Economic Highlights
New
Delhi, 12 June 2015
India’s Growth Story
TRICKLE
DOWN FAILS
By Shivaji
Sarkar
Prime Minister Narendra Modi has
apparently been working hard. The year has been difficult for him having
inherited a legacy of UPA’s Manmohan Singh that has depressed all economic
indicators. It hasn’t been easy for the new Government to lower inflation, at
least statistically, which is an indicator that prices are not increasing.
However, it is a different story
that the phenomenal price increases during the UPA II, years between 2009 and 14,
have not come down either. The five years have ensured over 100 per cent
profits for the large corporate, which also got substantial “incentive”--
subsidy or added grants from the Government for suffering no loss. Shockingly,
corporate India
behaves as if they are from a different planet and can be oblivious to problems
of the common man.
But RBI Governor Raghuram Rajan has
pressed the alarm button while half-heartedly allowing interest rate cut. Rajan
pointed towards a number of problems hitting the economy and subtlety warned of
not so brighter days in the near future. Is Rajan a pessimist? Perhaps he is
not and instead is a realist. He indicated that oil prices may not remain low.
Now we see that OPEC has been able to take steps to boost prices. How much of
this would hit India?
Nobody knows. But it is a stark reminder that oil prices can play spoil sport
to Modi’s promises.
Besides, the answer may not lie with
carrying on with lower interest rate. This is a continuation of the Manmohan
Singh legacy of granting subsidy to the large business houses at the cost of
small depositors. Singh had all through since 1991 repeatedly erred and both
his terms as the country’s Finance Minister and Prime Minister have been marred
by scams right from 1992’s Harshad Mehta stock scam to scores of others till
his Government demitted office. The country lost trillions to the innumerable
scams – an indirect profit to some big Houses. A case in point is that the
recent coal block auctions even belie the estimates of the CAG, wherein the
sale of a fraction of the mines fetched more than what it estimated at Rs 1.76
lakh crore.
For starters, Modi has taken at
least a partial corrective measure. He has to do a lot more. But if he starts
recovering the money from the scamsters, he would be accused of being vengeful
and if he doesn’t, then his friends would say he is soft. Indeed, it’s not easy
for Modi to change tack overnight. The bureaucracy creates road blocks wherever
possible, as many of them owe loyalty to the previous masters.
Modi has twin objective of reviving
the economy and check corruption, neither of which is easy. During the past one
year since it came to power, the Government itself has come out clean. But the
system has suffered many hiccups. At one end, the higher bureaucracy is
cautious and on the other, the lower bureaucracy has evolved ways to go on with
the corrupt system. Many departments, including that of traffic policemen, have
outsourced the “collections” to non-descript people. They can be spotted at
different road crossings all over the country, including the National Capital
Region.
At the same time, there are many
higher level bureaucrats earning Rs 1.5 lakh a month post retirement at
government offices. Some others are having additional “income” of almost Rs 2
lakh a month from autonomous bodies. Such people are innumerable in the portals
of power and they block decisions, misguide political bosses and tend to forget
crucial instructions. This is where the new dispensation is suffering. The
process of primitive decision-making and accumulation in a few hands ensured
that growth has been exclusionary --- devoid of the trickle-down effect, where
the exclusion has taken two forms: first, by excluding a vast section of the
population from the benefits of rising income growth, and second, further
exacerbating existing social inequities based on caste, ethnicity.
In fact, the dual phenomena of
income inequality and social inequity compensated, complemented and even
reinforced one another to exclude a large section of the Indian population from
the benefits of economic growth. There is also, due to measurement problems,
controversy over trend of income poverty, and there is a strong indication that
non-income factors of poverty (captured by the statistics of malnutrition,
health, education, etc.) may have stagnated or worsened, say some economic
experts.
This legacy is stomping Modi. The
question arises: Is there a way out? While his think tank is looking at
reviving the village economy through clusters, others want manufacturing and
industry to grow to balance the deficiencies. There is dissatisfaction at the
National Institution for Transformation of India (NITI) Ayog as it is dominated
by the US
and West leaning experts. If the Planning Commission with similar people had
failed this country, would the new one be able to deliver, they suspect.
Since 2007, the growth story is in
serious danger. In fact, the Indian economy’s troubles expand well beyond the
faltering growth story. In the past five years, the economy has moved into a
terrain of a deep crisis. This is a systemic crisis. In the socialist era,
trade unions were blamed for all ills. But why is the “competitive” globalised
market economy failing?
The reason is simple—the economy is
exclusionary. The deprived get marginalized. The middle class get impoverished
as they are not getting proper jobs and are pestered by a tax system that
favours the rich. Modi has to correct this great aberration. The promised
inclusion has to go beyond financial – Jan Dhan.
In reality, the way the income tax
department is baying for more powers and criminalization of tax default it may
well become the biggest obstacle for inclusive overall growth. The richest in India do not
pay taxes. Their companies bear it in many garbs.
Tax officials have become rent
seekers and are pestering the poor tax payers, who have an income of Rs 20,000
or more. As the less than about 4 crore taxpayers come from this salaried
class, they also lose on their bank deposits through TDS, and have no capacity
to go to the market.
Modi has to ensure correction at
many levels. He has to change the goal posts at all levels. Economy has to be
seen from the perspective of the people at the lowest rung – salaried or small
entrepreneur. The trickle down has failed. Let this country try from the bottom
upwards. That would include the large populace. Mere manufacturing and industry
that employ the least cannot be the solution. Modi has a knack for
experimentation. The country awaits his steps for a new economy.—INFA
(Copyright,
India News and Feature Alliance)
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