Opt-In, Opt-Out

I ended up paying somebody else’s electricity bill by mistake, and therein lies a tale.

About three weeks ago or so, an alert popped up on my phone. It was a notification from the Cred app. Or it may be that I saw this notification while doing something else on the Cred app. But whether it was a notification on my phone or within the Cred app, the call to action was clear. Two days left to pay your electricity bill, it said, inviting me to go ahead and pay.

Now, I usually pay the electricity bill by using either Amazon Pay or Google Pay, but I had no aversion to paying it via the Cred app. I already pay my credit card bills using the app, so why not electricity bills too? The amount that I had to pay looked right (based on what I remembered from the bill that the utility had sent me), and so I went ahead and paid.

And that was that, I thought.

Except we received, some days ago, the next month’s bill. And this latest bill said that we had to pay a whopper of an amount. Upon going through the fine print, we realized it was a whopper because I had not paid last months’ bill.

Except, of course, I had!

And so I dug through Cred’s sections, hunting down the notification re: I having paid the bill. And sure enough, there it was… except, on closer perusal, for one crucial fact. The consumer number wasn’t correct.

So what had happened?

I still get notifications in my inbox for electricity bills from the last apartment I used to stay in. We shifted out of that place in 2016, but I continue to get electricity bills for that apartment. And Cred, for some reason, decided for me that this was an electricity bill I needed to pay. And told me to pay it. And I went ahead and paid for it.

What is Cred? It is a start-up through which you can pay your credit card bills. There is a lot more going on there, but that is (maybe) a story for another blogpost. For now, it is an app that helps you pay your credit card bills, and that is good enough for us.

How do you go about adding your credit cards on the app? Well, you enter the number, you enter an OTP that you get on your phone, you jump through a couple of other hoops, and then you’re set. You get bill alerts, payment due day alerts, and there’s some gamification after you’ve made payment via the Cred app.

But the most important thing is that you have to opt-in when it comes to adding your credit card. It is not added in by default, you have to choose to add your credit card.

But the electricity bill? Ah, that was opt-out. I wasn’t asked to confirm if this was my bill. I’m sure I must have pressed yes at some point of time to a question along the lines of “Can we trawl through your inbox to identify bills you need to pay”, and I’m well aware of the fact that I was a lazy chump to do so. This blogpost is not me complaining about Cred, or saying something illegal happened.

But it certainly is about choice architecture. Having trawled through my inbox, and having surfaced an electricity bill, I sure do wish that Cred had added an additional verification step. If the name on the bill doesn’t match my name on Cred, maybe ask if this bill is mine? Or even if it does, still check if I should be paying this bill (maybe I’ve rented out that flat, and my tenant should be paying it, for example?).

And only post this confirmation should you be sending me a message to pay “my” electricity bill?

This is, of course, a well known problem in behavioral economics. See here, for example. Or open up the Zomato app! Just before you make payment, take a look at the fact that you’re paying INR 4 to the Feeding India Foundation – this is opt-out. That is, Zomato assumes you are willing to pay the 4 rupees, and you have to opt-out of paying it.

And Zomato will not send you cutlery by default – you have to opt-in to have the cutlery be sent to you.

And I do wish that electricity bill payments on Cred were opt-in, not opt-out!

P.S. This is a true story, but is also a useful way to segue into announcing that GIPE is hosting a week-long seminar on behavioral economics. I will be taking a couple of these sessions, and I now have skin in the game when it comes to talking about choice architecture. An ironical thank you is due to Cred, I suppose.

P.P.S I’m in touch with Cred about this, and while I am not asking for a refund, I do hope that they change their choice architecture. I’ll keep you guys updated 🙂

How To Get the Most Out of Life

Oof, it’s taken me a long, long time.

About a month ago or so, I wrote a blog about parsing my favorite definition of economics, and Akshay Alladi responded on Twitter thusly:

And coming up with a reply to this tweet is what has occupied my mind for all this while. I don’t mean that as a complaint – quite the opposite, in fact. It has been a very enjoyable thing to keep gnawing away at, and it has resulted in more than a couple of lovely, relaxed conversations. It has also taken me down many a rabbit hole online, including on the etymology of the word religion. I have, in fact, a whole other draft of a post in response, but it ended up being so chaotic and full of links that I decided to start anew instead.

And in this new post, I decided to keep things simple. Rather than try to define religion (and I invite you to take a stab at it), or think about why one should be (or should not be!) religious, I decided to step back for a bit and take a look at the definition again:

Economics is the study of how to get the most out of life

And here’s my first line of defense against Akshay’s question. “What might be the thing that will give you the most out life?” is a question whose correct answer may well be religion for some. What is religion?

Here’s the definition Google will give you:

“the belief in and worship of a superhuman controlling power, especially a personal God or gods.”

Wikipedia goes on an extended trip, with a twist at the end of the sentence, if you prefer a more thorough definition. But whichever definition you go with, you may well decide that it is this – the practice of this thing called religion – that will get you the most out of life. And I say this will all sincerity: good for you, if that be the case!

Again, to be clear, religion isn’t my own answer to the question of how to get the most out of life, but it may well be yours.

But now that you have decided to get the most out of life by practicing religion, economics absolutely can help you from here on in.

What is the cost to you of practicing religion? What are you giving up in order to do so? What incentives can be put in place for you to be religious – both positive and negative? Should you be needing incentives at all in the first place when it comes to being religious? What are the short term benefits and costs, and what are the long term benefits and costs? Economics can help you frame these questions, and can help you answer them.

Or put another way, economics does not help you decide what “most” should be. In fact, it cannot help you decide what “most” should be. It may well be the case that something associated with religion (or even religion itself) helps you answer this question. But once you’ve decided that this – whatever this may be – is your definition of “most”… then the how to go about it is all economics.

Remember, economics is about choices, horizons, costs and incentives. Choices regarding what? Costs pertaining to what? Incentives for what? The answer to this question must come from you.

The how?

That’s economics.

Econ Ain’t About Money

A somewhat less sexy, but more accurate title would have been ” Economics Isn’t Just About Money”.

But the decision to jettison the word “just” is deliberate, and not just for the sake of a headline that makes you want to click through. It is, instead, to emphasize the point that economics is about so much more than just about making money.

I have some close friends to thank for inspiring this post, with whom I had a conversation about tomorrow’s blogpost. They told me that they had been under the impression that economics is about money, and to my surprise, that seems to be an idea that most people I have spoken to are comfortable with.

But these people I have spoken with, and whoever has taught them economics, have less than half the right answer. Economics isn’t about money alone.

I’d written a post a while back about Choices, Horizons, Incentives and Costs. And to me, that’s what economics is about.

No matter what you do in life, you have a range of choices to choose from. Should I watch Netflix for an hour or study for an hour? Should I read a couple of pages from a book, or should I quickly scroll through Twitter? Should I enroll in an engineering course, or should I pursue law instead? Should I start with the salad at a buffet, or should I start with desserts instead?

Life is all about choices, every single second of your life. Economics helps you be clear about your choices, and also helps you potentially expand your choice set. One option regarding the last question in the paragraph above, is to say neither, and fast instead. Be aware of your entire choice set, and only then set about choosing one.

Horizons is about thinking about the long term, rather than the short term. My favorite example in introductory economics is to ask my students if I should have a second gulab jamun for desserts after lunch today. I tell them that present day Ashish will definitely say yes, and seventy year old Ashish (assuming I live for that long) will definitely say no. Because the consequences of choices I make today truly matter in the long run, bur are underestimated in the short run.

Incentives are about what motivate you to do (or not do) things. Economics teaches you how to use your own incentives, and those of others, to Get Things Done. My favorite example comes from Tyler Cowen, who helps us understand how to use incentives to not be bored in a museum. Ask yourself, he suggests, which painting would you choose to steal from each room, to install in your own home – and you cannot choose more than one per room. Your incentives have flipped – now it’s not about “seeing” each and every painting having paid the price of admission, but instead about asking yourself which painting will look best in your home.

And costs are about the realization that nothing in life comes for free. No matter what you are doing, you could always be doing something else. Instead of having read this far (thank you!), you could have given up halfway through and watched funny cat videos instead. Opportunity costs are everywhere, and whatever your choice, it ain’t for free.

The point that unites each of the examples above is that none of them are about money! They are economics-y concepts: choices, horizons, incentives and costs. But what to have in a buffet, whether to have a second gulab jamun, deciding which painting to steal and watching cat videos are not about money.

You could put a monetary value to all of them using subjective valuations, of course, but some things shouldn’t have numbers attached to them. Not because they’re not important, but because they’re fundamentally unquantifiable. What price (and I’m not joking here) can you possibly put on a parent choosing to read a story to a child? Economists have an answer to this question, of course, but it isn’t one that I am entirely comfortable with, especially if it involves a definitive number.

And that’s what I mean when I say that economics is about so much more than just money.

That still does not answer the question of what economics is about – I have written about it earlier, and will defend my answer in tomorrow’s post.

Can the economy grow forever?

Why Are We Not Doing More To Fight Climate Change?

What Lies Ahead for India?

Towards the end of his column, Niranjan highlights three key areas for India to work on in the years to come:

  1. Jobs, and those preferably in manufacturing.
    There is no sugarcoating this: we need to do much better in this regard, and if anything, we have been doing marginally worse in the last decade or so.
  2. Irregular and inefficient access to energy.
    We’ve tried to solve this problem the way teenagers clean their rooms. And the results have been exactly as bad as in the case of those teenagers. Niranjan offers hope by speaking about the transition to green energy, and I wish I could share his optimism.
  3. Political economy: will India resemble East Asia or Latin America?
    I put on my Straussian hat to think about the points Niranjan is making here, and I would encourage you to do the same.

Each of these points is spot on, to which I would add the following:

  1. More expenditure on the capital side.
    We need to build. More roads, more airports, more dams, more electricity projects, more ports, more housing units, more everything. One of my favorite factoids in the recent past has been about China pouring more concrete between 2012-2016 than the USA did in the entire 20th century. India needs to join this conversation, and real quick. But that is a hard political economy problem.
  2. Preserve and improve the quality of our institutions.
    Easier said than done, but the quality of our executive, our legislature, our judiciary, our monetary policy authority, our media, our regulators and our public policy institutions needs to not regress and become better over time. There is an unfortunate tendency to have a discussion about this very quickly turn into finger-pointing and yelling, but the sad truth is that these institutions are nowhere near as good as they need to be, and are arguably getting worse. Institutions matter!
  3. Better education, better health:
    Not more schools and colleges, not more degrees. But better know-how, a better trained work-force and a focus on improving the quality of education at all levels rather than the quantity of institutes and organizations.
    India’s healthcare system is a mess, and we don’t yet realize how bad it is. But twenty years down the line, there is waiting for us a ticking time bomb: a rapidly ageing population of India’s size, going up against our healthcare system as it currently exists is something that should fill all of us with dread.

Each of these are truly hard problems, with no easy solutions. But hey, nobody ever claimed that this was going to be a walk in the park. If you are a student of economics in India today, you have your work cut out for you, and time is of the essence.

My thanks to Niranjan Rajadhakshya for writing this excellent column, and I hope his column and these blogposts spark many conversations, debates and projects in the days to come.


Land, Labor and Capital

A very long extract to begin with today, because it just is that important:

The first tentative economic reforms began after Indira Gandhi came back to power in 1980. Political scientist Atul Kohli has written of how she made her peace with Indian business houses. The licence raj was eased. Taxes were reduced. VP Singh presented a reformist budget in 1985, when Rajiv Gandhi was prime minister. Manmohan Singh helmed the seventh five-year plan. It focussed on technology, productivity and efficiency. The Reserve Bank of India allowed the rupee to gradually depreciate in a bid to promote exports.
The growth spurt in the 1980s was supported by a large increase in fiscal deficits as well as international borrowing. It was unsustainable. The road to the 1991 crisis lay ahead. The macroeconomic crisis—in the midst of political and social instability —was a turning point. The duo of PV Narasimha Rao and Manmohan Singh abolished industrial licensing, slashed import tariffs, opened up the financial sector, attracted foreign capital, fixed public finances and made the rupee convertible on the current account. In his landmark budget speech in July 1991, Manmohan Singh cogently argued that the balance of payments crisis was a symptom of a deeper malaise: macroeconomic imbalances, low productivity of public sector investments, loopholes in the tax system, indiscriminate protection that had weakened the incentive to export, lack of domestic competition, a weak financial system that was not allocating capital efficiently, lack of access to the latest technology, and much more. The great achievement of 1991 was not each reform in isolation, but the rollout of a comprehensive reform programme where different parts complemented each other.
The development state was replaced by the regulatory state. The government was no longer the main vehicle of investments. That job was handed over to the private sector, while new regulators were set up or empowered to ensure markets functioned well in a wide range of areas.


The entire column is excellent – that’s why we’ve spent four days (and counting) on it. But it is awe-inspiring to see how concisely and yet how thoroughly Niranjan has spoken about the 1991 reforms in three short paragraphs. Shruti Rajagopalan and her excellent colleagues at the Mercatus Center have an entire website dedicated to the events of 1991 and what came after, and I would strongly encourage you to spend a lot of time on it.

If you are younger than thirty years today and are reading this, you need to understand why you are able to read this today. You need to understand how the Indian economy changed enough for me to be able to write this blog in addition to all of what I do to earn my daily bread, and you also need to understand how your own income (or that of your family’s) went up enough to be able to afford the device that you are using right now to read this. To say nothing of the job/business that paid for this device- both the device and the job likely wouldn’t have been available prior to 1991.

I hope to write more about how the 1991 reforms changed lives on the ground for those of us who were around in the 1990’s and the early 2000’s. In all my classes, I tell my students that they have a secret superpower that they should make full use of. This secret superpower is called TMKK. It stands for Toh Main Kya Karoon? In English, that means ‘so what should I do?’, although a more accurate translation would be ‘so why should I care?’.

Consider this sentence once again: “The duo of PV Narasimha Rao and Manmohan Singh abolished industrial licensing, slashed import tariffs, opened up the financial sector, attracted foreign capital, fixed public finances and made the rupee convertible on the current account.”

Especially as a young student, you should absolutely be asking TMKK. How did the life of the average Indian change because industrial licensing was abolished? So what if import tariffs were abolished? What could I buy and consume that I could not earlier? How did opening up the financial sector help ordinary folks who were around in the 1990’s? What changes in the lives of ordinary citizens when India finds herself able to attract foreign capital?

You get the drift. I suspect most folks nod along when they hear us economists rhapsodize about 1991, without really getting what was in it for them. But they need to know. One, to better understand why exactly 1991 was so important, and second, to realize how fragile our economic freedom is, and to do our utmost to preserve it in the years/decades to come.

In their book, Tryst with Destiny, Bhagwati and Panagariya speak about how far India has come since 1991. And it really has come a long way! But they also speak about the need to have sustained and accelerated growth from here on in (the book was published about a decade ago). And they say that this needs two kinds of further reform.

Track I reforms are all about accelerating and sustaining growth, while making it even more inclusive, while Track II reforms are about making redistribution even more broad-based and effective. And they make the point that while 1991 was a great start to Track I reforms, there is a long, long way to go:

If truth be told, India is far from done on Track I reforms for two broad reasons. First, the potential for growth remains grossly underexploited. The economy remains subject to vast inefficiencies. Removing these inefficiencies not only offers the opportunity to arrest the recent decline in growth but to push the economy to a double-digit growth trajectory. Second, the poverty reduction that directly results from growth, in terms of enhanced wages and employment opportunities per percentage point of growth, can be increased: we can get a larger bang for the buck.

Panagariya, Arvind; Bhagwati, Jagdish. India’s Tryst With Destiny . HarperCollins Publishers India. Kindle Edition.

Every single economics student is taught, sooner or later, about the three factors of production: land, labor and capital. The link I have added here mentions a fourth, but let’s keep things simple for now. And I find it instructive to think about what Bhagwati and Panagariya choose to talk about in Part II of their book. This section of their book is about accelerating, widening and deepening what they refer to as Track I reforms, and the these are the first three sub-sections:

  1. Labor laws
  2. Land Acquisition
  3. Infrastructure

That is to say, even now, a full 75 years after India’s Independence, it isn’t as easy as it should be to utilize land, labor and capital to the fullest extent possible. You may agree or disagree with their solutions to these problems, but I would argue that the diagnosis is spot on.

The Indian economy is freer today than it was in 1990, and that is really and truly awesome. But it isn’t free enough, and much more work remains to be done.

Quite what this work is, and how to best go about it, is the journey that we need to undertake on the long road to breaking free.

And if this challenge excites you, well, like it or not, you are a student of the Indian economy – welcome to our tribe!

One Step Forward, Five Steps Back

Alternate history is a genre is underrated. I should say at the outset that I haven’t read as much as I would have liked to in this genre, but have thoroughly enjoyed what little I have read (or seen, in terms of movies).

Why begin with this? Because Niranjan raises, as he puts it, a tantalizing question:

The short period when Lal Bahadur Shastri was prime minister offered hope of change. Shastri wanted more investment in agriculture to control rising food inflation. He saw that physical controls were creating artificial shortages and black markets; he preferred financial controls. And the failures of the public sector convinced him that the private sector should have a bigger role in the economy. One of the tantalizing questions in Indian economic history is whether India would have embraced liberal economic reforms 25 years before 1991, if Shastri’s tenure had not been cut short by his premature death.


But if there is somebody reading this whose interests lie at the intersection of writing fiction and studying economics, boy do I have a project for your consideration. What if agriculture had become more productive and efficient back in 1965? What if we had moved away from the License Raj, rather than embracing it wholeheartedly? What if – the most ‘if only’ question of them all – 1991 had instead been 1965?

Please, somebody, write this book.

But alas, we went in a whole other direction. It all began promisingly enough, but things soon went awry:

Indira Gandhi began with a relatively liberal economic agenda, including devaluing the rupee as well as easing trade restrictions in response to balance of payments pressures. However, in response to the international geopolitical situation as well as domestic political calculations, she swung to the Left after 1969. The economy was choked with stringent licensing, credit rationing, import controls, as well as draconian laws such as the Monopolies and Restrictive Trade Practices Act and the Foreign Exchange Regulation Act. A series of exogenous shocks between 1965 and 1980 — wars, droughts and oil prices — further battered the economy.


I would strongly encourage young readers and folks new to economic theory to go over the presentation linked to in this blogpost. Why do I recommend this presentation? Because it is one thing for Niranjan to say that Indira Gandhi ‘swung to the Left after 1969’ because of domestic political calculations, and it is quite another to model why this was inevitable. Economics, remember, is the study of how to get the most out of life, and Indira Gandhi chose to get the most votes. This presentation explains why.

Economics is also the study of opportunity costs, and this presentation explains to us the cost of her choices. India fell behind when compared to some of her Asian peers in this period, and any student of Indian economics must almost heave a wistful sigh when studying this era of India’s economic history.

But the other reason I ask you to go over that presentation is because it helps you understand decisions made by all political leaders in all electoral democracies everywhere in the world. And as students of economics, it helps to understand how politicians respond to their incentives. This helps you become a better analyst of both economics and politics, and therefore of public policy.

The 1970s were a lost decade, with low growth and high inflation. However, there were two significant structural breakthroughs. First, the Green Revolution that began in the late 1960s helped India make a big dent in the food constraint. Second, the domestic savings constraint eased, perhaps helped by the spread of bank branches after nationalization. There were also the first signs of introspection on the nature of Indian economic policy in several official committee reports, though actual policy reforms were not yet on the horizon. The underrated budget speech by H M Patel in 1978, as finance minister of the short-lived Janata party government led by Morarji Desai, deserves more attention.


To me, what is most interesting in this paragraph is what Niranjan doesn’t say in it. In my personal opinion, this decade is worth studying not for its datasets or its metrics, but for the weakening of India’s institutions. The Solow Model is a great way to think about the growth trajectories of nations, and what students often miss out in the Solow Model are the underlying assumptions. Well defined property rights, a strong and independent judiciary, free and well-functioning markets, and a legislature that doesn’t indulge in over-reach are crucial for reasonably rapid long-term growth, and I would argue that all of these were missing either in parts or wholly for much of the 1970’s.

Niranjan hints at part of this in the paragraph that precedes the one I have extracted above, but there is much more going on in that unfortunate decade. If you wish to learn more about this decade and the impact that it has had on our growth trajectory, come to the economic data and its analysis last. Begin with biographies of the more important public personalities of those times, read about landmark judgments passed in and around that decade, and speak to journalists and political scientists who were around back then, or have studied that era well. Once you get a sense of the politics and the culture (political, social) of that decade, then start upon the economic analysis. That would be good advice in general, I suppose, but it is particularly applicable to the 1970’s. Oh, and watch the movies that were being made back then!

There is far too much going on in this decade for us to speak meaningfully about it in a single blogpost, and I hope to come back and write/speak about this topic later. But for the moment, I wish to leave you with my own sense of utter regret and wistfulness regarding the 1970’s. There was some progress, of course, but there was, in my opinion, much that was wrong, and too little that was right.

Growth always matters, but it really and truly mattered back then, and we failed to optimize for it.

One Step Forward, Two Steps Back

Niranjan speaks about three things in his essay as regards the first two decades or so of India’s independent history:

  1. What did we seek to achieve? A more accurate framing of the question, arguably: what should we have sought to achieve, and how should we have gone about it?
  2. How did we do in terms of conventional macroeconomic metrics?
  3. What did the dissenters of the time have to say?

Let’s deal with each of these questions in turn.

  1. What did we seek to achieve?

The Indian economy had to create opportunities for people to move from farms to factories/offices, from villages to cities, from household enterprises to formal enterprises. Each shift would enable labour to move from low productivity to high productivity activities, thus boosting incomes.


The reason I said that a more accurate question would have been “what should we have sought to achieve” is because it is not clear to me if economists, politicians and policymakers of that time would have agreed with Niranjan’s goals in the excerpt above.

As Niranjan himself mentions in his essay, MK Gandhi wouldn’t have agreed with this vision, preferring a version of India in which each village was a republic unto itself, and as self-sufficient as possible. But Gandhi’s wasn’t the only dissenting voice – we simply didn’t know then what was the most appropriate path to development, and lots of different folks had lots of different ideas. By the way, a good way to begin your exploration of what ideas were being discussed around and before Independence is by reading Towards Development Economics, a collection of essays edited by J. Krishnamurthy. Another excellent, and more recent source is Planning Democracy, by Nikhil Menon. There is a ton of material on this issue, of course, so please treat these recommendations as random starting points, and read as much about this period of India’s history as possible.

We sought to raise incomes as rapidly as possible, it is true, but there were many different opinions about how this should be done. Some of the ideas that we adopted then have been discarded over time, and not just by India. Others were eventually jettisoned, but this didn’t happen rapidly enough, in my opinion.

What were these ideas?

The elements of the classic Nehruvian growth strategy are well known: A focus on public sector investment rather than private sector investment, on capital and intermediate goods rather than consumer goods, and on the domestic market rather than foreign trade. There was more than just economics in play. The focus on building capacity in steel, machine tools and mining was an attempt to maintain strategic autonomy in the Cold War era—similar to why countries, including India, are today trying to build domestic capacity in semiconductors, electric batteries and telecom equipment, for example.


Remember, economics at its heart isn’t as complicated as us economists make it out to be. “What are you optimizing for?”, for example, is a surprisingly powerful question, and reading the paragraph above reinforces my own answer to the question “what was India optimizing for back then?”.

India was optimizing for self-reliance in a socialist setting, and given these constraints, tried to raise incomes as rapidly as possible. India was not optimizing for growth, no matter the underlying ideology, and no matter the opportunity costs. India was prioritizing self-reliance and a socialist mindset, and so long as we didn’t deviate from this path, we tried to achieve as rapid a growth path as was possible.

We now know, given what took place in certain parts of Asia, that this was the wrong thing to optimize for. But that was the zeitgeist of those times, and this, unfortunately, was the path we adopted.

I have said it before, and I will say it again: “What are you optimizing for?” is an underrated question.

2. How did we do in terms of conventional macroeconomic metrics?

Economists have used statistical techniques to pinpoint 1950 as the first big structural break in India’s economic trajectory, with 1980 being the other. The economy accelerated after many decades of stagnant output. Economic growth averaged 4.2% a year between 1950 and 1965. Industrial output grew annually at 7.1%. The fact that industry grew faster than the rest of the economy meant that India began to reverse the deindustrialization that had begun in the last years of Mughal rule. Equally importantly, economist S Sivasubramonian showed in his monumental work on Indian economic growth in the 20th century that total factor productivity grew at 1.8% a year in the 15 years to 1965.


Economic growth of 4.2% a year would imply a doubling every eighteen years or so. And while that is certainly nothing to sneeze at, another of my favorite questions to ask in economics seems appropriate right now: “relative to what?”

That is, what is the benchmark for deciding whether 4.3% is good enough or otherwise? Niranjan give us a potential candidate when he speaks about India’s first structural break in the year 1950. 4.3%, we understand, was certainly higher than the period preceding 1950, otherwise there wouldn’t be a statistical break to speak of. But two other benchmarks are possible.

  1. How did we grow relative to some of the other Asian economies of that time?
  2. What would have been the maximal rate of sustainable growth that other macroeconomic models would have afforded us?

The answer to the first question isn’t encouraging. And what we, as students of economics should take away from this is the fact that while India did well in the first two decades after her independence, she could (and should) have done better.

The answer to the second question is pure macroeconomic modeling, and can occupy the minds of the best and brightest economists for their entire careers. But long story short, the answer to this question is very much a function of ideology, assumptions and type of model developed. And for this reason, I would prefer to benchmark India’s performance against what came before 1950, or against her peers (howsoever defined), rather than the output of a model.

Bottomline: we did well, but could have done much better.

3. What did the dissenters of the time have to say?

One of the joys of being a social scientist is that there isn’t one definitive answer that everybody can agree upon. The is a deep richness in terms of complexity to human society. There is an inherent subjectivity that we bring to how we see the world in terms of what it looks like and why. And this guarantees that there will be different opinions about how to go about achieving whatever the aim.

There were two other powerful critiques of the Nehruvian development strategy. The Mumbai economists CN Vakil and PR Brahmananda argued that India should invest more in agriculture and the production of consumer goods — or what they called wage goods.
The famous dissent of economist BR Shenoy provided four red flags. First, the heavy dependence on deficit financing to build industrial capacity would lead to balance of payments pressures. Second, the focus on capital goods rather than wage goods for mass consumption would be inflationary, as people employed in new industries would get money incomes but nothing to spend them on. Third, high taxation to finance the plans would weigh on citizens. Fourth, increasing government control of the economy would eventually harm Indian democracy.


Both arguments have turned out to be prescient. In fact, you could argue that the first of these arguments is really a subset of the second. But any student of the Indian economy should be familiar with the works of BR Shenoy, in my opinion one of India’ most underrated economists. If you can spare the time and have the inclination, read his dissenting note in full.

My point here is not just to explain how, in my opinion, we took some wrong decisions. We certainly did, but we would do well to remember that there were a lot of different opinions back then about how to help developing economies grow rapidly. It is easy, with the benefit of hindsight to look back and say this should have been done instead of that. But it is always easy to bet on the winning horse after the race is done!

My point instead is to make you, the reader, aware of some of the nuances of the excerpts that I have quoted here, and to leave you with a thought. How do we know what is best for India’s growth trajectory today? Whatever your own particular answer, how sure are you that it is indisputably the correct one? Might folks who disagree with you have an inconvenient iota of truth hiding in their arguments?

Argue more with folks who disagree with you, for these is no better way to learn!

The Long Reads on The Long Road To Breaking Free

Last week marked the 75th anniversary of our Independence. A lot of reflective essays were written to mark this special occasion, and some of them made for excellent reading.

But as a student of economics, I haven’t found anything better than a fantastic essay written by Niranjan Rajadhakshya in the Livemint. It makes for excellent reading, and there is enough material in there to keep students busy for years, let alone a semester. And I simply cannot do justice to the entire article in one blogpost.

So what we’re going to do is that we’re going to spend this entire week going through this article at our own leisure. I’ll give a broad overview today, and we’ll explore some of the finer nuances in the other four blogposts to come this week.

Let’s begin with the title itself. I don’t know if the choice of headline was intentional, and it is usually the case that the headline is not chosen by the author of the piece. But that being said, surely this is a nod to an excellent book written by Vijay Joshi? I, at any rate, interpret it as such, and strongly encourage you to read the book if you haven’t done so already.

Most essays would have begun with a nod, at the very least, to Pandit Nehru’s speech on Independence Day. It remains an excellent speech, and worth a re-read (or re-listen, if you so prefer). But Niranjan begins his essay with a quote from Sardar Patel instead, underlining the need for an economic regeneration in India’s case.

What might this entail? Niranjan highlights four major problems:

  1. Stagnation of economic output
  2. A chronically underfunded state
  3. A dire food situation
  4. A narrow industrial base centered around a few large cities

For each of these things to improve, Niranjan says, we needed a structural change in the way the Indian economy functions.

  1. People needed to move from farms to factories
  2. Almost consequentially (my interpretation, not Niranjan’s statement), we needed more urbanization
  3. And finally, we needed to move from household enterprises to formal enterprises

Why are these changes necessary in order to bring about a structural change in the Indian economy, and why is a structural change deemed necessary? These are excellent questions to ask if you are a student of economics. And the answer to these questions is a great way to begin your journey into the world of development economics.

But very simply put, here are the answers:

  1. Farms alone would not be able to generate the kind of surpluses necessary to raise the incomes of Indians, and certainly not as fast as was required.
  2. Try plotting per capita incomes for nations versus their rates of urbanization.
  3. Reflect on each of the figures in this paper (read the whole thing if you can, but please do look at all the figures)

Reflect on two paragraphs, which I will excerpt here without additional comment:

The famous dissent of economist BR Shenoy provided four red flags. First, the heavy dependence on deficit financing to build industrial capacity would lead to balance of payments pressures. Second, the focus on capital goods rather than wage goods for mass consumption would be inflationary, as people employed in new industries would get money incomes but nothing to spend them on. Third, high taxation to finance the plans would weigh on citizens. Fourth, increasing government control of the economy would eventually harm Indian democracy.


In his landmark budget speech in July 1991, Manmohan Singh cogently argued that the balance of payments crisis was a symptom of a deeper malaise: macroeconomic imbalances, low productivity of public sector investments, loopholes in the tax system, indiscriminate protection that had weakened the incentive to export, lack of domestic competition, a weak financial system that was not allocating capital efficiently, lack of access to the latest technology, and much more. The great achievement of 1991 was not each reform in isolation, but the rollout of a comprehensive reform programme where different parts complemented each other.


Was it any surprise that the 1970’s were a lost decade? Was it any surprise that Amitabh Bachchan was an angry young man in the 1970’s? What if the budget of 1991 instead happened to be the budget of 1978 instead (or even earlier, now that we’re dreaming)?

To say nothing of the future! Niranjan ends his essay with four challenges that await us in the future:

  1. India needs to develop more, and develop more equitably at the same time? Is that possible, especially while remaining a political democracy?
  2. Jobs! Niranjan speaks of our inability to create quality jobs for the millions who are now leaving agriculture, but the problem is even more urgent, because not enough people are able to leave agriculture in the first place!
  3. What of energy? How are we looking to anticipate the problems that will inevitably crop up, and start thinking about how to deal with them?
  4. And Niranjan ends on what I interpret to be a quasi-pessimistic note by asking where we will find ourselves in 1947. The reason I find it to be a quasi-pessimistic ending is because if the answer to this question isn’t clear by now, that ought to worry all of us. It certainly worries me.

We’ll take a look at the first two decades, roughly speaking, of India post independence tomorrow, using this excellent column as a reference. See you tomorrow!