Every Independence Day, Indian prime ministers have paid homage to the nation’s freedom fighters from the ramparts of the Red Fort. This year, Prime Minister Narendra Modi called on the nation to honour wealth creators. Wealthy people, who were alarmed by the finance minister’s recent statements and Modi’s actions (demonetization was designed to hurt the rich, he had said), were reassured that he seemed to have shed his socialist ideas.

The logic for lauding the wealthy is that the country needs them to create more wealth before it is redistributed. The assumption is: The only way to grow the economy is to first grow the top and then make wealth flow to the bottom. An alternative would be to induce more growth at the bottom by spurring millions of small wealth-creators. This would change the shape of the economy while also increasing its size. At present, the debate within the policy establishment is focused on reforms to make the economy grow faster and reach the goal of $5 trillion, which Modi is dangling like a carrot to investors. Suggestions of reforms to change the economy’s lop-sided shape by increasing income and wealth at the bottom are dismissed as “socialist" (a bad word) and not “capitalist" (good), even though this could create millions of more capitalists.

Dhirubhai Ambani is, rightly so, celebrated as a wealth-creator. A whole sports stadium was required to assemble the thousands of small investors in the Reliance enterprise whom he made wealthy beyond their expectations. The catch was: They had to put in some money for him to increase their wealth. The Indian government’s challenge is to increase the income and wealth of the millions who do not earn enough to have any money to invest in the stock-market. Only 20 million Indians out of a population of over one billion invest in mutual funds and stocks. The remaining 98% earn their incomes from their own labour and skills, or their enterprise. For them, the gyrations of the stock-market create no sweat. To convert their labour and entrepreneurial spirit into wealth, they need jobs with decent wages, or finance and larger markets for their tiny enterprises. The structural problems of the Indian economy are the weak steps at the bottom of the wealth-creation ladder for these 98% to climb.

Wealth must circulate within the economy for it to grow inclusively and sustainably. When the pace of flow of wealth upwards exceeds the pace of flow downwards, it accumulates in one part, preventing healthy circulation. Greater returns to capital than wages have caused the accumulation of wealth at the top. This is the principal cause of the increase in inequalities around the world in the last 30 years.

Those with more wealth in a society always had greater power to influence the rules of the game. In medieval times, rulers needed financiers’ money for national ventures—supporting their armies and building national monuments. In modern times, governments need the wealthy to invest in infrastructure and industries and, in capitalist economies, to build defence industries. It is more civilized to pander to vested interests than to expropriate their wealth; and it is more statesman-like to persuade than to pander.

Mahatma Gandhi supported capitalists. He wrote in his journal, Harijan: “Private possession is itself not held to be impure…Earn your crores by all means. But understand that your wealth is not yours, it belongs to the people. Take what you require for your legitimate needs and use the rest for society."

Gandhi ji, and his adviser in economics J.C. Kumarappa, advocated bottom-up wealth creation in small, local enterprises and cooperatives. Jawaharlal Nehru, the first Indian prime minister to unfurl the national flag on the Red Fort, had other ideas. He promoted large enterprises owned by the state because in the 1950s, only the state could marshal money to invest in them. Forty years later, Rajiv Gandhi and Narasimha Rao began to unwind the state’s role, but their model of growth was also top-down. The difference was a shift in ownership of the commanding heights of the economy from public to private purses. Tucked within Modi’s speech was his appeal for a Gandhian economy. He said people should buy products made in villages and districts to strengthen our micro- and small-scale sectors. “Buy local for a more prosperous tomorrow," he urged.

Gandhi ji had led collective movements to shift power to small people. Cooperative institutions are necessary to shift the terms of trade in favour of workers (to get better wages) and small producers (to get better prices) so that wealth begins to grow faster at the bottom. Therefore, good unions of workers (think Sewa—the self-employed women’s union) and cooperatives of tiny entrepreneurs (think Amul) must be encouraged. Rather than promoting more wealth at the top with the hope that it trickles down faster, reforms must stimulate an inclusive capitalism with the growth of better and many more cooperatives and unions.

The question is what kind of economy India should have, and not merely how large it should be. Rather than being driven by numerical goals of its size, policy solutions must be inspired by a vision of a reshaped, inclusive economy. Perhaps, while celebrating the stalwarts who brought India its freedom, we should in this 150th anniversary year of Gandhi ji recall his vision for India’s economy, as Modi tantalizingly seems to have done.

Arun Maira was a member of the erstwhile Planning Commission

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