Govt’s growth push comes with riders

Parsa Venkateshwar Rao Jr

Senior Journalist

UNION Finance Minister Nirmala Sitharaman successfully defended the Budget in Parliament. Even former Finance Minister P Chidambaram’s intervention in the debate on the Budget was quite pale. Though he came up with the witticism that the National Democratic Alliance (NDA) government was a ‘No Data Available’ government, he did not nail the government’s failures, and there were many. But a complacent government and a weak Opposition do not mean that the problems the Indian economy continues to face have vanished.

The latest figures for India show that retail inflation is ready to breach the upper limit of the four to six per cent that the Reserve Bank of India’s Monetary Policy Committee (MPC) has set itself on calibrating the interest rates. The Consumer Price Index (CPI) for January at six per cent, and the Wholesale Price Index (WPI) at 13 per cent, are not to be brushed aside as events of local and temporary turmoil. Inflation is not alarming if the growth rate is promising, and the fear among economic experts that there could be a recurrence of the 1970s phenomenon of stagflation — inflation without economic growth — should be a matter of concern.

Sitharaman, in her reply to the debate on the Budget in the Rajya Sabha, said India was not facing the high and persistent inflation rates dogging countries like the United States because India did not indulge in cash doles. Her statement was not surprising. Despite the general advice offered by experts about fiscal stimulus of some kind to tide over pandemic stress and distress, the Modi government refused to dole out cash though it gave out free foodgrains to ration card holders; it offered incentives and loan guarantees to the industry, but refused direct subsidies. The government’s stance, whether right or wrong, effective or not, liberal or conservative, reflected a mindset, an attitude, and even a philosophy of the government: the state would not spend if it can help it, and that the government should keep away from economic activity as such. Of course, we must reckon with the fact that Sitharaman’s statement was made in a political context. She wanted to deflect the Opposition’s criticism about the state of the Indian economy and the government’s inadequate and inefficient role in it.

Inflation remains a concern to the common people — the middle and the poor classes as well as the Bharatiya Janata Party’s neo-middle class, though the government wants to take solace in the fact that the Indian inflation rate is moderate compared to that of the United States and the European Union zone. The disruption in economic activities caused by the pandemic have not yet passed. The country has withstood the pandemic’s blow, but there was a cost to it. The economy is yet to recover. And inflation still poses a threat.

The RBI’s ‘accommodative stance’ and its decision not to raise the interest rate is indeed a calculated risk. RBI Governor Shaktikanta Das seems to feel that the central bank should not impede prospects of growth by raising the interest rate now or in the immediate future which is both a pragmatic and brave stance. The stable interest rate regime has not had its benign impact so far because the private sector refuses to bite the bullet as it were. The credit off-take is not too great. There might be unicorn start-ups, and export earnings are on the increase, but manufacturing activity has not yet picked up. Jobs are not happening. In her post-Budget interaction with the industry body, the Confederation of Indian Industry (CII), Sitharaman exhorted the private sector to take risk and to invest. It is yet to happen.

That India is the fastest growing economy among the top ones has no economic value though it provides political ballast to the government. Sitharaman, while responding to the criticism that Bangladesh’s growth rate would exceed that of India, said that a 10 per cent growth in a small economy like that of Bangladesh is equivalent to one per cent growth in a larger economy like that of India. The analogy holds good, India clocking a faster growth rate than the United States and China does not carry much weight either. But it is a brownie point which should be grabbed for whatever it is worth, and the Finance Minister did.

The Indian economy is not floundering as much as it is adrift. And that is not a good thing. What seems to be sustaining the economy is the agricultural sector with its successive good harvests due to good monsoon. But the success in agriculture does not solve the many other challenges that India faces on the economic front. Agriculture, with its potential for agri-business, does not provide enough jobs, and it does not take the country into the high growth orbit. What is needed is spurt in manufacturing and in the services. The impact of the pandemic has been such that the recovery on these two fronts will be slow.

The government’s thrust in the infrastructure sector will serve as a useful incubation period, but the move forward will depend on technological and business breakthroughs. The public and private universities — yes, there are not too many in the private sector with proven strengths — must become centres of old-fashioned research and development. More than 30 years ago, the Govardhan Mehta committee report talked of linking the universities to R&D and break with the earlier practice of setting up independent and self-contained institutions of excellence. The Modi government seems to be following the earlier practice of increasing the number of institutions of excellence. The Indian private sector is not capable of supporting R&D, and it is so in other parts of the world. So, along with infrastructure, R&D should be the concern of the government. In the case of a BJP government, an atavistic worldview is a big obstacle to pushing R&D in the country. The mindset that ancient India had achieved scientific and technological peak discourages fresh breakthroughs. India’s economic future depends critically on a modernist worldview.

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