We must fight for India’s economic freedom

Richard Alpert, the American spiritual teacher better known as Ram Dass, said that if you think you are free, there’s no escape possible. The illusion of freedom is as good as any prison made of bricks and steel. Indeed, the illusion is worse because at least the bars in an actual prison are a visible reminder that cannot be ignored.

India became politically free from British colonial rule in 1947. Economic freedom, however, was a different matter. The British had instituted the economic system that had suited them, and the inheritor of the British Raj – the Indian National Congress led by Jawaharlal Nehru – found no reason to change the state of affairs.

Indians had been aware that they did not have political freedom and to some extent were moved to struggle against it. I doubt that they had any understanding of the fact that they lacked economic freedom also. Why this was so is easy to understand.

The leaders of the “freedom movement” wanted India to be politically free so that they could be the bosses instead of the English. They had an incentive to awaken the people about their (the people’s) lack of political freedom because the people would help them gain political power which they (the leaders) lacked under the British rule. However it was not in the interests of these leaders to make the people aware of their economic servitude because the leaders wanted economic control of the people for the same reason as the British did.

India’s lack of economic freedom, however damaging to the people of India, was good for the rulers then, and it is still good for the new rulers of India. What worked under British Raj then, works equally well under British Raj 2.0. Unfortunately for the people of India – more so for the poor people of India – this lack of economic freedom leads directly to poverty.

There is significant empirical evidence that economic freedom is correlated with economic prosperity. The “Economic Freedom of the World: 2012,” a report published by the Fraser Institute, a Canadian public policy think-tank, in collaboration with other institutions around the world, lists India in the 111th position in a ranking of 141 countries around the world.

The Frasier Institute’s definition of economic freedom is this: “Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”

The top five countries in economic freedom are Hong Kong, Singapore, New Zealand and Australia – all rich economies. The lowest ranked are Myanmar, Zimbabwe, Republic of Congo and Angola – countries that are not known for economic prosperity. India shares its 111th position with Iran and Pakistan. Countries ranked lower than India include Guyana, Syria and Nigeria.

The Cato Institute, referring to the report, notes, “Nations in the top quartile of economic freedom had an average per-capita GDP of $37,691 in 2010, compared to $5,188 for bottom quartile nations in 2010 current international dollars. In the top quartile, the average income of the poorest 10% was $11,382, compared to $1,209 in the bottom in 2010 current international dollars. Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the overall average income in the least free nations. Life expectancy is 79.5 years in the top quartile compared to 61.6 years in the bottom quartile, and political and civil liberties are considerably higher in economically free nations than in unfree nations.”

India’s per capita income of around $1,200 (nominal) places it squarely in the bottom 10 percent of the bottom quartile of the economic freedom ranking. Indians would have been ashamed and alarmed about the lack of economic freedom and its resulting poverty but for the fact that we are generally ignorant about the lack of freedom and it is not in the interests of the Government to inform the people.

India is caught in a poverty trap that involves the Government. The Government restricts economic freedom and justifies that on the specious grounds that it is necessary for helping the poor. The Government takes greater control of the economy. This leads to greater poverty, which is then used as an excuse for increased Government control. There appears to be no escape from the vicious cycle of Government control, lack of economic freedom and poverty.

Ever since India’s political independence, the story has been the same. Important segments of the Indian economy have been managed by the Government, thus throttling private enterprise and economic growth. High prices, low quality and deep scarcity have characterised all that the Government controls. Socialist planning models have been imposed on the economy. I call it the PPP model – Perpetually Planned Poverty.

There is a way out but it will not be easy. People have to understand that they lack economic freedom and why economic freedom matters critically for their well-being. The current system is collapsing around them and the most visible sign of that collapse is the unprecedented and unbelievable corruption of Sonia Gandhi’s UPA Government.

This is part 3 of a series. You can read part 1 here and part 2 here.

(Photo Courtesy: Indian Kangaroo)

Related Links:

• India’s colonial rule continued past 1947
• India is poor by choice
• The unimaginable trillions India lost to Nehruvian socialism