By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Cross posted from Triple Crisis
Most of the news in India today is not really about the economy. Instead, the dominant narrative is about social discord: The ongoing turmoil in universities in different parts of the country resulting from high-handed central government behaviour that has even resulted in the death of a Dalit student in Hyderabad. The unprecedented (and unwarranted) attack on students of Jawaharlal Nehru University in Delhi based on unsubstantiated charges of “sedition” for shouting supposedly “anti-national” slogans, an accusation based on doctored videos aired by compliant media and followed by physical attacks on students and teachers by lumpen elements that have gone unpunished. The spectacle of members of the Jat caste in Haryana on the rampage, destroying property and allegedly gang raping women while demanding reservation for their caste in government employment. Other threats of personal and sexual violence from those closely or loosely affiliated with the ruling coalition, freely directed at anyone who disagrees with the imposition of “Hindutva” ideology or speaks up for the rights of marginalised victims of discrimination.
There are those who believe that much of this is tolerated and indeed encouraged by the Modi government so as to distract attention from other failures, most spectacularly the failures on the economic front.
That may sound surprising. With so much bad news, the economy actually seems to be the one bright spot. India is now officially the world’s fastest growing economy, with GDP growth of 7.6 per cent in the past year. This is why it has been lauded as the new Asian tiger, or even elephant on steroids, in a global economy that otherwise is full of gloom and showing signs of impending crisis. The fact that India is a huge beneficiary of the low global oil prices is another reason for seeing it in a “sweet spot” that brings a lot of potential for growth.
But it is surprisingly hard to see much evidence of this rapid economic growth on the ground in India, or even find it reflected in indicators that most people would appreciate. The way national income is calculated has been changed, and it has found skeptics even among the government’s own economic advisors. So while GDP growth is apparently still rapid, employment continues to stagnate, especially formal employment that provides any kind of social or legal protection. Real wages (that rose throughout the previous decade) have been falling for a year now, more sharply in rural India. The agrarian economy is close to crisis, as farmers reel from the effects of two consecutive poor monsoons and reduced public spending that could affect agriculture. Public delivery in nutrition, health and education is in a mess after massive fiscal cutbacks in previous years.
Investment rates in the economy are actually falling (down to less than 30 per cent of GDP last year compared to around 34 per cent in previous years) and industrial production is limping along, growing at only around 3.5 per cent. Both exports and imports are falling. Banks, particularly public sector banks, are facing financial stress, burdened with large unpaid debt from infrastructure investments many of which have stalled. So many people ask: where is all this so-called growth actually occurring?
Obviously, we need measures to increase domestic demand by improving wage incomes and possibilities of employment. More real spending on agriculture, on social sectors and on employment schemes can do this directly and indirectly through very large multiplier effects.
Sadly, the Budget just unveiled by India’s Finance Minister has missed this chance. It makes a big noise about the agrarian crisis, but proposes only rehashed old programmes, and pretends to increase spending on this sector by shifting budget heads from other Ministries. It declares an increase in the allocation for the rural employment programme, but neglects to note that this is a demand-driven scheme by law, and the Central government already owes more than 14 states lots of money that they have already spent in the current year. It promises a health insurance plan for poor people, but does not put aside enough money for it. It barely increases health and education spending as share of GDP, keeping them at abysmally low levels that do not provide even minimally adequate services for the bottom half of the population who need them most. It actually cuts the allocation for the food programme that is required to expand and strengthen the national Food Security Act.
All this because it wants to keep its fiscal deficit targets, which makes little sense in the current economic environment, when wholesale prices are actually falling and there is no positive stimulus from the global economy. The only big allocations are for road and railway investment, which would be fine if they are not directed (as proposed) to trophy projects like a high-speed railway in the Prime Minister’s state.
Really solving the current problems of the Indian economy – and ensuring jobs for its young – is going to require a lot more.