Biggs on Finance, Economics, and the Stock Market: Barton's Market Chronicles from the Morgan Stanley Years

Section 3B: India

India Tilts to the Right and the Stock Market Explodes

May 14, 1985

Friedrich Hayek, a Nobel Prize economist, once described India as the ultimate example of complete failure because of too much government planning. Like everyone else, he said he shunned visiting India because its grinding poverty is so depressing. India may never be a popular tourist destination, but in the last few months its young government has proposed radically new economic policies. Although this policy shift is presently overshadowed by the fighting between Hindu and Sikh extremists, it could be of immense significance.

Since India gained its independence, its governments have followed the Fabian social model whose general assumption is that the government has first claim on a nation's assets and that the state in its wisdom should decide where to allocate those resources. Since the state is responsible for growth, incomes are to be entirely at its disposal. Government controls on business through rebates, subsidies, and high tax rates are necessary to order growth and social justice, and since the rich only become richer at the cost of the poor, high taxes on their earnings are necessary to keep the disparities within tolerable limits. The maximum individual tax rate of 68 percent is reached at a mere $8,000 of income. No matter that government bureaucracy is recognized as swollen, inefficient, ...