In the ‘50s, the Soviet Union put a Sputnik into space and initiated humankind’s first journeys beyond the earth’s atmosphere. This event combined with the Soviet Union’s prowess in many areas like science, technology, military capabilities, athletics (they used to win dozens of Olympic medals), chess and so on dazzled the Indian elite. We got convinced that the Soviet model was the right one if we wanted to become a developed nation. We rejected markets and went in for our own imitation version of Soviet-style central planning. The now infamous “permit-licence raj” was seen as progressive. Those who championed individual initiative, entrepreneurial efforts and market-friendly economics were dubbed as reactionaries. The so-called Bombay school of economics was discarded in favour of the noises emanating from the schools of Delhi and Calcutta. Prof Shenoy was forced out of the Planning Commission for warning about the dangers of the statist planned model.

Over the next few decades as the countries of the Far East successfully eliminated poverty, we got stuck with the proverbial Hindu rate of growth and all we were able to produce was the anti-poverty “garibi hatao” slogan. It is important to remember that in the ‘50s, South Korea’s wealth and income situation was comparable to India’s. Now they are some twenty times ahead of us.

The short-lived achievements of the Soviet Union were based not only on the foundation of great human misery (millions died during the forced collectivisation embarked on by Stalin), but was destined to implode as it was characterised by the complete absence of timely information feedback. Markets are seemingly anarchic. But through price signals they communicate powerfully on a continuous basis allowing producers, consumers and investors to calibrate their decisions to achieve a level of optimality far superior to that which the self-appointed pundits of any central planning commission can device and certainly beyond anything that they can implement.

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