Dr Ashwani Mahajan
Decline in GDP growth in first quarter of 2017-18 to 5.4 percent, compared to 7.6 percent during same quarter in 2016-17; mainly because of slowing manufacturing sector, after euphoria of turnaround in the economy is causing sleepless nights to the present regime under PM Narendra Modi. A sudden slow down spree after a significant recovery in the past 2-3 years, has raised alarm bells for the policy makers. Prime Minister has started meeting key persons from his cabinet and outside, to catch the thread of the problem. A new economic advisory committee has also been constituted. With first Vice Chairman of NITI Aayog back to Columbia, new Vice Chairman is also burning midnight oil to somehow take the economy back on track and see people happy, to take Modi on the 2019 ship. In the meanwhile many friends of the government and also a veteran of Bhartiya Janata Party, and ex-finance minister has also raised concern about the mismanagement and shattered economy.
If newspapers and media are to be believed, another spell of bail out and booster doses are being planned to take the economy out of slowdown. Official circles are indicating that all this would be tried, without really slipping on fiscal discipline front. Classically, what one generally understands from these measures is that companies would be incentivised to make more investment; tax concessions to boost consumption, obviously to the Well-off section of the society; reduce indirect taxes to attract spending; bail out of banks to deal with menace of Non Performing Assets (NPAs) enabling them to lend more.
Readymade solutions don’t work
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 for slowdown, irrespective of the reasons. Not going too far, when US was passing through meltdown, US government, started showering bailout packages to banks and financial sector, distributed money to commoners to somehow raise demand and overcome recession. In the process, though demand was created, US government’s debt increased by nearly 100 percent. European countries also followed the suit. Copying the same 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 had reached 2.5 percent of GDP in 2007-08, actually jumped to 6.5 percent by 2009-10. Obvious outcome was spiraling inflation, which ultimately led to downturn in GDP growth. Therefore giving more concessions to corporates actually does not provide solution to stem the slowdown.
Why growth has slowed down?
Recently in a report entitled ‘Indian Income Inequality, 1922-2014: From British Raj to Billionair Raj’ famous economist Thomas Piketti has said that in 34 years from 1980 to 2014 top 10 percent of Indian population has cornered 66 percent of benefits of growth. Even more serious is the fact that top one percent has cornered 29 percent of the benefits of GDP growth in these years. One can very well understand that when 34 percent of the benefit of GDP growth have reached bottom 90 percent of the population, their economic well being would not have improve significantly. It is not only a question of social justice, in fact the inequalities caused by lop sided growth would come in way of increasing demand of consumer goods, which is the basic requirement for sustained growth.
According to the report of the 66th round of 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 causal labourers or are unemployed. It may be interesting to note that the income of casual labour is around rupees 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 it 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 percent of the population is hardly 15 to 16 percent 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 at a comfortable position, which Finance Minister generally calls ‘Bright Spot’ of Indian economy. For instance we find inflation generally under control, Consumer Inflation coming down to nearly 2.36 percent in July 2017 (Though in August suddenly it has jumped to nearly 5 percent), external balance (Balance of Trade and Balance of Payment) broadly within comfortable limits, bumper FDI and FII, record agricultural production both foodgrains as well as non foodgrains 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 a temporary phase. However the big question is that are we realising full potential of growth.
Inequalities Hindering Economic Growth
The increasing inequalities in the country not only mean 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 it is also causing a hindrance in the future economic growth. The top 5 per cent people in India like capitalists, government officials, highly-educated salaried people and a few corrupt politicians have undoubtedly been benefitted by economic growth but the majority of the population has remained deprived of these benefits. But they do not have money to recharge these phones.
Since there has been no increase in the income of ‘mango people’, the demand for industrial goods has not picked up. This is coming in way of industrial recovery. The middle class is under duress 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 the labourers.
(The author is Associate Professor, PGDAV College, University of Delhi) feedbackexcelsior@gmail.com
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