State of Indian Economy
In accordance with the established tradition, Government of India has come out with its annual review of the economy, entitled Economic Survey 2010-11. Even a cursory glance at it reveals that it is different from preceding surveys.
This voluminous report, running into more than 400 pages, has a dual character. It may also serve as a textbook for undergraduate students of economics and those intending to sit for civil service exams besides helping policy makers, the media and other people as an input in discussions and debates on the state of economy during the current financial year. Its cover “depicts the classic IS-LM diagram developed by John Hicks to elucidate Keynesian macroeconomics.” It is, keeping in view the neo-liberal orientation of the government, being marketed, not by the Publications Division of the Government of India, but by a well-known foreign publisher at a very high price. This reminds one of a Patna cinema hall of the 1950s when one used to watch two films on one ticket. Bengali vendors used to cry, “asun, asun duito khela ek tickete.”
It is crystal clear that, in spite of neo-liberal economic thinking standing discredited all over the world, especially after the ongoing Great Recession, our economic advisers and policymakers have not learned anything or they are determined to behave like the proverbial boy on the burning deck. Not long ago, Joseph Stiglitz made a devastating attack on it in the course of his Nehru Memorial Lecture. All the big-wigs of the government and the Congress-led UPA were present there. Towards the end of the last year, Cambridge economist Ha-Joon Chang came out with his book 23 Things They Don’t Tell You About Capitalism (published by Allen Lane of the Penguin Group). He has exposed and destroyed the myths, being constantly propagated in our country by certain political parties, corporate sector and the media controlled by it. Chang has forcefully exposed the lie that free market capitalism is taking us out of poverty and social, economic and cultural backwardness. He has shown that “the fundamental theoretical and empirical assumptions behind free-market economics are highly questionable. Nothing short of a total re-envisioning of the way we organize our economy and society will do.”
To accomplish this task, he has suggested eight principles to be kept in mind while attempting to redesign the economic system. Let us mention a few of them. First, Chang is not against capitalism as such, but he rejects blindly adhering to free-market capitalism. To quote, “The profit motive is still the most powerful and effective fuel to power our economy and we should exploit it to the full. But we must remember that letting it loose without any restraint is not the best way to make the most of it, as we have learned at great cost over the last three decades.” He goes on to add, “the market is an exceptionally effective mechanism for coordinating complex economic activities, but it is no more than that—a mechanism, a machine. And like all machines, it needs careful regulation and steering. … There are different ways to organize capitalism. Free-market capitalism is only one of them—and not a very good one at that. The last three decades have shown that, contrary to the claims of its proponents, it slows down the economy, increases inequality and insecurity, and leads to more frequent (and sometimes massive) financial crashes.”
Second, one should build one’s economic system by keeping in mind that human rationality is very limited. Third, keeping this in view, one should try to build a system that brings out the best, rather than worst, in people. “Free-market ideology is built on the belief that people won’t do anything ‘good’ unless they are paid for it or punished for not doing it. This belief is then applied asymmetrically and reconceived as the view that rich people need to be motivated to work for further riches, while poor people must fear poverty for their motivation.” Material self-interest is a powerful motive but it is not the only motive propelling the people. Had this been the only motive as depicted by textbooks, the society would have collapsed owing to increasing cheating, monitoring, punishment and bargaining. In the words of Chang, “by glorifying the pursuit of material self-interest by individuals and corporations, we have created a world where material enrichment absolves individuals and corporations of other responsibilities to society. In the process, we have allowed our bankers and fund managers, directly and indirectly, to destroy jobs, shut down factories, damage our environment and ruin the financial system itself in the pursuit of individual enrichment.
“If we are to prevent this kind of thing happening again, we should build a system where material enrichment is taken seriously but is not allowed to become the only goal. Organizations--be they corporations or government departments—should be designed to reward trust, solidarity, honesty and cooperation among their members. The financial system needs to be reformed to reduce the influence of short-term shareholders so that companies can afford to pursue goals other than short-term profit maximization.” Fourth, it is not true that people are always paid what is really due to them. People from poor countries are no less but more productive and entrepreneurial than those in rich countries. Yet they are discriminated against through immigration control and other measures so that they continue to remain poor. People must be provided equal opportunity and the children of the lower classes must be given all help and incentives to come up. Fifth, the mismatch between finance and real activities must be removed. Sixth, government’s role must not be curtailed. Government needs to become bigger and more active. Chang asserts: “Despite its limitations and despite numerous attempts to weaken it, democratic government is, at least so far, the best vehicle we have for reconciling conflicting demands in our society and, more importantly, improving our collective well-being.” Last, the world economic system must play a positive role in lifting up the developing countries that have suffered long from exploitation, oppression and discrimination from the present-day developed countries. Obviously, international institutions need to be reformed in order to serve their needs.
Coming to the Survey, its authors are still sticking to the discredited neo-liberal approach. They think, the ten points of Washington Consensus are still the panacea. They do not look beyond the maximization of economic growth rate. They are not bothered about percolation of the fruits of growth. Consequently, economic inequalities are increasing and two nations in India have come into being and the gaps between the two are too apparent to ignore. On the one side, we find the dream palace of Mukesh Ambani in Mumbai and apartments and town houses being built in South Delhi, costing Rs 160 million upwards. On the other side, there are millions who are compelled to sleep on pavements in Mumbai and New Delhi, no matter whether it is winter or rainy season. Every morning one sees hundreds of teen-aged rag pickers in New Delhi, destined not to see the face of a school. Regional disparities have widened during the two decades of neo-liberal reforms aimed at rubbishing the Nehruvian legacy and the commitments of national movement from Karachi Congress onwards. All these are reflected in increasing crimes, lawlessness, Maoist movement, exodus of rural population to urban areas, regional conflicts, communal tensions and so on.
Corruption and scandals have gripped almost all sections of the society from the top to the bottom. Those who have some position, be it the post of a police constable or a minister or a high-up in administration, the aim is to amass, by hook or by crook, as much wealth as possible to join the segment, led by Ambani, Mittal, Tata and so on. Those who have wealth, they try to grab some position of power and influence. This explains why the moneybags have been trying to enter Parliament and State legislature. The BJP-led NDA opened the flood gate when it lifted the restriction of being enrolled as a voter in a State to contest for a Rajya Sabha seat from there. One may look up and count how many moneybags adorn the Rajya Sabha and how many Reddys are exercising ministerial powers. What E. F. Benson depicted in his novel The Money Market more than a century ago is very relevant to present-day India. Thorstein Veblen’s The Theory of the Leisure Class needs to be read and pondered over why corruption and scams abound in India now. Harvey Leibenstein’s snob effect and band wagon effect could be more helpful.
The Survey claims that the Indian economy has emerged with remarkable rapidity from the slowdown caused by the global financial crisis of 2007-09, but has failed to add that it has happened because of the stimulus provided by the state at the expense of the tax payers at large. Thus the votaries of free market capitalism, who have been declaring the role of state irrelevant have eaten a humble pie. Once again, they have demonstrated that profits belong to them while the losses have to be made up at the expense of the people at large. One may recall how the chief economic adviser to the Ministry of Finance and the honorary economic adviser to the Prime Minister used to attack relief by the government to debt-ridden farmers and MNREGA. They used to evoke the notion of moral hazard.
The rate of economic growth was said to be 8 per cent in 2009-10 and is to increase to 8.6 per cent at 8.6 per cent indicating that “the turnaround has been fast and strong. Growth is strong in 2010-11 … with a rebound in agriculture and continued momentum in manufacturing, though there was a deceleration in services caused mainly by the deceleration in community, social, and personal services reflecting the base effect of fiscal stimulus in the previous two years.” Thus, people at large has suffered to prop up our free-market capitalism !
The votaries of the Chicago School have willingly or unwillingly, admitted that prescription of Keynes who had been sought to be consigned to the dustbin has come to their rescue. They admit: “On the demand side, a rise in savings and investment and pickup in private consumption have resulted in strong growth of the gross domestic product (GDP) at constant market prices at 9.7 per cent in 2010-11.” Thus they admit The Return of the Master, as claimed by Robert Skidelsky. It also highlights the importance of MNREGA’s role in boosting the rural market.
Though this time, there is no stress on reforming labour policies in order to curb trade union activities and giving unrestrained power to the private sector to hire and fire the workers. Maybe the authors have read Karl Polanyi’s classic work The Great Transformation, wherein he has shown that treating labour like other commodities is disastrous or, maybe, the political bosses have put some sense in them.
This time the emphasis is on opening the doors to foreign direct investment in retail trade. Let us hear the words of ‘wisdom’, it is claimed that a “quicker method to curtail the margin between farm gate and retail prices is to bring in modern supply chain management systems and retail sellers into the picture. This will involve a lot of new know-how. A quick way to get at this is to allow foreign direct investment (FDI) in multi-product retail into India. We will certainly need to have a regulatory structure within which such foreign companies will be required to function, even if it were argued that large organized-sector firms would be more wary of violating the nation’s antitrust laws. At any rate, we are at a juncture where FDI in multi-product retail is worth considering. It could enable farmers to get higher prices and consumers to have to pay less. We could, as a first step, consider limiting internationally multi-product retailers to a few outlets in each major city. This will prevent them from getting full control of the market and, at the same time, set an upper bound on the prices that other retailers will be able to charge for their products. Further opening up can follow depending on the success we have with this.”
The above words of ‘wisdom’ clearly show that the Survey has been authored by economists who are really touts for MNCs. One must remember that, not long ago, the received wisdom based on Arthur Laffer’s Curve was made the basis for bringing down the rates of direct taxation, claiming that it would curb tax evasion and tax avoidance and generation of black money and increase the government revenue. The government of the day yielded and acted accordingly but the promised results have not accrued. One may ask whether those who are advocating for FDI in retail trade guarantee that foreign firms would not indulge in profiteering and wring up the prices on some pretext or the other. Besides, what will happen to hundreds of thousands of semi-literates running up small retail shops in every nook and corner of human settlements? Who will feed and take care of these people and their families? The touts must remember the conditions primitive capitalist accumulations cannot be tolerated by the people of this country in the 21st century when they have universal adult franchise and a democratic government.
They should have recalled the hue and cry against the licence and permit raj. It has been abolished yet we do not find real entrepreneurs among the billionaires in the Forbes’s list. This is the finding of none else but Raghuram G. Rajan (the honorary economic adviser to Prime Minister of India) who elaborated it in his 11-page foundation-day lecture at the Bombay Chamber of Commerce in 2008. One of the recent books by Rajan has been respectfully referred to by the Survey.
Inflation is the biggest problem the country is facing, but the Survey has nothing worthwhile to offer by way of the analysis of the factors sustaining it or the ways and measures to control it. It appears that there is confusion galore everywhere and at its root lies the blind adherence to neo-liberal economic approach. One expects the Finance Minister with his long political experience and contacts with grass root realities to put some sense in those who advise the government.