February 15, 2020
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Looking For Luck

There is no demand, ‘Make in India’ has a tough ask ahead

Looking For Luck
Jitender Gupta
Looking For Luck

Prime Minister Narendra Modi doesn’t have much love for the Planning Commission, probably because, as Gujarat chief minister, he had to go and beg for money from time to time, with disappointing results. After his arrival in South Block, the Planning Commission has lost its clout. But it’s still publishing statistics. The last financial year ended eight months ago, and still it’s giving an advance estimate of 4.74 per cent growth in the year long gone. Even this modest rate had much to do with the extraordinary 4.71 per cent growth in agriculture; if agriculture had grown at the normal 2 per cent rate, total growth would be down to 4.3 per cent.

For this year, the Reserve Bank of India gives unimpressive but respectable growth of 5.5 per cent for April-September. The monsoon has been good, so there is likely to be a bumper rabi crop—not that it would do anybody good, for the government will just buy up the wheat and stack it up to rot in godowns. But if we go by official figures, the year that is passing is likely to show better growth than the last two years, when it fell short of 5 per cent. Will the next year be any better? Just four years ago, growth was close to 9 per cent. Since then, it has slipped badly; now it is struggling on at about 5 per cent. What has dragged it down? In the five years ending 2010-11, average industrial growth was 8.6 per cent, and services growth was 10.3 per cent. In the past two years, industrial growth has been 0.7 per cent, and services growth 6.7 per cent. Basically, India has experienced an industrial breakdown.

Make in India. The object is missing from the sentence, but it’s most likely to be manufactured products. That would make sense in the context of the drastic industrial slump we are seeing. In normal circumstances, the BJP is a narrowly nationalist party. It was a favourite of domestic manufacturers allergic to foreigners coming to India and competing with them. But dire circumstances call for drastic remedies. In 1991, we had a similar slump, plus an intractable balance of paym­ents deficit. I was taken into the government, and persuaded Man­­­m­ohan Singh to try an unc­­­o­­nventional solution. We ope­ned up the economy; since then, we have had over two decades of growth without a payments pro­blem. Today, our reserves are so high it would take an incompetent finance minister a few years to ruin it. But the PM is worried about the collapse of industrial growth, and wants it reversed.

How can it be reversed? Ind­us­trialists do not make products unl­ess they can sell them: growth requires markets. In the 1930s, Britain faced a similar slump. J.M. Keynes told the government to spend more than it was taking in taxes: a budget deficit would pump in demand into the economy. This has become a standard recipe by now. Just four months ago, Jaitley did precisely this: he gave away Rs 50 crore and Rs 100 crore to party favourites, and told them to spend it and enjoy themselves. They are presumably having a good time, but the economy is not reviving. The old recipe is not working. Whatever they may be spending on, industry is not facing better demand.

The UPA had a slightly different recipe. It too believed in spending more than it received; but it spent the money on the poor. That had the advantage that the poor need things and are more likely to spend whatever they get. The disadvantage was they were given the money through gram pradhans and other intermediaries; there was no control on how much they gave the poor and how much they pocketed themselves.

Photograph by Tribhuvan Tiwari

Those who got Congress handouts did spend; it was their spending that saw stellar growth rates under UPA.

There can be no reliable statistics of corruption. But if the poor had grown rich at the expense of the exchequer, they would have voted Congress back into power. Instead, they gave a massive vote to the BJP. This would suggest that the Congress favourites grew rich and that the poor stayed poor. The intermediaries in the mass welfare programs like the rural employment guarantee and public distribution schemes captured much of the government expenditure in bribes, and the poor whom they were supposed to benefit got little. The Congress organised one of the world’s biggest corruption pro­grammes. Still, whomever the Congress handouts went to, they did spend; it was their spending that was behind the stellar industry and services growth rates seen under UPA rule.

And it was not only the rich intermediaries that prospered. The economy expanded rapidly; labour became dearer, and most people did better. By 2011-12, almost all townsmen, rich and poor, and three-quarters of villagers, had electricity, three-quarters of townsmen and a quarter of villagers cooked on gas, over a third of families went to proper doctors, three-quarters even in villages bought medicines, and three- quarters used cellphones. Virtu­ally everyone went to barbers, bought soap and detergents, and got into buses. Two-thirds of vil­­lagers and almost all townsmen had electric fans, half of vil­lagers and four-fifths of tow­nsmen had TV, and a tenth of vil­lagers and four-fifths of town­smen had a refrigerator. I am not saying that society became better or more equitable; that would involve a value judgement, which is best left to good souls. What statistics shows is that the condition of virtually all, rich and poor, imp­roved during the UPA decade.

Why is it then that they kicked out the Congress and voted in the BJP? For one thing, they did not associate the Congress with their own prosperity. Those who grew rich from the public exp­enditure programmes were a minority; those who did better did so out of the booming economy, and owed nothing, at least obviously, to Congress generosity at the taxpayers’ expense. And the latter saw the former getting rich. In many vil­lages, the most prominent houses today are the politician’s—gaudy two- or three-storey houses on the main street, with a tractor, SUV or both standing ready to transport the worthies.

Clearly, our barbarian society has evolved further. We have created a new upper caste of politicians. Their leisurely acq­uisition of wealth is conspicuous and cyclical, the cycle being imposed by democratic elections. Will this cycle be interru­pted? Narendra Modi is said to have cleaned up the Gujarat government when he was CM. Will he do so in Delhi as well? Will he be able to cure his ministers of their belief that their electoral success was due to the dip they took in the Ganges or the blessings of the ascetic whose feet they touched or the rituals they practised on the counsel of their astrologer? Maybe he will not have to, maybe they are right.

(Ashok V. Desai is a senior economist and commentator)

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