Economic liberalisation will not succeed unless India strengthens its domestic economy, and cannot rely exclusively on export earnings in the manner of the Tiger economies

It is a textbook maxim of 19th century European history that when revolutionary France caught a cold, Europe sneezed. After the success of the communist revolutions in Russia in 1917 and China in 1949, it could be said that the socialist states in Asia, Africa and Latin America felt every whiff of a change of wind in Moscow and Beijing. But now in the post-Cold War era - there are semantic battles about the phrase raging in some learned journals - changes in mood in the United States leaves its gravitational impact on capitalist wannabes like India.

For quite some time now, Indian economic pundits and captains of industry have been taking pride in the fact that we have at last connected with the Americans, and what concerns Americans is a matter of concern for us too. It was a feel-good factor when the American economy was in the expansive mode. But now that things are turning bad, the economy is slipping up, and US Fed Reserve chairman Alan Greenspan is losing his near invincibility, and the American economy is inexorably sinking into a recession, India's starry-eyed America- lovers are troubled. They are not very sure whether they should any more flaunt the American connection in the bad times.

And the situation is going to be difficult than ever this year and the next. Indian software exports to the US have already taken a beating, and there is need for the much-fancied Information Technology (IT) sector to look for fresh markets. There is quite a bit of demand in Europe and in South-East Asia. The point is that India has to look away from the US for a while at least, and nurture other markets.

The adjustments to be made in the IT sector is just part of a bigger problem. The real big

question is that of sustaining growth at home. Though export earnings are immensely important, they cannot keep an economy on an even keel. One of the secrets of the American success is indeed the vibrant domestic economy. On the other hand, the so-called Tiger economies of South-East Asia could not sustain their boom because they depended so much on export earnings.

That is the lesson that India - both the Government and the industry - that what will make India's economy click is the domestic market. It is not an easy thing to generate domestic demand. First, the mythical 300-million strong middle class, which seems to excite so many investors in India and in the West, is not in a position to spend enough to sustain a boom. As a matter of fact, this middle class does not have enough savings, and it does not enjoy wide enough investment choices. Secondly, along with the 300-million theoretically rich, we have about 300 million poor people. And there are also the 300 million illiterates.

The challenge before the Indian entrepreneurs is to change this burden of the poor and the illiterate millions into an advantage. That is, there is a need to create jobs for the 300 million poor people, and there is the bigger task of educating the other 300 million illiterates. And the social capital needed to tackle these twin challenges are not wasted efforts nor are they dead investments. They will unleash a tremendous energy which will power unprecedented economic growth. The problem with the economists, policy-makers and the captains of industry in this country is that they are not willing to think beyond the 300 million well-heeled folk. That market is a limited one, and it does not offer scope for a long-term growth.

The private sector, of course, wants the Government to take care of education and health in the social sector, and also make the necessary huge investments in the infrastructural sector. All that the industry is willing to do is to reap the benefits of the Government's social spade work. That is why, most of the private players are so greedy to buy off Public Sector Undertakings (PSUs) at a throw-away price. They sound ruthlessly realistic when talking about taking over PSUs.

But the same ruthlessness is missing when they plead for protectionism of all kinds, and their unwillingness to share the social responsibility of spreading literacy and developing basic medical facilities. The artificial division of labour between the Government and the private sector cannot be sustained.

India's captains of industry have to show greater imagination, greater commitment than they have shown so far. In a free market economy, solutions to the problems facing the country have to come from the private sector. And so far, there is no evidence of it. When the socialist experiment failed, there was no doubt that it was the state that had failed to deliver the goods. If the experiment with the market were to fail, then the private sector has no one but to blame itself.