'Markets and globalisation do not promise prosperity'

He is also distinguished professor at New York’s New School of Social Research. In his chequered career, Nayyar has held faculty positions at the Indian Institute of Management, Calcutta, and at Oxford, his alma mater.

Nayyar, whose career began in the IAS, has served the government at senior levels. With substantial scholarly work on globalisation and development, Nayyar speaks to Chandan Nandy of Deccan Herald, outlining the relevance of the state in a liberalising democracy like India.

How do you view the interplay between globalisation and development, especially in the context of India which has, for some time, adopted the principles of free market economics?

For about two decades, there has been a growing belief that states can do nothing right and that markets can do nothing wrong. It is often believed that in markets there is magic and in globalisation there is salvation. The success story, for any given country, is a harmonious blend between the two.

If we consider post-independent India’s economic performance the first turning point came in 1950 and the second in 1980. In many ways, the significance of the first turning point was greater than the second, inspite of the evidence that a third turning point comes in 1991. In 1950, the  annual GDP growth rate was 6 per cent and per capita income was 4 per cent per annum.

This did not happen with economic liberalisation. In China, liberalisation began in 1979 and growth took off in 1980. But in India, it took 11 years before growth rates improved after some liberalisation in 1980. In China, the benefits of liberalisation may be attributed to modernisation, educational advancement and building infrastructure. For India, there was a 40-year spring board to economic liberalisation, but the same period did not witness modernisation in education or building of infrastructure.

Would you then say that erosion of political institutions was responsible for the sluggish pace in economic development in India?

In India, political democracy flourished rapidly and it was reflected in participatory democracy. Yes, there were aberrations like the Emergency, but in my view political democracy is going to be the principle institution that will drive development, which will be a slow process but one with checks and balances. To draw the conclusion that markets and globalisation promise prosperity is a serious mistake. There are two Indias: India, that is global and Bharat, that is local, and between the two there is a disconnect.

Has governance of globalisation proved beneficial for all, especially developing countries?

In globalisation, there are some rules as evident in the way in which multi-lateral organisations like the WTO and IMF operate. These have reduced the policy space for late-comers to globalisation, a fact which most would accept. Compare the two periods (1950-80 and 1980-2005) at a global level. Between 1950 and 1980 growth rates were high in most countries, but between 1980 and 2005 growth rates were lower except in China and India.

During the second phase, economic inequality between countries, within countries and between people across countries increased. The financial crisis of 2008, which spread like contagion — even if it is believed that cycles are embedded in capitalism — was the greatest since the Great Depression. At that time, developing countries were marginal but are now truly integrated in the world economy. Globalisation has produced unequal developments, but we have neither reached the end of history nor the end geography.

In the backdrop of such global financial crisis, would you say it is time to bring the state back in?

The time has come to reinvent globalisation and to restore the moral authority of the state because only it can bring about correctives. After the meltdown, especially in the US, there was and is a burgeoning anger with the financial sector.

The reality that has unfolded introduced rethinking about the magic of the market and the abundance of globalisation. There is in reality still a faith in the market, partly because China and India have survived the meltdown.

That is primarily because in both countries, large sections of the people are not connected to the market. The economic crisis is a reality check. But in the context of the market, there are two kinds of polar views — both are right in what they see and both are wrong in what they do not see.

How real is the UPA government’s promise on ‘inclusive growth?’

The evidence doesn’t suggest there has been any so far. Soon after independence and even during Indira Gandhi’s prime ministership there was some steps toward poverty reduction, but not so now. There are more poor people now and illiteracy continues to hover around 40 per cent.

Besides, infant mortality rates in India are among the highest in the world. The average of all states does not reflect the reality. The proportion of the vulnerable population is half and the problem is compounded by food inflation, droughts and floods.

What prescription would you suggest to bridge the gap between the two Indias?

The government must focus on essentially two things. First, there must be long-term work on providing eduction for all at all levels. Within this scheme, English must be the principle language because it provides access to employment, and what is desperately needed is vocational education. NREGS is at best a palliative, not the long-term solution. Second, the government needs to pay urgent attention to agriculture and infrastructure.