The Economics of India First

The Economics of India First

Mr. Narendra Modi recently told the overseas Indian diaspora that his idea of Secularism involved the notion of “India First”. He explained it in terms of putting the interests of the country above sectarian interests and pressure groupings. What then would this mean in economic terms?

Modi says he has only been re-elected again and again because of his track record on development. Many criticize even this, saying there has not been the kind of job growth one would desire alongside such spectacular absolute growth in investment etc.

But looking at employment growth as a percentage of the total population of the state is misleading, except to illustrate we are still a long way from eliminating poverty.  Different approaches to the statistics however, throw up different highlights, all competing for attention.

The Indian Express reports that Gujarat hires more people via the government run employment exchanges than any other state. The Labour Bureau of Gujarat under the Union Ministry of Labour claims Gujarat and Daman & Diu have the lowest unemployment statistics today.

Other, less sympathetic sources, quote the National Survey done pre-budget 2013, and talk of stagnating percentages in overall employment. The opponents of Modi’s development model carp about the paucity of poverty alleviation measures for those in the poorest quarter of the population. This, without however pointing to the actual success of such bounty anywhere else in the country!

By way of unfavourable comparison though, look at the way the rupee is plummeting because of huge declared and undeclared deficits caused by profligate Central policies. It could touch Rs. 60 to the US dollar soon, and then plummet towards Rs. 75 because of the cost-push inflation raging. There are too many given- away rupees, our new form of want-to-buy- votes   rural liquidity, chasing the usual goods and services, made more expensive by rising fuel, commodity and raw material prices, much of it imported.

Food inflation too, is topping 20% in urban areas at the retail level, and even wholesale price indices compiled by the Government, put it into the double digits. And the food bill accounts for 50% of many household expenditures, or even more in the case of the poor.

Government statistics ironically show rural food inflation, where the Government has propped up farm produce prices, at some 13% too. This food inflation, and general price rise of everything else, is devaluing our currency, in tandem with massive uncontrolled borrowing, as the Government hurtles towards a debt trap.

None of this welfare spending is productive in strictly economic terms, though welfarism has always justified itself in terms of alleviating poverty and human misery. But well-intentioned as this might be, it always ends up, doing the opposite, because the laws of economics do not condone a free lunch, and charges for it with compound interest.

Most people agree, for example, that Mr.Rajiv Gandhi was being wildly optimistic all those years ago when he said some 15% of welfare money actually reaches the intended recipients. Things haven’t got any better, to put it mildly.

This is partly due to corruption, and is partly a consequence of lazy targeting of the truly needy. The Government seeks to rectify this now via initiatives like the Aadhar Card and direct cash transfers. Let us see how this fares, but it is just so much charity, and ultimately unsustainable economically.

And more so in a country with huge absolute numbers, and an economy no bigger than about a trillion US dollars officially.

Welfarism works up to a point in countries with tiny populations, such as Norway and Kuwait, with huge resources per capita. It does not work in socialist France particularly, and did, only partially in Hugo Chavez’s Venezuela, fuelled by the petroleum wealth. And it has failed completely all over the Communist world.

But the growth in Gujarat, based on investment in productive enterprises, is solid; with over 10% GDP growth per annum, and over 10% unprecedented growth in agriculture. A set of figures impressive by any standards, especially since the base figures of the year before were not insubstantial in real terms either.

Contrast this with Bihar, where Mr. Nitish Kumar’s Government also claimed an 11% growth in GDP over the year before, but there the base figures are abysmal for a state with the size and natural resources of  Bihar. 

Statistics, we can see, can be made to dance any which way, but the picture on the ground must match.

All development- based growth is welcome though, because it makes a real difference, and applied at a national level, could catapult us forward. The economics of development is what will put “India First”, and carry all castes and communities with it.

(781 words)

March 10^th, 2013

Gautam Mukherjee