Why is Bharat so different? It is because of the relation-based integrated life that makes Bharat different from the contract-based individualist West
Just a few obvious facts about the Bharatiya economy. Family savings have been rising post liberalisation despite average interest rates falling since 1990s. Most of it gets into low-yielding bank deposits even though Bharatiya stock market is growing at double the bank interest since 1991. Bharatiya families trust banks, gold and properties and not stocks as much. See how these facts have impacted on the macroeconomic fundamentals of Bharat. The Bharatiya economy grew in 2000s primarily through domestic savings, which rose from 21% of GDP in 1991-92 to as high as 37% of the GDP in 2009 and now hovers around 32-33% Domestic capital formation rose from 22% in 1991-92 to a high of over 38% in 2011-12. Net foreign investment in Bharat during two decades of liberalisation averaged around a mere 3% of national investment. Recall the economic discourse in 1990s when Bharat liberalised its economy to allow free foreign investment and foreign trade. The nation was told then that as Bharatiyas did not save enough, domestic capital formation was inadequate; therefore foreign investment was needed for growth. Emphasis was also laid on exports and foreign trade as the main drivers for growth. Foreign investment mainly funded external deficit more than development within. Domestic impulses — in terms of both investment and demand — were, therefore, the core factors in the Bharatiya growth story, the external forces being additives, though not unimportant. What has been the escalator for growth and jobs in Bharat? It is not corporate Bharat.
Jobless corporate growth
A study by Credit Suisse Asia Pacific India Equity Research Investment Strategy (July 2013) revealed that two decades after liberalisation commenced, the combined share of public and private corporate sectors in national GDP was just 15%— a third of which, 5%, was only from the celebrated listed corporates. They are the tail of the economy, not the body. They received external investments of over $550 billion and bank credit of over Rs 18 lakh cr. Their profits rose. The market capitalisation vaulted. Corporate Bharat added billionaires in the global list. But how much did their share in nation’s GDP rise in 23 years? Just 3%. How many jobs did they add in two decades? Believe it, just 2.8 million! And where from then did jobs and people’s livelihood come from?
Unfunded, job-rich sector
The Credit Suisse study says that non-corporate sector generated 90% of the total 474 million jobs and half the national GDP. The Economic Census [2013-14] says that some 57.7 million family-owned non-farming and non-construction businesses yield 128 million jobs. Of this 60% are run by OBCs, SCs and STs and as many jobs provided by them are in rural areas. But this social justice and job-rich sector gets just 4% of its credit needs from the formal banking system and the rest at usurious rates of interest from money lenders. When unveiling the Mudra finance for providing organised finance for the job-rich small businesses the Prime Minister Narendra Modi said: “People think it’s big industries and corporate houses that provide higher employment. The truth is, only 12.5 million people are employed by big corporate houses, against 120 million by the MSME sector.” He again reiterated it on April 15, 2015. Here is the paradox of Bharatiya economy. The banks fund corporates which add very little jobs, but starve the job-rich non-corporate sector of funds.
Why is Bharat so different? It is because of the relation-based integrated life that marks Bharat out from the contract-based individualist the West. Family in Bharat is not a contract to live together terminable at will, but an integrated cultural institution of mutually dependent persons bound by relation that cares and shares. It takes care of the elderly and the infirm, ill-healthy and the jobless, which constitutes its propensity to save. In most of the West, the family functions have been taken over by the State through social and health security. This, in substance, meant nationalising families. Nationalisation of family obligations weakened the family propensity to save. Consequently, US household savings nosedived from 80% of the national savings in 1960 to minus 20% in the third quarter of 2006. As Barry Bosworth of Brookings Institution wrote, in Asia savings is a dynastic obligation, not a personal choice like in US. As the families in the West were nationalised, traditional government functions like water supply, road building and public utilities, began to be privatised. Nationalisation of families and privatisation of government happened in early and late 1970s.
But, the liberal economic policies imported from the individualist West could not change the cultural behaviour of the Bharatiya families. The income-consumption-saving rates for the period 1981-2 to 2007-8, which covered the command economy and liberal economy demonstrated that when per capita income rose, per capita spending reduced from 64% in 1991-2 to 58% in 2007-8, correspondingly savings increased, implying that the Bharatiya families have defied the consumerist trends encouraged by new economic policies. But in US, as the famous American anthropologist Marshall Shallins says, shopping is regarded as the culmination of modernity.
Elite economic thinkers often fault the Bharatiya families, which seek safe invest-ment models, as backward and unenlightened. Some even fault them for saving too much. In early 1990s Dr Jagdish Bhagwati, Bharat-born US economist, advised the Bharatiya government to make policies to cut family savings by half so their con-sumption spend rises. Fortunately, Bharatiya families defied his advice. Actually, as their incomes expanded, the Bharatiya families ramped up their savings but main-tained their moderate consumption. They lived within their incomes and hardly borrowed to spend. This alone insulated Bharat from the contagion effect of the global crisis in 2008. Had the Bharatiya families followed the prescriptions of experts, they would not have saved as much as they did, which dramatically increased the national investment and GDP. Nor they would have avoided debts that would have risked and even bankrupted them. The Bharatiya families compare favourably with Japanese households which too are habituated to save and like Bharatiyas, are also addicted to keep their savings in banks, not in risky stocks. The economists of the West used to deride the Japanese financial system as inefficient for this reason. But when the monetary crisis hit the West, the Bank of Japan had had the last laugh and proudly claimed that the Japanese financial system was safe and sound unlike the Western.
This is precisely the Bharatiya situation. The risk of financing business is on the Bharatiya banks like it is on the banks in Japan. The Japanese banks, like the Bharatiya ones, also have the same issue of Non-Performing Assets. How do they handle the NPA problem is will be relevant to Bharat. But the RBI, prone to looking at the West, ignores the Japanese parallel, which is nearer to the Bharatiya filial and financial system. With the result, the RBI is strangulating the Bharatiya economy by applying the Western standards when the nation is struggling to come out of almost a decade of economic destruction by the UPA, particularly the UPA II. When will RBI and economic advisory of Bharat accustomed to the ways of the individualist West, think and act for the integral and family based Bharat?
S Gurumurthy (the writer is an eminent thinker and commentator on political and economic issues)