In the last one year, I would have travelled to China times more than a couple and never did I return home more enamored than this time, by the manifestation of the Keynesian model that China has like a religion co-opted for its growth.
Ill-liberal governments, indefatiguably long for legitimacy that liberal ones take for granted and often resort to a top down model of growth to compensate for the smoldering resentment and discontent in their hoi-polloi. Build and build more is one, spend and lend more are the most usual ways of doing so, the former spurring state investment and the latter putting money in the hands of the people to invest.
Massive construction driven by a state that is invested in business, imposing structures and architecture borrowed from the west, is a phenomenon that now pervades even the tier III cities in China. Their equivalent of our Sitapur looks like Manhattan.
While my travel was restricted to the 3 pharma zones on the east coast of China, I am sure, other parts of the country are no different. The government is now specifically incentivizing the de-localization of the pharma industry from the East Coast to Central China and even if new companies do not emerge in that area, significant investment will come from the existing ones in form of additional capacity or distribution channels.
Of course, something that Keynes did not see or predict was the inflationary impact of such policies and also the drain they may have on the resources of the state. And the state in all cases, has only two ways to fund the yawning resource gap, one by way of taxation and other by deficit financing.
Had India done something comparable in magnitude, it could have fueled chronic asset price inflation and significant consumers price inflation. With money in the hands of the millions of workers consumer price inflation would be sure to occur. And land being in short supply due to a state continuously acquiring it for newer and newer projects, asset price inflation would have fueled even a more recalcitrant parallel economy.
But India is unique in many ways. Hard labor and working with hands is looked down upon. Hence hard labor is done by lower castes or by immigrants, who remit outside and don’t spend where they work. Secondly, demonetization sucked out the high denomination currency that is the main means for most murky deals. The governments’ assiduously changing narrative about black money, fear of the taxman on trail and transparency brought in by digitalisation, all worked to prevent such asset price stagflation.
Bajpeyi, the Indian PM who, who like none other before or after him, had the ability to carry contradictions and deal with dissent alike was also a builder and apparently a believer in the Keynesian model. His launching the NHDP with the objective of giving India 85,000 kms of roads had hints of Keynesianism. But the full impact and benefit of such a model could never accrue to India as it would have in any other for basically two reasons - 1. a vibrant parallel economy and 2. the massive delays and time overruns in implementation.
You can hold me guilty of editorializing in the paragraph above, as Bajpeyi may have just felt that road connectivity of India was so poor that it needed a massive uplift, and creating jobs and spurring an economy which was the bedrock of the Keynesianism may not have been Bajpeyi’s intended purpose , but an author’s outreach cannot be denied to me if it is not denied to others.
