Build
It And They Will Come
We are now just days away from the results of the
2019 general elections. Narendra Modi is
widely expected to win a second term. But the Indian economy is slowing down.
Even a virtue like low inflation over the last nine months is suggestive, not
of health, but recession.
The biggest idea in economics since the days of
the city state is that government can enable and stimulate growth via its
policies. But increasingly, in a globalised world, external forces, such as the
ongoing trade war between the US and China, do have their effect.
Nevertheless,
building the strength of a nation’s economy is of paramount importance, and the
time has come to think out of the box.
The world is at a tipping point. Broad-based
economic power is slipping away from the West. All of it is experiencing low
growth or recession. Save the potential of its over-arching technological
leadership, there is little left to leverage. This is because of excess
capacity, relatively low population bases, and saturation of demand.
India and China, the most populous nations on
earth, are still growing. China, not always on the same page strategically, has
recently mooted a cartel with India to negotiate better terms with the oil
producing nations.
India, with its self-image and identity itself in
transit, is clearly not doing enough to exploit its opportunities. Its preference for gradualism may now be
counter-productive. It is not paying heed to the possibility of a “middle
income trap” even as more and more signs of it are beginning to appear. The
trap is tentacular. Once in, it is not easy to get out of, as South Africa and
Brazil are finding out.
Present demand for goods and services from a not large
enough middle class, is slowing. How then are we going to get to near double-digits
for years?
As consumer fatigue sets in, new business entrants
are projecting profitability only over the long term, while old players are
looking at shrinking sales and margins.
The need to accelerate the rate of capital
formation and return on investment, private money put into a wide swathe of
industries and services, and increased domestic consumption, is acute.
This entails policies that bring millions of new people
into the educated and relatively affluent middle class from the financially
restricted lower middles. It must also lift the remaining population out of
extreme poverty.
How can this push towards a developed economy be accomplished?
The government must channel massive investment into better nutrition, education
and health infrastructure. A small socialist economy that was indifferent to
growth, inflation, and large deficit financing, had to change drastically at
the point of near bankruptcy in 1991.
The Modi government today knows the pitfalls of
being one-sided about expenditure without paying attention to income. In Modi
2.0 it should move urgently to balance growth and the fiscal health with welfarism.
But this must mean more than the somewhat
impersonal state funded massive infrastructure building that has propped up the
growth rates in Modi 1.0.
The other aspects, from myriad services that
account for over 50% of the economy, to manufacturing, agriculture, exports,
real estate, the stock markets, the banks, have all done quite badly.
So if we have contained inflation and met fiscal
and current account targets, we have done so with a lop-sided economy, which
some have unfairly labeled “jobless”.
Emphasizing dynamic growth strategies is doubly
difficult in India because the entire “ecosystem” that must implement it has
long had a Soviet influenced Marxist bias.
They may typically plump for labour intensive
activity, that may have to be replaced instead with multiple clusters of high
technology enterprise employing modest numbers of people.
Do nothing new however and the problems will
worsen. Subsidies and doles won’t stave off the crisis to come. Such welfarism
is proving impossible to sustain even in the developed but no-growth West, and
in once oil rich Arabia. This despite their small to tiny populations.
We must remember the financial inertia that threw
the USSR into the vortex of history. The collapse, when it comes, can be
sudden.
India, unlike China, has never been export-led. Today
China wants to invest in manufacturing in India along with others, who wish to
relocate. But we need to stay attractive.
What can we do? Do we need a Ministry For
Investment headed by a technocrat as Andy Mukherjee, the Bloomberg Columnist,
has suggested? Mukherjee, also concerned
about the economic attrition of late, has not pointed towards a Sovereign Fund.
Instead, he advocates free ingress of Japanese and American capital, as in sell-it-instead
of-trying-to-save-it. This, in the face of a number of spectacular collapses
ranging from Anil Ambani’s Reliance Group to IL&FS and Jet Airways.
Is Rathin Roy,
the erudite Prime Minister’s Economic Advisory Council member right, in blowing
the war conch on the looming middle income trap? Is the ever widening gap
between the few rich and the many poor growing unbridgeable?
Can Niti Aayog identify inclusive high growth
areas, if the Finance Ministry is bogged down with concerns on revenue
generation and the expenditure it must undertake?
Build
it and they will come, is paraphrased from the 1989 Kevin
Kostner baseball movie Field of Dreams.
But it is perhaps epitomized by massive state-funded infrastructure projects. Infrastructure,
often the best suit of right-wing, nationalist governments, can count the BJP
amongst its adherents.
From the Vajpayee administration’s Golden
Quadrilateral and nuclear weaponisation, to Modi 1.0’s emphasis on the connectivity
and empowerment provided by highways, tunnels, bridges, ports, new railway
lines, electricity, cooking gas, rural roads, banking and medical insurance for
all, Aadhar, direct subsidies; it is a long list.
Unfinished work for Modi 2.0, includes multiple
freight corridors, bullet trains, the Sagarmala programme, linking of rivers,
mega cleaning the Ganga, more tunnels, all-weather high altitude train lines,
redirecting the Indus Treaty waters.
Modi 2.0 intends to spend $1.44 trillion on
infrastructure, a fourth of the $4.5 trillion estimated necessary by 2040.
But what else can we do? The rural scenario is
certainly a flashpoint of discontent and misery. The FMCG sector in the country
must be incentivized with loans and tax holidays to set up dozens of agri-based
joint ventures and cooperatives to modernize and value-add to farm produce.
It is unsustainable to support 60% of the
population in rural India without sufficient localized activity. Farming, especially
as it becomes highly mechanized, does not need more than 10% of the population.
The loss making PSU sector, the bulk of it, must
be sold off piece- meal via asset sales. Nobody will want to absorb its losses
and much of what it makes is out-of-date.
Surplus land with the railways, port authorities,
defence establishments, and yes PSUs, needs to be, likewise, sold off. “Land
use” particulars and permissions must be changed to release its commercial
value, often running into the thousands of crores.
The public sector banks, a disgrace of corruption
and mismanagement, must be privatized, so that the government can cease bailing
them out year after year.
Doesn’t speculation need to make a come-back to
release those “animal spirits”? The languishing real-estate sector can well run
without cash, but then the capital gains taxation must go.
For transactions in crores, the temptation to
dodge at least a proportion of the taxes is just too much. Not to capture all
that cash into the official economy is foolish. Modi 2.0 must curb its
propensity to use the stick on the relatively small man in the absence of
carrots. If it must punish, it would be instructive if it manages to jail some
of the corrupt rich and powerful on a priority basis.
Real estate, sadly ignored in Modi 1.0, is a
massive employer and user of goods and services. The new “smart cities” in
small towns are a low-cost housing work in progress, and do not fit as a
substitute.
Similarly, the taxation on equity and debt markets,
including short and long term capital gains taxes must be abolished. Limits on overall
foreign capital invested in the Debt Market need to go, even as a cap can be
retained on individual instruments.
This government has done a great deal to bring
indirect taxation into a unified framework via GST. But droves of capable
millionaires have quit the country, “ease of doing business” notwithstanding.
The next government must make sure that the tax
base grows and flourishes by attending to the carrot.
(1,399
words)
For:
The Sunday Guardian
May
15th, 2019
Gautam
Mukherjee
The modern world led by corrupt Aglo sexon world need more gotala like chinese did with western currency manipulation and Mnc entering in chine they fucked all and now become superpower by dictatorships of xie lie ping indian need to replicate in present to manipulate caputalist world of great inspiration with great inflation slavery
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