Factors fettering Indian economy

Rachna Singh

The gross domestic product grew at a miniscule 4.5 per cent in the second quarter of 2019, sending alarm bells clanging in government quarters as well as for the common man. The third quarter with 5 per cent growth rate did not spread any cheer either, as it was below the robust 7.1 per cent registered in the third quarter of the previous year. The common man, faced with dwindling returns on his investment and increased retail and wholesale inflation, is wondering if this is the start of economic recession. How has economy come to such a pass, is the question on everyone’s lips.

The answers to some extent can be found in the book, All the Wrong Turns: Perspectives on the Indian Economy by TCA Ranganathan and TCA Srinivasa Raghavan. The book takes a critical look at the policy formulations over the past seven decades in the fields of agriculture, manufacturing, international trade, banking, fiscal policy et al and attempts to identify the policy bug bears that have impeded economic growth. Comparisons with peer economies like China and Taiwan are used to nudge the reader towards a better understanding of how such economies survived similar constraints.

The essay on agriculture examines the laudable growth of a famine-wracked country dependent on external aid to one that is counted as a global exporter of agricultural products. And yet, agrarian distress evidenced by farmer suicides indicates all is not well. The authors analyse the cause of the distress — withdrawal of extension services to mentor the farmers, merging of the bank cadre of agricultural technical officers, processing of farmer loans like business loans and increased indebtedness.

The book, however, does not comment on the existence of small holdings,which is a major cause of agrarian discontent as it translates into dwindling per capita returns from the land. The essay on manufacturing highlights a steep growth trajectory and yet acknowledges that regional imbalances, unemployment figures and heavy import dependence are a cause of concern. The authors, after a detailed analysis, conclude that a complex framework of law, focus on small and tiny sector at the expense of the medium and large sector and haphazard growth of industrial hubs have hampered development despite stimulus and support provided by the government.

The authors have also repeatedly stressed that China outperformed India because the government failed to deliver on its promise of building ‘blocks of modernity’, abutting ‘well-managed and well-developed industrial hubs’ as China did. The central thesis that emerges from the essays generously strewn with data, is that the focus on alleviation of poverty and equity has come at the expense of productivity and efficiency. And this has stalled the growth story.

Interestingly, in the chapter on Fiscal Policy, the authors have dubbed the Budget as a political exercise aimed at seeking electoral gains. The authors also seem to believe that socialism and equity cannot move in tandem with economic stability and growth as it forces the productive parts of society to pay for the upkeep and sustenance of those who contribute absolutely nothing to it. As the authors succinctly sum up: So, farmers get input subsidies and minimum prices. Industry gets subsidised land and finance. And banking gets capital from time to time by tapping the pockets of the taxpayers for free. In return, nothing is demanded because agriculture is in distress, industry finances politics and banks are mostly owned by the government. Proponents of a welfare state and stakeholder capitalism may have a bone to pick with this thesis.

The authors also seem to take strong umbrage to the model of Keynesian socialism followed by Indian policymakers. They believe that the combination of Keynes and democracy has become a ‘millstone around our necks’, resulting in sovereign debt and encouraging all kinds of corruption.

The book does not offer any magical solutions or palliatives for an immediate economic recovery but zeroes in on policies and economic models that the economy must slough off as a way forward. It concludes with a ‘shoutout’ to economists to think ‘original’ and move away from ‘one-size-fits-all’ economic theory that has been the bete noire of the Indian economy. A book of interest for all those who are attempting to wrap their head around the great slowdown in the Indian economy.