Reset – Regaining India’s Economic Legacy

[8 MINUTE READ] A review of Dr. Swamy’s latest book on the economy 


In the autumn of 1969, as IITians were migrating in droves to America, Dr. Swamy returned from a faculty position at Harvard to teach economics at IIT Delhi. As a precocious thirty-year-old, he questioned the conventional wisdom in vogue in India that socialist planning was a superior route to the competitive market economy. His paper titled ‘Swadeshi Plan’ on this subject was presented on the floor of the Lok Sabha. It was ridiculed by Indira Gandhi who dubbed him as both ‘dangerous’ and a ‘Santa Claus’.

To go against the grain of popular belief requires clarity and courage – because in a world of uncertain ideas, deep rooted confusions and vested interests – it invites censure and isolation. His professorship was abruptly terminated. It triggered his evolution into a nucleus of revolt against the systemic weaknesses and ideological platitudes that plague our nation.

The book

Five decades later, amidst a record drop in auto sales that signal a deep rooted slowdown in the overall economy, the title of his book ‘Reset – Regaining India’s Economic Legacy’ struck me as unusually optimistic. As Dr. Swamy himself said, managing the economy is not a prescriptive process. The economy is a system in a state of dynamic equilibrium – complicated by the contradictions in human behaviour that elude the consistency sought by theories. Every action has multiple consequences, many unintended. It is this that makes the economist a trapeze artist on threads of data.

What this book does is provide the context that has brought us where we are, through the history of our economic evolution over the last 150 years. It talks of the key challenges that have remained unaddressed and the broad framework for corrective action. In the appendix, he shares a vision for the future that moves beyond the isolating materialist confines of Capitalism towards a system of Integral Humanism propagated by Deendayal Upadhyaya, which elevates humans beyond the straitjacket of hypnotised consumers and recognises and accommodates their cultural and spiritual dimensions.

Despite being peppered with a series of tabulated data to support his arguments; the book is not a complex scholarly treatise but an accessible primer on some fundamental issues that influence the macroeconomic scene. It provides a perspective on the historical exploitation, political gridlocks and ideological missteps that have restrained the Indian economy from reaching its full potential. It places the challenges in a structural context that reveal the logic in how resolutions must be prioritised. The stewardship of a nation’s economy is shown as the dynamic search for a consensus between conflicting drivers. A dance between the light touch of incentives and restraints that catalyse society and contain its excesses.

But to understand all the elements at play, it is useful to go back into history.

Disruption of the agricultural ecosystem


Economic interests, when viewed in isolation, are often inimical to social cohesiveness.

In rural panchayats led by local Patidars, the revenue raised was available for the community in times of distress. This self-balancing mechanism was disrupted by the zamindari system setup by the British. Between 1865 and 1947, even as the output of grain declined, land revenues grew. Peasants were forced into debt and lost their land. The zamindars and moneylenders, disconnected from their growing land holdings, were under no compulsion to innovate for agricultural progress.

While high land taxes in Japan during the same period were ploughed back into agricultural colleges and research stations, they served as an imperial drain in India that led to a century long regression of the institutional framework of Indian agriculture. Despite China being ruled by a feudal oligarchy through the same period and exposed to political and military upheaval, its agricultural progress was superior to India because the elite chose not to enforce a debilitating form of revenue extraction on the peasantry.

Restraints on industrialisation

The comparisons with China are a recurring theme through the book, given the coincident advent of industrialisation in both countries and their similarity in scale which define them as natural competitors in the global economy.


While the development of railroads commenced in China only during 1895, the first offer by an Indian to build a railroad was made as early as 1844. While this was turned down, it serves as a reminder of the spirit of native Indian entrepreneurship which has been suppressed but never extinguished through the long eras of imperialism and socialism. The Indian colonial government finally negotiated with the East India Company to form the East Indian Railway in 1848. A minimum guaranteed return of 5% was committed on the invested capital over a 99-year period. While this capital was raised in London, the deficits were financed through local revenues.

Despite the capability to build locomotives locally as early as 1878, over 12,000 locomotives were imported from Britain between 1865 and 1941, representing 22% of total British production. The systematic suppression of local manufacturing capability through British policy, undermined Karl Marx’s prediction that the railways would be the forerunner of modern industry in India. If Indians had the opportunity to participate independently in the industrial revolution era, market based commercial engagement and indigenous technical innovation would have radically altered and advanced our development trajectory.

Flaws in the Soviet Economic Model


By the middle of the twentieth century, the Chinese agricultural economy could partially finance industrialisation. However, India’s unconsidered adoption of a Soviet Model envisaged additional savings generated from delayed consumption in a starving nation and surpluses extracted from an emaciated agricultural sector for investment in rebuilding a severely stunted modern industry.

The untenable foundations of this centrally controlled economy led to GDP growth tottering at around 3.5% per year for four decades. With economic activity bound by licences and quotas, independent India grew alongside the rise of black markets, corruption and the inefficient use of resources.

The excessive reliance on large investments through the public sector, with a high incremental capital to output ratio (ICOR), absorbed most available resources. There was very little left to feed other labour intensive sectors with lower capital demands such as agriculture and construction. With a change in the investment mix, growth rates of 8-10% could have been achieved even during the post-independence era according to Dr. Swamy.

A tentative liberalisation

An important reason for the failure of socialism is that an incentive based market system is more in consonance with Indian cultural values of individualism and collective harmony. For such an individualistic, democratic society to be strong, an economy that generates employment and encourages self-reliance and rational risk taking would provide the foundations to unlock the spirit of its people.

While the balance of payments crisis triggered the need for liberalisation, the Nehruvian philosophy of socialism remained deeply ingrained in the Congress psyche. Special interest groups who had thrived within a controlled system, that was pliable to be rigged, engineered resistance that forced Rao to term the initiatives as a ‘temporary evil’.


The nimbleness of the private sector can be gauged from their historical alacrity in responding to a crisis. The economies of nations rely on the enterprise and collaboration of its people. The government’s role is to serve as a neutral facilitator of development and an enlightened arbiter of justice and fair play. However, the journey of liberalisation was never taken to fruition and even today remains littered with half measures and indecision.

Instead the overwhelming influence of bureaucratization in our lives may be judged from the fact that 60% of paper output in the country is consumed in governmental activities. The slugfest between officers over fat files with multiple observations noted on them that are comprehensive yet indecisive, mirror the maze of controls that must be navigated for the most basic progress to be realised.

The knowledge and innovation revolution

Unlike other downturns driven by global upheavals, high oil prices, bad weather, inflation or currency volatility, Dr. Swamy says for the first time since liberalisation we are witnessing a slowdown driven by a steep decline in private consumption. The decline in GDP growth since 2015 has been largely driven by a fall in household savings that morph into investments through financial institutions.

The situation is further complicated by a collapse in the shadow banking sector and a widening spate of corporate bankruptcies. The hard task of balancing what is socially just in the long term with what is economically necessary in the short term requires governance to blend the sanctity of righteousness with the pragmatism of the marketplace. For leadership with the sagacity to recognise nuance – because what appears noble may not always be right for a given situation.


Dr. Swamy made a simple observation recently on government priorities. Corporate tax cuts that align rates closer to global norms may support the supply side, but the current problems are on the demand side and that is what needs urgent focus.

While every crisis has a solution, Dr. Swamy says in his familiarly blunt manner, that the captain of the ship must know which direction to look at. He concludes with an abstract cure – search for incentives to cajole the stakeholders in the economy to get enthusiastic about economic activity and be incentivized for it.

Dr. Swamy identifies the three components that must drive GDP growth in India as capital deployment, employment and technological improvements through innovation. A telling observation in this context is that while credit demand by the MSME sector is close to US$ 390 billion, the supply is currently at US$ 139 billion. The MSME sector breeds home grown technological capabilities and underlies the employment and development landscape of our nation. Instead of recognising their value and unlocking their potential, they retain a peripheral presence in a nation enamoured by the changing complexion of billionaire tables.

Our large markets may be a draw for much needed but capricious global capital, yet it is the home grown firms they spawn that converge our national and economic interests. To harness them we need to do what every developed nation has done – forge an indigenous iteration of capitalism that suits us. The degree of difference between an Amazon and the East India Company, is in the extent of their monopolies that bring out the worst in corporations.

We were laggards in the Industrial Revolution due to colonial rule. If we miss the opportunity to be leaders of the knowledge and information revolution, we will have only ourselves to blame.

An alternative ideology

There are a few ideas briefly touched upon in the book. The abolition of personal income tax is one of them. It is the middle income group and particularly the salaried class, that gets disproportionately squeezed by personal income taxes. The elite find multiple loopholes to minimise it, the rich farmer does not even have to do that much. The intent of this proposal is to lift savings and enhance their flow into investment. That it would spur consumption is a given. How we can make it fiscally viable is a separate question.

In addition to this, he also proposes moving back to a fixed exchange rate of Rs. 50 per dollar, abolishing participatory notes and printing rupee notes to fully finance basic infrastructure. While I am not qualified to venture an opinion on these proposals, it is relevant to note that a part of China’s globalisation strategy involved a fixed exchange rate, devalued though to support exports, that has gradually migrated to being a managed one as their foreign exchange reserves acquired greater heft.


This book reminds us that economies are built by a collective culture that leverages strengths and mitigates weaknesses. The first step therefore is to recognise what they are. This is what consistently informs the broad vision and detailed proposals outlined in the book.

Dr. Swamy combines an understanding of the delicate equilibriums that influence macroeconomics and the limitations of human social behaviour. One without the other leads to academically astute ideas that remain on paper or a paralysing sense of cynicism towards human civilizations’ capacity for self-destruction. But when integrated, they equip ideological convictions to navigate the multiple constraints of the real world.

That Modi’s India has not been able to leverage his domain expertise and political wisdom, will in time be seen as an example of the unfortunate omissions that shape history.

(A condensed version of the above post was also published in the ‘Swarajya Magazine’)

7 thoughts on “Reset – Regaining India’s Economic Legacy

Add yours

  1. Dear Anand, Very well done! It looks like you have spent sufficient time reading the book RESET and also analyzing the contents with your own wisdom. Dr. Swamy, no-doubt is a genius in politico-economics…but “economics” shall remain a “*perpetual prisoner of core-culture*” and general character of any society and hence can never be universal in its principles & applications. Economic dynamics are a function of “space-time” coordinates. Hence it mandates continuous adjustments, reforms & modifications to align with changing geopolitics and times. My own fundamental understanding of economics is – *”Rational Balance Between Needs & Wants for an Optimized Survival of any Society”.* We will discuss more when we meet. MSR Athimber. ===============


  2. Creating our own iteration of capitalism is a great idea which what selfish Pawar Chidambaram did by introducing commodity derivative trades and they smoked out the surplus for personal benefits
    Making funds available for MS MEs is what Mudra has been about and the 60 Mt 1 Cr loan scheme.
    Abolition of income tax in a society with such concentration of wealth is injustice to poor too obviously
    Fixing foreign exchange rates time was over in 90 s.Unimplementable now
    Brave attempt


  3. Dear Anand,
    I have not read the book yet. But from your summary and comments, I feel that as usual Swamy is walking on a tight rope to nowhere land. Nehru bashing is common these days and has always been a guiding light in Swami’s political journey. However, if Nehru Had not invested in massive Public Sector projects in the 50s (and now the twenty first century capitalists are clamoring after the shares of these organizations in the stock markets) do you think private Indians and business houses of that time (most of whom had made their wealth sucking up to the British) had the vision, the courage, the bandwidth and wherewithal required for such massive projects? India would have perhaps become an American lackey like Pakistan. Taking an alternate economic root, would not have, nor has it currently, changed the inbuilt social evils of class, corruption and selfish interest which have plagued the Indian community for ever. Interesting that Swamy would compare China. After all, they followed an economic path more to the left of Nehru’s socialism!


  4. It is a very good review of Swamy’s book by Anand. Many of Swamy’s suggestions are worth implementing. Of course in 1969 Socialism was they but as years passed by India is slowly becoming a country of free enterprise.


  5. Do I still need to read the book? Thanks for the well articulated and succinct synopsis. And as most people acknowledge- you can love him or you can hate him but you just can’t ignore Swamy.


  6. Another insightful article from you Anand! You have simplified a rather heavy subject like Economics rather well. The way you started off with the first two paras and then setting the context of what would follow was really good. Comparing an Economist with a trapeze artist is interesting and makes sense!


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