Can Modi government revive this broken economy?

Can Modi government revive this broken economy?

KAKALI DAS

There is a nursery rhyme we are all familiar with – Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall.

Today, we can compare our broken economy to Humpty Dumpty that fell 56 ft. off a 5 trillion ton wall – yet claiming to be fine, when actually breathing insuppportof ventilators.

The rhyme further says – All the king’s horses and all the king’s men, couldn’t put Humpty Dumpty together again. The question here is – Will the Modi government be able to revive this lost economy?

Job Crisis

The job crisis is getting bigger with each passing year, and its effect on economy is not hidden in any sphere of life, be it in education, healthcare, law and order etcetera.

Our soon to be 140 crore population should be a blessing in disguise because 2/3 possesses working potential, it is called demographic dividend. Demographic dividend is like cloud advantage.

Since it implies high labour force, countries with demographic dividend can be the manufacturing hubs, similar to what was achieved by countries like South Korea, China, and even Bangladesh successfully.

However, it’s India which isn’t using this advantage to full potential.

“Modi government has a hidden jobs report,” said by two independent bureaucrats, “let alone admitting that there is the problem of unemployment in the country.” The website of Labour Ministry has 13 million active jobseekers for 220,000 vacancies. This is nothing compared to the RRB NTPC exam for which 1.25 crore applications accepted for 35000 vacancies.

When the result was announced, students were upset by mismanagement and protested. It’s scary just to imagine the number of unemployed individuals in the country. If problems are not resolved, the new generation might face worse financially –literally be street vendors. Our per capita income is already less than that of Bangladesh.

One of the reasons for this is our long jump from agriculture to services economy. We skipped manufacturing completely. Because unlike the services sector who employ highly skilled workers, manufacturing sector employs technical workers which is low skilled or under-utilized.

Since Make in India did not work as expected even after intense marketing, an immediate need to generate crores of jobs in a large country like India isn’t easy.

Income Divide

Of course, there is “vikash” (growth) in the country, where the growth of a section of people are breaking the glass ceiling each day, and one doesn’t need to be a Master in Economics to realize this. In any country, widening gap between rich and poor indicates that something is wrong with the economy. “Income of poorest fifth plunged 53% in 5 years; those at top surged,” a report by The Indian Express said.

Did you know that the annual income of the poorest section grew constantly since 1995? But in the last 5 years, income of the poorest plunged 53%; for the upper and lower middle class, the income dipped 20% each in the previous year. And at the same time, the rich increased their wealth by 39%.

This is known as a K-shaped economic recovery – rich getting richer and poor getting poorer, as discovered by India’s Consumer Economy 360 (ICE), conducted by People Research On India’s Consumer Economy. The overall number may show growth, but one close look and you will realise that it’s a one-sided growth. It’s similar to the concept in Dalal Street – sensex rising whereas small and medium businesses shrinking.

Other data points also indicate the same – “Luxury car sales hit the fast lane whereas two-wheeler sale continue to decline” – The Economic Times. Demand for luxury apartments rise while home sales decline 16% year-on-year.  Small businesses taking the hit whereas big businesses get bigger. Gold worth $40 billion dollars are imported in the country; rich buying gold, while poor in distress is selling gold.

As of November 2021, loans against gold went up by 42% because people are in debt. Gold loan defaults have also risen after the second wave, so it speaks volume of the worsening situation.

Moreover, India’s labour is moving back to farming. People are back in village to resume agriculture. Former RBI governor Raghuram Rajan says, “No growing country increases employment in agriculture.” Also, even if there were jobs, we wouldn’t have the required educated or skilled workforce to fill those jobs. This is known as the problem of employability.

Inward Trade Policy

Self-reliance doesn’t help economic growth, because global economies not only export but also import. But for a few years, India has introduced 3000 tariff increases, that have affected 70% imports. Now, other countries might adopt the same strategy against us, thinking if they can’t sell products here, why they would buy products from us!

That’s why trade agreements between countries should help economy of participating nations. India entered 11 trade agreements under Manmohan Singh government, whereas not even one under the Modi government. Of $125 billion trade with China, imports are nearly $100 billion which is not a healthy sign.

Is self-reliance possible? When out of 140 crore population, 2% is middle class, Chinese middle class is 25% on the other hand. Our consumer market is $500 billion, while the opportunity is that of $28 trillion. Our aim was to achieve 25% GDP from manufacturing, but sitting at 15%, with jobs being scarce, and exports low.

Now, the government’s new slogan “Be Vocal About Local” is good, but is insufficient. $5 trillion economy by 2024 is a distant dream.

If these were the only problems, there would have been a possibility of solving these, but there are more pressing issues that dampen economy more. Our economy doesn’t require servicing, but an overhaul.

Solutions

If we admit that there are problems, then let’s discuss about the solutions.

Firstly, leadership attitude must be adopted; no more Jumlebaazi, fancy dress competitions or widening hatred. More focus must be on work and less on camera. Widening inequality should be diminished; Oxfam Inequality Report shows that 84% households suffered decline in income. Indian billionaires’ wealth grew from 23 lakh crore to 53 lakh crore, almost doubled amid pandemic. Whereas, 4.6 crore Indians fell into poverty.

Something isn’t right. But whose mistakes are these? Coronavirus, Nehru or the existing government’s policies?

In order to reverse it, assuming that 1% super rich tax is imposed on billionaires, then Ayushman Scheme can be funded for 7 years. If 1% surcharge on 10% of Indian population can fund schooling, universal healthcare and social security benefits like maternity leaves, paid leaves, pensions the country can make drastic progress.

It is a fact that the pandemic has further impacted the economy, savings diminished and so has spending. Direct cash transfer to people plus less tax on lower income group are thus the needs to help revive the economy.

Besides, in terms of infrastructure – the country has quite progressed. We have developed road infrastructure at 36 km/day. Tremendous work has been done in renewable energy as well. 9.16 crore toilets built, housing for poor, water connections facilitated. More of these measures are required to fuel the progress. If the country keeps on investing in building the infrastructure, fulfilling the basic needs of the people, these same people would be the one to buckle up and participate in the growth of the economy.

Although, inflation is sky-high, so it’s tough to march ahead. But at least by initiating Jan Dhan bank accounts, direct transfer is possible, and India is a leader in digital payments.

Yet, India should gain expertise in a few significant areas. Like how Taiwan is famous for Computer Chips, Vietnam for manufacturing, Bangladesh for textiles, India alongside its leadership in the IT industry, should aim to be the world leader in other cutting-edge industries too. Because time is running out on labour advantage. Economists say – next 10 years will be make-or-break as after 1991, liberalization growth has slowed in last 10 years.

Will this decade (2020-2030) heal our broken economy? The objective is clear: to regain lost economic strength, as per experts Nikhil Gupta and Yaswi Agarwal of Motilal Oswal Financial Services. Focus on healing is possible only when social fabric is maintained, so no more communal angle or us VS them.

Do you seriously think that one budget speech or slogan can save economy? Constant focus on economy is required for years because economy is in danger.

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