Context: The article is discussing India’s current “poly crisis” such as managing inflation, interest rates, and exchange rates, negotiating trade agreements to protect farmers’ interests and ensuring secure employment with adequate incomes for all citizens and their associated economic challenges. 

• The article highlights the complexity of these challenges and the lack of a systemic solution as various systems (Ministries and Organisations) work in silos surpassing the requisite coordinated effort that has become a principal cause of social tensions and political conflicts in India.

Background of A New Economics for a New World

• India has tackled this poly crisis over the years: Let us have a look at some of the Policy measures that so far handled the downfall:

• Managing inflation: India adopted fiscal and monetary policies. Eg: Reserve Bank of India’s (RBI) flexible inflation targeting framework to manage inflation. As of February 2023, India’s inflation rate was 5.7%.

• Interest rates: India has a dual interest rate regime, with different interest rates for different types of loans. The RBI regulated interest rates:

• The repo rate, which is the rate at which the RBI lends money to banks, has been reduced to 6.50% in 2022-23, from a high of 8.00% in 2013-14.

• Exchange rates: India has adopted a managed floating exchange rate regime, where the value of the rupee is determined by market forces, but the RBI intervenes in the foreign exchange market to smoothen volatility.

• As of February 2022-23, the exchange rate was approximately 82.6 INR per USD.

• Protecting farmers’ interests: India has implemented various policies to protect farmers’ interests, such as minimum support prices, crop insurance schemes, and loan waivers. However, these policies have also faced criticism for not reaching the intended beneficiaries effectively.

Ensuring secure employment and adequate incomes

• Eg: Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and various skill development programs.

• However, unemployment remains a major challenge, with the unemployment rate at 7.5% in February 2022.

What are the economic challenges faced by the Indian economy?

• First is management of inflation, interest rates, and exchange rates. The Reserve Bank of India is expected to find a solution.

• Second is negotiating bilateral and multilateral trade agreements that protect the interests of India’s farmers and workers. For which coordination is required amongst the Ministries of Commerce, Industry, and Agriculture.

• Third problem is secure employment with adequate incomes. It involves all Ministries and all State governments.

What are the lessons for India from the Chinese growth story?

• Economists agree that more investments will boost growth. Therefore, there are lessons in China’s history.

• China and India opened their economies to global trade around the same time. Both countries had similar levels of industrial technologies.

• Since then, China has attracted many times more foreign investment than in India, and the incomes of its citizens have increased five times faster.

• Wages in China have become much higher. So, India seems well placed to attract global investors. But Vietnam is proving to be more attractive than India to western and Japanese investors.

• Western neo­liberal economists have attributed China’s remarkable economic growth to its free trade policies.

• However, after Vietnam’s success, they rediscovered lessons from China. When both countries opened to foreign investors, they already had high levels of human development. Both had universal education and good public health systems.

• Basic human development must precede growth. Moreover, incomes must be increased simultaneously to enable more consumption and attract more investments.

What are issues with the current paradigm of economics?

• The current paradigm of economics cannot provide solutions. It is too linear, too mathematical, too mechanical. Economists have also separated themselves from other disciplines. They are working in silos.

• They should break out of it and examine the complex systems. It will help policymakers to comprehend complex socio­economic systems in which many forces interact with each other.

• As per current paradigm, the number of policy instruments must equal the number of policy goals. So, there is a need for independent monetary institutions for managing inflation, separate trade and industry specialists, and separate policies for environment management and agriculture.

What are the steps needed to remove the inadequacy of the current economic system?

• ­Economists search for global solutions. Trade and monetary policies that fit the United States, China, Vietnam, or India will not work for others. Their needs have emerged from their own histories.

• Economists arrive at solutions by comparing data trends of different countries. In their models, people are numbers. Economists do not listen to real people.

• Global solutions and economic theories invented in the West have caused problems. New solutions are essential. The inadequacy of the current paradigm was revealed by the 2008 global financial crisis; COVID­19 pandemic; and the global climate crisis.

• A new economics is required. There is a need to change the paradigm of economics to bring perspectives from other systems. India’s economists must step forward and lead the changes.

Road Ahead

• Therefore, India must emphasize on the need for policymakers and economists to move away from the current linear and mechanical paradigm of economics and explore complex self-adaptive systems to comprehend the complex socio-economic systems in India.

• This can be done via prioritizing basic human development as a means for growth and simultaneously increasing incomes to enable more consumption and attract more investments.

• The article suggests that India’s policymakers will have to find a way to strengthen the roots of the economic tree while harvesting its fruits simultaneously indicating the need for a comprehensive and holistic approach to address the “poly crisis” the nation faces.