‘Only when wealth is created will wealth be distributed’. This statement from the PM's Independence Day speech sums up the centrality of wealth in the economic progression of India.
The importance accorded to wealth can be traced in Ancient Indian thoughts found in Arthashastra and Thirukural. For much of recorded history, India’s dominance in the global economy can be attributed to the importance given to wealth creation and its twin pillars, the invisible hand of the market and the hand of trust.
Wealth creation leads to a rise in investments, capital expenditure, and forex revenues, better salaries to the employees, benefits to suppliers, and spurt indirect tax collections.
The invisible hand
- The Survey illustrates enormous benefits accruing from enabling the invisible hand of the market as evident from Fig.1.1 and Fig.1.2 and Fig.1.3.
- It has highlighted the emphasis on wealth creation. Post-Liberalization has been key to India’s rapid economic strides. Fig.1.1 illustrates India’s GDP growth from 1960 to 2018.
Fig.1.1 India’s GDP (Current price, $ trillion) and GNI per capita (Current, $) during 1960-2018
- For example, entry of private sector banks from 1994 onwards brought in an unprecedented growth in domestic credit supply as shown in Fig.1.2.
Fig.1.2 Increase in domestic credit to GDP after the entry of private sector banks
- Liberalized sectors have grown significantly faster than the ones where State’s hand is dominant.
The hand of trust
- Trust appeals to ethical and philosophical dimensions. It refers to the faith reposed by the Governments and the people in the market and market players like the Corporates based on mutual support and cooperation.
- Corruption, crony capitalism, plutocracy, and poor governance are antithetical to the hand of trust.
- The Economic Survey has said "a feeling of suspicion and disrespect towards wealth creators is ill-advised," batting strongly for India Inc. and calling for more pro-business measures to encourage wealth creation.
- The importance of the hand of trust to complement the invisible hand can be gauged from poor financial sector’s performance during 2011-13, when corruption perception and cronyism was at its peak.
Towards the $5 trillion goal
To achieve the target of a $5 trillion economy, the invisible hand must be strengthened by adopting pro-business policies to:
- Provide equal opportunities for new entrants.
- Enable fair competition and ease doing business.
- Eliminate unnecessary policies that undermine markets through government intervention.
- Facilitate trade for job creation.
- Efficiently scale-up the banking sector
- Introducing the idea of trust as a public good, which gets enhanced with greater use.
Survey suggests that policies must empower transparency and effective enforcement using data and technology. These efforts shall be complemented by the hand of trust as well.
Also read: Growth Rebounding To 6% - Economic Survey