Rapid industrialisation is the key to beating the slowdown

Markandey Katju | Updated on January 23, 2020

In recent months, the Indian economy has tanked and unemployment is at a record   -  istock/prachanart

India has the resources to increase its production capacity. But it is people’s purchasing power that needs boosting, for which measures must come from the state

The International Monetary Fund has lowered its global economic growth projection for 2020-2021 due to sharp decline in the Indian economy, which is now estimated to grow 4.8 per cent in 2019-2020, as against the 6.1 per cent expansion the IMF had projected in October.

In recent months, the Indian economy has tanked, with steep downturn in manufacturing and sales in the auto sector and other units, sharp dip in the IT sector, and the real estate sector in the dumps. There have recently been massive layoffs, and unemployment is at a record. There are twelve million youth entering the job market each year, but there are fewer jobs available, as even the National Sample Survey Office has admitted.

At the same time, food and fuel prices have soared. The future looks even more gloomy, and the politicians at the helm of affairs seem to have no inkling on how to resolve this crisis. All they can do is to resort to gimmicks to divert attention of the people — building the Ram temple in Ayodhya, cow protection, yoga day, Swacchata Abhiyan , abolition of Article 370, Citizenship Amendment Act, etc.

Production and sale

How to find the real way out of this economic crisis? The answer lies in rapid industrialisation, as that alone can create the millions of jobs needed to wipe out unemployment and generate the wealth required for the welfare of the people.

However, there is a basic hurdle to rapid industrialisation — while there is no difficulty in increasing production, the products will not be sold because of rampant poverty and reduced purchasing power.

India today is not the same as in 1947. At that time, we had few industries and few engineers, because the policy of our British rulers was broadly to keep us feudal and unindustrialised. After Independence, however, there was a limited degree of industrialisation, and today we have thousands of bright engineers, technicians, scientists, etc and abundant natural resources. With these, we can easily step up production rapidly.

But the problem that still persists is how to sell these products? How to raise the purchasing power of the masses ?

There are many eminent economists in India, but alas, not a single one has any notion how to go about resolving this issue.

Different measures

In January 1914, American industrialist Henry Ford raised the wages of his workers (in the plant manufacturing his Model T cars) from $2.25 to $5 per day. This was done to stabilise his workforce, but it did raise the purchasing power of the American masses, as other American manufacturers were compelled to do the same. However, it is unlikely that Indian businessmen will undertake such an initiative.

In the Soviet Union, major industrialisation began in 1928 after the adoption of the First Five Year Plan. The methodology adopted by the Soviet leaders was, broadly, that the government would fix prices of all commodities, and every two years or so lowered them by 5-10 per cent (sometimes wages were also increased by 5-10 per cent). Even with the same wage, the worker could now buy more goods, as prices had been reduced. This way, the purchasing power of the Russian masses was increased by state action, and thus the domestic market steadily expanded.

Simultaneously, production was also stepped up. This process went on steadily after 1928, resulting in rapid expansion of the Soviet economy and creation of millions of jobs, which wiped out unemployment.

This happened after the Wall Street slump in 1929 the Great Depression in the US and most of Europe, when thousands of factories closed down, and millions were left unemployed.

It may be noted that the purchasing power of the masses was raised in the Soviet Union by state action, not private enterprise. I do not mean to say that India too must adopt exactly the same technique, but I do believe that the measures to increase purchasing power should come from state action, not private enterprise.

This, however, cannot be done in the current political system in India. What that alternative system will be under which the purchasing power of the Indian masses rises and the Indian economy rapidly grows is difficult to predict.

The writer is former Judge, Supreme Court of India

Published on January 23, 2020

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