For the best part of their first term, UPA policymakers routinely looked to economic key indicators to vindicate their successes as the ‘authors’ of India’s highest GDP growth rates ever. Now, in their second term, they are confronting the embarrassment of the same indicators giving the lie to their rosy forecasts of economic turnaround.
Not too long ago, the Deputy Chief of the Planning Commission, Montek Singh Ahluwalia, asserted the slide had ‘bottomed’ out, on the basis of a slight, almost invisible change in growth numbers for the April-June quarter of the current fiscal from the corresponding quarter of the previous one; 5.5 per cent compared to 5.3 per cent. That blip provided the policymaker concrete evidence of a course correction and emboldened him to suggest that by January the government’s initiatives to crank up sentiment and growth ‘momentum’ would bear fruit.
Something’s in the air
It’s not quite clear what how the government is supposed to have done that, considering that each day for policymakers is like a nightmare of fresh accusations, echoing in a way, Sartre’s complaint of hell as “other people”. Most ministers live through the experience presumably with fingers crossed and certainly with their voices low (witness the taciturn minister for agriculture); others plough their lonely furrow like Chidambaram who has taken it upon himself to lift the economy purely on the strength of his commitment to clearing thickets of red tape with the help of the National Investment Board.
Then there are the hardy remnants of that band of cheerleaders who still feel that a bright future is within spitting distance, who look to numbers to bear them out.
Truth behind the lie
The fall in industrial output for the month of September gives the lie to the optimism that is being aired for public consumption, by spelling out a deeper truth that most policymakers will not admit. The organised economy’s growth is exhausted in a way that the Chinese economy is not; lack of export demand and domestic consumption has stalled the giant growth engine. The sliding GDP growth rate is also indicative of something more profound -- a systemic crisis of neglect, misplaced priorities and an eager desire to consume the future today.
What this means is that an economic administration historically attuned to planning, has been unable to plan for the future in a way that could have kept the growth engine going even in the face of declining export demand.
No other emerging economy has enjoyed that unique and accidental privilege of having a vibrant domestic economy and a potential for its expansion. Most east Asian economies and China adopted the export-oriented growth model, curbing domestic consumption through competitive exchange rates and capital and investment controls.
But policymakers botched their chance to build on the fact that the reforms of the nineteen-nineties and the fortuitous growth of the IT industry had empowered a growing middle class.
Like dazzled worshippers of the accomplished fact, they forgot that sustainable growth requires more than a ‘stock’ of consumers at any given moment; it also requires more than the increase in production or output. It requires to distribute the pie more evenly between the present and the future. Held in thrall by the present growth numbers, policymakers had forgotten the future.
Future does not matter
Once the new millennium rolled in, growth kicked in and UPA-I assumed office, the skewed pattern of growth, with GDP tilted towards services became a celebratory fact, rather than a trajectory that needed correction if the current growth had to be sustained.
For policymakers blinded by the neon-lit, urban-based organised economy’s globalising promise, the epistemology of development began to change, governed as it was by their wilful acceptance of India’s growth pattern’s success and global approbation of its skewed trajectory.
‘Sustained’ growth means quantitative jumps in current output through coupling with global capital and markets. ‘Development’ needs the wholesale deployment of natural resources towards market-led industrialisation.
Progress is contingent on present consumption; the future has vanished into the present, so why bother keeping the air clean, forests verdant and cities unsullied by the detritus of our material surfeits for the next generation?
To be fair, an economy that understands only present consumption is not just an Indian feature; the global economy, too, is paying the price for its excesses. But countries like India will pay a heavier price, because of the policymakers’ indifference to the possible impact of time on the apparent advantages.
Thus, India’s demographic dividend could and probably will turn into a nightmare if employment opportunities do not grow commensurate with the young population’s needs.
Evidence does not suggest a rosy picture; employment is not rising proportionately to the increase in investments; productivity is. More than anything, factory employment manifests a clear preference for contract or casual employment.
Truth is the lie
When Ahluwalia expressed disappointment at the industrial output numbers for September, what did he have in mind?
If the past is anything to go by, he was thinking of the impact of a sluggish capital goods expansion on the Index of Industrial Production and eventually on GDP?
He should spare a thought for the young and unemployed who will nurse young ambitions and then raging frustrations and look around for targets to vent them on, to hold someone accountable for the time and money spent in acquiring a useless education.
What policymakers also need to keep in mind when considering those numbers is the state of the world economy.
It is not just exports that are affected; more than the capacity to absorb goods from emerging economies, the ‘West’ is undergoing a crises that will increasingly manifest itself in social and political forms: protectionism, racial prejudice perhaps ethnic conflicts — certainly a steady collapse of global cooperation as nation-states adjust to cope with domestic crises.