Need for Capital Efficiency in Realizing Kalam Sir’s Dream of Developed India by 2020

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A glory has departed. He was the greatest Indian alive in recent decades. His temper was scientific, his vision was humane and his work reflected the highest level of moral courage. He will keep on inspiring us and the coming generations to do more and better.  He had a dream and a vision of making India a developed nation by 2020.  He also had put forward the action plan required to realize this dream. I will try to put forward some of the hurdles we are facing in realizing that dream. Though there are many things that can be reformed including the social attitude, political culture but I keep this blog to requirement and efficiency of capital in relation to development.

What does it mean to be developed? It is a value loaded term that is why many of the classifications talk about the level of industrialization in classifying the countries and these are – Industrialized, Industrializing countries and so on. Putting it simply- his vision was to make India developed and not industrialized. We keep this here. He believed in putting expiry date on dreams too and that is 2020. How practical was he. Salute!! He had seen that dream from our eyes- the youth and old alike. His dream had the solid foundations rooted in science and is based on sound principles of economics. His Idea of PURA- Providing Urban Amenities in Rural Areas was not based on charity but on sound principles of economy and that is profit for investors.

Let me start with an economist, Eugene. According to Eugene an underdeveloped country is one that is not adequately equipped with capital in relation to its population and natural resources. What we need is the adequate capital to become developed.  Before we move forward let us understand what capital is? Capital is a long term asset. Capital is something that in itself can help us generate further wealth. Investment is different from capital. Investment is a running concept. It keeps on happening. The closest proxy for investment is the capital formation.  When all the money earned is utilized for consumption, there is no savings. The low savings leads to low investment. This is where we fall in chronic cycle of consumption and with one shock below poverty line.

The propensity to consume at lower level of income is high at the same time the propensity to save with the rise in income is also high. Thus, with the rise of income, the saving and investment should follow that is not happening at the expected pace in India. This higher propensity to consume with the rise in income can be explained by one of the concept in Economy and that is of the Demonstration Effect. The demonstration effect suggests that because of the influence of movies or advertisement or any other factor, people from underdeveloped countries tend to consume more even if there is a rise in income. Demonstration effect led behaviour is another economic hurdle for us along with the lack of capital in realizing his dream of a developed India by 2020.

Many of the underdeveloped countries like India marred by many dualities like social duality, economic duality and technological duality.  These dualities are nothing but the contrasts. People with huge wealth and high technology  exist or in fact solely flourishes along with the people who merely survives. The hunger situation and number of billionaire is an apt example of this duality. The accumulation of wealth is not because of any grand entrepreneurial feat by this capital class but because of their misuse of political and bureaucratic power, cronyism, their traditional dominance in speculative activities and real estate etc. It simply does not mean all billionaires are cronies but India remains an unfortunate example of this duality. Existence of this duality leads to capital being misused and ineffective. These dualities are another big barriers in realizing his dream of a developed India.

There is another trap, along with many other. The trap is of Conspicuous consumption. Conspicuous consumption is nothing but a consumption for showing off a particular standard of living, Just another example of misuse of capital.  Though, in a different argument, it can be proved that the conspicuous consumption and demonstration effect actually leads to higher level of investment.  This is a market induced investment but at crucial stage the priority sectors does not get the investment.  Conspicuous consumption leaves a policy targeted for poors ineffective- the diesel subsidy is one of the examples.

Looking at malnutrition and the state of education in India, the favourable looking demography may not be utilized to the fullest extent possible. Going back to Eugene- India is not equipped to get the best out of its available resource that is demography.

I kept this talk limited to where we can improve our behaviour in relation to capital. Along with many other things like changing our social attitude, getting new capital and reforming our political culture, we can collectively work towards ensuring more saving and investment while reducing the conspicuous consumption and not falling for demonstration effect.  Let us work towards achieving this grand dream, collectively. Let us rededicate ourselves in realizing this grand dream before its expiry date.