Prime Minister Manmohan Singh will address the nation today from the Red Fort in Delhi. This will be his last Independence Day speech as head of the United Progressive Alliance (UPA) government that has been ruling the country since 2004.
Illustration: Jayachandran / Mint
The PM will most likely focus on what his government has done for ordinary citizens, especially the poor and marginalized. So did his predecessors. This usually involves reading out a long list of social programmes that the government has funded — with perhaps a few new ones being announced.
The PM had also made a relevant observation this time last year. He linked the ability of a government to finance various schemes to economic growth. This is what he had said: “Our economy is now growing at historically unprecedented rates... As incomes rise, so do government revenues that help finance the large increase in public expenditure that we need…”
The link is clear: Faster growth and higher incomes are the best way to pull people out of poverty, either directly through employment growth or indirectly through social sector spending. In other words, there are no magic wands to be waved or unlimited deficits to be dreamed of. You need tax revenues to spend.
The slowdown in economic growth this year is then bad news for businessmen, the middle class and stock market investors — and the poor. The PM’s economic advisory council, or EAC, said on Wednesday that economic growth this year would 7.7% — far higher than what India has traditionally grown at but far lower than what is needed to create enough new jobs and tax revenues needed to fund education, health and other public goods.
The drop in the growth rate is part of a general slowdown in the global economy. But what is especially worrisome is that this government has done little to strengthen the foundations of the economy. Economic reforms have been buried — calling it a pause is being needlessly polite.
What’s perhaps even worse, the macroeconomic tapestry is tattered. The EAC report shows that the “real” fiscal deficit — which includes spending outside the budget — will be the highest since the crisis year of 1990. The current account deficit will be the highest India has ever seen.
These imbalances will not help long-term economic growth and the fight against mass poverty.
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