Dr Ashwani Mahajan
After new regime has resumed power, Neo Swadeshi Economics alias Modi Economics, is in discussion these days. Problems of the economy and their solutions are obviously seen by the ruling class according to its own vision. Economic policies stem from the prophecy of the ruling class. There is a tendency amongst the economic analysts to give it a name, mostly after the most powerful visionary in the ruling clan. Likewise economic vision of the Modi Government is being called Modi Economics. If we recall Nehruvian days, when prevalent economic thinking was that of Jawahar Lal Nehru and therefore the economic policy being followed at that point of time was called Nehrurvian Economics, named after the then Prime Minister. In reality economic thinking of Jawahar Lal Nehru was actually influenced by Mahalnobis, who in turn was overwhelmed by Lenin’s thinking. The same economic thinking of socialism continued to influence the economic policy for long-long time (obviously with some alterations). After 1991, though incumbent in Prime Minister’s chair was Narsimha Rao, the new economic policy of Liberalisation, Privatisation and Globalisation, designed by the then Finance Minister Manmohan Singh, was named after Manmohan Economics. Perhaps same policies continued even during NDA (National Democratic Alliance) regime under A.B. Vajpayee. During UPA-I, Manmohan Economics continued to sway policy making, as Manmohan Singh became the Prime Minister of India; though the same was guarded by the left parties.
As a byproduct of the new economic policy of LPG, poverty, unemployment, inflation had started troubling the common man by the end of UPA-I and during UPA-II, to somehow retain the voters with UPA, the then chairperson of UPA and a person at the helm of the affairs, took charge to address these issues (without altering the basic policy of LPG). She favored a new policy regime based on subsidies (or what we may call populist policies) and then started the game of subsidies in the name of MNREGA, loan waivers, food security, cash transfers and various others. These policies were called ‘game changer’ policies, as they were targeted to favour the UPA’s poll prospects. The new policy framework of subsidies was called Sonia Economics. In the guise of socialism, populist measures were designed to keep people composed despite their deteriorating economic conditions. In the mean while, at international level Amartya Sen and Jagdish Bhagwati, both economists of Indian origin were at disagreement on what could be the right course of action for India.
Debate started on the issue, whether India needs growth centric LPG policy, as advocated by Jagdish Bhagwati or redistribution policy as pushed by Amartya Sen. Later this debate took a political turn, when Jagdish Bhagwati was seen praising Gujarat model of growth, while Sen was busy praising Sonia Eonomics of distributing subsidies to take care of inequalities.
After the new Government took over the reign of power, we find announcements of various kinds, which include among other, FDI in different sectors, disinvestment of public sector, labour reforms and boost to manufacturing. In some circles, talks are also going on about creation of more and more employment opportunities. Central theme of these policies is seemingly, employment and asset creation. At some point Modi has said that his Government would follow of neo-swadeshi economic policy, without really spelling out the details.
Different Economic Approach Needed
After having nearly 8 percent GDP growth, consecutively in Tenth and Eleventh Five Year Plans, the economy has started decelerating in the last 3 years, reaching nearly 4.7 percent growth in 2013-14. It is notable that in 10th Plan, we experienced an unprecedented growth in manufacturing sector and in 2007-08 it reached 15.6 percent growth. However, we find deceleration in the same, to negative 0.7 percent growth in 2013-14.
Another distressing aspect of this growth experience was that employment was totally ignored in the overall economic framework. It is notable that during UPA’s 10 years regime 1.2 crore person were added to the labour force annually, however, out of them only 20 lakh people could be provided with employment annually. By implication in these 10 years nearly 10 crore people were added to unemployed labour force. Yet another distressing fact in that in the last 3 years of UPA regime inflation has reached two digits, with even worst food inflation. In the last one year of UPA regime, rupee depreciated to a historic law of Rs. 68.84 per US dollar, before improving to Rs. 60 per dollar. New Government which has come with a promise to change the scenario by taking the economy out of the blues, the path of new policy is what the new regime in defining as the path of neo-swadeshi economics.
First aspect of new policy thinking is a big push to manufacturing growth. Policy makers are talking about giving big impetus to manufacturing in general, with special emphasis on capital goods sector, by giving concession to new investments. Budget 2014-15 may contain these policy announcements. Modi has constantly been saying in his pre-election speeches that this country in Youngistan and it can develop only if our youth is educated, skilled and healthy. We need to provide employment not only to the new addition in labour force, but also to the backlog of the previous regime.
It is notable that there is no place of employment generation in the present model of growth. Apologists of LPG concede that this is a jobless growth model. Modi Government has said that reasons for joblessness would be inquired into and policies would be designed for creation of employment opportunities.
Impetus to manufacturing growth is being talked about, especially capital goods production. However for this, it is imperative to improve the demand for domestically produced goods, and for that we need to restrict imports, improve competiveness, reduce costs and improve efficiencies. There is also a need to bring improvisation in technology. In fact problem of foreign payment can be solved by inviting foreign investment, or by raising debt overseas only for a short while. We need to strengthen rupee and reduce inflation in the long run. Strong rupee, stable prices, manufacturing growth, employment creation and freedom from current account deficit (CAD) in balance of payment are all essential preconditions for change in economic scenario. By combating inflation we can reduce interest rates, and lower interest rates are essential for raising consumer demand and also investment demand. It is imperative to restrict wasteful Government expenditure by stopping populism. We need to restrict import for strengthening of rupee.
What will be the direction of Government policy; only future will tell, but there is no doubt about the fact that if the Government means business rationalizing Government expenditure, restrictions on imports and control of inflation should be on priority of the Government.
(The author is Associate Professor, PGDAV College, University of Delhi)
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