India’s economy is not healthy, the Governor of the Reserve Bank of India has said in an open letter to the Union Finance Minister, Nirmala Sitharaman. More GDP does not improve the well-being of citizens if it does not put more income in their pockets, he says. They need decent jobs, which the Indian economy has not provided despite impressive growth of GDP.
The health of any complex system, whether the human body or a nation’s economy, cannot be determined by its size. What matters is the shape it is in. GDP growth has become the dominant measure of the health of all economies. The dominant paradigm is, first, increase the size of the pie before its redistribution. It has replaced “socialist” models which were concerned with conditions at the bottom. Economists do not agree on how the well-being of citizens should be measured; and what the best measures of poverty, employment, and adequate income are. In their models, such hard-to-quantify conditions are taken care of by some invisible hand when GDP grows. India is becoming one of the most unequal countries in the world with this flawed model of economic progress.
Ms. Sitharaman is not responsible for the poor shape of the Indian economy. All Indian governments, since the liberalisation of the economy in 1991, have focused on GDP. GDP grew at 7.2% per year in the 10 years of United Progressive Alliance rule (excluding 2008-09, when the global financial crisis hit); and also at 7.2% in the National Democratic Alliance’s 10 years (excluding the 2020-21 global COVID-19 pandemic shock). There was no difference in growth. But, structural conditions that cause inequitable growth have also not changed. In fact, they have worsened.
Inclusive and sustainable development
All economies in the world develop through similar stages, according to economists. First, populations move from agriculture to industry, and then to services. Simultaneously, they move from rural to urban. In this, “one path for all”, model of progress, villages are bad, and cities are good; and farms are bad, and factories are good. According to this theory of progress, India has not developed sufficiently because both industrialisation and urbanisation have been too slow.
India must address the global climate crisis while growing its own economy to catch-up with developed countries. With the present model of progress, India must use more fossil fuels to propel economic growth. This has become a bone of contention in global climate negotiations, where all countries are expected to make equal sacrifices to save the global climate. Therefore, India must find a new paradigm of progress, for itself and for the world, for more inclusive and environmentally sustainable growth. What could this paradigm be?
Fossil fuels and the modern economy
The Czech-Canadian environmental scientist, Vaclav Smil, provides a blueprint in his book, How the World Really Works: A Scientist’s Guide to Our Past, Present, and Future (2023). He analyses the use of fossil fuels in the modern economy. They are used in the production and the distribution of four foundational materials for modern civilization: steel, concrete, plastics, and food. Steel and concrete are required for buildings, roads, and bridges, which provide the basic needs of habitation and transport. Steel is also the backbone of most machinery.
Moreover, almost all mobile machinery used for transportation and farming runs on fossil fuels. Plastics in many compositions have become ubiquitous in the construction of machines, buildings, and appliances. They are light, easy to mould, and are durable. Plastics also enable hygienic storage and transportation of foods and are widely used for sanitary protection in hospitals and homes. Plastics are formed from fossil raw materials, and fossil fuels are also required in the production processes of plastics. Smil examines alternatives to steel, concrete, and plastics that are in the pipeline, and calculates the overall requirements of fossil fuels. He evaluates the “total system” requirements of fossil energy (and steel, concrete, and plastics) for technological innovations for renewable energy solutions such as electric vehicles and solar panels. It will take many decades to replace these basic materials, and fossil energy, in their production processes. Food is the most fundamental need for human survival: more fundamental than steel, concrete, and plastics. And more fundamental than digital communication services, Smil points out.
Fossil fuel-based solutions have become integral for increasing the scale of food production and distribution systems in the last century, to meet the needs of the human population on the planet, which has increased in the last 100 years from two billion to eight billion (1.4 billion in India). Fertilizers are produced from fossil-fuel feedstock. Farm machinery is made of steel and runs on fossil fuels. Plastics are used for hygienic transportation of food in global supply chains.
Smil says, “the greater the retreat of agricultural mechanization and reduction in the use of synthetic agrochemicals, and reduction of these fossil-fueled based services (which is necessary now), the greater the need for the labor force to leave cities to produce food in the old ways. Purely organic farming would require most of us to abandon cities and resettle villages”. Are we prepared to do this,” he asks.
Local solutions work
Systems science reveals that local systems solutions, cooperatively developed by communities in their own villages and towns, are the way to solve global systemic problems of climate change and inequitable economic growth. This was the “Gandhian” solution for India’s economic and social progress, which was set aside to adopt modern, western solutions for development since the 1950s. Sixty-four per cent of Indian citizens live in rural areas (36% in China; 17% in the United States). A majority work on farms, and in small industries in rural India — not in large factories that use automated equipment. Rather than trying to catch up with rich countries on their historical development paths, India should take advantage of its present realities.
India’s policymakers must free themselves from western-dominated theories of economics. These are the cause of global problems, not their solution. The time has come to go back to old solutions to go to the future. Rural Bharat can be a university for the world, producing innovations in institutions and policies for inclusive and sustainable growth.
Arun Maira is the author of Shaping the Future (A Guide for Systems’ Leaders)
