Free Your Mind: A Beginner’s Guide To Political Economy by Sauvik Chakraverti; Centre for Civil Society; Price: Rs.100; 76 pp

It’s one of the most stunning economic turnarounds of the modern era. A decade ago, India was in dire economic straits with barely a few weeks of foreign exchange to meet its overseas debt obligations. In fact in 1990 the Reserve Bank of India had to withdraw gold from its vaults and put it on a plane to Zurich to assure the international community that the country was committed to meeting its balance of payments obligations. Today, with over $70 billion in foreign exchange reserves, India is sitting pretty. So confident is the government of meeting any eventualities on the foreign exchange front that it has begun prepaying billions of dollars it owes to foreign creditors.

It’s one of the most stunning economic turnarounds of the modern era. A decade ago, India was in dire economic straits with barely a few weeks of foreign exchange to meet its overseas debt obligations. In fact in 1990 the Reserve Bank of India had to withdraw gold from its vaults and put it on a plane to Zurich to assure the international community that the country was committed to meeting its balance of payments obligations. Today, with over $70 billion in foreign exchange reserves, India is sitting pretty. So confident is the government of meeting any eventualities on the foreign exchange front that it has begun prepaying billions of dollars it owes to foreign creditors.

The story behind this remarkable turnaround has yet to be fully told. But clearly the process of economic liberalisation that the country embarked upon in 1991 (with the economic crisis helping to focus minds and build the usually elusive political consensus) has played a major role. The dismantling of socialist era licence-permit raj unleashed the long shackled forces of competition in the Indian economy and suddenly not only is the Indian consumer spoiled for choice, the economy itself is set on the high road to global competitiveness.

There is nothing magical about what the Indian economy has achieved. Way back in 1776 Irish philosopher Adam Smith enunciated the principles of laissez faire in his celebrated tome: An Inquiry into the Nature and Causes of the Wealth of Nations. That it took the netas and babus of socialist India 225 years to discover the merit in what the father of economics said is because they were more concerned about poverty than wealth. The economics of socialism is the economics of poverty unlike capitalism which is primarily concerned with wealth generation. This is also the central argument of Sauvik Chakraverti’s thought provoking Free Your Mind, which makes the case for young Indians to shun the economics of poverty which has dominated national discourse for the last five decades and learn the economics of wealth creation.

Trade offers the best route for wealth creation argues the author who was hitherto senior editor of The Economic Times and currently a trustee of the Centre for Civil Society, Delhi. Chakraverti calls for a fundamental mindshift change away from Mahatma Gandhi’s advocacy of tens of thousands of self-governing villages in favour of the development of 400 free-trading towns and cities to serve as drivers of a new economic revolution. “With 400 excellent cities, all well linked to each other by rail, road and air, maximum trade can take place at the least cost. A poor transportation network makes trade slow and expensive. A truck travels 250 kms a day on Indian highways; they do more than 600 kms a day in the rest of the world!” writes Chakraverti. He cogently argues that the government should spend tax payers money on public goods like roads, streetlights, etc and get out of the business of manufacturing private goods like houses, cars and steel which is best left to private enterprise.

But the author is on a rather weak wicket when he makes a case for free international trade in agriculture and for Indian farmers giving up cereal production (as foodgrain can be supplied cheaper by farmers in the American prairies) for fruits and vegetables. This is an argument that makes neither economic nor political sense. The only reason Western grain exporters are able to sell cheap in developing countries is because of the huge subsidies of over $250 billion a year the small (barely 2-4 percent of the population) but politically influential farming community receives from their governments. Moreover a large country like India which consumes almost 200 million tonnes of foodgrains a year can hardly afford to depend on the international food trade which is barely 60 million tonnes per year. Huge price increases will result should India become a major food importer and make the country vulnerable to political blackmail as happened in the 1960s with PL 480 grain imports.

The book also makes a case for the pricing of natural resources such as water, forests, etc. This will ensure their efficient usage and prevent waste which often results in shortages, particularly for the poor. However, when it comes to pricing a resource such as water the experience of many countries including developed nations such as Britain has not been good, as it has led to the creation of private monopolies.

On the critical issue of reforming India’s notoriously corrupt and self-serving bureaucracy, which has been the bugbear of the Indian reform process, the author argues for greater contracting out of public services which will reduce costs, improve efficiency and eventually help the government curb its mounting fiscal deficit. The book is an easy read and provides plenty of nutritive food for thought.