So doesn't his analysis imply that India's high growth rates over the past 15 years were produced by an economy driven by "Fabian socialism"? ;)

Hi Vinod,

Though it doesn't look like that in his WSJ article, I think Amit Varma also shares your optimism about free markets working in India. But there is a genuine fear in everybody about the return to socialism now that the left plays a prominent role in the government. Some of the recent ideas of the government tends to enlarge the detested bureacracy. This kind of sobering articles are occasionally needed to prod the government and reduce the hype about India in the foreign press.

Um, Vinod, you spelt my name wrong, it's Varma not Verma. :)

Saurav, the growth rate since 1991 has of course increased because of the limited liberalisation that took place, and it would have been higher if more liberalisation had taken place. Sadly, our markets aren't as free as they need to be, or our economy as open. And I think in the midst of all this chest-thumping over how far India's come - which I have been guilty of as much as anybody out there - we need to highlight the progress that still needs to be made.

Vinod, the "trickle-down" theory is a myth. Read here and here for more. As Swaminathan Aiyar puts it, wealth should ideally trickle up rather than down. That's not allowed to happen in India to the extent it should.

Eswaran, thanks, but I'm not worried about a return to socialism. I'm simply aghast that we're not liberalising fast enough.

Last night on Nightline, the program focused on child labor. One of the stories followed the lives of children working in gravel quarry in Orissa. You did not see a single adult working on the site. Using child labor allows companies to get around the maze of regulations that come with employing adults. If India introduced some labor market reforms, it would be a positive step in curbing child labor.

At the other end of the labor spectrum, Indian textile companies find it is easier to import hi-tech machinery than to hire Indian workers, cause companies cannot hire and fire depending on market demand. As a result, millions of adult hands lay idle. Machines one one end, children on the other.

It seems somewhat inaccurate to refer to the institutional parties like CPI(M) or CPI as the socialist left. CPI(M)'s performance in the traditional socialist goals of education and health in West Bengal remains abysmal. Those who can lay claim to really being leftist in India are those who oppose large corporations, or international organizations like the World Bank, getting to mandate policy. They, on the other hand, are those who have been campaigning to get housing for the poor, fight for the rights of small business, especially those established without bureaucratic patronage. It seems to me, the reason for the continuation of the license raj has to do with the cozy relationship between the political power and money, rather than socialist left (which has little if any political power).

Saurav, the growth rate since 1991 has of course increased because of the limited liberalisation that took place, and it would have been higher if more liberalisation had taken place. Sadly, our markets aren't as free as they need to be, or our economy as open. And I think in the midst of all this chest-thumping over how far India's come - which I have been guilty of as much as anybody out there - we need to highlight the progress that still needs to be made.

Amit, I was more teasing than anything else. You obviously have far more familiarity with the details of this than I do, and I wouldn't be able to contest or agree with your article. I'm curious as to how your respond to the arguments of people who support loosening of business restrictions for greater economic growth, but at a controlled rate with mechanisms in place to ensure that there's also accountability to people to ensure that economic growth is accompanied by equitable distribution, a strong civil society, etc.

By this, I mean people who are progressive capitalists, but whom some American hardcore conservatives choose to refer to, variously, as "socialists", "marxists", "atheists", and "terrorists." :)

Amit - fixed. And Good Job!

w.r.t "trickle down" - I'm sorta using the phrase in a non-traditional way (hence the quotes... but oh well).

What I meant was that liberalization in one corner of the market (particularly in the case of broadcast & telecom) has an inevitable effect of permeating ("trickling"?) into other sectors regardless of what political forces may deem. Poor word choice I suppose.

Suvendra, where has the left actually achieved any of their goals anyway? We identify the left today by their rhetoric, not by their achievements. And yes, I agree that the left is just one of many factors in the continuation of the licence raj. Sadly, it's been a bigger factor than ever in the last year after the last general elections.

Saurav, sorry for misreading your tone. When you speak of "mechanisms in place to ensure that there's also accountability to people to ensure that economic growth is accompanied by equitable distribution, a strong civil society, etc", can you give me some examples of such mechanisms that you find desirable, in the context of the license raj?

Thanks Vinod. And yes, I share your hope.

can you give me some examples of such mechanisms that you find desirable, in the context of the license raj?

No, that's the trouble. I just don't know enough about this topic to be able to. But I'd imagine there are some critics out there who do do such things--i.e. someone who has ideas (and actually believes them) that fall somewhere between the Left and where you're at. I'm curious what those ideas are and who's saying them and how you respond to them. But, yes, this is very meta and I'm asking you to do all the legwork, so feel free to refrain :)

Once accustomed to bribe-free, reliable, caste-no-bar cellphone service it's only natural that folks start to ask why this isn't the case for other goods & services - state or non-state

This is how a normal society would work. But India is far from "normal" exactly. When was the last time anybody saw a strike in India for better services, infrastructure etc., when there is a strike/protest/ march/ rally every day in India? The way India runs is - if its works good, I will use it; if it doesn't, not a problem.

Street hawkers and shop owners in the cities often cannot get a license at all.(Even those who do have to comply with draconian regulations that offer so much discretion to the authorities that corruption is inevitable.) They survive by paying regular bribes to municipal authorities and policemen, which are generally fixed in such a way by this informal market that they can barely survive on what they earn, and cannot expand their business or build their savings.

I think the above is probably the biggest problem in India in terms of small business. In Gandhinagar, Guajrat which is a planned city, the city has issued licence to the "street vendors" and have designated an area for them. I think that is a good idea althogh it doesnt completely work due to the culture of corruption in the Law enforcement agencies.
If the street vendors have a proper licencing system than the government can collect a small amount of Tax from them and provide them with some infrastructural facilities which will enhance their business.

But how can it make any sense asking where the left has had successes when they are in the midst of an ongoing struggle. You can point to specific (and tiny) successes (very low AIDS/HIV levels among sex workers in India, success of SEWA, etc.), but my point was that the left doesn't really have any political power to engineer successes. One of its struggles is against the license raj. Economic and Political Weekly, my source of all leftist economic and political news in India, was a powerful critic against the license Raj. Like all criticism from the left, it is nuanced, because the problem is complex. My objection was that you raise two complex problem, difficulties faced by small business owners, and the housing crunch faced by the poor and increasingly the middle class. And then you proceed to place the blame entirely on leftists and the lumpen right, without once considering the complicity of those set to gain most from this difficulty, the large business owners.

RC, designated areas often don't work for vendors because they're generally not in the areas that would attract customers. I don't know if that is the case in Gandhinagar, but in Delhi, as the book I've cited by Shah and Mandava makes clear, it hasn't worked at all.

Suvendra, firstly, HIV levels among sex workers in India is hardly low, and secondly, even if that was to be the case, why would the left take credit for it? Heck, Bill Gates is doing more in the fight against AIDS in India than Indian politicians, who have largely been in denial.

In any case, we have seen, globally, through the last century, that leftist policies have generally failed everywhere (like Nehru's Fabian Socialism), and they survive on rhetoric. And I'm flabbergasted by your comment that "[o]ne of its struggles is against the license raj". Hello? Not in my lifetime.

As long as the commies are participants in the power equation, they will not allow the Indian markets to open up fully. They live with this convoluted logic that if India does 'make it' accross the board, there will be no place for them.

Moreover, all the 'IT Superpower' talk it cheap when the majority of the population is still without basic amenities like water, food and healthcare.

amit,
I had heared good things about the way the designated area for Vendors in Gandhingar, but my information is not up-to-date. But I think that the way Gandhinagar is planned it looks like that it might be working.

In Gandhinagar, the City area is devided into rectangular sectors and each sector has its designated Park-recreational area, Govt. hospital bldg, govt. school. They have very strictly defined areas where trees have been planted (and they are protected from loggers/firewood collectors). It has a designated area where Commercial building can be built. Thats why I think that it may be working in Gandhinagar. But then Gandhinagar is not real India.

The other major problem in India is the EXTREMELY HIGH property Tax. In Ahmedabad the property tax is about 25%. Unbelievable but TRUE.
These type of extreme taxes are totally ANTI-business. India needs a huge CUT in the property taxes and better enforcement of collection of decent property tax.
The politicians in India need to understand what American Democratic party politicians also agree .. "You cant be pro jobs and anti-business at the same time"

Suvendra, where has the left actually achieved any of their goals anyway?

Well, injecting a spirit of decency and humanism into politics and culture is a significant contribution, without which ideologues and greedy people would run rampant, to the detriment of society and its long-term well-being. Trust me on that last part; I live in the United States.

"Trust me on that last part; I live in the United States."

Livia Soprano said it best, "Poor you."

I enjoyed reading Amit's article, and agree wholeheartedly with several of his points, but color me quite optimistic about the future under the new regime.

The horror stories of Indian bureaucracy and regulatory mazes have been trumpeted for years. While I entirely agree with Amit's consternation over the matter, one has to admit that this is not new, and it is not going to be fixed overnight. But it is getting better, and I take plenty of solace in that.

It's been well established that despite some efforts at opening up its capital markets to the world, India has lagged far behind China in these efforts - resulting in figures like China's attracting more Foreign Direct Investment (FDI) on an annual basis than the rest of Asia combined, and 10x that of India itself annually ($54 billion vs $5 billion, last I checked). 20-odd years ago, India and China were equal in terms of GDP. Now, India's at about half China's output and growing at a slightly slower clip.

All that said, I have to say that growing at a slightly slower clip than China is no small feat. India has to play to her strengths, and at this time, competing on the manufacturing side (as Amit suggests India should because of a huge labor and raw material base) with a Chinese system that is hell-bent on being the world's low-cost producer of everything while India has nothing near the infrastructure (ports, roads, etc.) of China would be absolute folly and would set back India's development for years, if not decades. Indians have far better command of the English language than the Chinese, and for the time being, India has made sure (and should continue to) that it trounces the Chinese in that category. India has taken notice of this difference and her rise in this area is fantastic and commendable.

Speaking of seminal events as you do, personally I think ten years from now, Manmohan Singh's elevation to PM (and the work of P. Chidambaram as well) is going to be viewed as another of the seminal events in Indian capital markets history (and it's a long one, for those who don't know - the stock exchange has been around since 1873 or so). In fact, the days after the election, when the Indian stock market tanked upwards of 15% on fears that the left would run the economy into the ground, would have been the absolute best time in recent memory to be investing in India. Since then, the world has come to realize that the government is not as "anti-business" as was thought, and the Sensex is up on the order of 50% - you'd be doing plenty well if you were invested even before the elections, too, and had to suffer through that meltdown. And it's not just the Infosys' and Wipro's of the country leading that charge, even cement-makers like Larsen & Toubro have paved the way (ok, puns aren’t my strong suit) as well.

Many were concerned that FDI was going to slow considerably, and that the privatization initiatives were going to be ground to a halt. Here, I would take issue with Amit's categorization that the government has "prevented" it. At the same time all these alarm bells were being rung, the new government was saying they wouldn't sell state-owned enterprises for a song – indicating that the government fully intended to get market value for its assets, as it damn well should. (Even that editorial I linked to got the point wrong, in my opinion.) No more slapping a 50% discount on some energy assets so your local representative's little brother can get in cheap on an extremely profitable enterprise. This is EXACTLY what I want to hear out of that government. And the market - and the world - has responded favorably to that.

Amit, you say that the privatization was “limited to a few sectors,” but could you please elaborate a bit on that? I was under the impression that the only restrictions remaining were: Defense and retail (0% foreign allowed), airlines (24%), insurance (26%), and telecom (49%). Meanwhile, tourism, real estate, banking, steel, cement, power, oil & gas, consumer goods, and automobiles are all open to 100% foreign investment. Even in retail, things are about to change – just ask Wal-Mart.

And not all is bad. One anecdote, since I’m in the finance field: in the United States, stock trades take three days to settle. In India, whereas a little over a decade ago it was a system in which trades involved manual handling and signatures on actual stock certificates (and thus some trades took months to settle), now all trades settle in two days and the current push is for that system to move it down to one-day processing. That’s progress.

Further, while taxes in some areas do remain high, Singh & co have eliminated the long-term capital gains tax and reduced the short term tax rate from 30% to 10%, and you can read in this editorial more of the details on what Singh, Chidambaram, and others in India have accomplished on that front in the past 30+ years. And based on this year’s budget released a few months ago, they continue to have a very reasonable view of taxation there (apologies, it’s a cached link from Google).

Noted Adventure Capitalist Jim Rogers (of Soros' Quantum Fund fame) has been negative on India forever, and we've seen scores of articles denouncing the state of India's airports and general infrastructure. I’m not going to argue with this, I think most everyone agrees it needs to be fixed, and soon. Congress was voted into power last year largely because rural agriculture-dependent workers (70% of the population, I believe) were being left out in the cold by the BJP. It’s a monumental task for Singh to co-manage the growth of the economy while still taking care of the infrastructure and other needs of the rural poor. But India is a country with many problems which need to be addressed, both social and economic, and I think she is attacking the economic ones plenty well.

Methinks most desis are in one of two camps -- chest-thumping triumphalism or cynical & dire doomsday scenarios,

I think Amit's op-ed is nicely balanced -- shows how much further we have to go.

I'm bullish on India and the entire outsourcing story -- after all, I've staked my career on the country doing well.

But (and there always buts in India), we could do so much more.

With the current set-up, 6% growth is fairly easy to achieve. If we have a good monsoon, then the growth rate goes to 8%.

However, if we liberalize more rapidly, we can hit 10% to 12%!

While 6% is still highly commendable, a couple of decades of double-digit growth would lift the entire country above the poverty line. And then, I'd be the first one to start thumping my chest

Most of my links did not come through, so let me try again:
1. Larsen & Toubro
2. Editorial on divestiture
3. Wal Mart's thoughts on India
4. Editorial on taxes
5. Editorial on budget (cached google link)

Here's a great discussion of India vs China. While the Chinese have grown spectacularly, I'd be careful about putting them up on a pedestal. India's system is far more transparent, so investing in China is no walk in the park - check out what Texas Pacific Group's David Bonderman has to say about it - "investing in the [People's Republic of China] is not a way to make money." China has plenty of issues it will have to face eventually, just give it time.

Rohan, thanks. I'm not disputing the progress India has made - in fact, I trumpet it more than most. But the reforms are nowhere near as broadbased as they need to be.

Also, I'm not sure what you mean by focussing on our strengths. We're not in an "either services or manufacturing" scenario that we focus onone and ignore the other. Nor am I suggesting that we could beat China in manufacturing. It is just that we would have done far better in manufacturing than we have now if the reforms had also addressed the issues I referred to in my piece. It isn't a zero sum game.

Saurav, "injecting a spirit of decency and humanism into politics and culture?" Not in India, I'm afraid.The left stand here as a direct impediment to our progress.

The structure of Tax code is so ridiculous in India, that even Gandhiji couldnt live without cheating on his property tax :-)

If you buy a house you have to pay a major sum of the buying price in what is known as "Black" (as in unaccounted money) so that the property value will be registered arbitarily low. (and the ridiculously high Taxes can be paid). Preety much everyone has bought into the system of paying "Black" money to buy property.

Is this the "Transperancy" of India that is going to work better for us in competition with China??

Saurav, "injecting a spirit of decency and humanism into politics and culture?" Not in India, I'm afraid.The left stand here as a direct impediment to our progress.

I'm not going to sit here and defend CPI(M) while they build huge malls in the middle of Calcutta and displace people, but high literacy rates in WB and Kerala are certainly palpable investments in human capital. And the Green Revolution stopped (or at least, greatly reduced the frequency of) famines, no?

I'm all for critiquing the Left--partiuclarly the political left...as long as you acknowledge it's part of a dialectic that also encompasses people who like to build dams that flood rivers and displace thousands of people, let alone the crazies who think razing masjids is more important than figuring out what to do about enormonus social problems.

By the way, I think, in fairness, you ought to draw a distinction between the political left (which is really part of the rulign elite, probably, althoguh i don't know for sure) and the average grassroots leftist. And also recognize that some of the benefits that India has reaped in the past 50 years (e.g. having a system of multpiarty elections and trasnfers of power and public discourse) have to do with the presence of the influence of liberal left ideas in the formation of the country. The culture of India produced Cipla (in the same way that American culture produced Wal-Mart and Enron), and to say that the many, many people throughout history that have made arguments on behalf of the disempowered had nothin to do with producing that culture is unfair.

Saurav, the left in India was against the green revolution. And the benefits you speak of ("having a system of multiparty elections and transfers of power and public discourse") have nothing to do with India's leftists, and come from classical liberal values which are far removed from the paternalistic policies that the left has always espoused.

I think your understanding of the term, "left", is too loose. Everything that is good for poor people is not by definition leftist. We identify the left by the policies they believe in, which are invariably anti-poor, as all of the 20th century stands testimony too.

I'm also against the Narmada project (to take an example of big dams) and razing mosques. That does not make me a leftist. I believe in individual freedoms, like a classical liberal or modern libertarian, and that is the antithesis of what the left is about. It is not an umbrella term that encompasses everything you consider good about the world.

I think your understanding of the term, "left", is too loose.

Not really my understanding, but just my sloppy (and somewhat opportunistic) usage in a context that I don't know enough about to comment intelligently :P One small defense, though-- I did use the phrase "liberal left", not "left."

Oh, and just to state my view on "leftism"--its advocacy of solutions (structural, strategies, and policies) that promote the interests of working class and other disempowered people (queers, racial groups, etc.) for their benefit (as opposed to doing so to promote social stability or the such). There are times when this is useful. There are times when it's perhaps useful to look at other important interests (like making sure that opportunities exist for people have jobs). That's what I was pointing to in terms of looking at it as a dialectic, a back and forth, rather than saying that one social force is eternally "good" and one is eternally "bad."

This is looser than what I understand your definition of leftism to be (which I take to mean political parties that have marxist (or variant) ideologies), but it's a little narrower than what you were ascribing to me.

Saurav, "advocacy of solutions (structural, strategies, and policies) that promote the interests of working class and other disempowered people (queers, racial groups, etc.) for their benefit" is not the sole prerogative of the left, but of most people, including libertarians like myself. Your definition of the left is not merely loose, it's wrong.

Amit, Saurav

Using the handy Nolan chart, which looks at Personal AND economic freedom, methinks there is a slight mixing of the two axes in your discussions. Saurav appears to be a top-left "lefty", while Amit is top-right libertarian. It is possible to be "for the people" and yet not believe in economic freedom (top-left) to achieve that. Just as is possible to be "for economic freedom" and for the people (top-right). As for the main question of who is "right", it is left as an exercise to the reader.

Nolan Chart

Saurav appears to be a top-left "lefty", while Amit is top-right libertarian

I must hasten to add that I was just echoing what Saurav/Amit were claiming to be. Continuing on the Nolan Chart, it seems to be the fashion of the day to claim to be libertarian. However, most of such 'fashion' libertarians seem to right-wingers (or left-wingers) in libertarian clothing (hi, vinod ;-)). Blind faith that economic freedom will 'automatically' lead to personal freedom is a notable characteristic (or vice versa, I don't believe it does). In fact Amit's article is trademark right-wing view so one cannot assume he is a libertarian just from that. True libertarians are rare since it requires the highest level of political genius, like say the founding fathers - seperation of church/state, bill of rights, republic over democracy (personal freedom) and federal economic structure, central bank (economic freedom). The key is to understand the relative dependence of the personal and economic axes and design policies that improve both, this is very very hard.

Saurav, "advocacy of solutions (structural, strategies, and policies) that promote the interests of working class and other disempowered people (queers, racial groups, etc.) for their benefit" is not the sole prerogative of the left

Did I say it was ;)? Anyway, I am fumbling at this, but one part of what I am trying to do is to get you out of this mindset that you seem to have that the espoused ideology of self-defined left groups is the only ideology that can constitute leftism. I understand that traditional definitions of "leftism" often involve believing that the Marxist left is the only left that exists--that "the left" is defined by strong levels of state intervention (before it withers away ;) and class struggle and all those other wonderful things. That's not where "the left" is today in all places and not where it has been at all times.

It's a wondeful sunny day, and there's good West African music and I'm just trying to expand your horizons a bit :) CPI(m) or the people sitting on the left side of the national assembly in paris in 1789 are not the only people who can lay claim to leftism.

You can say I'm wrong (as opposed to sloppy or imprecise), but I say you're too denotative...because I choose, right now, to be leftist (populist, if you want me to be precise :) about dictionary wars :)

P.S., here's a left libertarian journal, so you can feel included :)

this conversation is interesting but also suffers from a lot of conflation and numerous red herrings.

i have to give props to rohan, whose comment (#19) sidestepped all the red herrings. brother, i gave you a hard time on another topic recently, but on this one i think you're making perfect sense.

this whole discussion of "left" and "right" is pretty useless. what's the point of deriding saurav for using "left" as a synonomyn for everything he approves of, when you use the same word as synonym for everything you dislike?

in both cases it shows how much words like left and right have lost strength and meaning in the current political and economic climate of a country like india (or one might argue, of the world at large.) if all it does is open the door to a discussion of semantics, and people squabbling over rhetoric, then nobody's problems are being solved.

saurav and amit, i challenge you to continue your conversation without further use of the words left and right. i suspect it would be uncomfortable at first, but quickly become very productive. both of you are smart mofos who care.

it seems clear to me that india still suffers from a great excess of petty bureaucracy, but at the same time transaction costs are far lower and efficiency far higher throughout the economy than (ever?) before.

it seems clear that india has had better and worse managers from all sides of the political spectrum -- no ideological faction has the monopoly on (or even a solid claim to) good management. and anyone who's studied any economics knows how important management, responsiveness and predictability are for any economic regime to function.

it further seems clear that much of india's recent progress can be attributed to factors that it is difficult for any one party to credibly claim. it wasn't the bjp that decided english would be spoken in india, and it wasn't congress that timed the global revolution in information and communications technology, to cite just two examples. of course now everyone wants to take credit for positive dynamics that have ensued, and deflect blame for any negative dynamics.

in a context where the national government has less control than before over the way the economy functions (not just because of liberalization but more fundamentally, because this is a global trend driven by technological and political factors), management becomes even more important. better a government that is good at reacting to change and directing the effects of the change to maximum benefit to the total economy and society and minimum harm to vulnerable constituencies, than a government of any particular ideological stripe.

which brings us back to manmohan singh and chidambaram (whom rohan is right to credit as well). it doesn't really matter that much that these guys are congress, as opposed to bjp or any other party. the point is that they have a proven record of prudence, pragmaticism, and understanding that (a) the world is changing AND (b) part of managing change is helping protect the vulnerable. it would be great to have such caliber of economic managers here in the united states, instead of stooges like donald evans and john snow.

peace
siddhartha

saurav and amit, i challenge you to continue your conversation without further use of the words left and right. i suspect it would be uncomfortable at first, but quickly become very productive. both of you are smart mofos who care.

But then we would have to have a substantive conversation and I would have to shut up because I don't know nearly enough about Indian politics and post-colonial history :)

Anyway, the only reason why I'm seriously interested in definitional arguments about this stuff is because of the point that "just another sec" raises about the way that folks I don't agree with in the U.S. often throw around various words like "liberal", "conservative", and the such. If they can do it, I can too, and this is my revenge :) I'll go back to being anal on another thread.

That's my final puerile comment amid a steady stream of puerile comments throughout this thread.

Actually, there is the political left and the political right as evidence by parties and the political left and right as evidenced by intellectual tradition or thought. You can define socialism, classical liberalism, conservatism, liberatarianism and place them on a spectrum. It does not follow that to belong to a party you must subscribe to all facets of a particular type of intellectual tradition that is usually associated with that party.

And the whole point about 'blind faith in economic freedom leading to personal freedom' is silly. Libertarians don't really think that. They think that economic freedom is a part and parcel of personal freedom, and indeed, is a personal freedom.

Anyway, the most interesting point on this thread is that the historical left in India opposed the Green revolution. Did they? Does this mean elements of Congress or Marxists in India opposed the technology that led to the Green Revolution?

PS: Isn't it interesting that some parts of the political right in the west are concerned about 'genetic engineering' of humans, i.e. stem cells, and some parts of the political right are concerned about 'genetic engineering' of plants, i.e. genetically modified foods? Just thought I'd throw that into the mix.

Oh, of course I meant political *left* types are sometimes concerned about genetically modified foods in the last post.

A telling point in Amit's article/post is the "$2 billion" in fallow real estate tied up in the slums around Mumbai.

As has been observed by foreign academics, this is as good a place to start as any, in terms of legalising the knotted property rights questions here.

This would then enable the presumably legalised owners to unlock the cash in their properties for more productive uses, that presumably would allow the economyy to provide the "trickle up" effect that Amit is arguing/hoping for.

Good post Vinod and Amit.

mukesh (michael) parekh

Dear Amit Varma,

Trickle Down economics does work, but not in the manner many people believe it works. With very high levels of tax rates, there isn't an interest to generate profits. Say in a nation where the upper one percent pays a 95% tax, would it be better for a person to continue at their current job or start their own business. In this example, we will say the person makes about $50,000 a year. We will also assume that their is potential profit for thesole proprietership business he starts will yield $500,000 in profit in the first year, because it is a very good idea. Based on the 95% tax on that high income, the amount of disposable income is only $25,000. Remember this is the net based only on potential. However, if the income tax rate is set at say 40%. The disposable income after taxes is $300,000. Therefore with the lower tax rate there is greater incentive to start a new business. Who usually start new businesses? The middle class to upper middle class citizens are the ones. In the process, these new business owners will in turn hire more employees depending on the size and speed of expansion. The money that was initially invested eventually helps those looking for work. It is not necessarily trickle down economics, but in fact the true mechanisms of capitalism. The "trickle down" effect doesn't work when there is a reduction in taxes from 40% to say 30%. The jumps have to be relative. In a quasi-free market like the Unitted States, entreprenuership is encouraged. For India to experience real growth we all can agree that entreprenuership must permitted. I am not 100% familiar with Indian Tax law, but I do know there is to much bureacratic red tape to cut to start a business there. The government has to reduce its intervention. Looser restrictions of course will allow businesses to flourish. Perhaps, it will slow India's braindrain, or even better yet it will cause reverse brain drain for developed nations.

P.S. The French, British, and Germans were not capitalist economies. Before WWI, they were merchatilistic economies. Their merchantilism was one cause of WWI.

Hi ,

TIE is a India's leading Entrepreurship club. I had been to thier first event of this year. Here are some picks from the event.-->procedings.http://chandanscorner.blogspot.com

-Free markets & their products will eventually "trickle down" into the Desi core.

Who do you think will have to suffer unimaginable living conditions, a lack of basic dignity and eventually death to achieve this utopian situation?

-the urban 'core of society' ie the slumpeople in the city with their freedom to watch bollywood films that fulfill their psychological fantasies?
-the rural 'core' -people left behind in villages who are left without the freedom of both the modern economy and its miraculous boob tube?
-the creatures in the environment including animals, marine life and other parts of the ecosystem?

-or maybe all of the above are suffering enough already.

-there are a lot of good things about capitalism and its light-handedness, but like the heavy-handedness of communism, it needs to be reined in and toned down by the apolitical, basic human factor of looking and people's rights and needs and liberties and seeing what is needed for human beings to live a dignified life.

-arguing on the basis of ideals of whether free market capitalism or state socialism is the saviour of the poor is lovely, and intellectually engaging for people like us with the time, ability and luxury to be able to debate over this.

-arguing on the basis of how to practically, realistically, help the poor right now and in the future, might be just a little bit better. maybe we need to step back from the never-ending left/right abstract debate of politics (and i say this as a politics major), and just work from the starting point of:
- what we think people's basic human rights are,
-whether everyone should have them (as is not the case for about 80% of the world's population),
-and if they do, how we can help get there by bringing the positive aspects inherent in ALL political and economic theories together along with lessons from societies and cultures to actually help people who are currently without a dignified life.

-sound like a crazy warm-fuzzy idea? maybe. but i would rather start out from the point of looking at people's basic humanity vs whether i see their 'economic freedom and right to private property a la locke' or 'freedom to joyfully use their labour a la marx' as the most important aspect of their identity.

This is amarender. It is very interesting. In this blog some persons are mentioned their opinions. Those are true, i agree with them.It seems clear to me that india still suffers from a great excess of petty bureaucracy, but at the same time transaction costs are far lower and efficiency far higher throughout the economy than (ever?) before.