Mainstream WeeklyEconomic development and its sustainability depends on the inter generational savings and their productive investment. Productive investment gets a boost if it is accompanied by innovations in various aspects of life. This process gets disrupted when predatory extractions of economic resources/surpluses happen due to internal or external factors.
Predatory extractions are defined as collection of economic resources by the state or non-state actors by force or manipulation and are used for unproductive purposes. These extractions also lack transparency in collection and spending of these resources. In the pre capitalist era this happened in the form of direct plunder by the rulers and also by the invaders. The invaders used to plunder the treasuries of the defeated rulers and the people of that territory. Punjab being on route of invaders to India from the time immemorial knows this better. This is expressed in a local saying that "khadha peeta lahe da baaki Ahmed Shahe da"(what is consumed is advantageous, the rest belongs to Ahmed Shah). With the arrival of the Britishers they added extraction of surplus through unequal terms of trade and excessive revenue collections from the agriculturalists.This not only robbed off wealth of the country but also blocked its development for nearly two hundred years making it a poorest country of the world. A recent estimate by Utsa Patnaik (2019) shows that $ 45 trillion were were extracted from India between 1765-1938 by Britishers through fraudulent trading system. This surplus was used for industrial development of the Great Britain. Consequently, India got de-industrialisation and pauperisation of rural population. It took more than fifty years efforts to put the economy back on the path of sustainable development. But in the recent years some predatory extraction of economic resources has creeped into the system which is threatening the development process.
The recent predatory extractions have taken two routes. One is via behaviour of corporate companies of manipulation of share prices. Taking a cue from the US multinational companies after post reforms period Indian companies have shifted their policy from "retain and invest" profits towards "downsize and distribute". Under the policy of retain and invest they had invested a major part of their profits for productive investment and also employed and retained the skilled work force. Under downsize and distribute these companies are preferring mainly to distribute profits among the share holders. This is done by inflating the value of the shares through mechanism of internal buying. By this process the value of the shares is inflated and small buyers from middle class are lured to invest in the share market and when value of these share start falling then small share holders sell while companies buy back and earn profits. At the same time these companies adopt the practice of hire and fire of employees . After new technology is adopted these companies fire many upper and middle level experienced employees. They are replaced by low salary employees.This leads to redistribution of income in favour of the richest while middle class faces uncertainty and shrinkage in their income and savings. This mechanism has reduced the share of household savings in the country. Data from the government sources shows that the contribution of the household savings has declined from 23.6% of the GDP in 2011-12 to 18.1% in 2023-24. The overall rate of savings in the country has also declined from 34.6% of GDP to 30% during this period.The decline of the household savings has contributed to decline in overall rate of investment in the country leading to decline in the growth rate of the economy from the vicinity of 8% to 6.5% in the recent years. Another method used by these companies is to borrow huge amount of money from public sector banks to start new businesses or acquire government companies. But after some time their loans become non-performing assets. They get them settled under one time settlement (OTS)scheme returning a fraction of the total loan. By this mechanism they plunder public sector banks and Government of India compensate the banks through tax payers money. This reduces the capacity of the government to fund infrastructure projects and essential sectors like health and education.
Another innovation in predatory extractions is via behaviour of the Union and state governments is through political luring the voters by offering some freebies irrespective of income level. Some of these freebies can not be justified on the ground of equity or economic efficiency. At the same time governments are collecting funds from business and general public through societies which are not subject to audit and their use is not made public even under RTI. These measures weaken the capacity of the governments to fund Infrastructure and especially research and development (R&D). Neither the government nor private sector is making sufficient investment for R&D. Consequently India is spending 0.65% of our GDP on R&D compared to 2.4 % by China and 2.8 % by the US. As a result the country is unable to compete with China and other competitors in both Indian and global market.
In the changed global environment it is worth consideration that we examine the predatory surplus extraction by both corporate companies and uncontrolled culture of unsustainable freebies by the governments. It will be useful if corporate companies are made to shift their attention to focus on retain and invest policy The process of share market manipulation via internal buying is stopped and the bank loans are strictly recovered. At the same time employees with private sector companies need some protection from hire and fire in a brazen way. Just as companies need cumulative learning to be innovative, employees need collective and cumulative career to remain productive over the working lives. At the same time a reforms is needed in corporate tax system. Corporate companies must pay their fair share of tax to reimburse a large number of households whose tax payment has sustained government spending and education of children who work for the companies. A consensus needs to be built at national level that subsidies are restricted for the poor and innovations for productivity enhancement and environment protection only. The culture of unsustainable freebies needs to be avoided to save governments from getting involved in debt trap. Without reviewing our economic policy to make it production and innovation inducing and inclusive in nature the development process will be continued to be threatened by predatory resource extraction.
(Author: Sucha Singh Gill, Former Director General CRRID, Madhya Marg Chandigarh)