Economic Survey 2015-16: India under the Shadow of Neoliberalism

Even though the neoliberal dispensation has collapsed all over the world, its votaries in the corridors of power in India are behaving like the proverbial boy on the burning deck. They believe in the mantra of TINA (there is no alternative). It becomes quite obvious by casting even a cursory glance on the cover of Economic 2015-16, placed in the two Houses of Parliament on March 15. It, in the words of the authors, “depicts the long and short run Phillips curves which highlight the trade-offs involved in managing inflation”. It gives out the message that the objective of full employment is a chimera and that has to be banished from our thinking if we want inflation to be controlled. One cannot simultaneously have both—full employment and price stability.

This message owes its origin to A.W. Phillips, an economist from New Zealand. In 1958, Phillips, on the basis of his statistical study of the relationship between unemployment and inflation, tried to show that with the rate of unemployment declining, the bargaining position of labour gets strengthened and that leads to an increase in costs of production, which results in higher prices of goods and services. Thus the inflationary trend is strengthened. This phenomenon is described in textbooks as cost-push inflation. It is the duty of the government to keep both adjusted in such a way that neither is there intolerable unemployment nor inflation. The Nixon Administration stressed this point in 1972.

The Messiah of neoliberalism, Milton Friedman, took Phillips’ efforts further by bringing in the concept of the ‘natural rate of unemployment’. Edmund Phelps developed it further by propounding NAIRU (Non-accelerating inflation rate of unemployment). Remember that this was the high time for neoliberalism which seemed to be roving around the world unchallenged. Phelps was honoured with the Nobel Prize in 2006.

Today, neoliberalism stands discredited and it is almost dead after the arrival of the Great Recession. Even after more than four years nobody can say with confidence where it is going to go. Neoliberalism has once again gone into its zombie state, that is, living dead. In India, however, the people in positions of making policies and running the economy do not seem to realise that the universe of discourse has completely changed.

Ever since neoliberalism has been adopted after declaring that this is the idea whose time has come and no force on earth can stop it, the rate of economic growth has increased but employ-ment opportunities in the organised sector have been static. The increased rate of growth is due mainly to pushing up labour productivity rather than employing more workers. Thus what we see is largely the phenomenon of jobless economic growth. This point has been stressed by none other than the ILO in its recently released report, Global Employment Trends 2012: Preventing A Deeper Job Crisis

The ILO points out that between 2007 and 2011 labour productivity increased on an average by 6.4 per cent while job opportunities increased by just one per cent. Thus jobseekers are being pushed into the informal sector where there is no regularity of employment, wages are low and no facilities like provident fund, health services, housing, education etc. are available.

It is not without reason that the government has been repeating day in and day out that labour laws must be reformed in the organised sector to attract more and more investment, especially from outside the country. The Economic Survey has stressed that the Indian economy cannot surge ahead only on the basis of domestic savings and capital accumulation. It must attract as much investment as possible. Without mincing words, it states: “Investment requirements in India will continue to exceed the availability of resources from domestic savings. The investment-savings gap during 2005-11 was 1.7 per cent of GDP. The best way of covering the gap is through FDI. Though our FDI policy regime is now more open and transparent and has an institutional review mechanism, there are several sectoral issues that need to be addressed and continuously fine-tuned.”

It blames the existing labour laws for obstruction in the way of foreign investments. To quote, “Industrial establishments have a variety of statutory obligations to discharge. The Employees Provident Fund Act; Employees State Insurance Act; Payment of Gratuity Act; Personal Injuries (Compensation Insurance) Act; Workmen’s Compensation Act etc. are some of the major laws that require not only the regular payouts by industrial units but also involve filing of periodic returns and maintenance of registers and records. This not only adds to the transaction cost of industry, it in many ways puts off a potential investor.” This amounts virtually to what Andrew Mellon, the Treasury Secretary of President Herbert Hoover, said: “Liquidate labor....” Those “learned men” who have penned the above lines forget that India is a democracy where the principle of ‘one man, one vote’ is dominant. People may be formally illiterate but they are politically more conscious than the so-called educated people mouthing neoliberal phrases.

The rate of economic growth has fallen from the peak of 9.5 per cent in 2005-06 to 6.9 per cent 2011-12. In 2010-11 it was 8.4 per cent. The rate of growth of agricultural sector is down to 2.5 per cent in 2011-12 from 7.0 per cent in 2010-11. Manufacturing has declined from 7.6 per cent to 3.9 per cent during this period. Another fact that needs to be noted is: “a significant decline” in the growth rate of investment during 2011-12. Since 2008-09, the rate of inflation, as measured by the consumer price index, has been very high. It went up from 6.2 per cent in 2007-08 to 9.1 per cent, 12.4 per cent and 10.4 per cent respectively in 2008-09, 2009-10 and 2010-11. In 2011-12, it is said to have declined to 8.4 per cent which is not a very small number to comfort the long suffering people. The Economic Survey still harps on FDI (foreign direct investment) in retail without realising its political implications for the ruling party.

Ever since the adoption of the neoliberal path, it has been claimed that this is the path towards progress and improvement in living conditions but the data presented by the Economic Survey belie this claim. India ranks 134 in the world according to the human development index. Its per capita income is lower than even Sri Lanka, Egypt, and Indonesia. The average per capita income in the world as a whole is almost three times that in India.

In India, inequalities in the distribution of the fruits of economic growth are obvious. As the reports indicate, the upper echelons of the society are going in more and more for their private choppers while the lower rungs are condemned to travel in overcrowded buses and trains. Regional imbalances too have been increasing. Most of the investments are flowing to the western and southern States. These are danger signals for the unity and integrity of the country. In this connection, one must read the Fourth Anuradha Ghandy Memorial Lecture by Arundhati Roy, entitled “Capitalism—A Ghost Story”, delivered on January 20. It is well-documented.

Lastly, the authors of the Economic Survey have done their best to demonstrate that they are fully immersed in the ideology of neolibera-lism though what they say are irrelevant to most of the people who read it. As an example, one should have a look at Box 2.1 (page 26). It would have saved the government some expenditure on paper, printing and binding if they had instead written it in some textbook for those interested in knowing the tenets of neoliberalism, like the rational expectations hypothesis and efficient market hypothesis. It seems they are in the grip of some sort of infantile disorder.

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