Thoughts on economics and liberty

Tag: Poverty in India

India’s increasing poverty even as growth takes off

When I was Commissioner to the Government of Meghalaya in 1999-2000, I spent a lot of time and effort in trying to persuade the Chief Secretary, Commissioner for Rural Development and the Secretary of the Planning Commission to consider a pilot scheme for negative income tax in Meghalaya.

The scheme would have implemented the solution that I've been advocating for many years now – a scheme broadly based on Milton Friedman's negative income tax model.

This is the paper that I circulated (do read it – not very long but clearly explains the concept). The paper proposing the details of a pilot project in Mylliem Block in Meghalaya is provided here.

(A preliminary proposal that I circulated on India Policy Institute is linked here).

I even tried my best to get the Prime Minister's office on board. Of course, no one bothered. I was given all kinds of lame excuses. 

Getting SICK with a situation where poverty was not being addressed, and bad policies of all sorts were rampant (many in the name of poverty alleviation), I resigned the IAS and left India.

What I suspected has come true. The ABSOLUTE levels of poverty in India have increased, not fallen.

Prabhat Patnaik (whom I met at LBSNAA in June 1994 when he spoke to us on "investment and growth in liberalised economy") has identified this fact, and challenged those who claim that India is a "shining" success.

Although some people will debate his conclusions that "absolute impoverishment of the working people" has occurred in India, I'm not interested in such idle debate.

For me liberalisation WITHOUT A NEGATIVE INCOME TAX is recipe for disaster.

In BFN I vigorously argue for a social insurance scheme. The free society must ensure that everyone achieves a (frugal) minimum even as the society is liberated and made incentive compatible.

Instead of contesting Prabhat Patnaik's facts, it will be more sensible to even now (more than 12 years since I first propounded it!) to introduce a negative income tax program in India that ELIMINATES poverty entirely.

I am an enemy of poverty first, and then a friend of liberty. To me both MUST go hand in hand.

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For 12 out of the past 20 centuries, India was the world’s RICHEST “country”

[Note: I wrote a longish post but with an accidental stroke, without saving it on WordPress, lost it! I’m not going to re-type it. (It is horribly frustrating, for a person with RSI and eye strain, like me, to lose my typed work!)]

Basically, all I want to note that in 12 out of the past 20 centuries, India was the RICHEST region in the world (there were no “countries” then). In the remaining 8 centuries, it was the world’s 2nd richest region. Only in the 19th and 20th centuries – and now – has India not been in the top two nations in the world. 

See details here.


a) Economic history of India

b) List of regions by past GDP (PPP)

Source: Angus Maddison’s pathbreaking 2007 book.
I note that these estimates might not be 100% robust but in my view, at the level of aggregation we are talking about here, they are VERY CLOSE to the truth.
Further proof re: India’s per capita income by 1750: “people in India had average incomes only 10 percent above those in England before the Industrial Revolution” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.44.]
“there is little sign of any great difference in the implied technological sophistication of Europe and either the Indian subcontinent or
East Asia on the eve of the Industrial Revolution.” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.140.]
“in terms of the major production activity of these societies, agriculture, if there was any technological advantage in 1800 it likely lay with
the coastal regions of East Asia” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.142.] [Sanjeev: I’d argue that India was pretty much there, as well]
“When Marco Polo visited China in the 1290s he found that the Chinese were far ahead of the Europeans in technical prowess.”[Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.143.]
By 1800, though, “In terms of wages, stature, diet, and occupations Japan, China, and India seem much poorer in 1800 and earlier than Europe.” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.69.]
“We are today familiar with Europe’s recent history of world domination, but the Europeans’ rise was not inevitable, and to contemporaries it would have seemed an absurd proposition. As late as 1776 in his Wealth of Nations Adam Smith could write that: ‘China is a much richer country than any part of Europe . . . The retinue of a grandee in China or Indostan accordingly is, by all accounts, much more numerous and splendid than that of the richest subjects in Europe.’ The economic historian Paul Bairoch has confirmed that, in Adam Smith’s day, China still indeed accounted for 33 per cent of the world’s manufacturing output, and India 25 per cent, when Europe could account for only 23 per cent. GDP per capita, moreover, was higher in the great empires of the east than it was in Europe.” (Terence Kealey, 2008. Sex, Science And Profits. Random House UK, p.26).


The rules of the game changed between 1400 and 1750. Just like big companies that do not change with the times, die, India almost entirely lost its capacity to innovate by around 1750. Others, earlier far behind, rushed ahead. Every Tom Dick and Harry, including Japan, South Korea, Hong Kong, Singapore, Taiwan went ahead.

India continued to lives in its dreamworld, as confused as Islamic cultures are about their precipitous downfallTragically, till today, most Indians REFUSE to recognise that the rules have changed long ago. The competition is no longer the same. It is 10 times tougher.

India can NEVER become  No.1 in the world again till Indians realise that they have to play with the new rules.

That means, among other things, discarding caste, stopping the constant religious babble that destroys peace and harms relationships, and the economy. That means building systems that are incentive-compatible.

That India should be doing AT LEAST TEN  TIMES better than today is obvious. But achieving that requires a significant change in policies and governance – which have to be radically different to what we have had over the past 60 years.

Unfortunately, none of the existing political parties in India have the remotest clue how to get this to happen.

And so, once again, if you are serious about a very prosperous and successful India, read BFN; join FTI. There is NO other policy known to mankind that can help India achieve its potential; or rather, its natural right.

Why did India not accelerate?

India has lagged badly since about 1750, as the following graph shows:

[Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.321

“the acceleration of advances in productivity came from the supply side. People responded differently to incentives that had been in place for generations. That difference in response was a dynamic inherent in the institutionally stable private property regime of preindustrial England. The characteristics of the population were changing through Darwinian selection. England found itself in the vanguard because of its long, peaceful history stretching back to at least 1200 and probably long before. Middle-class culture spread throughout the society through biological mechanisms.” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.259.]

“Japan, China, and India, lagged behind it in establishing bourgeois society through all ranks of the population.” [Source: Gregory Clark, A Farewell to Alms: a brief economic history of the world, p.266.]
The Brilliant Indians


Source: Angus Madison

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Let’s get this very clear. India is definitely a Third World (and slave) country

Addendum: New York Times published this: Holding Your Breath in India on 29 May 2015. In response a First Post writer said “Delhi is literally a shithole; but so is all of India“.

In Jan-Feb 2019 I visited India and was so disgusted it will take me serious mental effort to return to India, e.g. see my videos here and here.

===Back to my original January 2011 writeup===

There seems to be an exaggerated sense of pride – bordering on delusion – among at least some of India’s educated “elite”. Some of them claim that India – a Third World nation by ALL objective standards – is already a world super-power! If only wishes were horses.

Note that, as I wrote in the past on this blog, India is “Third World, even though most of its people are first rate.” The fact of the matter is that it is not the people but their leaders – and it is not what they do but the systems they create – that matter. India has a deeply problematic governance system that leads to the worst possible outcome for its millions of people. Instead of being ENORMOUSLY WEALTHY and HONEST as a nation, they have been converted into the garbage bin of the world. A more filthy part of the world can’t be imagined – physically and (at least as far is governance is concerned) morally. [See pics here]

True, at one time I too used to be annoyed with this term, “Third World”. But then I discovered that there is a huge difference between a developing country and a Third World country. A developing country genuinely aspires to develop. Singapore, Taiwan, S. Korea – 50 years ago – were developing countries. They sought to apply world-best policies and create HONEST societies. Hong Kong and Singapore are more honest than even the well known Western societies. But India was a Third World country from day one, or at least after Sardar Patels’ death. Third World countries are genuinely third rate in virtually every way. They are arrogant and refuse to learn. They boast about tiny worthless “victories”. They delude themselves at every step. Their deplorable performance in virtually everything tells the true story about them. 40 years after Singapore, Taiwan, and Hong Kong rose to wealth from virtually nothing, India remains a miserable mess. And struts about on the world stage imagining itself to be a peacock!

If anyone thinks that India is not a third rate country today – then please read on!

I cite (as one of many such examples) the recent comments made by Ravi – a highly educated, active and otherwise highly perceptive commentator on this blog. In the past some of Ravi’s comments have been very perceptive, such as this one:  “Very useful article Sanjeev. Really enjoyed it. Its true that critical thinking is lacking in even educated people nowadays.” Clearly, Ravi appreciates the need for greater objective critical thinking. (Or at least that is what this comment implies). So far so good.

But then Ravi posted four comments (on four different blog posts on the same issue – that India is apparently not a Third World nation) that made me pause. I decided to publish all his comments separately. They are published below, along with my analysis.

In my view, denying that India is a Third World country – as Ravi desperately seeks to do – doesn’t hide the truth about India. Satyameva jayate. The Truth Always Triumphs. You can’t hide the truth.

Anyone without coloured glasses can see the obvious reality of India – daily, along any railway line: rows of people defecating. 55% of Indians defecate in the open even today. Ravi, you may have a rich family that can afford a toilet. More than HALF of the Indians can’t afford a toilet. (Also hear what Narayanan Krishna of Madurai saw – an old man eating human feces). OPEN YOUR EYES, RAVI! Or at least your nose.

Note: This post is not written only to debate with Ravi, but to highlight to all those who are educated and deluded,  the need to become aware of the TRUTH.  “Education” is of no use unless our young people learn to observe the truth and speak the truth.  Moral standards a crucial. Accepting world-leading corruption as part of daily life or brushing it under the carpet (as Ravi tries to do do in his comments – see green highlight) reeks of deplorable moral standards that are the shame of humanity.

True, India COULD become a great nation, and MAY even become one, but NOT the way it has been going about it for 60 years. The far-reaching governance reforms India needs are so daunting and so distant from its current reality that India is GUARANTEED to remain a Third World nation under its current dispensation.

That is why I write. That is why FTI exists. – to change this deplorable situation. If, however, you feel this is PERFECT, then God save India.


The third world behaviour of India towards its entrepreneurs

India ranks a low 134 among 187 countries in terms of the human development index

Addendum: Reflections On India by Sean Paul Kelley

Below is not a developed country but the worst Third World nation: North Korea. I suppose India is now the Fourth World.


“I am just going to comment on the use of the word “third world” in your post. I have often heard and read people in the west use this term in a derogatory manner. I hope you haven’t used this term in that way, or have you been referred to a third world citizen constantly in Australia, that you have started believing that you are a third world citizen in a derogatory manner. Have some self respect for god’s sake. Being critical is something, but you sound pathetic with words like that. India may suck in many ways, but not from where I see it.

I feel Australia sucks with its sick social order, unemployable youth, violence, racism both institutional and otherwise etc. For people like you any english speaking white country is a godzone. Give me a break for gods sake. 

People like you are the ones who give too much importance to countries like Australia, than they really deserve. I have hope for India and am proud of India for whatever little it has achieved unlike you. I get hurt when people use “third world” to refer to India cause this term has been just invented by the academics in the west to most probably misuse it, like you have just done.

I have been living in so called OECD developed “first world” for last 8 years and I know parts of India are far better than the country I am in and parts of “first world” are far worse than India.  India is on its way to become at least a mid level power by 2025. Your ranting like a desparado is not going to stop it.

First, India’s emergence as a superpower will show that itis possible to lift millions of people out of poverty within one generationwhile embracing pluralism, a free press and a vibrant multiparty democracy. Most analysts predict that, over the next two decades, India’s GDP will grow at a faster pace than China’s. As the world’s fastest-growing large economy on a sustained basis, India’s rise will put to rest the idea that a command-and-control political system is the only viable route to rapid economic growth and that democracy is somehow antithetical to rapid economic growth.

Second, India has the potential to serve as a leading example of how to combine rapid economic growth with fairness towards and inclusion of those at the bottom rungs of the ladder. In a democratic system such as India’s where even the poorest people exercise their political rights actively, fairness and inclusion will be even more critical for social stability than in China. As it becomes a great power, these values will likely become an enduring part of the country’s DNA.

Third, the prospects are high that, by 2025, India will likely emerge as one of the world’s least corrupt developing economies.While widespread corruption is a reality in almost all developing economies (as well as some of the developed ones), India is one of the very few developing economies with a free press that continues to be vigilant and merciless in exposing the corruption. It is very likely that a vigilant and free press will ensure that the likelihood of getting away with corruption will decline rapidly – with salutary deterrent effects.

Fourth, India will likely emergeas one of the world’s leaders in leveraging information technology (IT) to boost the effectiveness and efficiency of its institutions – the corporations, the government and as well as civil society organisations. As 3G and 4G wireless connectivity becomes widespread over the next five years, it is a near-certainty that we’ll see a rapid diffusion of low-cost tablet computers along with free or near-free applications aimed at self-learning, mobile banking as well as commercial productivity. India in 2025 could well emerge as one of the world’s most connected and IT-savvy societies. 

Fifth, India will almost certainly become a leading example of efficient resource utilisation, especially in energy. India relies on imports for a bigger proportion of its oil & gas needs than any other large emerging economy. The situation is likely to get worse, with sustained growth.  


you said “In many third world nations like India, these artefacts will likely be stolen and/or melted/ sold in the black market”

So you have proof that many artefacts in museams in India are duplicate etc. They are not properly managed. I think small nations like Australia can only dream of having big (both the size of the building and the value of the artefacts) like the ones in Calcutta Museam etc. As far as I have heard they are well looked after and safe in India. So may be in third world countries its not looked after, but India is not a third world country in whatever way you define “third world”, so its is well looked after.

Your arguments are sounding just as silly as your 80’s education with the terms you have been using. Look at what happens when people in position calls India “third world”. Hayden angers BCCI with ‘Third World’ remark. Now the same Australian cricketers are dying to play in this “third world” for mega bucks. What a paradigm shift.

Dont you think you are still stuck in your 80’s paradigm by using this term. A developing country would be a far better term, you could have used.  


I just came across an article where China is mentioned as “third world” as well. Haha if China can be classified as “Third world” in 2010 than I forgive you for your use of the word for India….:) China, a country that is buying up debts of many starved European countries, is still called a third world, than I can only assume the term have multi-faceted meaning..:).


As they say let the dogs (Western academics) bark. The poor world has changed fundamentally. Others are barely coming to grips with the implications Rethinking the “third world “EARLIER this year, Bob Zoellick, the president of the World Bank, grandly declared that “2009 saw the end of what was known as the third world”—that is, the end of a distinct, separate section of humanity that is poor, aid-dependent and does not matter very much. Is he right?”   Your use of the term “third world” for India is out of date. Sorry.”


I agree at least with one statement (in blue highlight) that Ravi has made. But his main thesis is wrong. 100% wrong. Ravi (and thousands of ‘educated’ Indians brainwashed by “India shining” slogans) needs to open their eyes to the facts (apart from their nose – as I pointed out above)

The facts never lie. Never look at a single case. A statement like “parts of India are far better than the country I am in and parts of “first world” are far worse than India” – is TOTALLY MEANINGLESS. We must use data and statistics to understand reality. Not a few random observations from inside one’s air-conditioned car.

a) India is the world leader in corruption (see this and this and virtually all my writings. Also try to observe things around you, Ravi). Read BFN.

b) India is the world leader in poverty. 80% of India’s population lives on less than $2 a day. More than HALF of the world’s poor are found in India. The number of poor in India is greater than the number of poor in the entire African continent. Yes, you may be rich, Ravi, but if education has failed to show you India’s poverty, then please go back to the school of life. Get down from your air-conditioned car and walk the streets of India. Travel the interior of India. Look around yourself.

c)  Nearly half of India’s small children are malnourished: one of the highest rates of underweight children in the world, higher than most countries in sub-Saharan Africa. (see this)

d) India is the world leader in lack of freedom. (see this) This includes a NOT-SO-FREE press. It is not only bought out by the corrupt businessmen and politicians (see this), but also takes money from foreign spies to work against India’s interests (this).

I won’t go into other details – e.g. India’s pathetic performance in academics, research, sports (except cricket), rotten infrastructure, etc. etc. etc. Every corner, every incident in India reminds us of its Third World status. Even its cricket is contaminated by deep corruption and racketeering. Fourth rate performance on the moral front.

The FEW things that work are working because of the breakdown of governance (see my blog post on India as the world’s largest free market laboratory).

EVEN ANIMALS IN THE WEST (INCLUDING FAR EAST SUCH AS JAPAN AND HONG KONG) USUALLY LIVE FAR BETTER LIVES THAN HUMANS IN INDIA. If this is the final goal of your aspiration for India, Ravi, then God save India. I shudder to imagine what kind of education India imparts to its children that this disgusting mess is the highest that Indians aspire to.

We need to call a spade a spade. The truth must not be hidden away because it is unpleasant. You can’t hide India’s stink by shooting the messenger. So don’t attack me personally. That is really silly. Attack my arguments WITH FACTS, if you can. I’m happy to listen to facts. Don’t bull-doze me with strong words. I don’t get swayed by falsehoods no matter how forcefully spoken.

Note that I am not only a messenger (unlike the academics you cite). I am a REFORMER. I offer a SOLUTION to India’s woes. I am here to lead India, not merely to criticise its bad governance. I don’t write in vain. I write to change things for the better.

Our educated people like you, Ravi, must wake up and use critical thinking. That means they must: (a) RECOGNISE the truth, (b) FIND OUT the solutions, and (c) LEAD India. Let’s not rest content with this level of shoddy performance. (At least that’s not my plan – regardless of what your goals are for India.)

IF YOU HAVE THE CALIBRE TO ACTUALLY CHANGE THINGS THEN STEP FORWARD AND JOIN FTI. Else please keep your delusions to yourself. [Once again, I speak not just to Ravi, who has conveniently offered me an example of the delusions typical of many ‘educated’ Indians. I speak to ALL EDUCATED INDIANS]


The innovativeness of nations – what’s India’s competitive advantage?


5 Feb 2015. I’ve added that India is a slave nation – slave to its governments. The people of India are happy to be bullied and bulldozed by their government. They are a slave nation.

13 February 2015. The filthiest nation.

Further comment about India on 21 March 2015.

3 April 2019
I’ve decided to call India a Turd World country.


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Where did Nehru go wrong?

Here's an extract from Breaking Free of Nehru. It summarises where Nehru went wrong – namely, in DESTROYING our freedoms.


At a fundamental level this is a book about India’s freedom. It says that we need to break free of Nehru in order to restore our freedoms. To become free. To be unleashed. Not because we dislike Nehru in any way. Freedom in the abstract may not sound important enough, or even relevant, as we spend our daily energies fuming over the chronic problems of misgovernance, corruption, poverty and a seemingly excessive population. But it is this freedom that we need more than anything else today in India. This intangible but crucial dimension, not commonly factored into our decisions and discussions, is the missing ingredient that will deliver the final blows of death to poverty and corruption, and create an unprecedented equality of opportunity in India. To acquire an understanding of this missing ingredient in our policy we must first find out where we stand in relation to freedom today, and having done that, determine where we should go next. And each time we analyse the facts we discover that Nehru deliberately and consciously blocked our freedom.

The primary requirement of freedom is that people should be left free to do whatever they wish to do, or can do, on their own initiative. A government should intervene only when it is essential that it do so, as in the provision of security, law and order, justice, some infrastructure and equality of opportunity. Going beyond this minimal support, and using people’s hard earned money, namely taxes, to set up bread or shirt businesses to be operated by the government, which will invariably be inefficient and non-competitive – thus destroying both our wealth and opportunities – is not the way of freedom. Seizing people’s lands and property in order to redistribute them, à la Robin Hood; preventing people from establishing their own businesses; laying down barriers to people’s creative power and free movement and commerce, is not the way of freedom. But all these are among the things that Nehru’s own regime did. He set up processes to systematically block our freedoms. Preserving our freedoms was never his priority

Nehru’s eminently laudable goal was to bring about rapid economic growth in India. But his chosen method was to directly take this task upon his government. He stopped people from undertaking their livelihood so that he could use our money to drive buses, to bake bread and to stitch shirts. He thought that if the government became the entrepreneur, and achieved commanding heights of the economy, then he could push India’s growth to the zenith. We citizens were apparently fools who could not run our businesses by ourselves. We needed arrogant IAS officers who had never touched a screwdriver in their lives or sold a banana to run them for us. 

After that, his system would apparently produce all the wealth India needed which he could then redistribute and spoon-feed us (having tied our hands behind our backs), setting everything right! Whether anyone became less free as part of his frantic ambition did not matter. Freedom, the means, the very reason for our independence, could be sacrificed if the ends of growth and poverty alleviation were somehow achieved.

Nehru’s intentions were surely good in the sense that he wanted India to become a more prosperous country. Growth and poverty alleviation are good things to aspire for. Where Nehru was totally wrong, though, was in his approach to achieving these goals. And yet, in the final reckoning, the means must surely be at least as important as the ends. Destroying our freedom on the pretext of speeding our journey to prosperity is wrong. We would rather be poor but free, than rich but shackled

But most ironically, Nehru simply could never have achieved his ends by destroying our freedoms. Wealth isn’t created but destroyed when governments become entrepreneurs. Such an ambition is in stark opposition to the logic that drives the creation of the wealth of nations. Wealth creation depends on our voluntary choice and independent action as elaborated in 1776 by Adam Smith. It is only freedom that leads to prosperity, not being shackled.

And therefore, the very opposite of Nehru’s ambitions came to pass: India’s productivity plummeted; production fell; infrastructure bottlenecks became chronic; we never managed to get even basic things like electricity continuously for an hour on hot summer nights. Our population remained illiterate and poor. It also kept growing in size – for poverty breeds desperation, and desperation breeds children.  Millions of innocent lives were created and blighted in our so-called ‘free’ India. Millions of innocents were forced to live and to die in hunger, poverty, squalor and disease: all because of Nehru’s policies. Sriram Natarajan, a reader, suggested that we could compute these virtual lives lost in some manner. That would be an interesting area for future research. Large but well-educated populations are never a problem. However, ours is a large and illiterate population now. There are good reasons for seeing this as a problem even though one can never think of any other human being as a problem except when issues of individual accountability arise with a particular person. 

Since Nehru’s path led to economic stagnation rather than to wealth, we are compelled to critique some of Nehru’s contributions and, where necessary, break free of his legacy. Only to that extent, no more than that.

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