Total disintegration of the governmental edifice in Sri Lanka and its near disintegration in Pakistan, prompted by economic reasons, has emboldened doomsayers in making dire predictions for India, forgetting that the Indian economy is far more robust and resilient than the economies of neighbouring countries and there is no danger of our economy imploding in the foreseeable future. However, it is equally true that runaway inflation, rising unemployment, mounting current account deficit etc. have exacerbated the challenges facing our economy, and some deft management is required to keep the Indian economy on track. Poverty has risen to unacceptable levels; eighty-one crore persons, that is around 60 per cent of our population are surviving on subsidised rations provided by the Government and demand for employment under the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS) is surging. Then, the economy has failed to keep pace with our famed demographic dividend, resulting in large scale unemployment. According to Centre for Monitoring the Indian Economy (CMIE) data India’s employment rate was only 35.8 per cent in June 2022, meaning that only 35.8 per cent of the working age population in India were employed.
Unemployment was at a high of 7.8 per cent, with total employment falling by 13 million to 390 million in June 2022. With this waste of human resources, it is not surprising that we as a country are far from realising our full potential. The CMIE report said: “The government shrunk the demand for armed personnel and opportunities in private equity funded new-world jobs also started to shrink,” concluding, that the economy needs to grow much faster to solve the employment problem. Thirdly, rampant inflation above 7 per cent for the last six months has spoilt the budget of poor households. Price rise is more pronounced in food prices; as an amelioratory measure the Government is planning to lessen the weight of food items in the Consumer Price Index (CPI), so that CPI does not rise as fast when food prices go up. Fourthly, due to costlier petrol and higher imports of gold, the trade deficit ballooned to $70.25 billion in the first quarter of the current year, from $31.42 billion last year. Consequently, forex reserves are going down, with the dollar-rupee exchange rate nearing 80 ~ a more than 8 per cent fall in the last one year. Much of the Government’s spending is financed by borrowings; total debt of the Government had increased from Rs 58.66 lakh crore in 2014-15 to Rs 139 lakh crore in 2021-22.
Yet, seemingly unaware of lurking dangers, current public discourse in India is least focused on economic issues, except for the Government pointing out random achievements to show how the country had progressed in the last eight years. The much-vaunted financial stimulus of Rs 20 lakh crore, given during the pandemic, comprised mostly concessional credit and loan moratoriums. Many small businesses went under because they could not repay the loans taken during pandemic times, which had been used to keep body and soul together. On the other hand, big businesses with deep pockets, evergreened their loans at lower rates, fired workers and lowered wages, citing exigencies of the pandemic, earning huge profits in the process. According to the Oxfam International report, “Inequality Kills,” the Covid-19 pandemic had diametrically opposite consequences for the rich and poor; for example, high crude prices that made domestic petrol prices surge resulted in windfall profits for oil refiners. No wonder, during pandemic times, the number of Indian billionaires grew from 102 to 142 and their wealth increased from Rs 23 lakh crore to Rs 53 lakh crore. At the same time 84 per cent households suffered a decline in their incomes, with 4.6 crore persons falling into abject poverty.
Earlier, too, the “World Inequality Report 2022,” and the homegrown PRICE Survey had reached a similar conclusion i.e., the emergence of an unacceptable degree of poverty and inequality in India. Decent education and healthcare eludes most of our citizens. The coronavirus pandemic mercilessly exposed the rot in our public health system; almost all Government hospitals were found to be woefully understaffed with highly deficient infrastructure. So far as education is concerned, despite Board results throwing up a record number of students scoring more than 90 per cent marks, the quality of education imparted by our schools, except very few, is pitiable. That Board results do not reflect the true picture can be gauged from the fact that the current year’s results, when no classes were held, are better than the Board results of pre-pandemic times. The rot was not unexpected because till today, Government schools and hospitals, established by the British a century ago, are the backbone of our public health and education systems. The Government spends only 1.28 per cent of GDP on healthcare, and 3.1 per cent on education, both allocations being insufficient even for maintenance, let alone improvement. A comprehensive approach towards tackling economic and social problems seems missing. Rather, the Government seems to be engaged in multiple firefighting exercises, with an eye on optics; for example, when prices of petroleum products rise, the Government cuts excise duty but reimposes the same duty on food products, keeping inflation unchanged. In fact, high taxation and subsidies fuel a vicious cycle, where high taxes cut down economic activity, fuelling the need for subsidies that require more money from the Government, again leading to increased taxation.
The Government could do better to focus on unemployment and population explosion, which are at the root of most problems. So far as population is concerned, the target-free National Population Policy 2000 has taken the urgency out of the Government’s efforts for population control. Population statistics appear to be flawed; according to National Family Health Survey (NFHS)-5, the Total Fertility Rate (TFR) ~ the number of children a woman can be expected to have during her lifetime ~ has declined from 2.2 (NFHS-4, 2015- 16) to 2.0, below the replacement rate of 2.1. However, according to the UN Report “Population Prospects” our population is increasing and India will surpass China’s population by 2023, reaching 1.5 billion by 2030 and 1.66 billion by 2050. All international agencies have made similar projections. Obviously, we have to design and implement a better population policy. The key to solving the unemployment problem lies in promoting agriculture and improving rural infrastructure. Significantly, the agricultural sector was the only sector of the economy that withstood the vagaries of the coronavirus scourge, growing by 3.4 per cent in FY 2020-21. Demand for tractors, agricultural implements, fertilisers etc. kept the cash registers of many manufacturing concerns ringing.
At the time when overall exports declined by 7.2 per cent, exports of agricultural commodities rose by 22.62 per cent, to Rs 3.05 lakh crores, in FY 2020-21. This should have provided enough reason for the Government to shed the misplaced belief that big business alone could lead us out of the woods. Yet, while announcing initiatives like Production Linked Incentives (PLI) worth Rs 1.76 lakh crore and tax cuts of Rs 1.45 lakh crore for business, the Government had only the Zero Budget Natural Farming (ZBNF) initiative, involving no budgetary allocation, for agriculture. Despite all incentives offered to the manufacturing sector, the share of manufacturing in GDP has remained stagnant at 17 per cent for the last five years, and employment in the manufacturing sector declined sharply from 5.1 crore people in 2016-17 to 2.73 crore people in 2020-21. On the other hand, with a comparable share in the GDP, the agricultural sector employed 14.56 crore people in 2016-17 which increased to 15.18 crore people in 2020-21. It is easy to conclude that decent investment in agriculture can transform the employment situation. Then, the unemployed can be hired to build much-needed rural infrastructure like roads, schools, bridges, airports, dams, post offices, hospitals and municipal buildings, waterworks, sewers, streets, and parks. While providing employment, projects for reforestation and flood control can also help reclaim millions of hectares of soil from erosion and devastation.
Another need is a rational and comprehensive taxation policy designed to prevent concentration of wealth and straightening out the glaring inequalities in our society ~ which would entail reducing GST, which is an indirect tax paid mostly by the poor, and promote direct taxation by bringing back taxes on wealth and inheritance. As Ha-Joon Chang, the Korean institutional economist said: “Once you realize that trickledown economics does not work, you will see the excessive tax cuts for the rich as what they are ~ a simple upward redistribution of income, rather than a way to make all of us richer, as we were told.” (23 Things They Don’t Tell You about Capitalism).