Wednesday, 27 May 2015

Politic of Great Divide: Rich and Poor

A quick review of Indian economy under the UPA I & II reveals that neo-liberal economic policies were unable to sustain a rapid growth as it was halved in just three years from 2011-2014. GDP growth rose marginally to 4.8% during the quarter through March 2013, from about 4.7% in the previous quarter. In fact, UPA government had forecast a growth rate of 6.1%–6.7% for the year 2013–14, whilst the RBI expects the same to be at 5.7%. No doubt, besides rapid growth in GDP neo-liberal policies also gave rise to what is known as ‘Crony Capitalism’ or in communist jargon ‘Lumpen Capitalism’. Further, during the period of liberalisation, particularly from 2000-2010 a number of scams came to light in which top government officials were implicated. Corruption was so rampant that it did not spare even the defence sector. Although Manmohan Singh had two terms as a Prime Minister in spite his best endure to remain Mr Clean, he was also implicated in coal scam.  In his interview, he admitted that Congress’s loss in 2014 was failure to addressing the problem of corruption, unemployment and inflation, particularly food inflation.
Modi Govt. & Budget on Account: 
According to Jaitley the Economic Growth Rate of India would be 5.5% in 2014-15, which less ambitious than UPA’s Finance Minister, Mr. Chidambaram. Besides this, India suffered a very high fiscal deficit of US$ 88 billion (4.8% of GDP) in the year 2012–13. The UPA Government aimed to cut the fiscal deficit to US$ 70 billion or 3.7% of GDP by 2013–14, but again Modi government’s FM is less ambitious than UPA as he sets the deficit at 4.1% of GDP for 2014-15. Combine with poor response of the market leaves one wonders how anyone could claims budget has spurn the economy to meet the desired promises of ‘Good time Ahead’ let alone realizing the objectives of employment generation, eradicating corruption, and controlling inflation.  In fact, it appeared as if BJP Finance Minster Arun Jaitley was presenting UPA Finance Minister, Chidambaram’s budget! 
Modi’s 68th Independence Day Speech:
On India’s 68th Independence Day Modi commissioned a team of his advisor for a feedback for his speech and like his all predecessors he gave a firebrand speech asking deficit to combat the inflation.   In fact, in spite of tall claims made during the election campaign, there was nothing in Modi’s speech about the Roji-Roti, Bijali-pani, Kapada and Makan for common man and there was nothing for women ether as to Sikasha, Suraksha and Sochalaya. Like Mrs Indira Gandhi, he is also merely selling slogans like HIT (Hydropower, Information and Transport) in Nepal, PPP (Paryavaran, Paryatan, Power) in Ladakh and announced BSP (Bijali, Sadak and Pani) on 15th August. Modi also announced that from October 2014 he would ensure Sochalayas (Toilets) in every household, but failed to tell in the absence of water how his dreams will be realised? He has also pronounced that the Planning Commission of India, a constitutional body would be replaced by a more effective body like China has ‘Reform and Development Commission’, without the necessity to have a debate over it in parliament. Hence, this would eliminate the prospective allocation of resources and multiplier effect on various sectors and its review mechanism, thereby no accountability. 
Modi in International Irena        
It appears Modi has merely been engaged in a public relations exercise rather than chalking out a concrete plan to eradicate corruption, unemployment, and fight inflation & poverty. Thus far steps that his government has taken via budgetary instrument as oppose to a long term economic program appears to be counterproductive.  For example, his announcement for 100% FDI in defence sector and 49% in insurance and divestment to limit public sector may help realizing efficiency with increase in output in short-run but at the cost of meeting the increase in employment as why any foreign investor would be increase in employment in India? Those who have a bit of knowledge of economics would realise that growth and efficiency is not the end of the world.  If one examines a relationship between output and efficiency it would show that in the long run more output would mean increase in inflation with almost negligible impact on the efficiency.
Home Performance:
It is an interesting act, but falls short of reflecting the aspiration of Indian people due to superfluous analysis. Before elected as PM Modi promise Good days ahead to for people namely; creating jobs, bringing black money home which will put 1.5 million rupees in each citizen's account, bringing inflation down, and poverty alleviation. Although election manifestos have always been as a document of promise and not delivery unfortunately people being betrayed by past government have taken Modi's words on their face value.

The author of the article is looking at Modi's performance from a neo-classical economics angle that is failure to carry out the reforms necessary for growth and therefore by implication benefiting everyone what Modi describe as 'Sab Ka Vikas San Ke Saath' (Development of every one with everyone).  There is nothing new in this concept, in fact Gandhiji was first to take about 'Greatest good of all'.  This idea, though appears novel, it lacks sound theoretical understanding of economics. Neo-classical theory of growth does not have any theory of distribution. It completely relies upon the percolation effect or trickle down mechanism. History of economics institutions has witnessed and rejected such theory. In fact, even most of the Western and North American economists do not subscribe such an outdated theory. However, some of these very economists and their satellite economists like Bhagwati and Panagariya continue to advocate such theories to India and developing economies so that the West & N American continues to use o stabilize their own economies.   
Since Modi for his failure to deliver on the above promises has come under a lot of pressure both from the Right and most from the Left and now has become defensive on his own promises and said in his first rally in Mathura at the eve of one year, "Entrepreneurs and corporate (capitalists) can’t create jobs"!  This is very alarming statement which out off many pro Modi entrepreneurs into pessimism. Rather than 'ACHHE DIN AGAYE' (Good days have come) he talks about 'Bure Din have Gone' (bad days have gone). This leaves the impression of 'half glass is empty rather than filled'.   
Now look at the performance in terms of some indicators for April 2014 to May 2015: (i) Inflation WPI to some extent even CPI being low from 9.3% to 4.9%, but main credit goes to low fuel prices but prices of common man daily food, pulses or lentils have gone up by 40%. (ii) It is claimed that current account deficit has gown down from     3.9 to 1.6% but again that is also due to lower fuel bill, (iii) Employment growth 0.28 to 0.3% has been the same as it was a year ago, (iv) GDP growth 7.5% claimed to have surpassed China is false claim as base year has changed so after adjustment it is 5% as it was  year ago, (v) Trade deficit down to 137 crores also due to exchange rate low fuel prices, (vi) in spite of Modi' tour of 18 countries financial inflow dropped from 4.29% to 1.76%, (vii) claims has been made that 30000 crores profit from coal auction but that is over 30 years when full potential is realized  realised, (viii) creation of Smart cities for whom as unless people have income thy would turn out to be ghost house as some of did in China 1990s, (ix) bullet trains rather than more trains for common man is a misleading priority,  (x) as to 'Make in India' exports have fallen down from 24% to -21.1% due to low demand, etc.   As to various flagship programs they have only been renamed and allocation to them have been slashed to a great deal.  Of course,  RSS and VHP agenda of communalization overshadowed the key economic issues facing common man in everyday's walk of life.        
Hence, Modi has raised the aspiration of the people but he has done very little to manage them by delivery on the ground.  He has provided the poor farmers 'Soil Health Card', but there is no Health Card for the very people who work on that soil.
Unless we adapt to concrete reality by choosing alternative strategies as China did future of poor looks extremely bleak.   There is no substitute to distributive growth as China has advanced since the 2008, US $950 billion investment to deal with crises in three stages: (i) Infrastructure spending, (ii) focus on rural areas to stimulate demand, and (iii) speeding up of economic growth in new regions, generating housing demand leading up to consumption led growth. This strategy made China a darling of both foreign direct investment and portfolio investment suggesting while the global equity markets were in turmoil, China has emerged as safe parking lot for the global funds.
Last year at the UN submit on environment famous TITANIC Movie star, Leonard DiCaprio said, “I pretend for living I hope you do not”.  Let Modi be his own judge or people should judge him next time!! 

Prof S. Deman

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