Opinion : Modi Economics
Intro: In 10th 5 year Plan, we experienced an unprecedented growth in manufacturing sector in 2007-08, it reached 15.6% growth. However, it decelerated to 0.7% growth in 2013-14.
After the new regime resumed power, Neo Swadeshi Economics alias Modi Economics, is in discussion these days. There is a tendency amongst the economic analysts to give it a name, mostly after the most powerful visionary in the ruling clan. Likewise economic vision of the Modi government is being called Modi Economics. If we recall Nehruvian days, when prevalent economic thinking was that of Jawahar Lal Nehru, the economic policy being followed at that point of time was called Nehrurvian Economics, named after the then Prime Minister. In reality economic thinking of Nehru was actually influenced by Mahalanobis, who in turn was overwhelmed by Lenin's thinking. The same economic thinking of socialism continued to influence the economic policy for long-long time (obviously with some alterations).
After 1991, though incumbent in Prime Minister's chair was Narsimha Rao, the new economic policy of Liberalisa-tion, Privatisation and Globalisa-tion (LPG), designed by the then Finance Minister (FM) Manmohan Singh, was named after the FM as Manmohan Economics. Perhaps same policies continued even during NDA (National Democratic Alliance) regime under Atal Behari Vajpayee. During UPA-I, Manmohan Economics continued to sway policy making, as now he had become the Prime Minister of India.
As a byproduct of the new economic policy of LPG- poverty, unemployment, inflation had started troubling the common man by the end of UPA-I and during UPA-II, to somehow retain the voters with UPA, the then chairperson of UPA and a person at the helm of the affairs, took charge to address these issues (without altering the basic policy of LPG). She favored a new policy regime based on subsidies (or what we may call populist policies) and then started the game of subsidies in the name of MNREGA, loan waivers, food security, cash transfers and various other schemes. These policies were called 'game changer' policies, as they were targeted to favour the UPA's poll prospects. The new policy framework of subsidies was called Sonia Economics. In the guise of socialism, populist measures were designed to keep people composed despite their deteriorating economic conditions. Meanwhile, at international level Amartya Sen and Jagdish Bhagwati, both economists of Indian origin were at disagreement on what could be the right course of action for India.
Debate started on the issue, whether India needs growth centric LPG policy, as advocated by Jagdish Bhagwati or redistribution policy as pushed by Amartya Sen. Later this debate took a political turn, when Jagdish Bhagwati was seen praising Gujarat model of growth, while Sen was busy praising Sonia Eonomics of distributing subsidies to take care of inequalities.
After the new government took over the reign of power, we find announcements of various kinds, which include among other, FDI in different sectors, disinvestment of public sector, labour reforms and boost to the manufacturing sector. In some circles, talks are also going on about creation of more and more employment opportunities. Central theme of these policies is seemingly, employment and asset creation. At some point even Modi has said that his government would follow neo-swadeshi economic policy but without really spelling out the details.
Different Economic Approach Needed
After having nearly 8 percent GDP growth, consecutively in Tenth and Eleventh Five Year Plans, the economy has started decelerating in the last 3 years, reaching nearly 4.7 percent growth in 2013-14. It is notable that in 10th Plan, we experienced an unprecedented growth in manufacturing sector and, in 2007-08, it reached 15.6 percent growth. However, it decelerated to 0.7 percent growth in 2013-14.
Another distressing aspect of this growth experience was that employment was totally ignored in the overall economic framework. It is notable that during UPA's 10 years regime, 1.2 crore people were added to the labour force annually, however, out of them only 20 lakh people were employed annually. By implication in these 10 years nearly 10 crore people were added to unemployed labour force. Yet another distressing fact is that in the last 3 years of UPA regime inflation has reached two digits; food inflation being the worse hit.
In the last one year of UPA regime, rupee depreciated to a historic low of Rs. 68.84 per US dollar, before improving to Rs. 60 per dollar. New government has come with a promise to change the scenario by taking the economy out of the blues: The new policy that the new regime is defining to recover from the economic crisis is the path of neo-swadeshi economics.
First aspect of new policy thinking is a big push to manufacturing growth. Policy makers are talking about giving big impetus to manufacturing in general, with special emphasis on capital goods sector by giving concession to new investments. Modi has constantly been saying in his pre-election speeches that this country belongs to Youngistan and that it can develop only if the youth of this country is educated, skilled and healthy. We need to provide employment not only to the new addition in labour force, but also to the backlog of the previous regime.
It is notable that there is no place for employment generation in the (LPG) model of growth. Apologists of LPG concede that this is a jobless growth model. Modi government has said that reasons for joblessness would be inquired into and policies would be designed for creation of employment opportunities.
Impetus to manufacturing growth is being talked about, especially capital goods production. However for this, it is imperative to improve the demand for domestically produced goods, and for that we need to restrict imports, improve competiveness, reduce costs and improve efficiencies. There is also a need to bring improvisation in technology. In fact problem of foreign payment can be solved by inviting foreign investment, or by raising debt overseas only for a short while. We need to strengthen rupee and reduce inflation in the long run. Strong rupee, stable prices, manufacturing growth, employment creation and freedom from current account deficit (CAD) in balance of payment are all essential preconditions for change in economic scenario. By combating inflation we can reduce interest rates; lower interest rates are essential for raising consumer demand and also investment demand. It is imperative to restrict wasteful government expenditure by stopping populism and restrict import for strengthening of rupee.
What will be the direction of government policy; only future will tell, but there is no doubt about the fact that if the government mean business, rationalizing government expenditure, restrictions on imports and control of inflation should be Modi government’s key priority.
-Dr Ashwani Mahajan (The writer is an Associate Professor, PGDAV College, University of Delhi)
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