Decline in GDP growth in first quarter of 2017-18 to 5.4 per cent, compared to 7.6 per cent during the same period in 2016-17 mainly because of a slowdown in the after the euphoria of a turnaround is causing sleepless nights to the government of Narendra Modi.
A sudden slowdown after significant recovery in the past 2-3 years, has raised alarm bells for policy makers. The Prime Minister has started meeting key persons from his cabinet and outside to find a fix. A new economic advisory committee has been constituted.
With the first Vice Chairman of NITI Aayog back at Columbia, the new Vice Chairman is also burning midnight oil to get the economy back on track and see people happy. Meanwhile many friends of the government and also a veteran of the Bhartiya Janata Party, and exfinance minister has also raised concern about the mismanagement and shattered economy.
If newspapers and media are to be believed, another spell of bailouts and booster doses are being planned to take the economy out of slowdown mode. Official circles are indicating that all this would be tried without slipping on the fiscal discipline front.
Classically, what one generally understands from these measures is that companies would be incentivised to make more investment; tax concessions would be offered to boost consumption, indirect taxes would be reduced to attract spending and banks would be bailed out to help them deal with NPAs and enable them to lend more.
While finding solutions to stem slowdown, it’s important to understand why growth has actually slowed down. So far, the practice has been to offer readymade solutions irrespective of the reasons. When the US was passing through meltdown, its government started showering bailout packages to banks and financial sector, distributed money to commoners to somehow raise demand and overcome recession. In the process, while demand was created, US government’s debt increased by nearly 100 per cent. European countries also followed suit.
Copying this, Indian policy makers also started giving bailout packages. In the process our fiscal deficit started increasing (due to increased government expenditure without corresponding increase in revenue). We find that fiscal deficit which was 2.5 per cent of GDP in 2007-08 jumped to 6.5 per cent by 2009-10. Obvious outcome was spiraling inflation, which ultimately led to downturn in GDP growth. Therefore, giving more concessions to corporates does not stem the slowdown.
In a recent report entitled ‘Indian Income Inequality, 1922-2014: From British Raj to Billionaire Raj’ famous economist Thomas Piketti has said that in 34 years from 1980 to 2014 top 10 per cent of Indian population had cornered 66 per cent of the benefits of growth. Even more serious is the fact that top one per cent had cornered 29 per cent of the benefits of GDP growth in these years. One can very well understand that when 34 per cent of the benefit of GDP growth reached 90 per cent of the population, their economic well being would not have improved significantly.
It is not only a question of social justice, in fact the inequalities caused by lop sided growth would come in the way of increasing demand of consumer goods, which is the basic requirement for sustained growth. According to the report of the 66th round of the National Sample Survey Organisation (NSSO), 250 lakh people are out of self-employment and in their place 220 lakh people have become casual labour between 2004 and 2009.
It means that farmers, small shopkeepers and people who used to run small-scale businesses have either become casual labourers or are unemployed. It may be interesting to note that the income of casual labour is around Rs 200 to 300 daily, with hardly any continuity of employment. Data shows that in the beginning of the decade of 1990, the share of wages and salaries, including all perks, in total value added in industries was 78 per cent which came down to 41 per cent in 2014-15. In urban areas in 1993-94, the consumption of top 10 per cent of the population was 10.5 times more than that of the bottom 10 per cent of population.
Now this has reached nearly 15 times. In villages, this difference has increased from 7 times to 10 times during this period. Further we note that share of agriculture and allied activities, which provide employment to nearly 60 per cent of the population is hardly 15 to 16 per cent of the total GDP. This fact is corroborated by social and economic census report also. Today all indicators of economic health of the country indicate a comfortable position, which the Finance Minister calls the ‘Bright Spot’ of the Indian economy.
For instance, we find inflation generally under control, Consumer Inflation coming down to nearly 2.36 per cent in July 2017 (though in August it jumped to nearly 5 per cent), external balances (Balance of Trade and Balance of Payment) broadly within comfortable limits, bumper FDI and FII, record agricultural production of both foodgrains as well as non- foodgrain crops and so on. There is no reason why economy should face any problem in the near future. However, despite all these favourable conditions we find a slowdown in the last quarter. This slowdown is considered to be temporary.
However, the big question is whether we are realising full potential of growth. The increasing inequalities in the country not only means that there has been no improvement in the standard of living of the poor and that they are still living in poverty, in spite of economic growth, but that these are also causing a hindrance in future economic growth. The top five per cent people in India like industrialists, government officials, highly-educated salaried people and a few corrupt politicians have undoubtedly been benefitted by economic growth.
But a majority of the population has remained deprived. Since there has been no increase in the income of ordinary people, the demand for industrial goods has not picked up. This is coming in the way of industrial recovery.
The middle class is under stress due to the EMIs of their loans. It is important that the benefit of economic growth gets distributed equally. The income of the poor should increase. There should be a control on the profits of capitalists and increase in the wages of labour.
(The writer is Associate Professor, PGDAV College, University of Delhi)