Economic Survey 2007-08
Uncle Miltie Displaces Uncle Nehru!
Even a cursory glance at the Economic Survey 2007-08 is enough to convince that the process of replacing, nay, ridiculing Jawaharlal Nehru’s economic approach appears to be complete. Now, it is no longer Nehru’s but, Milton Friedman’s approach that is informing the Congress-led UPA government’s strategy of development and economic policies. This can be better understood in the light of Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism, and the former chairman of the American Federal Reserve, Allan Greenspan’s comments on Jawaharlal Nehru in his memoirs, The Age of Turbulence: Adventures in a new world.
Greenspan opines that when the reformist government, led by P. V. Narasimha Rao came to power in 1991, “India began to awaken from the bureaucratic socialism of former prime minister Jawaharlal Nehru. And any notions emerging economies might have had of implementing or expanding economy-wide forms of central planning were quietly shelved.” How this came about has been narrated by Greenspan as follows: “In June 1991, an old-line functionary, P. V. Narasimha Rao of the leftist Congress Party, became prime minister. The economy was teetering on the edge of collapse, reflecting more than four decades of de facto central planning. Now, as it was becoming evident that India was suffering from the same failed paradigm that had blighted Eastern Europe, a major change was in the offing. To everyone’s surprise, Rao broke with long-standing tradition and, as a balance-of-payments crisis loomed, moved to eliminate aspects of the deadening hand of controls Manmohan Singh finance minister.
“Singh, a market-oriented economist, was able to tear a modest hole in the regimented economy—he initiated liberalizing steps in a wide range of areas—and demonstrated once again that a little economic freedom and competition can exert extraordinary leverage on economic growth. The anti-capitalist voices were temporarily stilled by the gravity of the crisis, which created a window of opportunity for deregulation. Market capitalism was able to gain a foothold and demonstrate its effectiveness.”
What Greenspan says about “The anti-capitalist voices” being “temporarily stilled by the gravity of crisis” and giving a free hand to those who were bent upon implementing Milton Friedman’s prescription of bringing in unfettered capitalism has been elaborated by Naomi Klein in the case of Chile, Argentina, Brazil, etc. If we look back we find that the governments of V.P.Singh and Chandrashekhar landed India, as a result of their mismanagement, in the quagmire of foreign exchange crisis and one should remember that it was latter’s finance minister, Yashwant Sinha who was instrumental in getting country’s gold reserve mortgaged to the Bank of England. This state of utter helplessness, brought about by the shock of great national humiliation provided Uncle Miltie’s disciples in India and abroad to consign the Nehruvian paradigm to the garbage and replace it by the Washington consensus. Both the Congress and the Nehruites lost their moorings and were in such a condition of shock that they could not realise what was happening. Even now they continue in that state otherwise some protest, at least, would have been made on the following paragraph by the learned chela (disciple) of Uncle Miltie: “An analysis of the post-independence growth experience shows two statistically significant breaks in the rate of growth of the economy. The first break occurred in the early 1980s when the economy moved from what has been commonly described as “the Hindu growth rate” of around 3,5 to 5.5 per cent. This followed a policy shift away from excessive controls and restrictions on private enterprise towards gradual decontrol. Thee second break occurred in the mid-1990s with the ushering in of deeper and broad based reforms at the beginning of the decade.”
From it follows that the entire Nehru era and most of the Indira phase was full of darkness and stagnation. The author of the Survey forgets what Dani Rodrik of the Harvard University has written about the contributions of Nehru and Indira Gandhi towards laying a solid foundation for economic growth. They faced all sorts of machinations and destabilization attempts to break and destroy India. People have not forgotten the American attempt to induce India to mortgage its sovereignty by offering nuclear umbrella, VOA-AIR tie up, Indo-US Education Foundation, etc. Another attempt was made in 1974-75 when Uncle Miltie’s prescription was put forth by six respected economists, whom Indira Gandhi ignored, in spite of a powerful support by C. Subramaniam and T.A.Pai of her Cabinet. In 1991, the attempt succeeded, thanks to the great shock of mortgaging national gold stock under the Chandrashekhar-Yaswant Sinha dispensation.
The late Rajkrishna once half-jokingly uttered “Hindu growth rate” to characterize the low growth rate and this being taken seriously by the learned author of the Survey shows that he is more of a propagandist than a serious-minded economist. He is not aware of the writings on this topic. The Survey’s remark on “Hindu growth rate,” taking Rajkrishna’s remark with childish ignorance reminds one of an episode. Once the Shankar’s Weekly carried a piece by its celebrated editor Shankar Pillai who described of the situation if Rajaji turned Communist. This humorous piece was taken seriously by a the-then Leftist Congressman (now in the BJP) with all seriousness and welcomed the change! Rajaji, as alert as ever, ridiculed the Congress leader for his failure to differentiate between a satire and a serious kind of writing and he stated that he enjoyed Shankar’s piece.
Now, coming to the Economic Survey 2007-08, its infatuation with maximization of the rate of growth, irrespective of its consequences, becomes apparent. Beyond demagogue about “inclusive growth”, the phrase that has come from the World Bank, there is nothing concrete to show that it wants to work towards lessening regional imbalances and socio-economic inequalities. In fact, even the talk of inclusive growth underlines the hollowness of the earlier claim that, irrespective of the size, all boats would be lifted up by the tides of neo-liberal globalisation. This has not happened is clear from the fact that in 2004-05, 27.6 per cent of the population was below the poverty line the percentage of the population below the poverty line was 46.4 per cent in Orissa, 41.4 per cent in Bihar, 40.9 per cent in Chhattisgarh, 40.3 per cent in Jharkhand, 38.3 per cent in Madhya Pradesh, 32.8 per cent in U.P. and 30.7 per cent in Maharashtra. It needs to be noted that most of these people below the poverty line are also socially oppressed as they belong to lower castes. This, obviously, has given rise to various kinds of anarchist movements and a spurt in crimes. How the government is going to lift the socially and economically downtrodden is not spelled out in concrete terms. The Survey admits that the low level of consumption, inequalities, lack of employment opportunities, hunger and inadequacy of food, and the absence of basic amenities and health and education facilities afflict a large segment of the population, but it does not present any convincing way out. It talks of “pursuing a participatory growth strategy”. What it really means and how it is going to be translated into practice is not clear.
Even though the rate of economic growth in the current financial year is going to be around 8.7 per cent, i.e., less than the targeted rate of 9 per cent or more, the Survey asserts that it “is fully in line with… trend”. It claims that the pace of economic improvement has been moving up considerably and “This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades).” Raising the rate of growth, in particular to 10 per cent or more requires “additional reforms”. These “additional reforms” will consist of privatisation of coalmines, nationalised by Indira Gandhi to prevent their reckless exploitation and frequent accidents because of the lack of safety measures; completion of the process of selling of 5-10% equity in profit-making public sector undertakings; besides auctioning off all the loss-making ones; decontrolling sugar, fertiliser and drugs; and selling “old oil fields to private sector for application of Improved /Enhanced Oil Recovery Techniques. It wants a substantial share for foreign capital in all retail trade and 100 per cent foreign equity in foreign branded, specialized retail chains; and raising of foreign equity share in insurance to 49 per cent besides 51 per cent in special category of insurance companies that provide all types of insurance to rural population and for all agriculture-related activities including agro-processing.
The Survey wants the entry of FDI in banks, especially rural-agricultural banks. In the course of their working, private banks should be allowed to take over other banks if they think that situation so demands. Public-private collaboration in the railways will help fast movement of freight. The railway minister’s proposal other day to this effect in his speech to the lower house of Parliament shows that he has initiated the process of bringing in private sector in running both the passenger and the goods trains. In addition, the Survey wants the private sector to run public transport system in metros and other large cities.
There are two other vital recommendations. The first concerns the labour laws so that the weekly working hours are increased from 48 to 60. In other words, 8-hour working day is to be consigned to the dustbin. One may recall that the working class achieved this after a prolonged struggle and a lot of sacrifice during the 19th-20th centuries. The second is about allowing capitalists to down the shutters of their factories whenever they wish, without any restraint, and shift their investments somewhere else in search of more profits without caring for the workers who may face unemployment and loss of their dues and terminal benefits. To quote the Survey, “Either introduce a separate section on Bankruptcy in the Company Law or introduce a new bankruptcy law that facilitates exit of old/failed management as expeditiously as possible.”
Obviously, both these recommendations, if implemented, will increase the number of the unemployed, not to speak of the creation of new job opportunities to give the able-bodied to participate in the creation of national wealth and honourably earn their living. If these two recommendations are accepted, they will lead to great socio-political unrest and bring the doom of the UPA government because there is no autocratic Pinochet or Suharto, but adult franchise in the country and the labouring masses are conscious of their interests. They cannot be misled by propaganda blitzkrieg through print and electronic media. The previous government learned it to its dismay when it miserably lost power in spite of its loud propaganda that “India was shining”.
More than 50 per cent of India’s population is dependent on agriculture, which has been in a state of stagnation for quite some time, mainly because of the lack of adequate public investments in irrigation, water drainage, prevention of floods, construction of rural roads, dependable electricity supply, extension work, etc. Both in the 9th and the 10th plans, the rate of agricultural growth remained at 2.5 per cent per annum. During the current year it is expected to be 2.6 per cent. Food grains production is almost sluggish while the demand is increasing. This year the output is likely to be 219.3 million tonnes while it was 217.3 million tonnes last year. The news on this front is not heartening. All over the world there is going to be a shortage of food grains as a result of various factors including the diversion of crops to ethanol production and global warming. The Survey has nothing concrete to present except stressing the need of a second green revolution. While hype has been created about expressways and multi-lane roads, nothing concrete is happening in rural areas. In fact, the urban population, especially, neo-middle class, is the cynosure of the government’s eye. Putting the blame for the failure on the agricultural front on the monsoon is wrong. Similarly, the national rural employment guarantee scheme is not able to yield the desired results because of the stranglehold of bureaucracy and corruption. In addition, the government has certain influential economists who have never liked this scheme and have been wishing its failure.
How the strategy of growth has shifted is obvious from the following official statement, which echoes the line advocated by Uncle Miltie and the rejection of Nehruvian thinking. To quote, “The 1990s reforms transformed the investment climate, improved business confidence and generated a wave of entrepreneurial optimism. This has led to a gradual improvement in competitiveness of the entire corporate sector, resurgence in the manufacturing sector and acceleration in the rate of investment… Moderate tax rates, coupled with buoyant sales growth, increased the internal accruals of the corporate sector.” The Survey pins its hope on continuously increasing inflow of “foreign capital looking for profitable investment opportunities…. There are reasons to believe that the surge in capital inflows, including FDI, will continue in the medium term.”
For the first time substantial space has been devoted to the financial sector, especially, capital market, which is supposed to be instrumental in raising the wealth of investors. There is, however, no significant attention given to the implication of the FIIs emerging as major players and their ability to shift their investments elsewhere in search of greater opportunities to earn higher profits, landing the Indian market in lurch. Recently, the IPO of the Reliance Power Ltd. has brought great misery to retail investors. Those who dreamt of becoming fabulously rich overnight are greatly disappointed in spite of the announcement of giving them bonus shares. “Greed is good” is sure to lead the retail investors quite often in the clutches of “irrational exuberance”. This is going to be a destabilising factor. Opening of multi commodity exchanges with the permission for futures trading may have serious implications for our food economy. It will subject agricultural commodities, including food grains, to manipulation by speculators.
In the end, it is too early to say that Uncle Miltie has finally displaced Uncle Nehru. If one looks at the recent history of Indonesia, Chile, Argentina, Brazil and so on, Uncle Miltie is not going to succeed for long. Till now, there is no example to show that any country in the world has succeeded in building a prosperous and vibrant economy by following Uncle Miltie.