The poor and the economy have taken the centre stage of Indian politics. Prime Minister Narendra Modi feels concerned about the poor and announces the formation of Economic Advisory Council (EAC) for their welfare.. Finance Miniser Arun Jaitley looks for a package to revive the economy that has ‘dipped a bit’ without giving up fiscal austerity.
And for a first in BJP politics a former finance minister and BJP leader Yashwant Sinha fires salvos for a sagging economy.
It comes shortly after the UN finds the economy on a free fall the worldwide for austerity and “hyperglobalisation”, a new coinage that marks the Trade and Development Report (TDR) of UNCTAD. It means over financialisation (bankisation) and the correspondent woes of the world economy. The TDR also wants to give up austerity at government levels – just contrary to what India has been doing.
Possibly all the above four – Modi, Jaitley, Sinha and TDR – are correct. The country needs to look for a new economic path. It needs a new package. There has to be full scrutiny and solutions to the grave problems have to be found out. Sinha and TDR look for new path so does Modi and Jaitley. There is consensus – economic model introduced by Manmohan Singh has failed. The quandary is about how to find out the new path.
Will the new EAC led by Bibek Debroy be able to find that out and give the right suggestions? The question plagues everyone right from the prime minister to the last man.
The EAC has to find out new moorings and dynamics for Indian economy. Manmohan Singh failed because what Congress vice president Rahul Gandhi says failure to create jobs – jobless growth – and he says it has worsened during the last three years.
What would be EAC’s take? How would it create the jobs? The industrialized-manufacturing economy has failed to do it. If it has to look for new avenues the dynamics of economy has to change. India remains moored in the farm sector but that is the most ignored.
Farmer has to be the pivot of the economy. The importance of the farm sector has been indirectly recognized by the government as it shelved the decision to prepone the financial year, which is linked to the agricultural production. The government in mid-September realized that it does not get all data before the end of kharif and rabi seasons. That is the key. Over 54 percent officially, or about 75 crore, are dependent on the farm sector for jobs though it contributes 14 percent of GDP, almost the same as the manufacturing, with crop growth of a little over 2 percent normally.
This hard fact is ignored. For the last 70 years, these large numbers are targeted to be separated from the farm sector. It has not and cannot happen. The new economy has to give these 75 crore the firm support so that they stay put and increases the GDP contribution of the sector. Till the advent of the British and their resort to Permanent Settlement, India had a thriving farm economy with poverty virtually a rarity. India has to rediscover it and make a vibrant economy that would transform the dream of Mahatma Gandhi and Deendayal Upadhyay for the rise of the last man – antyodaya.
The EAC has the onerous task to tailor out the new economy.
But this cannot be achieved if banks become monsters. The bankisation, is the bane of world economy TDR says. The untamed finance is continuing source of instability and inequality, it says.
The UN body rejects claims that the financial system is safer, simpler and fairer. It condemns intensification of finance. India is facing it post note-ban.
Is Sinha then right in criticizing note-ban which in his perception has led to slowing down of the economy to 5.7 percent growth against desired over 7 percent? To some extent he is. The banks are rising the world over with government backing by creating fear psychosis of black economy and levying heavy charges and fraudulent deductions across the world. India is no exception.
The world over despite the 2007-8 crisis, the banking sector assets have more than doubled in most countries, TDR notes, with peaks of over 300 percent of GDP in OECD economies. The banks in developed countries have become mammoths with over $ 100 trillion accumulation. It exceeds global income.
India needs to be wary. The EAC has to correct it and tame the power of banks, their demands for unnecessary details like adhar, mobile number repeated know your customer (KYC) and unmitigated harassment. In short, India, as many Eurpoeans, Americans and Japanese want, have to be freed of the leash of the banks and their instruments. It has to also to address the interests on deposits. Lower the interests to depositors, higher are their profits, which are often squandered away in credit to unscrupulous, and rarely repaid.
Indians banks profligacy has led it to a trap of Rs 12 lakh crore NPA, all earned from the poor depositors. Now the government is recapitalising the banks with the same poor taxpayer’s money.
The EAC for the sake of the poor also have to bring the banks out of the clutches of the government. The banks need to function like commercial entities and not government departments. They have to service and not fleece with the backing of the government. That would be a pro-poor approach to bring the banks back to health.
The UN finds austerity of governments a major issue for aggravating the economic crisis and the growing number of poor across the world, even in the most affluent US. It also warns against mixing automation and austerity. It has led to job crisis across the world. In India, this is reflected in the sudden sacking of thousands of workers from the IT and some other sectors.
The EAC has to ensure that robots do not replace well-paying jobs with the low-wage ones. It raises profits of big companies and pauperizes the workers or hits income distribution. The EAC has to chart out a policy on robotisation so that India’s poor, Modi’s prime target, are not hurt.
This is a great opportunity to redesign Indian economy. Its success with agri-focus can change the dynamics.