Thursday, Sep 29, 2022

India Needs To Rethink Its Economic Model

The Budget session should not be used to nitpick on revenue, expenditure and taxation, which would tantamount to tinkering with an economic model that has run its course, writes Manish Tewari.

Labourers carry vegetable baskets at a market in Kolkata. AP File Photo

That the Indian Economy is on the edge of a precipice is a sequitur. Which trigger would send it hurtling down an interminable abyss is anybody’s guess. The indisputable fact is that social disharmony and economic progress do not go hand in hand. The politics of socio-religious polarisation, coupled with the relentless depredations of law enforcement agencies, have terminated the turn of the economic wheel. Only straight-faced chicanery can deny that India is not in the throes of a structural slowdown/ recession. 

However, there is a far more important question that we need to ask ourselves. Is India pursuing the correct economic model that can deliver prosperity and, more importantly, happiness to its ever burgeoning population? India occupies 2.4 per cent of the total surface area of the world. It is home to 17.7 per cent of the world’s population with a median age of 29 years. The economic models that India has pursued since 1947 clearly do not seem to have worked.

In the current milieu it may be germane to look at the international context too where the revolt against globalisation, due to rising inequality, has thrown up a phenomenon colloquially called right-wing populism that is making people and nations increasingly insular.

At the commencement of the second decade of the 21st century, eight billionaires have the same wealth as half of the humanity combined. When the income of global conglomerates becomes larger than the GDP of 85 per cent of the nations on the planet, rule of law in the economic order becomes but a chimera. The concentration of wealth at the top of the pyramid also assembles political power in the hands of those who possess economic muscle.

India is no different. Our successive economic models have ensured that the top one per cent of our population now possesses 73 per cent of the wealth, while a substantial section of the populace oscillates between penury and subsistence.

However, notwithstanding this iniquitous aggregation of global wealth at the very zenith of the pyramid, the world has entered a phase of ‘zombie capitalism’. As Antonio Gramsci succinctly puts it, “The old world is dying, and the new world struggles to be born -- now is the time of monsters.”

This ‘monster’ is cheap money or interest-free finance that is sustaining the neo-liberal economic order. Post the 2008 economic meltdown, when rapacious capitalism had a heart attack, central banks in neo-liberal economies just commenced printing more money. Originally intended as a short-term rescue measure, it has all but become the new normal. Notwithstanding this fix the real economy is just not reviving and, therefore, the spectre of virtually an interest-free world has emerged.

This cheap money is keeping zombie banks, zombie companies and entire zombie economies unnaturally afloat. Over one-third of companies globally no longer spawn sufficient returns to cover even their borrowing costs. From German banks and Italian airlines to bankrupt Euro countries, all are being repeatedly and sequentially ‘saved’ by monetary boosters. These zombies are just not being allowed to perish. 

They are being given repeated lifelines for what is left of the virtuous part of the economy to resuscitate itself and kick-start a new growth cycle. This may prove to be a delusion. Notwithstanding the size of its economy, GDP growth rate in Japan has averaged 0.49 per cent between 1980- 2019. It has been dealing with zero interest rates for over three decades now.

In short, zombie capitalism incentivises the vilest economic model with speculators fueling societal inequity with oodles of inexpensive money, while businesses struggle for resources to re-capitalise and families are income-deficient to consume. This is specifically why the global economy is not recovering despite cheap money.

Juxtaposed against this is the Chinese Model of Totalitarian Capitalism. With opaque economic numbers and an artificially pegged currency, Xi Jinping’s China has been on a global hunt for strategic influence high on the testosterone of four decades of dizzying growth that is now plateauing.

India, therefore, must seriously rethink its economic trajectory as it confronts a collapsing neo-liberal economic order on one hand and the Chinese state capitalism system equipped with seemingly infinite monetary resources on the other.

The Indian economy grew at roughly 3.5 per cent during the Command Economy era from 1947-1991. When the Soviet model collapsed in 1991 and India was constrained to fall in line with the Washington Consensus, its economy grew roughly at 5.4 per cent between 1991-1998. This was when ‘trickle down effect’ was not yet a profanity.

It performed marginally better at 5.7 per cent between 1998-2004 when the economic model was slightly adjusted. It climbed to 8.02 per cent during the 10 years of the UPA Government when the stress on equity was equivalent to the priority accorded to growth. It averaged 7.33 per cent from 2014-18 and today stands at five per cent. However, some erudite economists are of the view that it feels more like two per cent.

The reason it feels that way is because its fundamentals -- savings and investment, consumption, and employment -- are creaking, if not collapsing. Centre for Monitoring Indian Economy (CMIE) pegged the unemployment rate at 7.7 per cent in December 2019. Oil imports, which are used to gauge economic activity, were down 0.83 per cent last month from December 2018.

Electricity production, another indicator of economic activity, too fell by five per cent in November 2019. In fact, a suppressed NSSO survey states that India’s overall consumption fell by 3.7 per cent between 2011-12 and 2017-18. Other economic indicators are equally depressing.

Foreign investment coming into India has been speculative in nature. Hardly any new investment is being made in manufacturing or greenfield infrastructure projects. There is a sharp increase in the Consumer Price Index (CPI) which rose to five-and-half years high of 7.35 per cent in December 2019. With high inflation, poor economic growth and joblessness, the country is simmering.

Sweeping the current numbers aside for a moment, the question to ask is what do these numbers mean to millions of Indians who live on the margins. The answer is -- virtually nothing. The neo-liberal economic mode and its predecessor have thus failed both India and the world.

Where does India go from here then? Does it fall back on the innate wisdom of Mahatma Gandhi in the 150th year of his birth? The Gandhian Economic Order premised upon decentralisation, self-sufficiency, cooperation, self-sufficient village units and the theory of trusteeship maybe just be worth revisiting to resuscitate economic activity at the grassroots.

Alternatively, the government could also leverage the globally available interest-free cheap money and the liquidity omnipresent in the Indian financial system to massively invest in physical and social infrastructure. These investments would pay off in the long term, never mind the fiscal deficit. A positive demand cycle could thus be reinitiated.

Parliament should utilise the Budget session by not nitpicking on revenue, expenditure and taxation. It would tantamount to tinkering with an economic model that has run its course. Instead, it should fundamentally debate the correct economic model for the country that can deliver justice -- Social Economic and Political -- the constitutional commitment that we have made to our people.

(Manish Tewari is lawyer, MP, former Union Minister of Information and Broadcasting, and Member Parliamentary Standing Committee of Finance.)