Covid impact apart, Indian economy has tremendous potential for growth, says Economic Sutra author

Kautilya had prescribed only two rates of taxes 5 per cent and 10 per cent on domestic goods and a single 20 per cent on imported goods. Dr Satish Y Deodhar, Professor (Economics) at IIM-A and author of the much-acclaimed book 'Economic Sutra', in an exclusive interview with Bizz Buzz said that these are some of the examples of issues, which current governments also can learn from

A lot has been already done since 1991. We need to consolidate further. As mentioned above, power sector reforms, heavy emphasis on infrastructure and physical connectivity, disinvestments, contributing substantially to manufacturing and global supply chain, and improving ease of doing business should put India in a good stead

Kautilya talked a lot about foreign countries destabilizing country's economy and suggested a strong spy network to understand enemy better. In today's times, with hindsight, perhaps there could have been better economic-intelligence gathering regarding the alleged spread of Covid from foreign lands as a source of bio-terrorism

Why do you call your book a 'perception-correction initiative'?

Western historians, philosophers, and even economists paid a very scant attention to the economic ideas that evolved in the Indian subcontinent. From the ancient world, their scope of work had been limited to Greeks, Romans, and the Judeo-Christian writings. And, whatever exposure they had about India, the perception was that Indians were preoccupied with otherworldly pursuits which had prevented their material progress. Two important books, History of Economic Thought by Eric Roll and History of Economic Analysis by Schumpeter did not pay any attention to the economic ideas emanating from the Indian subcontinent. Late Frank Knight, one of the founders of the 'Chicago School' of economics had expressed his surprise that nothing coming out of Indian subcontinent was referred to in these books. Indian economists too were no exception to this. India has had vibrant entrepreneurial communities across India for centuries. However, their entrepreneurial geniuses were chained by the socialist Licence Raj policies in the first four decades after Independence. The resultant slow GDP growth rate of those decades was pejoratively christened as the Hindu rate of growth by late economist Raj Krishna. Hence, to me this book has been a perception correction initiative.

The book underlines the fact that economic thought in India, predates the Western tradition by a millennium or more. Kindly explain.

Proto-economic ideas had certainly evolved in India many millennia ago. When the western world continued to consider charging interest as a sin, it was circa 700 BCE that Panini the grammarian talked of definitions of compound interest, and daily and monthly compounding. There are descriptions in Rig-Veda about a priest and a devotee negotiating on the price of offerings the devotee wants to buy. There are descriptions of individuals being guided by desires. Rig Veda again talks about even the priest having desires. A witty comment reads that even a priest desires attendance by devotees to listen to his sermon! Charity was considered to address market failures - We are told that riches come to individuals like a rolling of a cartwheel. Sometimes you are up sometimes down. Therefore, one must voluntarily engage in charity for the poor who would come to one's help in their times of need.

The book highlights the broader spread of economic ideas both prior to and sometime after Kautilya, giving insights into the purpose, actions and vision of our forefathers. Please explain.

Quite a few proto-economic ideas expressed above had come prior to Kautilya. And then there are some which came afterwards. Kalidasa is known for the epic Sanskrit play Meghadootam, where a cloud is personified as a messenger between two angels. But the same Kalidasa argues that clouds are like a government treasury - just as sun evaporates water and the water comes back in the following year in the form of clouds and rains for the agriculture, the king taxes people, adds the revenue to the treasury, and spends it on public goods in the following years. The spirit of property right was well recognized in ancient India.

Narada, the 2nd century AD lawmaker had clearly opined that a householder's living space and his field (farm) are the two fundamentals of its existence and king cannot usurp them. Millennium and a half later, Marx would go on to call these concepts as locus standi and field of activity. Similarly, Jaimini had stated in 4th century BCE that just by the virtue of being a king, the earth is not owned by him and all beings have the right to enjoy the fruits of their labour on their land. These arguments are contrary to the Eminent Domain principle expounded in the West Asian religions. Moreover, during the Peshwa period in the 18th century, when troops would destroy standing crops of farmers, farmers were eligible for compensation called 'Paimalli', that is, value of their crop destroyed by the foot soldiers. Thus, the spirit of property rights was well recognized in Indian civilization.

At a time when the global economy is faced with severe crisis due to the ongoing Covid-19 pandemic, does the book provide any solution how to come out of this difficult situation?

Kautilya had described that knowledge can be divided into four - Anwikshiki (pure sciences and philosophy), Trayi (3 vedas), Vaarta (trade, commerce and economics), and Dandaniti (Politics). His treatise addresses Vaarta and Dandaniti. There are clear indications that government must come in support of the citizens when required. In times of distress and unemployment, there has to be expansionary fiscal policy - spending on roads, dams, etc. Covid-19 has brought in distress and government has had to come up with fiscal measures. Pure sciences (read vaccine development) had to be supported by the government and give interest exemptions to businesses. In fact, Kautilya talked a lot about foreign countries destabilizing country's economy and suggested a strong spy network to understand enemy better. In today's times, with hindsight, perhaps there could have been better economic-intelligence gathering regarding the alleged spread of Covid from foreign lands as a source of bio-terrorism.

Do you think that the Arthashastra should be taught in school curriculum today?

In the internationally known higher secondary educational boards such as IB and Cambridge, in their mathematics books, on pages describing different topics, there are pictures and boxes giving interesting short biographies of scientists and mathematicians associated with the relevant concepts. There was one about Brahmagupta who discovered the square root method of quadratic equations. Such snippets should certainly be introduced in our textbooks. For starters, Kautilya and Shukracharya are long overdue. Such references to contributions of our forefathers give students the right context, pride, and motivation to stretch the boundaries of knowledge further.

Lot of precious literature, including the one on economics, was destroyed by the invaders like Huns and Mughals. So how does the book connect the economic happenings in the ancient times with the medieval period?

One does not see good contributions on economic matters during the medieval period. Perhaps the continuity was lost due to the invasions. The ancient Nalanda University was burning for a month when all the precious manuscripts were burned down by the invaders. This phase continued throughout the medieval period. For example, original treatises such as Shukraniti are lost and what we have today is a revised and abridged version, Shukranitisara written at the turn of the 19th century. But it gives a glimpse on issues related to capital markets, labour markets, pricing, and state administration in ancient times.

What is your view on the country's economy like GDP growth, and other parameters?

Certainly, Covid-19 has been an exogenous shock to the economy and economy has contracted.

Do you agree with the economic reform measures being undertaken by RBI and the government as well?

Government has offered delaying of repayment of working capital and interest rate exemptions. Repo rate is kept low so that cost of capital will go down for the businesses. Recent farm market reforms, though misconstrued by certain stakeholders, will go a long way in improving the farmer welfare.

What is your view of the government-owned Bad Bank which will come into being from this month?

We will have to wait and watch for the specifics of the policy decision and its implementation.

What is your future outlook of the Indian economy?

Covid apart, Indian economy has tremendous potential for growth. Western economies have reached saturation points as far as infrastructure development in concerned. India has big potential on this front for the next few decades. China's competitiveness is coming down, partly due to higher wage cost. India can become a main source of manufacturing for the world. Caveat is that major reforms in power sector, disinvestments in public enterprises, and ease of doing business are yet to be addressed.

How will the country become a $5 trillion economy and by when?

This is a hypothetical question. Covid has made the objective a shifting target. However, the target can certainly be achieved during tenure of the next Lok Sabha dispensation.

We are on the verge of completion of three decades of national economic reforms. How do you see the things going forward?

A lot has been already done since 1991. We need to consolidate further. As mentioned above, power sector reforms, heavy emphasis on infrastructure and physical connectivity, disinvestments, contributing substantially to manufacturing and global supply chain, and improving ease of doing business should put India in a good stead.