India “symbolizes most powerfully both the productiveness of market capitalism and the stagnation of socialism” and “is fast becoming two entities: a rising kernel of world-class modernity within a historic culture that has been for the most part stagnating for generations.” While “the pick up in real GDP growth from 3.5 per cent between 1950 and 1980 to 9 per cent in GDP has been truly remarkable,” Greenspan says that India’s per capita GDP, which was at parity with China’s in the 1990s is now only two-fifths that of China’s and below the per capita GDP of Ivory Coast and Lesotho.

One key reason for this failure is an idea, which according to Greenspan, was left behind by the British and “captivated India’s elite”— Fabian socialism. “Jawaharlal Nehru was firmly attracted by the rationality of the Fabians, and he perceived market competition as economically destructive. Because of him, socialism has retained a firm grip on Indian economic policy long after it was abandoned by Britain,” Greenspan writes.

“Socialism not only is a form of economic organization but also, because of its fundamental premise of collective ownership, has profoundly important cultural implications, most of which have been embraced by a majority of Indians. The notion that government intellectuals, driven by the good of society overall, can far better determine the appropriate allocation of resources than can “erratic” free-market forces dies hard in India,” he points out.

In 1991, Prime Minister Manmohan Singh, whom Greenspan refers to as “a market-oriented economist,” was “able to tear a modest hole in the regimented economy — he initiated liberalizing steps in a wide range of areas — and demonstrated once again that a little economic freedom and competition can exert extraordinary leverage on economic growth.”

... contd.