The doctor’s dilemma

The government keeps tom- tomming the need for ‘inclusive growth’. But its economic policies have achieved exactly the opposite.

For Dr Manmohan Singh, who has entered his 10th year as Prime Minister of India (he was sworn in on May 22, 2004), the irony could not have been more cruel.

The man who is supposed to have lifted the country’s economy from the brink of an abyss exactly 22 years ago as the finance minister in P.V. Narasimha Rao’s government, is today having to confront an economic situation which is not very much better. In fact, it can be argued that in at least one respect, that is, inequality, we are today worse off than we were two decades earlier.
India is not exactly in danger of defaulting on its external financial obligations as it was in June 1991. Nor has the exchequer’s gold been mortgaged to the Bank of England. But the country’s current account deficit — simply put, the difference between the inflow and outflow of foreign currency — touched a record high of nearly
$33 billion in the October-December 2012 quarter, up 46 per cent from the previous quarter. As a percentage of gross domestic product (GDP), the current account deficit widened to 6.7 per cent from 5.4 per cent in the September quarter.
For the financial year that ended on March 31, 2013, the country’s GDP grew by five per cent — the slowest rate of growth in the last decade. This is a particularly disconcerting consequence for a government that has been emphasising growth over everything else in its economic policy package. It has been argued (though in not so many words) for some time now by
Dr Singh and his closest advisors — notably finance minister P. Chidambaram, deputy chairman of the Planning Commission Montek Singh Ahluwalia and the head of the Prime Minister’s economic advisory council
C. Rangarajan — that growth would take care of just about every major economic problem the country faces.
Growth, the neo-liberal hawks in the government have contended time and again, would spur investments and savings, create more jobs, mitigate the adverse impact of inflation and propel the “emerging economy” of India on to the high table of the comity of nations. Unfortunately, none of this has happened. The savings rate is down as are investments. Outgoing investments by Indian industrialists abroad have overtaken inflows of foreign direct investment for the first time, even as the government desperately woos foreign investors and is paranoid that a discredited bunch of international credit rating agencies will soon downgrade India. If that indeed happens, it would exacerbate an already bad balance of payments problem.
The government keeps tom-tomming the need for “inclusive growth”. But the government’s economic policies have succeeded in achieving exactly the opposite. Consider how employment opportunities have expanded in the recent past. Here is what a December 2012 paper of the Institute of Applied Manpower Research (curiously, a body under the Planning Commission), titled “Joblessness and Informalisation: Challenges to Inclusive Growth in India”, states: “One of the most disturbing numbers that the 2009-10 employment-unemployment National Sample Survey data show is the addition of merely 2.76 million work opportunities during the period of fastest growth for the economy... Compared to this, there was an addition of 60 million to the workforce during 1999-2000 and 2004-05.” It was, of course, not so creditable that roughly half of the jobs created in the first half of the first decade of the new millennium were in agriculture — at a time when the share of agriculture in GDP continued to shrink.
Whatever explanations are given by government economists in the North Block to explain this phenomenon — women studying longer in school and fewer people getting enrolled in employment exchanges — one point needs underscoring. If the pace of job creation was so tardy when the economy was growing rapidly at nine per cent or close to nine per cent four years in succession (for the first time in Indian history), imagine the slow rate at which employment opportunities are expanding now that the economy is growing by only five per cent.
The single biggest failure of the government’s economic policies in recent years has been the inability to control inflation in general and food prices in particular. Many reasons have been forwarded to explain why food inflation has been at around double-digits or close to that level for the better part of the last five years, including, changing dietary patterns on account of rising incomes and higher fuel prices.
But what cannot be denied is that high food prices have hurt the poor much more than the rich or even the middle classes, simply because food constitutes a larger proportion of total household incomes the lower one moves down the economic ladder. What food inflation has done in effect is widen the gap between the rich and the poor, thereby making our already-unequal society even more unequal.
Government spokespersons claim the worst is over and that the economy will revive in the near future. The problem is that their optimism is shared by few. For years on end, our babus claimed inflation would be coming down. It didn’t. But now that inflation rates are coming down, what they don’t tell you is that this doesn’t mean food prices are also declining. A lower rate of inflation merely means that the speed at which prices had been going up has decelerated. In other words, if inflation was earlier travelling at 100 kms per hour, it is now moving at 60 kmph.
Contrary to what Dr Singh has often argued, that there is no difference between good politics and good economics, what the government has ended up doing is going to hurt it both economically and politically. If the government indeed thought that aligning domestic energy prices with world energy prices is desirable (which can be questioned), to do so in the run-up to the next general election is hardly going to help the incumbent regime gain popularity.
What the Prime Minister and his friends in government refuse to believe is that many of the current problems of the economy are a consequence of the policies that have been followed over the last two decades and a bit longer. To argue in favour of decontrol and de-bureaucratisation is one thing. To believe that market forces will resolve many of the economic problems that a large developing country like India faces, is quite another.

The writer is an educator and commentator

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