For a country led by an economist Prime Minister, the state of the Indian economy leaves much to be desired. For Manmohan Singh, who is often credited with having rescued the country from the brink of a precipice 22 years ago when India was in real danger of defaulting on her external financial obligations, it is truly ironical that many hold him responsible for the current state of affairs.
It is true that the world economy is yet to recover from the recession that began five years ago and that certain so-called developed regions, notably Western Europe, is at present reeling from the impact of double-dip recession. But the slowdown in the Indian economy can only be partly attributed to international factors. Many of the ills afflicting the economy are a consequence of domestic policies that have been pursued over the recent past, including the over-emphasis on growth over redistribution and inadequate attention to controlling inflation in general and food prices in particular.
India's current account deficit (CAD) -- or the difference between the inflow and outflow of foreign exchange -- touched a record high of nearly $33 billion in the October-December 2012 quarter, up 46 per cent from the previous quarter. As a percentage of GDP, the CAD jumped to 6.7 per cent from 5.4 per cent in the September quarter. The RBI believes this proportion should be around 3 per cent of GDP. Why is the CAD so high? Largely on account of a high trade deficit which, in turn, is largely a consequence of sluggish exports and high imports of gold. Why are we importing so much gold? The most important reason is that those who invest in gold, do so because it is considered the best hedge against inflation.
The single biggest failure of the government's economic policies in recent years has been the inability to control inflation. Many reasons have been forwarded to explain why food inflation has been at around double-digits or close to that level for the better part of the last five years. Such reasons include changing dietary patterns on account of rising incomes and higher fuel prices. But what cannot be denied is that high food prices have hurt the poor much more than the rich. What food inflation has done in effect is to widen the gap between the rich and the poor, thereby making our already unequal society even more unequal.
At the end of FY13, India's GDP grew by 5 per cent -- the slowest rate of growth in the last decade -- but per capita GDP grew by only 3 per cent. Growth, the neo-liberal hawks in the government have contended time and again, would spur investments and savings, create more jobs and mitigate the adverse impact of inflation. Unfortunately, none of this has happened. The savings rate is down as are investments. Outgoing investments by Indian industrialists abroad have overtaken inflows of FDI for the first time, even as the government desperately woos foreign investors and worries about international credit rating agencies downgrading India.
The government swears by "inclusive growth". But has this happened? Far from it. Consider how employment opportunities have expanded in the recent past. Here is what a December 2012 paper of the Institute of Applied Manpower and Research entitled "Joblessness and Informalization: Challenges to Inclusive Growth in India" states: One of the most disturbing numbers that the 2009-10 employment-unemployment National Sample Survey data show is the addition of merely 2.76 million work opportunities during the period of fastest growth for the economy. Surprisingly, there was an addition of 60 million to the workforce during 1999-2000 and 2004-05.
Whatever explanations that are given by sarkari economists to explain this phenomenon, including the fact that women are studying longer in school and fewer people getting enrolled in employment exchanges, one point needs emphasis. If indeed the pace of job creation was so tardy when the economy was growing rapidly at 9 per cent or close to 9 per cent four years in succession (for the first time in Indian history), imagine the slow rate at which employment opportunities are expanding now that the economy is growing by only 5 per cent.
This article was originally published on July 05, 2013.
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