A New Growth Model for India , in the era of Deglobalization

The current global political and economic scenario is turning hostile towards the idea of globalization. We first had Brexit and then election of President Trump, no matter how these events fructify at the end it creates risks for India if it follows an export led model. The common feature of all these political upheavals were the loss of jobs. The risk thus emanates from the jobs sustainability standpoint as it creates political risks in a country. All major export led growth models have included a central government push through policies which leads to inorganic growth models. The central government push has proven to be distortionary on a grand scale in many cases like Japan. We have to evaluate how we position ourselves in the face of these risks.

In the face of all this it would bode well for us to examine other perspectives on development. We examine the case of a village which can offer us pointers regarding the growth model, India should pursue.

Hiware Bazaar, is a village located in the semi-arid district of Ahmednagar. Throughout, the 1980’s the village relied on rain fed agriculture and was hit by constant droughts. Thus, there was limited seasonal agriculture and thereby limited economic opportunities. This caused a lot of villagers to migrate to towns and cities for work leaving the village in a disarray. The disarray increased further as the social fabric of the village was under strain from liquor production and increase in criminal activities.

However, things changed when Popatrao Pawar, the only post graduate of Hiware bazaar was elected as the Sarpanch of the village in 1990. Popatrao as the sarpanch, began by asking villagers to become proactive in pursuing their paradigms of development. He asked for voluntary land donations and labor for the watershed development program. The result was development for all and creation of 60 millionaires amongst a population of 1250 as of 2012.

Table 1: Statistics for Hiware village1

Date 1995 2012 % Change
Per Capita Income(Hiraware) 830 30,000 3,514
Per Capita Income(India) 30,752 72,167 134
Milk production per day (Hiraware) 150 4,000 2,566
Milk Production per day (India ) 181.3 362.73 100
Number of wells 90 294 -
BPL families 168 3 -

Popatrao also imposed a ban on grazing, tree cutting, liquor and initiated family planning in the village. The volunteer work cut costs and allowed for quality work as a sense of collective ownership was achieved. The results of such a cooperation based model is evident from the results. All the actions led to increase in forest cover, water levels and decrease in birth rate which helped de-risk agriculture for the village. The next step was again leveraging the social linkage aspect by making the Gram Sabha the guarantor for loans, which were taken for agriculture and business purposes.

Considering the above example there are a few insights that can be derived to create a reality of abundance for our villages in the present context. Whenever we have agents (unit entities of a system) interacting in an economy, their interactions lead to formation of games. The interaction can lead to either a zero-sum game or a non-zero sum game. When we come to a situation where the pie cannot be enlarged by cooperation it leads to competition i.e. a zero-sum game. The game that prevails is based on the coordination costs, cooperation costs and punishment.

In the case of Hiware bazaar before 1990, we can see that as the social fabric deteriorated the coordination and cooperation cost increased leading to a creation of a zero-sum game. Another fundamental insight of coordination games is that cooperation decays without punishment. In this case, when Popatrao asked for voluntary labor from the villagers for the watershed development program they obliged. Since they live in a small community, anybody not cooperating would have been subject to social shame, thereby included was an implicit punishment.

This step of making the Gram sabha, a guarantor for loans helped promote ingroup loyalty, since non-payment of loan would have attracted rebuke from the society at large, thereby imposing punishment in case of nonpayment of loan.

Thus, we see that local models of development should be given importance as they lead to sustainable coordination and low coordination costs, thereby creation of positive non-zero sum games in their interaction. The local models of governance will be possible and effective when there is real decentralization of power to the Gram Sabha level which will allow them to pursue their own unique models of development. The governance models must solve the coordination problems in such a way that it leads to a virtuous cycle of social capital generation. If such a model is replicated in even 25% of the villages in India, then the increasing pressure on cities due to the current rural to urban migration will lessen and also create domestic demand.

The current models of export led development, based on industrial urbanization, has its limits as it is based on ability to generate surplus value, which results in rising disposable income for all initially. Industrial Belts also always place themselves near river basins as huge amount of freshwater reserves are required as a raw material. We also have been able to increase our agricultural output based on chemical farming which is based on hydrocarbons and thus make us susceptible to rise on hydrocarbon costs. This surplus value generated is based on the cheap sources of food, energy and water, but as inflation rears its ugly head, workers start demanding high wages. The higher wages decrease the rate of return for the capitalist, which makes him shift the production center to a location where cheaper labor is present. This type of growth model imposes huge cost on the environment and public health, which causes an increase in the cost of food, energy and water for all decreasing the disposable income in the long run. Thus, India cannot go the way of China instead it should rely on its indigenous models of development based on local context.

The indigenous models regardless of use of local context in implementation should focus on making themselves independent regarding food, energy and water. The allotment of funds for irrigation in this budget and linking NREGS with creation of irrigation related resources is a step in the right direction. Similarly, each village can have its independent sources of electricity generation which can be a mix of solar, wind and biogas among other renewables. The focus on irrigation along with focus on indigenous strands and varieties of crops will help the villages become independent units of growth. The value addition form agriculture will help in creating sustainable surplus value cycles which will lead to increase in entrepreneurship opportunities. Therefore, our mantra should be “make agriculture great again!” Once the villages are connected by the internet as Bharat net aims to do, the possibilities are limitless. With the entry of Reliance Jio we are already seeing the costs of data being pushed down substantially which bodes well for the economic connectivity aspect.

We should learn from history and remember that the investment and export led growth model of China that we see today is an offshoot of the surplus value generated from the town and village enterprises in China. It is the suppression of this model post Tiananmen square which has led China down an unsustainable path where their environment has been badly damaged. They are now trying to shift to models based on domestic demand but that transition from export based models will not be easy as they run counter the interests of the State owed enterprises. This will also have huge costs and risks as potential for unrests is on the rise which can destabilize the country.

Thus, the traditional growth models have limits and are not sustainable in the long run. It is always fashionable to say in the long run we are all dead and focus on short term inorganic growth models but that makes us fragile. Instead adopting the organic growth models will make us antifragile as due to independent context based growth models based on coordination, the units will be independent on a macro level but highly interdependent on the micro level. It will be self-sustaining and not bound by the nexus of food, energy and water. Any failures will also not have a huge contagion effect and not be catastrophic. These growth models will thus be poised to benefit from volatility due to its agile nature because the basics will always be intact.

The Keynesian Multiplier effect has its limits after balance sheets of economic entities in a country are stretched out and they fail to create sustainable demand. In the era of de-globalization, Say’s law will come into play especially for India, as supply of goods and services created from underutilized resources and sustainable practices will create sustainable domestic demand and keep inflation in check.


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