India's Economy: The Crisis of Inaction
NEW DELHI: In my view the state of the economy and the thinking about it is characterised by far more continuity rather than by change, and therefore one could think of the past two years or the past 10 years, the differences are not significant.
Second if we speak about distress, it is important to ask distress for whom. There is prosperity for a few but there is distress in rural India, there is distress for the poor everywhere.
Now having started with these propositions, I want to say that there is not just a mismatch but there is a near dichotomy between the economic objectives of this government and its predecessor governments and the economic priorities of the people. Governments are concerned with economic growth, economy’s efficiency, fiscal balances, ease of doing business and so on. The economic prosperities of the people are much more about food, clothing and shelter for their families, employment for at least one member of the household, schools for their children and healthcare for their families and in a sense it is almost as if that this twain never meets.
Naipaul once described India as a land of a million mutinies, I think India is a land of million crises, for people on different days of their daily lives and I see that there are two sets of crises that confront us as an economy.
The first are visible but not audible and the second are quiet, almost silent crises that have gone unnoticed.
Now of the three mounting crisis that are visible but don’t have a voice, the first is the jobless growth. In the past 35 years the Republic of India has witnessed rates of economic growth in the aggregate, for GDP and indeed for the arithmetic mean, GDP per capita near to that of People’s Republic of China, the highest in human history, yet this growth has been jobless. Between 2004-05 and 2011-12, for every 10% increase in output, employment went up by ½ or 1%, so the employment elasticity of output has been falling steadily, that’s why there is jobless growth.
Second, there is rising inequality, it doesn’t show up yet in our numbers on consumer expenditure because they underestimate the consumption of the rich, they don’t include savings. They do measure economic inequality but inequality has been rising rapidly in the past 30 years and reason is suggested by the Gini coefficient, which has a value of ‘1’ if 1 % has all the income in an economy and a value of ‘0’ if everybody has an equal income, that was in the range of 0.3-0.35 for a long time. It now exceeds 0.5 in India.
We are not very much behind China or even Brazil in inequality and so despite this rapid economic growth poverty persists, and that’s our third mounting crisis. There may have been some reduction in absolute poverty if you look at doctored poverty lines but even if you look at World Bank estimates, which I don’t think are very robust and you look at the difference in the estimates between 1.25$ and 2$ per day the number is enormous.
In 1980 most of the world’s poor lived in India and China, two thirds in China and one third in India. In 2012 most of the world’s poor still lived in India and China but now almost three fourths of them are in India. So that if you look at the number of people between the poverty lines of Arjun Sengupta’s 12 rupees per capita per day or 20 rupees per capita per day at 2004-05 prices, those proportions were 30 and 40% respectively. So 40% of the people are vulnerable to bad harvest, to illness in the family.
So these mounting crises are visible but not audible-Jobless growth, rising inequality and persistent poverty.
But there are at the same time some quiet, almost silent crisis, the one in agriculture is quiet, is silent and farmer’s suicides are symptoms of a much deeper malaise. About two thirds of the people depend upon agriculture directly or indirectly for a livelihood, agriculture contributes less than one sixth of the national output, so that GDP per capita in the agricultural sector is less than one tenth of what it is in the non-agricultural sector and has been so for the past 15 years.
Infrastructure is not just inadequate,it is amongst the poorest in Asia and we were meant to be a more industrialised and developed economy.
The space of education in society, what is different about this government is, it combines the neoliberal economics with a regressive social and political attitude, which is doubly dangerous because they tend to reinforce each other.
But the third quiet crisis is in education, we are perhaps the worst in Asia today. If we look at 1950 we were way ahead of everybody, in literacy, in spread of education. This government is compounding the problem not only in terms of educational opportunities or the quality of education but it is being very destructive of what education is and should be.
And finally there is a crisis of industrialization, in manufacturing. In 1990 18% of our national income came from manufacturing and it deployed 16% of our workforce. In 2012, the share in national income has come down to 13.5% and employment at 11%.
Manufacturing in Indonesia in 1990 was 10% of output and employment but in 2012 it was 30% of output and 28% of employment. We are de-industrialising as Latin America did through the lost decades of the 1980’s and 1990’s.
Now let me simply state that this government does not seem to recognise either sets of crises. It has had the benefit of the collapse in international oil prices that have moderated inflation and eased political pressures on the government. But that also represents a window of opportunities missed.We are the one country which imports commodities, most countries export commodities, we could have used it to decrease interest rate sharply, use the interest exchange rate more aggressively to revive investment, to revive demand, to revive employment. None of this has been done because we are still caught in a fetishism of balance budgets and price stability.
Now my own sense of this government is that a) it doesn’t have a big picture of the economy, it doesn’t think about the economy as an integrated whole with interdependence between sectors and between time horizons, b) thinking of the economy is characterised very much by short term vision, the next year or next election, but not what happens 10 years from now or 20 years from now. And really the state we are in we need to be thinking long term because what we do here and now in agriculture, in infrastructure, in education, in manufacturing, will begin to shape a future 3, 5 or 10 years from now.
This government is characterized much more by words than by substance. There are new kinds of populism that are being introduced and I don’t think we should ignore them. I don’t believe they are substantive but they are there. The Jan Dhan Yojana, which is spoken of as financial inclusion, has created some resonance. The crop insurance scheme which is sold as being more comprehensive than the previous crop insurance schemes that were introduced by the previous government, that is UPA-2.
Or the whole idea of Skill India or Stand Up India, I find these phrases really amusing, but nevertheless there is a new populism that goes with it that you advance loans from the MUDRA Bank or the skill India bank to people to employ themselves. So in a sense it represents the thinking that the process of economic growth is not going to create employment opportunities or social opportunities for people at large and therefore we create another kind of transfer payment, not in the form of wages that came in NREGA but in the form of start-up funds so that people be self-employed.
Now my sense sees that there is little that the Modi government has to show for his two years in office on the economy in terms of substance, it has been much rhetoric, lots of words but in substance little has changed and little has been done. So the crisis we have all talked about persist and run deeper and it’s not just the cost of what we do, it’s the cost of what we don’t do, the cost of inaction because if we don’t act on agriculture, on manufacturing, on infrastructure, on education here and now we are going to be in a much worse state 10 years from now.
And I sense that little in that respect has changed and it’s been much like a holding operation on the economy and much more an aggressive posture on polity and society. Yet the economy interacts with and is interdependent with these social and political processes that are simultaneously on-going.
So I would urge us to think little bit beyond the economy, to focus much more not on the aggregate of the economy, but on the segments of our population that are altogether excluded. Remember that if an economy grows at 7% per annum for 10 years, GDP doubles. If an economy grows at 5%per annum for 10 years, it doubles in 14 years but these are aggregates and arithmetic means’ and they don’t check the wellbeing of people . For the last 35 years we have had numbers that looked very robust in this sense but they have not benefitted, the distribution of benefits from this process have been very unequal between regions and between people and I see little or no evidence of any correctives. These crises are going to get worse.
(This is the transcribed text of a presentation made by DEEPAK NAYYAR at the "Idea Of India" conclave, on "Two Years Of PM Modi: State Of The Nation).