Negotiating the Future
India’s current economic paradox: Growth numbers aren’t reflected by other indicators.
It is paradoxical. According to the latest government data, India’s GDP growth rate is 6.6%. Though this is weak in comparison to India’s own performance over the last decade and a half, in global, comparative terms, this is commendable. However, in terms of several other critical indicators, the performance of the economy is outright disappointing.
The latest growth number (February 2019) for the core sector is 2.1%, and the Index of Industrial Production is 0.1%. Export growth over the last five years has been zero, which has rarely happened in India after 1991. India’s savings and investments rates – which had crossed 30% in 2003, went to over 35% by 2008, making India look like the fast-growing economies of east Asia – has slid back to below 30%.
Our agriculture sector is floundering, and, finally, what all India watchers are concerned with is the country’s jobs situation. The release of official data on this has been stopped but detailed studies from Azim Premji University and the Centre for Monitoring Indian Economy, and piecemeal evidence on job announcements and numbers of applicants make it clear that the situation is grim.
How do we square India’s commendable growth with these other indicators? In terms of pure accounting, some of this is explained by growing inequality. The growth that is happening is concentrated at the top, while the bulk of society – the working classes, the farmers, small businesses – are barely inching forward.
How did this come to be and what should India do? It is important to recognise that, while there have been several good policy initiatives, there have also been mistakes, such as the demonetisation of November 2016. There is now a virtual consensus among experts around the world that this was a blunder that had a big negative effect on small businesses, workers and farmers, while leaving the rich virtually unaffected. Interestingly, the sharpest indictment comes from the finance ministry’s Economic Survey 2016-17, which lists all countries that did similar “sudden demonetisations” since 1982: North Korea, Venezuela, Myanmar, Iraq, Russia, USSR, Ghana, Brazil and Cyprus. This list makes the failure virtually self-explanatory.
Policy mistakes happen. If these mistakes are recognised and corrective measures taken, that signals professionalism and bolsters confidence in the nation. The lack of expertise is clear from other smaller initiatives, such as the new reservation policy, which holds 10% of government jobs for the “economically weak”, defined in a way seeming to include everybody except the richest 5% of India’s population. However, what is not as
recognised is that there is one more exclusion. Those belonging to scheduled castes and other disadvantaged castes cannot get these jobs. In other words, by bringing in this new reservation, the disadvantaged castes are being excluded from 10% of the jobs that they were earlier eligible for. This is a baffling caveat.
One sector where India has a natural advantage is trade. With China’s wages rising, we should have been able to expand exports hugely. This would have created jobs and had positive spillover on the agriculture sector. But export growth does not happen simply by virtue of having cheap labour. It requires a slew of well-designed policies. Among other things, it requires management of the exchange rate.
India, like all market economies, is committed to a floating exchange rate system. But floating does not mean zero intervention. All countries, including the US, occasionally use banks to buy and sell currency on behalf of the central bank to influence the exchange rate, and thereby, trade. This is however a complex matter. Should the intervention be lump sum or exchange-rate sensitive? Should it be one-time or in small batches? There is a lot of research on this, which ought to be put to use.
One initiative of the government that I have supported is the effort to cut bureaucratic costs. Going by the World Bank’s index of Ease of Doing Business, India has made significant progress, with its rank improving from 130th among 189 economies in 2016 to 77th among 190 economies in 2018. This should have helped India create more jobs and boost exports. In retrospect, it is clear what is happening. Instead of making a general effort to cut bureaucratic costs, there has been a disproportionate focus on the ten measures the World Bank tracks as a proxy measure of a nation’s bureaucratic cost, which in reality has many more dimensions. This kind of pure gaming of the system earned India a pat on the back from the World Bank but did not do much else.
In closing, let me point out that most economic policy mistakes cause short or medium term hardships. The greater, longrun worry for India is the divisiveness that some groups are propagating. India has been home to not just Hindus of various castes, but Christians, Jews, Muslims, Parsis, Sikhs and Buddhists. Driving a wedge between upper caste Hindus and the rest can damage the entire nation’s morale and cause long-run damage to growth.
India made a remarkable, morally resonant choice in 1947, when it opted to be a secular democracy. This was not easy in the early years. What we do know is that this investment is paying off now, with India being among the world’s fastest growing nations over the last decade and half. To spread hatred and divisiveness can put an end to that dream. But more importantly, such behaviour damages the moral fabric of society. I know that for an economist to speak about morality is treated as not being hard-nosed enough. But we do not, and must not, live by wealth and money alone. To uphold basic moral and human ideals is important not just for the individual but for the nation.
Courtesy: The Times of India (National)
- Paradox (Noun): Meaning: a statement or proposition which, despite sound (or apparently sound) reasoning from acceptable premises, leads to a conclusion that seems logically unacceptable or self-contradictory. (विरोधाभास)
Synonyms: Contradiction, Inconsistency, Anomaly, Oddity, Enigma, Puzzle, Conundrum
Antonyms: Normality, Regularity, Certainty
Example: It’s a paradox that in such a rich country there can be so much poverty.
- Commendable (Adjective): Meaning: deserving praise. (सराहनीय)
Synonyms: Laudable, Estimable, Exemplary, Exceptional, Noteworthy, Sterling
Antonyms: Reprehensible, Deplorable, Despicable, Ignoble, Repugnant
Example: Mr. Sparrow has acted with commendable speed.
- Outright (Adverb): Meaning: altogether; completely. (पूर्ण रूप से)
Synonyms: Entirely, Downright, Wholly, Absolutely, Thoroughly, Totes
Antonyms: Partially, Slightly, Partly, Incompletely
Example: I think cigarette advertising should be banned outright.
- Grim (Adjective): Meaning: depressing or worrying to consider; very serious or gloomy. (विकट, भयानक)
Synonyms: Dreadful, Awful, Threatening, Menacing, Formidable
Antonyms: Pleasant, Gratifying, Delightful, Gentle, Benign
Example: When he lost his job, his future looked grim.
- Consensus (Noun): Meaning: general agreement. (आम सहमवि)
Synonyms: Harmony, Concord, Consent, Accord, Unanimity, Unison, Concert
Antonyms: Disagreement, Dispute, Discord, Altercation
Example: He was the first to break the consensus and criticize the proposal.
- Indictment (Noun): Meaning: a formal charge or accusation of a serious crime. (अवभयोग)
Synonyms: Accusation, Arraignment, Impeachment, Prosecution, Allegation, Imputation
Antonyms: Acquittal, Exoneration, Absolution, Vindication
Example: She was convicted on an indictment for conspiracy.
- Baffling (Adjective): Meaning: impossible to understand; perplexing. (हैरान करनेिाला, विस्मयकारी)
Synonyms: Bewildering, Mystifying, Enigmatic, Knotty, Incomprehensible
Antonyms: Comprehensible, Obvious, Straightforward
Example: An apple tree producing square fruit is baffling experts.
- Caveat (Noun): Meaning: a warning or proviso of specific stipulations, conditions, or limitations. (चेिािनी)
Synonyms: Admonition, Monition, Proviso, Stipulation, Rider
Example: She will be offered treatment, with the caveat that it may not work.
- Bolster (Verb): Meaning: support or strengthen. (सहारा देना)
Synonyms: Fortify, Reinforce, Buttress, Brace, Supplement
Antonyms: Enfeeble, Hinder, Impair, Undermine
Example: He tried to bolster up their morale.
- Propagate (Verb): Meaning: spread and promote (an idea, theory, etc.) widely. (प्रचार, फैलना)
Synonyms: Promulgate, Preach, Circulate, Disseminate, Broadcast
Antonyms: Conceal, Cover, Hide, Restrict
Example: The group launched a website to propagate its ideas.