Indian Models of Economy, Business and Management — 1

The class notes of an online course

Introduction

• Site: https://cisindus.org/
• Course: Indian Models of Economy, Business and Management — 1
• Course Fee: 900 Rs
• Teacher: P. Kanagasabapathi (From Tamilnadu)
• Started On: Sat 15 May 2021

---

Chapter 1 - Are There any Indian Economic Models?

1.1 – Are there any Indian Economic Models?

• Indian economy has 2700 years of history
• Kautilya wrote book on economics referring other 100s of doctors in 300 BC.

1.2 – India after Independence

• India adopted socialistic system post independence
• That system is failed 1990 we had to go to bank of England to borrow money to buy fuel.
• In 1990, India adopted American capitalist model
• Irrespective of these foreign models how is that India is still one of the highest growth rate? India has her own economic model
• Global economic crisis didn’t affect India.
• Communism failed in 1990.
• Capitalism has gone trough several changes and yet it has failed.

1.3 – My Experience with Indian Economic Model

• India economics was referred to as development where as west models were being referred as modern economics
• Developing Investment Climate in India through Investing money in stock market.
• Many save money but not in Nationalized system; co-operative banks, family, lending to needful, Bhishi
• Invest in local businesses
• S. Gurumurthy used to guide us.

1.4 – Karur: A Case Study of Indian Economic Model

• Banks in Karur provided only 1/3 of the finance and rest come from informal sources.
• Because being local people they know our background.
• local financier; he extends
• In non-corporate finance activity one or more partners should recommend. If someone default the partner take the responsibility.
• India business is largely based on relationships. Business is largely based on faith, goodwill.

1.5 – The Kite Manufacturers: A Case Study of Indian Economic Model

• 2003: In Gujarat: turnover was 30/35 crore.
• There should be warehouses; was one of their suggestion.
• 2015: its 800 cr
• Our languages, food habits, dress code may be different, but India is one in the terms of economic thinking.

1.6 – Indian Tradition and Indian Economic Model

• Indian economy is dominated by families.
• 2/3 comes from non-corporate sector
• of 33% remaining; 15% corporate and remaining form Government sector

1.7 – First-Hand Experience of Students

• Black- Scholes; Couple of Nobel laureates started a company in Long Term capital management and lost many times of their investment. Market started collapsing.
• Nobel laureates were not able to put into practice their own economic theories.

1.8 – Indian Economic Model as a Functioning Reality

• Family influence, saving habit, community orientation
• Feudalism, mercantilism, free market capitalism: no western theory of economy has survied for more than 300/400 years.
• Vidura Neeti, Self employment is the best status in life.
• ~ 50% are self-employed in India against 7-8% world wide.

Chapter 2 - Ancient Indian Economic System

2.1 – India and Global GDP: Ancient India

• 10000 years old Indian civilization
• Angus Maddison : Study
  • Common Era 0CE
  • $ 102.5 billion =>
  • $ 33.75 billion in India (32.9%) =>
  • $ $26.82 billion in China (26.2%) =>
  • $ 11.15 billion Europe (12.7%) =>
  • Asia Share was more than three-fourths
  • Europe was 40% of India.
  • India was 125% than China.
• This suggests that India would have strong economic sector.

2.2 – Agriculture: Ancient India

• Jean Francois Garrigues studied Indus-Saraswati Civilization region
• Before 8000 solidly function agriculture
• rice cultivation 4300 years back
• 1850: 1 Lakh interconnected water tanks in the south india
• drill plough: indian invention
• Produce Abundant and Share
• 1760: paddy production one tone per head; 5 times of more than today
• Chola: free food for all travelers.
• 1760: 5 tonnes per hectare on average

2.3 – Manufacturing: Ancient India

• 1750: 73% contribution by third world countries of today
• Aggarwala: 1750
• 24.5% India, 23.2% Europe, 1.9% UK, 0.1% US
• Favorable trade
• Roman gold poured in India.
• Arthshastra: 2300 years back
  • State trading
• massive trade surplus with Europe and some balance of trade with West Asia from the 15th to the beginning of the 19th century.

2.4 – Education in India

• Nalanda
  • Library largest: 90 Lakh
  • Teaching foreign students
• Many universities then.
• 18th century the literacy rate was 75%
• Education system in England was every bad and was available only to rich.

2.5 – Wealth in India

• Thiruvalluar sage: Make wealth in plenty
• West: Begger they Neighbor
• India: Economics with ethics
• Dharma: Abundant production & sharing with all creatures
• A L Basham: Making business function on higher ideals was the idea behind Indian business
• Non ethical businesses were pushed then.

2.6 – Governance and Business in India

• Self regulatory organizations
• Gvmt didn’t interfered
• Gvmt protected fair business
• Hence business men roamed freely

Chapter 3 - India under the British Rule

3.1 – Indian Economy under the British Rule

• 1498: vasco de gama
• 1613: east India company formed in Surat
• Used war to trade: first time.
• 85% slaves in Caribbean sugar islands
• 1750: plessy war Bengal
• 1815: Queen took control
• 1860: most of the region
• 1700: 24.4% GDP India, 22.3 % China, UK 2.9%, US 0.1%, Asia 61.7%
• 1500-1700: Share increased by 264%
• Invations took place 8-9 %
• 1820: China replaced India at top most economic power
• 1930: US overtook China
• 1700-1820: 1/3 reduced
• 1820-1940: 75% India’s GDP reduced
• 1700-1940: 83% GDP Lost
• 1700-1870: UK GDP +319%
• 1950: UK Global Share 9.7%
• 1750-1900: 24.5 % => 1.7% Manufacturing Share India
• 1750-1900: 1.9% => 18.5% UK
• India Decline and UK Increased
• Duty system destroyed.
• Textiles wiped in 3 decades.

3.2 – Agriculture under the British Rule

• local social institution were destroyed by Britishers
• By introducing taxing
• 1760 2.5 tones/hector => 630 kg/hector
• tax was 80-90% in India where as just 5% in UK.
• 10 million (1 cr) died due to famine
• 1/3 farms moved out of farming 1800:1850

3.3 – Trade under the British Rule

• before 1813
• after 1858 export raw material
• 1904-05: 39% import of cotton product.
• Loot

3.4 – The Economic Drain

• Indian Resources were drained out of india.
• 1835-1872: 37 years: 200 million pound sterling
• One half of the net revenues of India flow annually out of India
• 1867-68: India: per capita income 20 Rs/year (2 pound./year).
• 1867-68: UK per capita income 41 pound/year.
• Clive became richest man in UK in 20 Years; by exploitation.
• Drainage 2.5 to 5 trillion dollars
• poorest country due to the wrong and self-exploitative policies of the British.

3.5 – De-Industrialization of India

• Indian resources that were responsible for the Industrial Revolution in Europe
• Free wealth by stealing of wealth from India
• 1810-1901: -61% industrial occupation

3.6 – Poverty and the Un-British Rule of India

• Famines between 1877-1900 15 million people perished
• Poverty had made Indians weak and susceptible to illnesses
• 1833: life expectancy birth was 21 Years
• 1921: Bombay: 666/1000 mortality rate

• principles of dharma that governed all aspects of Indian life was lost

• Wrong Questions
  • John Sullivan: India was rich from beginning
  • G. M. TREVELYAN : We swept away their manfact
  • Will Durant: -india = +industrial revolution

Chapter 4 - India since Independence

4.1 – Indian Economy at Independence

• 0-1950: 32.9 => 4.2% GDP
  • 4.5% China
  • 6.5% UK
  • 27.3% US
  • 18.5% Asia
  • 29.8% Europe
• 1700-1870: 9.1% (3 times) UK
• 1700-1870: 33.6% (3 times) Europe
• 1950-51: 80% population was depending on agriculture
• The life expectancy in India at that time was just 32 years.
• The literacy rate was just 18%.

4.2 – Indian Economy: 1950 -1980

• 1950-80
  • Growth rate 3.5%
  • Per capita growth 1.3%
  • Socialist/Nehruvian growth rate
• 1952-1978
  • India 4.02%, US 3.46%, Europe 4.27%
• Deepak Nair The proportionate change in growth rates in 1950 was higher than in 1980s.
• People became entrepreneurs without economic freedom.

4.3 – What Drove the Indian Economy?

• India always been society driven economy
• J K Galbraith: US Ambassador 1960:
  • success of India did not depend upon the government
  • put ideas into practice
• What works
  • family life, hard work, saving orientation, entrepreneurship and a self-dependent mindset.
• What doesn’t
  • the bookish theories, or the prescription based on experiments outside that is driving the Indian economy.

4.4 – India’s Unique Economic Model

• Outside India, exploitation was essential part of economic development but not in India.
• 1950: Had rate of saving 9% in spite of
  • 45% poverty line
  • 18% literacy rate
• today 3rd largest by purchasing power parity?
• How 2008 didn’t affect India?

• Becasuse India has a Unique Economic Model

• What is the percentage of the illiterate people saving money in India in 1950-51?
  • 80%

Chapter 5 - The Western Economic Models

5.1 – A Brief History of Western Economic Models

• feudal system
  • Jamindari
  • slaves or middleman
  • ended in 14th century
• mercantilism
  • stock of accumulated gold represented the prosperity of nations
  • Believe in 0 sum game
  • exploitation & war
  • Reached peak in 17th century
• Capitalist
  • Adam Smith published “Wealth of Nations” in 1776 CE
  • private ownership of enterprises
  • principle of laissez faire: non interference.
  • 18-19 century dominated
• neo-classical
  • economic decisions are aimed at self-satisfaction
  • Individual was placed at the center.
  • Removed Gold standard
• Captitist++
  • Washington Consensus : 1980
  • One size fit
  • Promoted more after failure of communism

5.2 – A Critique of Western Economic Model

• Schumacher
  • Small is Beautiful:
  • In a sense, market is the institutionalism of individualism and non-responsibility. Neither the buyer, nor the seller is responsible for anything but himself.
  • If economic thinking perverts the whole society even simple non-economic values like beauty, health, cleanliness can survive only if they prove to be economic
• Francis Fukuyama
  • emphasizes only the market, neglecting the role of society and culture in economic life
• George Soros
  • Present market fundamentalist approach is a threat to the open society
  • I am convinced that the market system is inherently flawed.
• David Corten
  • market economy makes the problems of human beings more difficult
• Kuznets
  • who developed GDP concept
  • warned against the use of national income for measuring the performance of economies of different countries
• market-centric approach today is that the markets today are dominated by the financial markets.

5.3 – A Critique of Modern Capitalist System

• Market capitalism heavily dependent upon volatile financial market
• US borrows 3B$ on daily basis from international market.
• George Soros
  • fin-mark raking bowl
• OECD
• after 2008 crisis: Occupy Wall Street protest

5.4 – The Global Economic Crisis

• 2008 Crisis
  • US housing markets
  • Mega corporations
    • Meryll Lynch
    • Lehman Brothers
    • Goldman Sachs
    • AIG
  • manufacturing
    • General Motors
  • Ireland declared themselves bankrupt
• Brexit
  • problems with Europe in general
  • gvmt not able to solve these
• the western economic theories, western concepts of market have to a large extent failed

5.5 Communism

• Industrialization was hard on workers; women & children.
• Karl Marx and Frederich Engels wrote Das Capital in 1867
• Alternative to capitalism
• They segregated the entire society into
  • Bourgeoisie [Who owns enterprises]
  • Proletariat [Workers]
• A totalitarian government controlled and run by the Communist Party takes all decisions
• 1917: Russia: Lenin: 1st communist gvmt
• 1989: Communism Experiment Collapsed (after just 72 years)
• 1949: China adopted Communism
• 1978: China abandoned Communism & picked market socialism.
• Market and Socialism doesn’t go together; and yet they coined the term.
• Communist countries in fact, did not practice one single uniform model throughout the world.
• In India communist parties
  • were earlier against private capital.
  • And now accept not just private capital but also foreign capital.

5.6 – Is Western Economic Model Universal?

• Countries toggled between just communist & capitalist
• Stiglitz: There is a plethora of economic models in the world.
• Why only dominant economic models?
• Universal economic prescriptions might be incorrect.
• Non-economic factors also influences the economic models.
  • society
  • culture

5.7 – The Relation between Culture and Economic Development

• Does culture influences economic development?
• Peter F. Drucker
  • interactions with the local cultures
  • The fact that Japan, Korea, Taiwan and Thailand have developed over the years based on their own systems and traditions
• Davis S. Landes
  • history of economic development it is that culture makes all the difference.
• Schumacher
  • He says that if an economic system has to continue forever by helping all sections of the society then it has to be a permanent economic concept.
• Joseph Kumarappa
  • Economy of Permanence in 1945
  • Indian civilization was founded on the altruistic principles and objective values

Chapter 6 - An Introduction to Indian Economic Model

6.1 – Family Base

• Smallest economic unit
• 240 million families
• 2/3 comes from family based sectors.
• Arthshastra 2300 back wrote
  • head of the family is to sacrifice his own pleasures
  • for the same family
• Venturing into a business means family based funds
• funds are raised from family
• senior members take the critical decisions
• Family members support family business
• Families maybe living separately but businesses are run by the joint and extended families.

6.2 – High Level of Savings

• Spending more is considered as sin :

• Everybody saves; irrespective or earnings.
• household sector plays the dominant role; saves 2/3 of total saving.
• Safe secure revenues
• Deposits: 100 Lakh cores
• Shares 3% - 4%
• US whereas do 50% are in riskier assets; banks are not tested.
• India is largest in buying of Gold. 20% of world demand. Safely, Insurance.
• Chit funds:
  • from 100 Rs to 1 Lac Rs
  • to raise money for new business
  • occasional events
  • Social Gatherings
• 90% of the enterprises of the non-corporate or self-finance
• Surat: annual turnover 70,000 crore without FDI
• Tiruppur: ^^^ 30,000
• the high level of savings in India is the most important

6.3 Self-employment as the base

• Traditionally, to do something on one’s own is considered as a virtue in the Indian societies
• NSSO 50% Indians are self employed
• Vidura Neeti states that self-employment is the best status in life.
• Public sector employment declining since last 20 years
• Organized sector
  • total employment is around 8% only.
  • private sector (less than 1 cr ???)
  • government sector
• US Bureau of Economic Census 2000
  • self-employment: US: 6.6%, India: 53%
  • salaried workers: US: 78.5%, India: 15%
• The self-employed sector contributes about 30% of the GDP
• Their contributions to saving constitute about 70%
• Self employment 45% to the income tax.

6.4 Highly entrepreneurial nature

• Indians are hard workers and entrepreneurial in nature.
• Its desire to be independent.
• Global entrepreneurial monetary report:
  • 2nd most entrepreneurially active nature
  • 17.9% of the people engaged
  • China: 12.3%
  • US: 10.5%
• Successful ones are followed from family
• very small in nature, they are around 58 million, almost 6 crore.
• MSME (micro, small, medium, enterprises) sector there are more than 42 million businesses.
• Corporate sector there are more than 9 lakh companies in India.
  • 2nd highest in the world
• The share of OBCs, SCs, STs in MSME sector is now around 60%
• Share of women managed enterprises about 10%.
• Largest slum: Dharavi
  • total 5000 business units
  • 1000 textile, 900 pottery, 600 Leather
• 85 million businesses India
• Tiruppur which exports more than 80% of the knitted garments of India
• Rajkot, which is considered to be an engineering center of India

6.5 Non-corporate sector as the core of the economy

• Includes
  • Non Agriculture
  • Non Government
  • Proprietorships, partnership & Self employed
  • Co-Operative firms
• Excludes
  • Company firms
• They used to call un-organized (but they are highly organized)
• Vidyanathan:
  • non-corp has largest share in national income & manufacturing
• Share
  • Construction: 60%
  • Hosptials: 70%
  • Transport: 70%
• 38% share of national income; but proper valuation is not clear
• 92% employment is coming from this non-corporate
• Contribuition to national income
  • 15% corporate : Saving share 8%
  • 20% Government
  • 60%+ Non Corporate : Saving share 24%

6.6 Community orientation and higher social capital

• Family extends to community
• German sociologist, Durkheim
  • A nation can be maintained only if between the state and the individual there is interposed a whole series of secondary groups near enough to the individuals
  • Secondary group is must
• Japanese sociologist Fukuyama mentions
  • The ability to associate persons depends on the degree to which community shares norms and values. Out of such shared values come trust. Trust has a large and measurable economic value.
  • Trust
• Swaminathan Aiyar:
  • From times immemorial, groups of people have created strong communities based on commonly observed rules and mutual self help. These social links discourage deviant behavior, create a climate of trust in which agreements are honoured and facilitate collective action. This is social capital.
  • There are rules to community along with trust.
• Robert Buthnam:
  • economic benefits that flow from social capital
• World Bank: World Development Report
  • Tiruppur could do it because generate funds at lesser costs
  • Its like socially financed
• Credit rotation without based on formalities
• Transaction cost was 14%
• Word of mouth is respected
• caste based systems help
• Gurucharan Das
  • I have come to believe that being endowed by commercial caste is a source of advantage in the global economy.
• western scholar Joel
  • half of the global market for uncut diamonds
• higher social capital provides trust which helps us in fast growth of economic and business activities.

6.7. Faith and relationships playing a critical role in economic affairs

• Activities depends on faith than documents
• Faith based txns are fast and no txn cost
• Village supports the families in fishing community
• Sarpanch
• Women also play important role in fishers community
  • catching fish is male resp
  • selling is hers
• faith relationship and goodwill help in economic development.

6.8. Indian economy basically is society driven and not State dependent

• India economy is driven by the society and not by the state since ancient period
• building
  • education institues
  • temples
  • marriage halls
  • other public facilities
• local societies take the ownership of gvmt projects too
• Business clusters are derived by local societies
• In spite of state/gvmt economy grows.

6.9. Economic activities are guided by norms and values

• sages and scriptures advised businessmen to conduct affairs based on higher principles
• Arthashastra
  • goods shall be sold only for public benefit.
  • Unaccounted surplus stocks shall be sold as per the system for public
  • Even large profits should be foregone if it is likely to harm the public
  • no artificial scarcity shall be created by accumulation of commodities that are constantly in demand
• values, norms and principles are followed.

---

India Economy
Updated on: 2021-05-21