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Mainstream, VOL LIII, No 11, March 7, 2015

On Economic Survey: 2014-2015

Monday 9 March 2015, by Girish Mishra

Professor Ha-Joon Chang teaches economics at the Cambridge University and has authored a number of books such as Kicking Away the Ladder: Development Studies in Historical Perspective, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, 23 Things They Don’t Tell You About Capitalism, etc. The February 18 issue of Frontline has carried a longish interview with him. V. Sridhar of the Frontline asked him: “India is now led by a Right-wing government, led by a party that is not only Right-wing in its economic outlook but one that is explicitly committed to an ideology that is communal (against minorities, for example). In the name of ‘being decisive’ and allowing greater play for ‘free’ markets, the new government has pursued an aggressive policy of appeasement to industrial and financial capital—Indian and foreign—in the name of economic liberalisation (rapid privatisation and the handing over of resources such as land on very attractive terms are some of the key features). What parallels do you see to this in global terms?”

Prof Chang’s reply is quite interesting. He says: “I can only describe ...[Modi’s ascent] as the result of the incompetence of the Congress party, especially its inability to manage the Indian economy and society better when it was in power. Yes, the rhetoric of the new government is aggressive, and has done some things to back that up, but I am not so sure that this government can do as much as it claims it will do.

“India is a very complex federation... The constitutional limits in India and the federal structure could hinder a full-blown pro-corporate attempt here.

“I have heard people here say that Modi uses a lot of rhetoric but is basically a pragmatist. I did not even realise ... that he had abolished the Planning Commission. In recent years, the Commission had been run by those with a free-market outlook. But the government to actually give up the attempt to coordinate the economic activity in different sectors and States has been a powerful symbolic move.

“The biggest problem I see with this kind of vision is that it is not even pro-market, it is blatantly pro-corporate sector. Of course, we need markets; and we need corporations, which are the main actors behind the veil of the market since the market is only a metaphor. But the role of the government is to reconcile the demands of the corporations with those of the rest of society. Otherwise, why bother to have a government at all? We might as well outsource everything to corporations.

“Basically, no country in the world has ever progressed through the pursuit of pure free market and free trade policies, which Modi claims as his ideals. People think Britain and the US became hegemons because they pursued such policies, but these are countries that invented protectionism. ...

“People often think Singapore is the textbook model of free trade and free market policies. Yes, it does have some elements of free trade policies, but we are never told that 90 per cent of the land in Singapore is owned by the government; 85 per cent of housing is provided by the state (and more than one-fifth of national output is produced by state-owned enterprises). Even when it courts foreign investment, it does not give huge tax concessions and so on, but provides customized infrastructure and manpower to suit the needs of the corporations. It is a much more forward-looking approach; it does not just open up the economy and say: ‘Please come and exploit us.’

“Given this historical pattern of development across the world, I do not know how the Indian government believes being pro-corporate will lift India to a higher level. Of course, India being a relatively poor economy, these kind of policies can get some traction in the next 10 years. But after the advantages of cheap labour and resources are exhausted, what are you going to do? India does not have resources like Chile. The best you can hope for is to becoming something like Mexico, which is the slowest growing economy in Latin America in the last 15 years. I see India reaching this kind of a dead end because it is pursuing this kind of a dead end because it is pursuing similar policies.”

Coming to the Economic Survey 2014-15, it has been published in two parts. The Chief Economic Adviser of the Ministry of Finance, Arvind Subramanian, states that he is inspired by the IMF’s World Economic Outlook and that is why “this Survey departs structurally from its predecessors and is presented in two volumes.” In the preface, Subramanian states: “The broad themes of the Survey are ‘creating opportunity and reducing vulnerability’. Growth is the prerequisite for achieving many economic and indeed other objectives. Maximizing the benefits of growth will, of course, require complementary public actions, but without growth, possibilities across the income spectrum shrink.” He emphasises growth and dismisses the question of distribution. He is frank enough to declare: “Growth versus distribution is, as it always should have been, a false choice.”

The Survey is hopeful that “India has reached a sweet spot—rare in the history of nations—in which it could finally be launched on a double-digit medium —term growth trajectory. This trajectory would allow the country to attain the fundamental objectives of ‘wiping every tear from every eye’ of the still poor and vulnerable, while affording the opportunities for increasingly young, middle-class, and aspirational India to realise its limitless potential.”

The people who have authored the Survey should know that even in democratic countries like the USA, Britain, France, etc. inequalities have been rapidly increasing and scholars like Joseph Stiglitz, Paul Krugman, etc. are worried. Thomas Piketty has come out with his Capital in the Twenty-First Century with lots of data and convincing arguments that the reliance on the corporates is not going to wipe every tear from every eye. Then the assertion that India is going to have a double-digit medium term growth trajectory is not grounded in facts.

The days of Nehru and Indira Gandhi are gone when the country mobilised savings and invested in public sector enterprises and mostly relied on the domestic market. Now in the Modi-era, the reliance is placed mainly on FDI (Foreign Direct Investments). MNCs from outside will come with huge amounts of capital and technology and set up industries and help job creation to satisfy the youth and will bring enormous amounts of foreign exchange.

The Survey claims that inflation has declined by over 6 per cent since the late 2013, and the current account deficit has come down from a peak of 6.7 per cent of the GDP to an estimated 1.0 per cent in the coming year of 2015-16 and foreign portfolio flows have stabilised the rupee. The Survey asserts that “India ranks amongst the most attractive investment destinations, well above other countries.” It further asserts that “Amongst BRICS (and other comparable countries) only China scores above India. The reality and prospect of high and rising growth, combined with macroeconomic stability, is the promise of India going forward”. These subjective sentiments are refuted by Prof Ha-Joon Chang whom we have quoted in the very beginning of this article.

From Modi downward, everyone is claiming that the decline in crude oil prices have helped the people with “naseeb” (or fortune), however, they have no role in this. Crude prices have declined internationally. It is all right that oil being an important “input in production, and declining prices will shore up profit margins and hence balance sheets of the corporate sector. Declining input costs are reflected in the wholesale price index which moved to deflation territory in January 2015.” The monsoon is also expected to be normal.

The Modi Government has no role either in the international decline of crude prices or better monsoon this year. It has utterly failed to check the continuous rise of retail prices of the items of daily consumption and the people all over the country are angry. This anger was reflected in the voting pattern in Delhi Assembly elections. Only a few months ago, the BJP won all the seven parliamentary seats but last month it could get only three seats out of 70. In the coming months, this pattern is likely to be repeated in other States.

In various areas like coal, defence, insurance, etc. the maximum limit for FDI has been increased. To attract foreign investments, Modi government is going to bring in reform in the area of labour and land, which will reduce the cost of doing business. In coming months, the government is going to face stiff resistance from organised labour and peasants. Almost all the all-India labour outfits, including the one controlled by the RSS, have joined hands to fight likely measures to curb their powers and activities. So far as land acquisition is concerned, all over the country peasants are agitated and they do not see the reason for departing from the Congress stand on land acquisition. Not only the Opposition but also the allies of BJP, such as the Shiv Sena, Akali Dal and Lok Janashakti Party, are against the measures proposed by the government. The Chief Minister of Bihar has already threatened to go on a hunger strike against the government’s proposed acquisition law.

Only the other day, Modi thundered against the MGNREGA programme but the Survey is full of praise for it. To quote: “One response in the short run must be to enhance targeted support for the vulnerable in agriculture, namely the small farmer and agricultural labourer. The MGNREGA programme has the virtue of being reasonably well-targeted. The challenge here is to build on this feature and use the programme to build assets as rural roads, micro-irrigation and water management, while also shoring up rural incomes.”

It is all right to say that economic growth is good for the poor but the point is whether it is going to create job opportunities for both skilled and unskilled persons. Whether FDI on which the government has pinned its hopes is going to create plenty of jobs to absorb the jobseekers. Foreign investors’ motive will be to minimise the costs to earn as much profits as possible. Modi’s slogan is minimum government, maximum governance; keeping this in mind will the government intervene to compel the foreign investors to create jobs? They can employ robots and other means to minimise the employment of labour. In this situation what will the government do? The case of Nokia is there. The Finnish company folded up its activities, sold its factory and went out. This made almost 12,000 people jobless.

The author, a well-known economist, used to teach Economics at Kirorimal College, University of Delhi before his retirement a few years ago. He can be contacted at gmishra@girishmishra.com