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Last week, in Part One of this article, I had written how India gets nonplussed by China. Little did I know that exactly two days later, on 15 June 2020, triggered by China’s primeval butchery in Galwan Valley, India would be left inconsolably angry and grieving. But anger without action can also become ‘sound and fury signifying rhetoric’. Therefore, it’s critical to harness this fury to demolish policies and constraints that have held India’s economic potential in thrall.
Ironically, this is the moment to get inspired by Deng Xiaoping, who blasted the Chinese economy into an ‘escape velocity’ that took it to another orbit, pulling nearly a billion people out of poverty and converting a moribund communist country into a global superpower.
In 1991, China and India had equal per capita income; today, Deng’s ‘escape velocity’ has made China five times bigger than India, its USD15 trillion GDP dwarfing our USD2.8 trillion, thereby giving its military a menacing superiority.
Tomes have been written about how Deng transformed China’s economy. In my book Superpower? The Amazing Race Between China’s Hare and India’s Tortoise (Penguin Allen Lane, 2010), I have postulated the ‘escape velocity’ model, boosted by two engines borrowed from Soviet Union and Japan. I shall attempt to summarise my theory in a few lines. Using the extortion power of communism, China extracted massive surpluses through the 1970s-90s:
This surplus extraction was on a scale as epic as Stalinist Russia. But then Deng sprung a twist in the tale. Unlike the Soviets, he borrowed a leaf from the Japanese economic revolution, throwing China open to foreign trade and investment. Deng used his ‘communist surplus’ to invest in physical assets and social infrastructure on a scale hitherto unknown to mankind. At one stage, China was investing nearly half – I will say that again – almost 50 percent of its GDP in infrastructure. He also used a good part of the surplus to woo foreign investors with cheap land, labour, and currency to become the ‘factory of the world’. The more the westerners exported from China, the greater the surplus they accumulated in the mainland because of the artificially depreciated yuan.
Can India ever create an honourable power equation with China? Yes, we can, provided we completely, totally, unabashedly reinvent the Indian State, beginning with its psychological and structural transformation. Frankly, the Indian State’s psyche has to be creatively destroyed – from a control freak, predatory, micro-managing animal, it has to become an enabler of equal opportunity, enterprise, and excellence. It must give up its profiteering, commercial mindset to focus all its might on engineering a social revolution.
How, you might ask, could that happen? In my book, two simple, yet improbably difficult – but not impossible – State actions can achieve this:
Let’s begin with the most fundamental question – how can India generate the trillions of dollars of economic surplus required to create its ‘escape velocity’ out of poverty? Being a democracy, we cannot cynically exploit farmers, wage earners, and consumers like China did. But we are sitting on a mountain of potential wealth created from the taxes and savings of India’s citizens. I am talking about our hugely diversified public sector banks and corporations, unfortunately holding billions of dollars of underperforming assets. If suffused with animal spirits, these can grow exponentially in value. Here’s a spectacular case study which can become a ‘politically palatable’ template:
Maruti Udyog Limited (MUL) was a failed car company until Suzuki Motor Corporation of Japan bought a minority – yes, I shall repeat for emphasis, it was a minority stake – creating a unique/atypical structure:
The government can easily claim that it’s not selling family silver. Instead, it’s continuing to own the asset economically; all it’s done is brought in a partner who converts the silver into diamond-studded platinum, enriching India’s citizens more than anybody else. If you go by the multiples created in Maruti, BALCO, and VSNL, the few hundred billion dollars of current value residing in India’s public sector assets could multiply into trillions of dollars of re-investable surplus over the next decade.
Now that we’ve created the economic surplus, we need the booster fuel required to rev up our ‘escape velocity’. And that shall come from ‘un-mixing’ our economy, that is, by the Indian State shedding all commercial activities to focus its might on only five areas:
That’s it. This will create our ‘escape velocity’ out of poverty. This will give us the wherewithal to stand up and be counted, against China and the world.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)
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