Let’s accept a fact: India’s new normal is now 5% growth
Last week chief executives of automobile companies reached out to finance minister Nirmala Sitharaman requesting a stimulus package to bail them out. It had the predictable mix of requests: reduction in taxes, easier credit facilities and so on. There was a feeling of déjà vu; harking back to a time when industry used to queue up before the finance minister, but normally before the presentation of the Union budget.
Regardless of whether the government succumbs to the not so subtle underlying threat—loss of jobs—held out by the auto companies, this crisis, also echoing in civil aviation and telecom may be the trigger to rethink the growth mantra chant or at least recalibrate priorities.
For the last three decades economic pundits of all hue, most of whom cited China and its apparent economic miracle, have fed us the line that the only thing that matters is economic growth. The faster you grow the better; it will generate jobs (something as we know is a pie in the sky) and the resources to fund the country’s development needs. In fact, this obsession is a bone of contention between two rival political regimes—the Congress-led United Progressive Alliance (UPA) and the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA)—with both sides laying claim to have clocked the fastest growth rates in their respective tenures.
Yes, it does give bragging rights; but also, on the benefit of hindsight, it entails a cost. The ostensibly reckless pursuit of growth (avarice as some would say) during the UPA regime is what created the monstrous bad debt problem. Not only has it crippled banks, but with the law and payback on bad business decisions catching up, India’s famed entrepreneurs are in a funk. The consequence is a steep paring of investments and consequently growth.
Worse this growth left little trickle down for the bottom of the pyramid; the 1% just simply became richer. This in turn meant that the economy was running on the single engine of consumption—funded largely by the few who gained from this kind of growth. It was a party that could not last. At some point their consumption would be satiated; after all how many cars (or the new craze: LCVs or light commercial vehicles), refrigerators, air conditioners and similar consumer durables can an upper middle class family consume? Sounds familiar?
I guess somewhere along the way both sides overlooked another aspect: the quality of growth matters as much. The present crisis is the outcome of overlooking this basic truth. At the risk of being labelled a “Leftie”, one would modestly propose a rethink or at least a recalibration of the economic priorities: to growth with equity as the underlying principle.
Beginning with the UPA and now under the NDA, a redistribution of incomes is being undertaken through programmes like the Mahatma Gandhi National Rural Employment Guarantee Scheme and material empowerment through schemes like Ujjwala, electricity and housing for all; something for which the present government is being accused by armchair critics of abandoning accepted economic wisdom and undertaking a leftward shift.
This is actually a good idea. Without materially empowering the bottom of the pyramid, especially the estimated 400-500 million, there is no question of creating a sustainable domestic consumer market. Alongside, it is imperative for India to continue to create the capacities to overcome the legacy deficits in education, skills, infrastructure, and so on.
This will in turn improve productivity and build capacity in the economy. Together with material empowerment, it will create the basis for a sustainable economy—all the more if we stay the course on the green priorities being spelt out by this government.
Obviously, such a redistribution would lower the growth momentum of the economy, probably to around 5%. But that is a small cost—India will clock $5 trillion a little later than planned—compared to the present practice of coming up with frequent sectoral bailouts without fixing the structural constraints.
In the final analysis I will leave you with the thoughts of a man, Mohandas Karamchand Gandhi, who of late is suddenly back as the most popular political flavour. “Earth provides enough to satisfy every man’s need, but not every man’s greed,” he said.
Listen to Bapu.
Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.