When late Narasimha Rao formed his minority government in June 1991, with Dr Manmohan Singh as his finance minister, so chronic was India’s balance of payment crisis that the Reserve Bank of India had foreign exchange for only two weeks’ worth of imports, when three months’ worth is considered safe. In July last India completed 25 years of the most momentous set of economic reforms and these years have seen Indian Gross Domestic Product (GDP) increase almost eight-fold, with the economy generating enough savings and investment to ensure an annual average growth rate of almost 5%. A quarter-century later, India is indeed a major economic power, altered in fundamental ways from the country that Dr Singh helped steer in new directions. With a GDP of $2 trillion, it has edged itself among the ten largest economies of the world. But have the economic reforms contributed to changing the lives of India’s dispossessed millions? In a freewheeling interview with Nageshwar Patnaik, Economist and Director of Nabakrushna Choudhry Centre for Development Studies, Professor Srijit Mishra, discusses the impact of Economic Reforms in India underscoring the need for unleashing the power of the self and the power of the small.

Excerpts from the Interview :

NP – Last month, India completed 25 years of the most momentous set of economic reforms. Where are we to-day after 25 years of economic reforms?

SM – Twenty five years after the reforms, our economy has seen an eight-fold growth. In 2015, as per current international Purchasing Power Parity [PPP], it is the 3rd largest economy (at 7.9 trillion USD) after China (19.4 trillion USD) and US (18.1 trillion USD); but, in per capita terms at current international PPP of 6,020 USD it is 125th. While the story of growth is laudable, equity concerns cannot be left aside. In particular, an increase in inequality (measured using Gini coefficient, which itself has minimal claims from a welfare perspective) has meant that decline in poverty is not commensurate with growth. The failure of the trickle down is aptly conveyed by this quote from the current Pope “The promise was that when the glass was full, it would overflow, benefitting the poor. But what happens instead, is that when the glass is full, it magically gets bigger nothing ever comes out for the poor.”

NP – In India, from two resident billionaires with an income of $3.2 billion in the mid-1990s, the number grew to 46, with a combined wealth of $ 176 billion in 2012. Their share of GDP rose from 1% to 10%. A recent report by Oxfam titled “Even It Up” observes that income concentration at the top fell in the first three decades after Independence, but since then for the top 0.01%, real wages grew annually at 11%. By contrast, the rise in real household expenditure for the rest of the population rose by only 1.5%. Where did the government go wrong?

SM – The proponents of trickle down would not argue against the glass getting bigger, but would say that they have put taps in the glass strategically to facilitate trickle down. But, they would ensure that what comes out gets proportionately less and less as the glass becomes bigger and bigger. In short, while overall income of the poor would increase their proportionate share would decrease. Further, the access to taps is proportionate to their economic standing. This is inevitable in an economy where growth is incentivised by giving relatively more to those who have more – a regressive structure. I must also state that I do not agree with your use of the word ‘wages’ to refer to returns for the 0.01%, as there is no labour lost there.

NP – It also estimates that if India just stops inequality from rising, it could end extreme poverty for 90 million people by 2019. If it reduces inequality by 36%, it could eliminate extreme poverty. Are our policy makers aware about this? Do you see a paradigm shift in the Narendra Modi government’s economic policy?

SM – Emphasis on the economic growth through ‘Make in India’ has its merits and in some sense is a continuation of the previous regime. Post-reforms we cannot shy away from that. But, given the demographic dividend and the large market that we have, I think, we are falling short there too. On inequality, as I had mentioned earlier, Gini coefficient has a minimalist claim from a welfare perspective. A stronger claim would be equal share of additional gains. I am aware that it would be difficult to ensure this, but something in between the status quo of existing shares and equal share of additional gains is doable. However, if we want to claim to be inclusive then at a philosophical level distribution of future gains should go beyond equal shares. I can elaborate on this later.

NP – One promise of reforms that has been most belied is that reforms and galloping growth would unleash millions of jobs. Only 2.7 million jobs were added in the period from 2004-’10, compared to over 60 million during the previous five-year period. Where the jobs as are promised?

SM – We are not doing enough with our ‘demographic dividend’ and the huge market potential. Facilitating enterprise and appropriate skill development that opens up opportunities would be beneficial. In these aspects, the lessons that India ought to take should be from East Asia – Japan, Taiwan and South Korea. While referring to East Asia, I have in mind the power of small and am not talking about the big entities there.

NP – In India, the burdens of unequal birth weigh heavily on those born into disadvantaged castes, gender, religion and tribes. In the countryside, poverty rates are 14% higher for Adivasis and 9 percent for Dalits, compared to non-scheduled groups. In urban areas likewise, the poverty of Dalits and Muslims is 14% higher than the others. Why did not economic reforms bring any drastic change in this aspect?

SM : While these gaps should be a matter of concern for designing future policy. Their evaluation should be contextualised with the percentage point reduction. In an co-authered analysis publishe in the India Development Report 2012-13, one observes that the percentage point reduction in poverty between 2004-05 and 2009-10 has been relatively lower for Muslims (compared to Hindus whose incidence of poverty in 2004-05 was lower) in rural areas and Scheduled Tribes (compared to other backward classes whose incidence of poverty was relatively lower) in urban areas.

NP -How do you look at the impact of reforms on corruption?

SM- In my view, the success of a market economy should be based on a large number of small players who cannot influence prices. Getting out of a textbook ideal, a market economy should have appropriate regulatory structures and no one should be too big to fail.

NP – People are still dependant on the state for supply of basic public goods like health and education. Is there any possibility of making common man free from dependence on the government for his survival?

SM – The fact that they are public goods they ought to be provided by the state. The countries with a better life expectancy (Scandinavian countries or even the UK) are doing so because of the role of the state in health care. Even in the United Stated (not a model to emulate), public funding on health is 8.3 per cent of GDP in 2014; it is only 1.4 per cent of GDP in 2014 for India. In India, health expenditure is largely out-of-pocket and many households fall below the poverty line on account of catastrophic health expenses. On education, particularly school education, all the developed countries rely on public schools and that too through the neighbourhood concept. In India, there is an increasing reliance on private schools – this is not how we can provision equal opportunities.

NP – What was the impact of economic reforms on the less developed states like Odisha?

SM – For someone who has come back to Odisha after 15 years (though I have been making regular visits even to rural areas) there is a visible change. Bhubaneswar is not recognisable and one hears the mineral-induced wealth in group chatter. But, malnutrition deaths as in Nagada do hit our public conscience. This reflects that Odisha is a microcosm of what is happening in India. As a state, it has not grown as much as some others might have. And, within the state there are regions and groups that have been left out. As an aside, I may inform that a very good book that has recently hit the stores is ‘The Economy of Odisha: A Profile’, which has been edited by Professor Pulin Nayak, Professor Santosh Panda and Professor Prasanta Pattanaik (three illustrious sons of Odisha) and published by Oxford University Press.