Recently, I read an article on India’s ‘Middle Income Trap‘. The article has a clear neoliberal bias, and many of the prescriptions it suggests will not transform India.
It highlights some steps India must take to improve, such as increasing government spending on healthcare and education, but much of it falls flat.
Structural reforms mean making it easier for businesses to operate by cutting red tape and improving infrastructure like roads, ports, and digital networks. This also means giving workers better opportunities by modernising labour laws and investing in education and skills.
This is a very common argument made by neoliberals, suggesting that India’s poverty persists because the government isn’t doing enough to deregulate the private sector. In reality, labor laws have been consistently diluted since liberalization, with the recent Labour Codes passed by the government being a recent example.
Also, improving infrastructure like roads, ports, and networks was a major reason why Modi and the NDA government were elected. In many ways, India’s roads and ports have indeed improved. However, I won’t delve into how this infrastructure development came at a heavy cost to the environment or how, in many cases, the highways were overbuilt, making India excessively car-centric.
Back to the ‘reduction of red tape’ nonsense. Neoliberals have consistently claimed that reducing red tape will induce the private sector to invest more. Yet that hasn’t happened. India has improved several places in the EoDB indices, yet unemployment remains a major issue.
Reducing corruption, improving governance, and creating a business-friendly environment will attract investment and help India reach its true potential. By focusing on these areas, India can chart a path to long-term prosperity
This is another neoliberal talking point: ‘Reducing corruption’. The early 2010s anti-corruption hysteria allowed the oligarchs to install the person they wanted in power. Because I’m not writing under a pseudonym, I won’t go further into this. In a previous article, I discussed how private sector corruption is the real issue.
As a part of India’s Viksit Bharat mission, India aspires to emerge as a global manufacturing hub, however, Raghuram Rajan, Rohit Lamba and others in their recent work have commented on India’s export-led growth strategy, stating that export-led growth requires conducive institutional reform and a gradual pivot towards service-based export strategy (where India already has a comparative advantage both in terms of trade and employment generation).
Export-led growth is inherently a beggar-thy-neighbor strategy, where countries are forced to compete by offering the cheapest goods in the global market or risk losing trade competitiveness. Another issue is the slow global growth that the capitalist world has experienced since the 2008 financial crisis. Post-COVID, the global economy’s GDP per capita has been growing at just 1% per annum.
You only have to look at India’s neighbors, once considered ‘economic miracles’ like Bangladesh and Sri Lanka, now being forced to take loans from the IMF and World Bank, to see how dangerous export-led growth can be.
India must focus on building its own internal growth rather than relying on demand from other countries. Any sovereign state can make use of the resources within its borders and that includes India.
Without skilled talent, India risks getting stuck in the middle-income trap, struggling to move from a low-income to a high-income economy. To break free, India needs to invest heavily in education and skill development, ensuring its workforce is ready to compete on the global stage.
This essentially reduces unemployment and underemployment to being a supply-side issue. The capitalists don’t want to hire because the people aren’t educated. I’m not against increased education spending or vocational training. However, even if every single Indian worker were omniscient, it still wouldn’t result in a significant increase in employment. The reason is clear: capitalists don’t hire workers to produce commodities, they hire to make money. So if there is no money to be made, they will not hire, no matter how skilled the labor force is.
Meanwhile, if the capitalists see there is money to be made but a lack of skilled labor, they can hire unskilled workers and train them themselves. It may add to their costs, sure, but again, if the profit outweighs the cost, they will do it.
Thus, it is clear that ‘skill development’ alone won’t solve India’s poverty and unemployment.
India’s path to becoming a high-income economy faces another major challenge: inadequate healthcare and infrastructure. Poor health outcomes drain workforce productivity, while outdated infrastructure in transportation, energy, and other sectors makes it hard to attract the kind of investment needed for sustained growth. These issues contribute to the risk of India getting stuck in the middle-income trap, where progress slows, and the leap to high-income status feels out of reach.
The issue with this argument is that it’s precisely the austerity policies imposed by neoliberals that have left India’s healthcare and education systems ‘outdated’. The investment needed to fix this will require an increase in spending, which will likely lead to higher fiscal deficits unless taxes on the rich are increased. However, this would result in the same neoliberals criticizing the government for ‘profligate spending,’ and, in the absence of capital controls, could also lead to capital flight.
This growing disparity fuels social unrest, and political instability, and stifles demand for higher-quality goods and services. To tackle this, taxing the wealthiest 1% could generate the funds needed to improve essential public services like healthcare and education, which would help reduce poverty and inequality.
The Indian Central Government doesn’t need taxes to fund its spending. As the sovereign, it must create money first before it can be taken back through taxes. Taxes on the rich must be increased not to raise funds, but to reduce their political and purchasing power. The idea of ‘Robin Hood’ taxes is ridiculous, and mainstream economists constantly fall for it. Personally, I believe billionaires should be jailed, not taxed, but regardless.
The article also fails to mention the role of the government in production, restricting its function to merely providing education and healthcare. With low demand in both domestic and foreign markets, the only party capable of increasing demand is the government. The private sector, whether domestic or foreign, only invests if it sees a profit to be made. The government, being the sovereign, has no such constraints and can never run out of money.
The lack of any mention of the government’s role in the production process speaks volumes about the author’s ideology. The article is full of nonsense, which is very disappointing, considering the author has written better pieces in the past. Perhaps a shift in ideology?
That’s all.