India is too diverse and unique a society for Western models to be effective. The MUDRA initiative takes this into account
“The institution must adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario. The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development.”
This excerpt from the Union Cabinet resolution for setting up the NITI Aayog on January 1, 2015, is perhaps as significant as the dismantling of the Planning Commission.
After nearly seven decades of experimenting with developmental ideologies, veering from the ‘Soviet model’ to the ‘Washington model’, India aspires to develop her own indigenous model for economic growth — the ‘Bharatiya model’.
World Bank and IMF economist John Williamson codified the ‘Washington consensus’ in 1990, prescribing ten commandments of economic reform for emerging economies.
In this context, India’s economic reforms in 1991 through de-regulation of industry and unlocking India’s economic borders was lauded for its conformity to the IMF prescriptions for economic growth.
Nearly 25 years later, Prime Minister Narendra Modi and his Cabinet have urged restraint against a temptation to foist such external models of growth on India.
Is this disillusionment with global economic growth model justified? And what constitutes a ‘Bharatiya’ model?
The Chinese example
According to World Bank poverty data, China uplifted more than 700 million citizens from poverty between 1990 and 2013 ($2/day poverty line). China flouts at least six of the 10 commandments of the Washington Consensus – market determined interest rates, free floating exchange rates, privatisation of state enterprises, import liberalisation, economic de-regulation and private property rights. China’s spectacular economic success should rightfully trigger awe and envy among policymakers in other developing nations.
The fallibility of a one-size-fits-all Washington Consensus type economic model has been highlighted by many, including Princeton economist Dani Rodrik in his 2006 paper, Goodbye Washington Consensus, Hello Washington Confusion. Rodrik not only endorses the China counter factual example but also elucidates the damage inflicted on many Latin American and sub-Saharan African countries from blindly adhering to such economic policy prescriptions.
So, what works?
It’s all very well to know what does not work, but far more important to know what does. India’s complex and myriad community networking system is often cited as the single most distinguishing feature of Indian society. If one size cannot fit all countries across the globe, can one size fit all of diverse India?
In a provocative paper entitled Community Neworks and the Process of Development, Cambridge University professor of economics, Kaivan Munshi, provides an example of what can form the contours of a ‘Bharatiya’ model.
He argues that the caste system with 4,635 distinct genetic groups is an integral aspect of Hindu society and any development model for India must embrace this inconvenient truth.
He illustrates how these communities perform the role of labour, skill, capital and social insurance markets within their networks.
For example, during contingencies, 25 per cent of all rural households borrow amounts equivalent to 20-40 per cent of their annual income from their caste networks.
Such loans are the dominant source of credit for most rural households and usually carry easier terms than other formal credit sources. In the absence of neoclassical micro-foundations of perfect markets, community networks in India can play a pivotal role in ensuring upward mobility and hence must be nurtured, argues Munshi.
The ramifications of this idea of India’s deeply enmeshed diverse community networks on public policy choices of social infrastructure, financial markets, labour markets, employment generation is unclear but can potentially be significant.
The proposal to set up the Micro Units and Development Refinance Agency (MUDRA) is perhaps a first step, expanding on the idea of last mile financing through established social networks in rural towns and villages.
Published on 15 March, 2015 in The Hindu Business Line