Indian Economy: Where Do We Go From Here?

As in the past, this year too, a detailed report on the performance of the Indian economy during the current year was laid before Parliament and the people prior to the presentation of the Union Budget for the coming fiscal year so that a meaningful discussion can take place and the potentials of growth as well as the circumstances, both domestic and international, are appreciated.

As the Economic Survey 2009-10 reveals, the Indian economy has been, to a large extent, affected in recent times by the happenings in the developed economies because of its growing integration with the globalised world. The recession, which began in the US in 2007, has badly impacted its growth efforts. The annual growth rate had reached 9.7 per cent in 2006-07, prompting the ruling elites to dream of the day when the country would join the club of superpowers and compete for the second position in Asia after racing ahead of Japan. As ill luck would have it, the growth rate began sliding down and came to 9.2 per cent in 2007-08 and 6.7 per cent in 2008-09 and this year it is likely to be 7.2 per cent. It is a matter of great satisfaction that we have not suffered so severely as many other countries because we did not completely relegate the Nehruvian model to the background and fully accept the neo-liberal one, widely known as the Washington Consensus, despite the best efforts by the so-called experts purveying the received wisdom from the Chicago School of Economics, the main centre of neo-liberalism. For example, Raghuram G. Rajan advocated the urgency of making the rupee convertible on capital account, but the turn of events torpedoed his proposal. This gentleman, closely connected with the Chicago School, lashed out at the loan waiver scheme for farmers, saying that it would encourage the moral hazard on a large scale. In other words, the tendency to borrow and then default would grow. Another expert, Kaushik Basu, now the Chief Economic Adviser to the Government of India, in a signed article in the Hindustan Times strongly opposed the NREGS (National Rural Employment Guarantee Scheme) that was launched by the government to provide employment to workless poor rural families. Basu pontificated that it would encourage laziness!

It goes to the credit of Mrs Sonia Gandhi that she did not succumb to these pressures. Both the schemes were implemented and brought good political dividends. She, in a speech at a function organised by a newspaper group, underlined that the Nehruvian model had been able to protect India from the disastrous impact of the great recession.

Ever since the great recession has set in, prices of consumer items have been increasing at an accelerated rate and it means a substantial portion of the incomes of the people at large is taken away and this makes the ultimate distribution of national income more skewed and towards those who control the means of production, and the government does not dare intervene because of its wholehearted devotion to the market god. The incidence of unemployment has been increasing because of severe recession in the countries that have been buyers of our goods and services. Many of the BPOs and call-centres have closed down or shifted elsewhere. Moreover, unlike the Nehru-Indira era when there was at least two per cent average annual growth in employment opportunities in the organised sector and the overall rate of growth of the economy was 3.5 to four per cent per annum, the rate of growth of employment opportunities has plummeted to just one per cent ever since the introduction of the neo-liberal economic reforms. The emphasis has been on increasing labour productivity or getting a smaller number of workers produce more and more surplus value. It means the degree of exploitation has gone up.

While the manufacturing sector seems to have recovered and its rate of growth, that declined from 14.9 per cent in 2006-07 to 10.3 per cent in 2007-08 and 3.2 per cent in 2008-09, has gone up to 8.9 per cent in the current year, there are no such welcome tidings from the agricultural sector on which almost 60 per cent of the population depends for its livelihood. The rate of growth of agricultural production has declined from 4.7 per cent in 2007-08 to 1.6 per cent in 2008-09 and during the current year it is likely to be negative, that is, -0.2 per cent. The failure or inadequacy of the monsoon is not the sole reason. Over the years the public investment in agriculture has been very inadequate. The extension of irrigation facilities and the renovation of existing canals have been neglected. Infrastructures, like roads and electricity, have not received adequate attention.

Consequently, the incidence of poverty has been increasing. This is testified by the reports of the Tendulkar and Arjun Sengupta Committees. A recent study from the UN says that in 2008-09 alone as many as 34 million people were pushed below the poverty line. According to the figures of the last census, between 1991 and 2001 eight million farmers were forced to quit the agricultural sector and seek sources of livelihood elsewhere. In 2008, in spite all the efforts of the government to lessen the incidence of indebtedness, the major factor behind the suicides, 16,196 farmers ended their lives. Thus, between 1997 and 2008, as many as 199,132 farmers took their lives.

The Economic Survey contains a lengthy chapter (Chapter 2), supposedly written by Kaushik Basu, trying to substitute “inclusive growth†for the much-condemned “trickle-down†, whose greatest votary in this country has been Montek Singh Ahluwalia. On closer examination one finds that the concept, in essence, remains the same though it is dressed up to make it appear attractive. In simple terms, all must be included in the royal procession of neo-liberalism, a few boarding luxury cars while the others follow in rickety vehicles or on foot. Our national movement from the Karachi Congress onwards had a different view. It emphasised the necessity of lessening socio-economic inequalities and removing regional disparities. And for this an active role of the state in the allocation of resources, according to pre-determined priorities, was thought indispensable. An active campaign was let loose against it by the West and the Fund-Bank. Many “experts†wrote their theses and the Forum of Free Enterprise and Swatantra Party actively worked for this line of thinking, but failed. Influential people from L.K. Jha to Gurcharan Das joined this campaign with their books, backed by the corporate-controlled media.

The failure to torpedo the Nehruvian line continued till the beginning of the decline of the Congress and then came a big opportunity when the Janata Dal Government of V.P. Singh came to power. The mismanagement of the economy got aggravated when the “great socialist†, Chandra Shekhar, came to power and his lieutenant, Yashwant Sinha, took India’s gold to mortgage it to the Bank of England. The foreign exchange situation was so desperate that India had to prostrate before the Fund-Bank and accept the Washington Consensus. The silent, non-violent coup took place during the Narasimha Rao regime when the traditional Congress or Nehruvian thinking was consigned to the dustbin and the market came to assume the omnipotent role in the economy. This has now been acknowledged by none other than the present Finance Minister in his recent Budget speech. To quote:

With development and economic reforms, the focus of economic activity has shifted towards the non-government actors, bringing into sharper focus the role of government as an enabler (or ‘facilitator’, as per the terminology of the neo-liberals—G.M.)

An enabling government does not try to deliver directly to the citizens everything that they need. Instead it creates an enabling ethos so that individual enterprise and creativity can flourish. Government concentrates on supporting and delivering services to the disadvantaged sections of the society.

It is this broad conceptualisation of the Budget that informs my speech today.

The Finance Minister underlined, at the very outset: “The Union Budget cannot be a mere statement of Government accounts. It has to reflect the Government’s vision and signal the policies to come in future.â€

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It is needless to add that neo-liberalism has replaced the vision of the national movement, as articulated by Gandhi, Nehru and Indira Gandhi. In this situation, socio-economic inequalities are bound to increase and regional disparities are sure to get aggravated. Employment opportunities in the organised sector will shrink and the size of the unorganised sector is bound to increase, leading to the growth of slum areas along with associated ills. Social security measures will be curtailed. More and more people will leave the rural areas and go to urban and relatively advanced States, creating all sorts of tensions as recently witnessed in Maharashtra and Assam. Communalism, casteism, regionalism, linguistic chauvinism, crimes, corruption and terrorism are bound to increase. Unbridled market forces will create more chaos and anarchy. It will not be the society, but the market, that will dominate, a la Karl Polanyi’s The Great Transformation.

The forces that have been campaigning for sweeping changes in the economic sphere want unrestrained entry and operation of foreign direct investment and foreign institutional investments in India. They are eager to come here because of uncertainties and lower rates of interest in their homelands. Irrespective of the consequences, the government is bent upon opening the retail sector. Already FDI has been flowing in on the piggy-back of Indian big business and has been adversely affecting small shopkeepers and traders. Insurance is soon going to have more FDI and there is a strong pressure for opening defence production to FDI. The Economic Survey treats it as an indicator of growing confidence of foreign capital in the stability and strength of our economy and, by implication, the soundness of our policies. Indian big business is all for it. To quote Anand Mahindra,

We have been telling the government that, frankly, to allow a foreign partner 49 per cent is something we should encourage, because that’s when the partner feels comfortable sharing technology and integrating you into their global supply chain. (The Wall Street Journal, February 15)

James Lamont, in a longish piece, has opined that the current prime ministerial term of Dr Manmohan Singh is the last one because he is already 77 and it appears certain that Rahul Gandhi will succeed him. Since Gandhi is “a scion of the Nehru-Gandhi dynasty†and has been trying to grasp the grassroot realities, there is no guarantee that he will carry forward Dr Singh’s mission. It is high time that Dr Singh, aided by Montek Singh Ahluwalia, accomplishes it and makes the changes and reforms irreversible. He laments:

The Finance Ministry is proceeding with the sale of small stakes in state-owned companies such as NTPC, the power company. Yet in other areas there is little momentum. The liberalisation of the pensions and insurance industries has stalled. The auction of third-generation spectrum for mobile telecommunications services has suffered repeated delays. Returning the tax system has run into difficulties. While road building targets are seen as over-ambitious unless bigger incentives are provided.

Lamont hints that while the Finance Minister is cautious and wants “a stronger consensus needs to be built up within the ruling party†, Dr Manmohan Singh “insists India is ‘better placed than any time in the recent past to push the reform process forward’†. (The Financial Times, February 4)

A day before the Union Budget was presented, Paul Beckett, the South Asia Bureau chief of The Wall Street Journal, based in New Delhi, came out with an open provocative letter to Pranab Mukherjee. He challenged Mukherjee to prove that he was equal to the task of accomplishing reforms even in a more favourable situation where the obstructionist Left is absent and the BJP has self-destructed itself. (The Wall Street Journal, February 25) This piece needs to be read and pondered over to realise how the Americans are trying to mould Indian economic policies in the direction desired by them.

There is immense joy in the so-called reformist circles that Indian big business and the Dalal Street have welcomed the Budget and foreign capital has begun its inflow here. Already during the first two quarters of the current fiscal year $30 billion FDI has come.

There are two things that make us sceptic. The first is contained in Chapter 11 of the Economic Survey that highlights the plight of the aam adami, and the second is universal adult franchise and the mature Indian voters who cannot be easily misled. Six years ago, the false propaganda of “shining India†along with the opium of communalism failed to help the BJP-led NDA return to power, and this must awaken the Congress that has more stakes than the careerists at present manning the various echelons of power. One must not forget that this is the 125th year of the formation of the Congress, a unique organisation which has always been more than a political party in the traditional sense of the term. The late Communist leader P.C. Joshi used to say, not without basis, that the Congress could not be easily wished away or destroyed.

The author, a well-known economist, used to teach Economics at Kirorimal College, University of Delhi before his retirement a few years ago. He can be contacted at gmishra@girishmishra.com