Opinion | Let’s redesign our economic model for sustainable growth4 min read . Updated: 16 May 2019, 03:03 PM IST
We must not only restore the economy’s pace of expansion but also make the process inclusive
With the final phase of elections scheduled for 19 May, the biggest festival of democracy will soon be over. While this election has been bitterly fought, with tempers rising all around, real issues of the economy which should have attracted attention were somewhat muted, despite the opposition’s attempt to raise the crisis in Indian agriculture and the long-standing issue of unemployment. Whatever the outcome of the election, the new government will have to address some of these issues on an urgent basis.
Recent data from private sources on automobile sales and consumer durable sales suggest a worsening of the demand crisis despite some signs of inflation inching up. It is unlikely that the long spell of rural distress is going to end in the near future. The other issue of unemployment, particularly among the youth, is real and again requires an immediate response, though none of the political formations appears to have a solution. The challenge is not just the need to respond to these immediate problems that have taken political dimensions and have spilled over onto the streets, but also to find a sustainable model of economic growth and development for the country.
But it is also time to ask if there is an Indian model of growth. Or, to put it in other words, is there a long-term vision of how the economy will go forward? Unfortunately, despite the shrill rhetoric of reforms, the Indian economic model remains a model of crisis-driven responses rather than a coherent model based on a concrete assessment of the needs of a fast-changing economy.
Not that we did not have a vision to begin with. The much derided Mahalanobis model that guided policy in India’s first 15 years of independence did have a vision, though it was cut short after the national food crisis in the mid-1960s. Just as the green revolution was an urgent intervention to tackle that crisis, subsequent breaks have also been driven by an urgency to deal with an immediate crisis. This was particularly true of the 1991 reforms, which were a response to a fiscal and balance-of-payments crisis, and also for the pro-poor economic strategy adopted after 2004, which was seen as a response to the rural crisis and farmer suicides between 1998 and 2004.
A similar crisis has been brewing for some time now, with no concrete solution on offer, let alone a realization of the nature of the crisis. Both the Bharatiya Janata Party (BJP) and Congress have proposed solutions of loan waivers and cash transfers. While these may provide some temporary relief, they are unlikely to prevent another crisis in the near future. The pressure to do something would involve bearing a large fiscal cost, which will have an impact on long-term investments and the sustainability of farming in the economy. The same is true for unemployment, where the response has ranged from outright denial of the problem to promises of filling up existing job vacancies.
While the pressures of electoral politics have ensured that the agrarian crisis and jobs have got the attention of political parties, these electoral pressures also imply that none of the political formations is willing to acknowledge that the problem is essentially one of the economic model India has followed for the past three decades. In fact, the economic models of both these political formations are similar in spirit, though there are minor differences in the actual content. This is not just true of fiscal and monetary policy, as also industrial and agricultural policies, but of human development issues too. This is a model that continues to give preference to large corporates and serves the interest of finance capital at the cost of workers and farmers. Over the years, it has not seen any change and has only been strengthened over time.
One natural outcome of this economic model is recurrence of an agrarian crisis in some form or another every decade. With worsening employment quality and lack of jobs despite high growth, it also excludes a large majority of disadvantaged sections. The recurrence of social and political unrest among disadvantaged and excluded groups may force some immediate relief measures from the government, but is unlikely to force a rethink of the economic model itself. Political parties are unlikely to think long-term, with elections held almost every year at the state level. However, even institutions such as the NITI Aayog and Reserve Bank of India have failed to act as independent watchdogs. There is unlikely to be any independent assessment of the strengths and weaknesses of the economy if these institutions also start working at the behest of ruling political establishments. The last in the list of casualties is the statistical system, which has come under criticism for compromising on its independence.
Whatever be the outcome of the general elections, the challenge for the new government is not just to restore the economy to its path of growth and development, but also plan for the long-term sustainability of the growth process in a just and inclusive manner. A necessary condition for that is to restore the credibility of the existing institutions crucial to policymaking, and create new ones to cater to the needs of the new economy.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi