A new Hindu rate of growth

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If India is a trillion dollar economy, I’ll eat my hat. I don’t have a hat, but that’s not why I say this. The fact is, India has been a multi-trillion dollar economy for years now. We didn’t think of it because we are used to translating GDP figures into dollars at current exchange rates. But look at it in terms of purchasing power — where you calculate what a dollar can buy you in India and then adjust GDP figures accordingly — and we are probably at $4 trillion right now — just under a third the size of the US economy.
This achievement is largely the result of our new ‘Hindu rate of growth’, which is now at 7.5-9 per cent. The use of the word ‘Hindu’ has nothing to do with the religion; it describes the rate that the economy is currently capable of achieving, depending on the political, economic and social environment.

The late professor Raj Krishna, who used the term to mean a 3.5 per cent annual growth rate, obviously got it wrong. The Indian economy is not a slow-moving vehicle; it moves slowly only when the institutions supporting it impede the pursuit of personal gain. Raj Krishna’s Hindu rate was slow because the Nehruvian consensus then was in favour of treating wealth creation as an economic crime; the 1950-80 period, if labelled correctly, actually saw a ‘Socialist’ rate of growth.

But after 1980, and especially after 1990, the economy’s trajectory has been determined more by its citizens’ entrepreneurial abilities — this can fairly be called the ‘Hindu’ rate. It is determined by the character of our people, which involves pursuing self-interest, often at the cost of public interest. This is our ethos, strength and weakness. As Indian businesses get more powerful, they are able to push ahead with growth despite the debilitating effects of government meddling and a counter-productive political structure. The Hindu rate of growth, in short, is the result of an entrepreneurial business community that performs not because of government, but in spite of it.

It is obviously not a fixed range. From an average of 4.5-5.5 per cent growth in the 1980s, it moved up to 6-7 per cent in the 1990s and, after 2003, to 8-9 per cent. This last was achieved after Indian businessmen in the mid-1990s decided that laws and government were an inconvenience and opted to play by their own rules. They now decide what they want to do before checking if it is legal. The Ambanis used wireless in local loop (WLL) as an entry point into cellular services before getting their entry ratified by a post-facto change in the law. The Ruias own 22 per cent in Hutch through an overseas holding company. A chunk of foreign institutional investment is believed to be Indian slush money from safe havens abroad. The idea of special economic zones appeals to Indian entrepreneurs primarily because it allows them to create their own business environment without government interference.

This laissez faire attitude is true for politicians, too. Most are essentially businessmen who use the political platform to make money. Ministers use public property as private, and collect ‘rent’ from the public for not standing in their way. Many government employees pay money to fixers to be posted in ‘lucrative’ departments, like customs, excise or octroi.

It is this self-interest-driven national character that has laid the foundations of our new Hindu rate of growth. Businessmen achieve high growth in turnover and profits by getting around the law rather than following it.

The bad news is that the Hindu rate of growth is about to peak. Sooner rather than later, our self-aggrandising national character will prove an impediment rather than an advantage in the growth stakes.

Reason: While self-interest is a great driver of entrepreneurial behaviour, if it is not regulated by law or moulded by the idea of public good, it can act as a brake. The bribe that initially enables you to do your business becomes a curse when everyone can bribe easily. When everyone becomes a bribe-giver or taker, the economic efficiency originally derived from it is neutralised. We are fast reaching the limits to the Hindu rate of growth.

Email: r_jagannathan@dnaindia.net