Slightly more than two years ago, the worst recession since the Great Depression, set in, notwithstanding all the claims from big-wigs of economic science that the days of ups and downs were long past. It was recalled that similar claim was made on October 15, 1929 when one of the tallest economists of America, Irving Fisher of the Yale University, declared that stock prices had reached "what looks like a permanently high plateau." Just a fortnight after this claim, Wall Street went down, taking the entire world, except the Soviet Union, with it. It took the world economy 25 years to return to the 1929-level. Thanks to Keynes, the myth of rational market was given up.
This myth was resurrected from the oblivion towards the last quarter of the 20th century by Thatcher and Reagan regimes under their mentor, Milton Friedman of the University of Chicago. Friedman, to quote Justin Fox (whose recently published book The Myth of the Rational Market is being widely discussed), "never believed markets were perfectly rational, but … they were more rational than governments."
This thinking came to inform the Washington Consensus that became the basis of globalization, sought to be thrust on the world at large by the USA and institutions and economists, aligned to it. Propagandists like Thomas L. Friedman pontificated that the world had no alternative but to fall in line. In our country, the economic mess created by V. P. Singh-Chandrashekhar governments, created conditions for Washington Consensus-based economic reforms to be launched and carried forward during the Narasimha Rao regime. The role of the government was curtailed, public sector undertakings came to be fully or partially privatized, the removal of social inequalities and regional imbalances no longer remained priority for the government, welfare measures were frowned upon, and even health and education sectors were being left at the disposal of market forces and subjected to profit maximization. Nehruvian strategy of development came to be derided and the government’s hands were tied by bringing in the wisdom of Arthur Laffer, embodied in the Laffer curve and zero deficit financing. Labour was to be disciplined by giving employers unrestrained power of hiring and firing. SEZ was to be kept totally out of the purview of labour laws and trade union activities.
The collapse of this scheme began on June 12, 2007 when Bear Stearns fell to the ground and with this came a chain of companies declaring bankruptcy and downing their shutters. This process continues unabated. The latest is General Motors. Millions of workers have lost their jobs and more are going to lose in the days to come.
Only the economies of two countries, India and China, continue to march forward though at a slower pace. As far as India is concerned, its plight is better than most countries of the world because it did not give up the Nehruvian strategy totally, as was underlined by the Congress president Mrs. Sonia Gandhi while speaking at a function organized by the Hindustan Times. It was due to her insistence that NREGA, rural loan waiver scheme and other welfare measures have not only been launched but have also been expanding despite opposition from economists like Kaushik Basu and Raguram G. Rajan. Economic Survey 2008-09, just released highlights this.
The rate of economic growth came down in 2008-09 to 6.7 per cent from the average of 8.8 per cent achieved during 2003-04—2007-08, yet, looking at the plight of most countries of the world, it is quite impressive. Despite this deceleration investment continues to be buoyant as is indicated by the fact that "The ratio of fixed investment to GDP consequently increased to 32.2 per cent of GDP in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of a massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets."
Fortunately, food grains production did not suffer any major decline in 2008-09. It was 229.9 million tonnes as against 230.8 and 217.3 million tonnes in 2007-08 and 2006-07 respectively. Index of industrial production grew only at 2.6 percent as against 8.5 per cent in the previous year. The situation as regards electricity generation too was not a happy one as its rate of generation declined from 6.3 per cent to 2.7 per cent. Inflation continued to cause worries. The 52-week average inflation, based on wholesale price index, rose from 4.7 to 8.4 per cent. If one takes into account consumer prices, the rate of inflation was higher. Both exports and imports declined largely because of recession in trade partners. Government’s foreign exchange reserves declined. The budgetary position showed deficits. Gross fiscal deficit came to 6.2 per cent as against 2.7 per cent in the previous year. The revenue deficit rose to 4.6 per cent as compared to 1.1 per cent a year earlier.
Economic Survey 2008-09 expresses some kind of fatalism and helplessness when it says: "The global financial meltdown and consequent economic recession in developed economies have clearly been major factor in India’s economic slowdown. Given the origin and dimension of the crisis in the advanced countries, which some have called the worst since the Great Depression; every developing country has suffered to a varying degree. No country, including India, remained immune to the global economic shock."
Obviously, this is not in accordance with traditional nationalist thinking as embodied in the documents of the Congress and the governments-led by Nehru and Indira Gandhi. Had these leaders been around, they would have explored the possibility of decoupling from the US economy by reviving NAM and persuading China, Russia, Brazil, Argentina, South Africa and so on. Did not they reject the theories of the "learned" economists from the West, aimed at discouraging India from industrialization and setting up public sector undertakings? Exploring the possibility of "decoupling" needs to be seriously pursued notwithstanding the efforts by the Survey to pour cold water on it. So long as Indian economy remains subjected to FIIs and hot money wandering in search of quick profits, it will continue to experience violent ups and downs.
The Survey has underlined the importance of inclusive growth and highlighted some of the ongoing programmes. This is, in fact, accepting the line pursued by Nehru and Indira Gandhi and rejecting the nonsense like ‘moral hazard’, ‘no free lunch’, and ‘encouraging idleness’ through NREGA. In fact, our democracy based on adult franchise is a big restraint that discourages toeing the line of economists like Basu, Rajan and others, deriving their wisdom from neo-liberalism. Yet they have not retreated as is clear from the basket of policy prescriptions, put forth in the Survey. These include: "Reform of Petroleum (LPG, kerosene), fertilizer and food subsidies… Limit LPG subsidy to a maximum of 6-8 cylinders per annum per household. Phase out Kerosene supply-subsidy by ensuring that every rural household (without electricity and LPG connection) has a solar cooker and solar lantern." "Revitalize the disinvestment program and plan to generate at least Rs. 25,000 crore per year. Complete the process of selling 5-10 per cent equity in previously identified profit making non-navratnas. List all unlisted public sector enterprises and sell a minimum of 10 per cent equity to the public. Auction all loss making PSUs that cannot be revived. For those in which net worth is zero, allow negative bidding in the form of debt write-off." "lift the remaining ban on futures contracts to restore price discovery and price risk-management." "Retrenchment of workers: At present prior permission of Government as per Chapter V-B of Industrial Dispute Act is needed for this purpose. This needs to be removed with simultaneous increase in compensation from the present 15 days wages for every year of service." "Factories Act needs to be amended to increase workweek to 60 hours (from 48 hours) and daily limit to meet seasonal demand through overtime."
In spite of continuously increasing economic growth rate, India ranks 132nd from the point of human development. As many as 125 nations have more per capita GDP and 126 have greater life expectancy at birth. We have more adult illiteracy rate than 147 countries of the world. The Survey admits that malnutrition continues to be a big problem. "Malnutrition , as measured by underweight children below 3 years , constituting 45.9 per cent … has still remained much higher. … Poor feeding practices in infancy and early childhood, resulting in malnutrition contribute to impaired cognitive and social development, poor school performance, and reduced productivity in later life. … While per capita consumption of cereals has declined, the share of non-cereals in food consumption has not grown to compensate for the decline in cereal availability." It is needless to add that this exposes the claim that mere high rates of economic growth are sufficient to lift people above poverty line. The infatuation with economic growth must be given up and development objective needs to be pursued.
A recently published study "India 2039—an affluent society in one generation" emphasizes that India’s wealth gap is sure to threaten its growth. To quote Financial Times (June 24): "India needs to curb a concentration of wealth greater than that seen in Brazil and Russia or risk becoming hostage to a corporate oligarchy that will depress the rapid economic growth." The group that has authored the Survey does not seem bothered about because of their obsession with carrying forward the discredited Washington Consensus.