FOCUS ECONOMY Shivaji Sarkar
In the past five years, the economy has moved into a terrain of a deep crisis. This is a systemic crisis
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The trickledown effect has failed. Let this country try from the bottom upwards. That would include the large populace. Mere manufacturing and industry that employ the least cannot be the solution
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Prime Minister Narendra Modi has apparently been working hard. The year has been difficult for him having inherited a legacy of UPA’s Manmohan Singh that has depressed all economic indicators. It hasn’t been easy for the new government to lower inflation, at least statistically, which is an indicator that prices are not increasing.
However, it is a different story that the phenomenal price increases during the UPA II, years between 2009 and 14, have not come down either. The five years have ensured over 100 per cent profits for the large corporate, which also got substantial “incentive”– subsidy or added grants from the Government for suffering no loss. Shockingly, corporate India behaves as if they are from a different planet and can be oblivious to problems of the common man.
But RBI governor Raghuram Rajan has pressed the alarm button while half-heartedly allowing interest rate cut. Rajan pointed towards a number of problems hitting the economy and subtlety warned of not so brighter days in the near future. Is Rajan a pessimist? Perhaps he is not, and instead is a realist. He indicated that oil prices may not remain low. Now we see that OPEC has been able to take steps to boost prices. How much of this would hit India? Nobody knows. But it is a stark reminder that oil prices can play spoil sport to Modi’s promises.
Besides, the answer may not lie with carrying on with lower interest rate. This is a continuation of the Manmohan Singh legacy of granting subsidy to the large business houses at the cost of small depositors. Singh had all through since 1991 repeatedly erred and both his terms as the country’s finance minister and prime minister have been marred by scams right from 1992’s Harshad Mehta stock scam to scores of others till his government demitted office. The country lost trillions to the innumerable scams – an indirect profit to some big Houses. A case in point is that the recent coal block auctions even belie the estimates of the CAG, wherein the sale of a fraction of the mines fetched more than what it estimated at Rs 1.76lakh crore.
For starters, Modi has taken at least a partial corrective measure. He has to do a lot more. But if he starts recovering the money from the scamsters, he would be accused of being vengeful and if he doesn’t, then his friends would say he is soft. Indeed, it’s not easy for Modi to change tack overnight. The bureaucracy creates road blocks wherever possible, as many of them owe loyalty to the previous masters.
Modi has twin objective of reviving the economy and checking corruption, neither of which is easy. During the past one year since he came to power, the government itself has come out clean. But the system has suffered many hiccups. At one end, the higher bureaucracy is cautious and on the other, the lower bureaucracy has evolved ways to go on with the corrupt system. Many departments, including that of traffic policemen, have outsourced the “collections” to non-descript people. They can be spotted at different road crossings all over the country, including the National Capital Region.
At the same time, there are many higher level bureaucrats earning Rs 1.5lakh a month post retirement at government offices. Some others are having additional “income” of almost Rs 2lakh a month from autonomous bodies. Such people are innumerable in the portals of power and they block decisions, misguide political bosses and tend to forget crucial instructions. This is where the new dispensation is suffering. The process of primitive decision-making and accumulation of files in a few hands ensured that growth has been exclusionary — devoid of the trickle-down effect, where the exclusion has taken two forms: first, by excluding a vast section of the population from the benefits of rising income growth; and second, further exacerbating existing social inequities based on caste, ethnicity.
In fact, the dual phenomena of income inequality and social inequity compensated, complemented and even reinforced one another to exclude a large section of the Indian population from the benefits of economic growth. There is also, due to measurement problems, controversy over trend of income poverty, and there is a strong indication that non-income factors of poverty (captured by the statistics of malnutrition, health, education, etc.) may have stagnated or worsened, say some economic experts.
This legacy is stomping Modi. The question arises: Is there a way out? While his think tank is looking at reviving the village economy through clusters, others want manufacturing and industry to grow to balance the deficiencies. There is dissatisfaction at the National Institution for Transformation of India (NITI) Ayog as it is dominated by the US and West leaning experts. If the Planning Commission with similar people had failed this country, would the new one be able to deliver, they suspect.
Since 2007, the growth story is in serious danger. In fact, the Indian economy’s troubles expand well beyond the faltering growth story. In the past five years, the economy has moved into a terrain of a deep crisis. This is a systemic crisis. In the socialist era, trade unions were blamed for all ills. But why is the “competitive” globalised market economy failing?
The reason is simple — the economy is exclusionary. The deprived get marginalised. The middle class get impoverished as they are not getting proper jobs and are pestered by a tax system that favours the rich. Modi has to correct this great aberration. The promised inclusion has to go beyond financial – Jan Dhan.
In reality, the way the income tax department is baying for more powers and criminalization of tax default, it may well become the biggest obstacle for inclusive overall growth. The richest in India do not pay taxes. Their companies bear it in many garbs. Tax officials have become rent seekers and are pestering the poor tax payers, who have an income of Rs 20,000 or more. As the less than about 4crore taxpayers come from this salaried class, they also lose on their bank deposits through TDS, and have no capacity to go to the market.
Modi has to ensure correction at many levels. He has to change the goal posts at all levels. Economy has to be seen from the perspective of the people at the lowest rung – salaried or small entrepreneur. The trickledown effect has failed. Let this country try from the bottom upwards. That would include the large populace. Mere manufacturing and industry that employ the least cannot be the solution. Modi has a knack for experimentation. The country awaits his steps for a new economy. INFA
