Chink in the Armour: NDA’s select Economic drawbacks
The Economy was what Narendra Modi used as a plank in his electoral campaigns to get a majority in the lower house of the parliament. The rhetoric of good governance and economic revivalism were so powerful that they seemed to tear through any and every argument which the opposition tried to fling at the “Modi-wave” to try halting it’s PR Tsunami. Indeed by the first phase of the polls in 2014, it seemed little could be done to prevent a complete juggernaut in the name of anti-incumbency which was brewing for a good two to three years in popular minds. The rhetoric of development was the single most powerful rhetoric that one could use in a failing economy plagued with no sense of direction; powerful enough to overshadow a plethora of drawbacks associated with the people making these claims, promises and statements.
The period of mirth in the Economy seemed to pick up from the time of his election as the Prime Minister of the country and we geared up for real change, not only as a nation but also as an economy. The change did come but not in a form which seemed to be very welcome. Over the past one year and eleven months, the economy has showed no real sign of progress with the “benign factors” spelled out by repeated Economic surveys not proving to be too benign to our cause as an Economy. The World Bank touting India as a “bright spot” in the global economy, for me is not much of an achievement because we are compared to a group of countries who are either extremely underdeveloped to achieve growth rates close to ours, or with countries undergoing or recovering extremely slowly from the depths of Economic slowdown and recession. Hence a comparative yardstick of a lone crow among canaries should not be a cause of such celebration among any sane mind whatsoever.
The primary cause of worry on this regard has been the problem-solution mismatch aimed at by the Indian Government in the current day and age. India seems to be in awe of the Messi-Ronaldo pairing of USA and China in the global economy and is on a path to somehow achieve a combination/synthesis of the two with the hope of trying to create something much more formidable than the former. I allude to the United States and China in terms of our “Startup (India)” and Manufacturing aspirations as an economy. On these two fronts, the glitz and glamour of the two programs has far exceeded any real outcome from the economy that has been achieved till date. Analysts in defence have been shouting hoarse regarding looking at the long term aspects of a manufacturing push using the rhetoric of “Rome was not built in a day”. Certainly it wasn’t, but the builders definitely were not as confused as that of the planners and their political overlords in the Indian setup. As an Economy, our comparative advantage lies in the resource called “population” and “population” not used to adequately amp up your manufacturing push would be nothing short of going against your very own comparative advantage and writing off any prospective gains from trade that you might hope to get in the near future. Our comparative advantage lies in the ‘jeans industries’ vis-à-vis the low-cost labour intensive industries which are technically a majority of the micro, medium and small enterprises in our economy, the days for whom don’t seem to be very bright in the case of a push for big manufacturing.
If you can include startups in this case under the definition of an MSME due to company size, you see that the “Startup India” project is taking shape where the government wants India to house the next Silicon Valley and Palo Alto. Startups are great and the employment gains to the economy are lucrative but the national rate of success for startup ventures is 20 in 100, which is not something to bank the future of an economy on. The other problem with is that rarely will a person without education up till the secondary, higher secondary or even the undergraduate level be able to conceive of a startup. This is in an economy where only 15–16% of the youth in the age-bracket of 17–23 receive any sort of education whatsoever. There has been no rate in the acceleration of this rate of indoctrination of the youth into the education setup of the country and if this is the rate at which we continue to sustain our levels of education in an economy housing 1.2 billion people, the hope of gainful employment or growth from startups is a dream that would probably take aeons to even get realistically close to. In short, two of the biggest flagship schemes of the Economy under the NDA government are principally misdirected and potentially of no short or medium term benefits to the Indian Economy.
Infrastructure investments are always a pretty conventional Keynesian pill taken by planners, policymakers and governments to generate aggregate levels of domestic demand in any economy. India has been following a similar path with infrastructure in terms of roads, highways, railways majorly getting a massive fillip in the Indian economy since the time the current government has assumed power. Increasing the connectivity of regions is important and that should be a massive priority. However to base the lion’s share of one’s government expenditures on these physical infrastructure building activities may not provide the much needed benefits to the Indian economy. The costs of modernization of the Indian Railways alone would foray into millions of crores of tolls on the Central Exchequer which our country is currently not ready to tolerate in terms of investment. From the trends of the past two years, we seem to be going the Chinese way in terms of an infrastructure led stimulus package to keep the economy afloat and prevent it from crashing any time soon. However in the case of China, this policy as a fiscal outlet has come to near exhaustion in terms of not only the quantum already spent on infrastructure but in terms of the rapidly rising rates of surplus and unutilized excess capital in the Chinese Economy, at a time of economic slowdown (let’s just call it “economic adjustment” for sophistication’s sake).
An economy is not just defined by it’s different earmarked sectors but also by the underlying political currents and institutional mechanisms prevalent at the time of the Economy’s functioning. Institutions are important to an economy’s growth story from a politico-economic perspective in the sense that they define the rent-seeking behaviours of the owners of the different factors of production in the economy. In the India of the past, the class or stratum of consideration/scrutiny would definitely be the “zamindars” but the modern day economic zamindars seem to be the elites in Corporate India with the increasing coming of age of a potent and endogenous Military-Industrial Complex under our much beloved “Make in India” strategy. The undercurrents in terms of a qualitative approach to the economy are taking place without much analysis on their profound ramifications on the economy. As a country today, we are defined on the yardsticks of intolerance and this environment of a cultural-religious cauldron does have deep impact on any foreign enterprise wanting to set up shop in the country. This also significantly dampens the soft-power of a rising economy which the world over begins to scrutinize on the cultural and communal fault-lines and sentiments, far apart from the real economic performance being turned out year after year.
In this regard the area where I find dangerous similarities between the current regime and China since I mentioned them above, is their institutional approach to managing an economy. A Central Government during the time of my existence has never looked as power hungry as this and this reeks of the modus operandi of the Chinese Communist Party across the borders. The acute tendencies of the concentration of power have begun to fructify over the past two years at the Centre with the importance of the big BJP team in all matters political and economics, much akin to the Politburo of the CCP. Interestingly we are veering towards the age where the State tries to increasingly clamp down on the media and the various freedoms of speech and choices of dissent that the country’s citizens seem to possess. Our institutional structures have also been revamped along the Chinese lines where the operational Centre-State structure of the NITI Aayog has been made to resemble much of what the Central-Provincial structure looks like in China. The state has begun an increasing level of cultural meddling as a part of it’s modus operandi not only with regard to increasing controls over Centers of Art and Culture, but in also reshaping the subject matter of education being imparted across states governed by the ruling party in favour of their belief-sets, something very similar to that of the prevalent practice in China. As a body polity, India is not china. India must not emulate a Chinese path to growth either in terms of an institutional setup because it is not what the Indian Political-Economic DNA is composed of.
I cannot but help look at Gandhian philosophy of trusteeship here, where we must recognize that our patterns of growth and development over the past few years has been pretty exclusive to the privileged classes in the Economy, which should however not be the case in any economy which speaks of itself as a well functioning democracy at various international forums. The primacy has to move away from the glitz and glamour of electoral and populist schemes, to the core economic issue of the electoral promises made a couple of years ago.
The budget in itself was a good start where it was a track changer to recognize the needed re-emphasis on the rural and agriculture sector as an important engine of growth in the Indian Economy. Although this did come two years late and probably after a spate of electoral losses out of political expendiency, the Economics of the measures of the last budget seem to be promising at the very least. The importance needs to now be on the bulwark of the economy which is formed by the non-startup proportion of the populace in the rural and semi-urban areas, where the real base of the economy lies. The government should not aim to look at hyper-expanding the financial and technological superstructure of the Economy at the cost of it’s real base which still lies in shambles. To avoid doing so, it must look at inclusive development, something which it had promised a couple of years back but has till now not managed to inculcate.