Solving India’s Income Problem (Part 13)


The Preamble speaks of liberty in the context of thought, expression, belief, faith and worship. But there is one liberty which stands above all. It is the freedom to trade and exchange. From Investopedia: “[Adam] Smith argued that by giving everyone the freedom to produce and exchange goods as they pleased (free trade) and opening the markets up to domestic and foreign competition, people’s natural self-interest would promote greater prosperity than could stringent government regulations.”

Here is a quote from Smith’s “The Wealth of Nations” written in 1776: “He generally, indeed, neither intends to promote the public interest nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

Voluntary trade is a positive-sum game; it only happens if both sides come out ahead. Trades and exchanges happen in markets. The freedom to trade and exchange – without constraints and interventions in free markets – is not an easy ask. Governments interfere in markets and use the threat of force to coerce, and in doing so start a downward slide to serfdom.

It probably sounds very counter-intuitive in a world which is erecting barriers to trade but the path India should choose is that of openness. This is the time to recreate the initial conditions of the 1800s and early 1900s that helped the US prosper and create the greatest wealth creating machine the world has ever known. The foundational ideas are simple and centred on liberty, especially economic liberty (which did not find a mention in the Indian Preamble).

There is a direct correlation between economic freedom and prosperity. Just look at this map of the world from Fraser Institute’s Economic Freedom of the World report – the more free a country, the more likely it is to be prosperous.

India is in the 3rd quartile, ranked at 89th. (This is based on 2020 data.)

Here is a summary of what the index measures:

Economic freedom is what our Constitution writers missed – and many generations of Indians are paying the price. This is the real liberty Indians need to let the ‘invisible hand’ and spontaneous order work their magic.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.