Mahatma Gandhi, New Delhi: Publications Division, Government of India, p. 47; (Young India 15.12. 1928).

28. For a detailed discussion of trusteeship concept see, J.D. Sethi (ed.), Trusteeship—the Gandhian Alternative, New Delhi: Gandhi Peace Foundation, 1986.

29. See B.P. Mathur, “Gandhian Alternative to Economic Development, Relevance for India Today” in Mainstream, October 1, 2011.

30. Michael Newman, SocialismA Very Short Introduction, Oxford: Oxford University Press, 2005, pp. 1-3.

31. W. Arthur Lewis, The Principles of Economic Planning, London: Dennis Dobson, and George Allen, 1954, p. 9.

32. Michael Newman, op. cit., pp. 53-64.

33. For a detailed discussion see M.V. Nadkarni, Ethics for Our Times, New Delhi: Oxford, 2011, pp. 76-99.

34. M.K. Gandhi, India of My Dreams, compiled by R.K. Prabhu, Ahemdabad: Navjivan Press, 2011, p. 71, (Harijan, October 9, 1937).

35. Gunnar Myrdal, “Challenge of Stagnation in Developing Countries” in J.S. Mathur (ed.), Gandhi—in the Mirror of Foreign Scholar, New Delhi: Gyan Publishing House, 2006, pp. 59.

36. Isavasya Upanishad, Verse 1, Swami Gambhirananda, Eight Upanishads, Volume One, Calcutta: Advaita Ashrama, 1995, Verse 1, p. 4.

37. Mahabharat, Shanti-parva, 8.23; for elaboration see MV Nadkarni, op. cit., pp. 80-81.

38. For Indian Worldview see, Swami Bodhananda, Indian Management and Leadership, New Delhi: Shristi Publication, 2007, pp. 211-226.

39. Rig Veda, 1.164.16

40. G.D. Sharma, Management and the Indian Ethos, New Delhi: Rupa, 2001, pp. 1-43.

41. P Parmeshwaran, Gita’s Vision of an Ideal Society, Chennai: Vivekananda Kendra Prakashan Trust, 2007, p. 20.

42. M.K. Gandhi, India of My Dreams,op.cit., pp. 23, 22, 72.

43. N.A. Palkivala, India’s Priceless Heritage, Bombay: Bharatiya Vidya Bhawan, 1994, p. 38.

44. Arnold Toynbee, Foreward in Swamy Lokeshwara-nanda (ed.), World Thinkers on Ramakrishna Vivekananda, Calcutta: Sri Ramkrishna Mission Institute of Culture, 1983, p. 5.

Dr B.P. Mathur, who is currently engaged as a social activist and spiritual seeker, is a former Deputy Comptroller and Auditor General and Director, National Institute of Financial Management. A Ph.D and D.Litt, he is the author of several books on Economics, Finance and Governance-related issues. His e-mail is

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