Drawing up a roadmap
Government must urgently revise its spending priorities to lift Indian economy from its slump
It goes without saying that the Indian economy is in complete doldrums. The sole parameter of economic health is GDP growth. Indian economy had the distinction of growing at the fastest rate in the world(7.1 per cent) until March 2018. Then it started dithering continuously and settled at 4.5 per cent by September 2019. GDP growth figure for the October-December quarter will be known by the end of this month. Looking at the contraction in the manufacturing sector(-0.3 per cent)and the highest rate of inflation (7.59 per cent), chances of higher growth are minimal. In fact, the combination of falling growth and increasing inflation is a sure sign of stagnation. The last hope for any significant economic stimulation was dashed in the long and dreary 2020 budget speech of the Finance Minister in the Lok Sabha. The budget proposals did not mention any earth-shaking or a game-changing proposal except the 1220 km Delhi-Mumbai Expressway. The total amount of budget proposals was listed at Rs 32.4 trillion against the revenue accruals of Rs 22.4 trillion, thus, leaving a big gap of Rs 10 trillion. There was no explanation for the 37 per cent unspent amount during the last year budget. All budget proposals for this year were simply rehashed from last year's proposals with a marginal increase in each sector.
All Finance Ministers always play two tricks while presenting the budget. Firstly, they do not tell if the money allocated in the preceding budget was actually disbursed and used accordingly. Secondly, they do not compare the amount of the present proposals with that of the last year in the respective heads. The Finance Minister played both the tricks this year as well.
As in the past, most of the budgetary support will be spent on salaries, pensions, poverty alleviation programs, distributing freebies (welfarism) and maintenance works. Hardly 15 per cent amount will be left for executing the ongoing or new infrastructure projects. Recently, Members of the Railway Board told the Consultative Committee that it would take decades to complete the ongoing projects because of continuing inadequate budgetary support. Indian Railways is the primary engine of growth of the Indian economy. The budget speech did not mention any commitment regarding the completion of two very important freight corridor projects. Likewise, the speech did not utter a word on four disturbing maladies of the Indian economy i.e., downturn, the crisis in banking, a rising wall of unemployment and rising debts on states (overdrafts) and loss-making PSUs and power utilities. Only during the reply speech in the Lok Sabha on 12th February, the Finance Minister simply stated that the budding shoots of recovery were visible in the view of rising foreign exchange reserves and better GST collections.
The government feels that the downtown in the economy is cyclic and not due to structural fault lines. This is not true because GDP growth has been sliding over the past 18 months and is not a one-time aberration. Secondly, the government attributes the downturn to the low consumption trends by the masses. This is partly true. This is because 75 per cent of national wealth is in the hands of one per cent of the people. Also drop in the manufacturing sector is due to overproduction causing saturation in demand. Therefore, a 30 per cent drop in car manufacturing is due to this reason alone. Such fluctuations in the consumption pattern of the public are an inescapable part of any economy. One of the main reason for the collapse of the economy in Greece was due to over-purchasing of cars by taking loans from banks. The time has come when manufacturing in the auto sector should be replaced by the manufacturing of electric vehicles. Corporate honchos and entire trading class attribute downturn exclusively to demonetisation and flawed GST.
Jeffrey Sachs, the renowned economist on poverty eradication spells out the following eight keys to open the doors of prosperity in developing countries. These are:-
Strict population control.
Increasing exports and decreasing imports.
Achieving total sanitation.
Massive infrastructure development.
Improving service delivery of existing infrastructure.
Promoting Direct Foreign Investment (FDI)
Administrative and economic reforms.
Splitting bigger states (U.P, M.P and Maharashtra) into smaller ones.
All the eight keys are equally important and have to be used simultaneously to achieve three quintessential objectives- the eradication of poverty, increase of per capita income and removal of the tag of India being an underdeveloped country. The Indian government has never proceeded along these lines. Deng Xiaoping, the builder of the Chinese economy, took these eight steps to lay the strong foundations of the Chinese economy in 1978 and now you can see the difference in their economy and our economy. That is why 26 crore people are still struggling below the poverty line and an equal number, labelled marginally poor, survive a few notches above that line even 70 years after attaining Independence. Seven steps are self-explanatory. The most solid step that solves most ills of a failing economy is infrastructure development. Most unavoidable infrastructure projects transforming a developing economy are in the following sectors- Water resources (backbone of agricultural economy) and hydropower development; decentralization of Indian Railways (allowing states to run trains as well) and expanding the railway network with doubling and electrification of tracks and running more trains on 55 per cent grossly underutilised tracks; building more expressways to connect important ports with hinterland; Exploration of hydrocarbons on a massive scale; setting up SEZs along the coastline; exploiting solar energy for power, cooling and heating on a massive scale; developing horticulture and dairy development in seven N-E states on a massive scale; Building 30 new towns to act as sub-capitals in different states; improving urban transport and manufacturing electric cars on a massive scale to replace diesel/petrol vehicles.
Another flaw in the government approach in the economic domain has been that it never involves the Chief Ministers in laying the roadmap or budget-making. The result is that they treat the states as their personal fiefs and spend in a profligate manner e.g. on publicity(see the money being spent on ads by Delhi government for inviting people for the oath-taking ceremony) and doling freebies. Even the present Prime Minister has never called a meeting of CM's to discuss the national agenda and fix their milestones. As a result, some of the states are unable to pay salaries in time and the Central government never comes to their rescue. The Prime Minister has to work as a captain of the team of Chief Ministers.
The problem with the Indian economy is that the government never prepares a proper roadmap for building a strong economy on a sustainable basis in order to beat other countries in the economic race. The concept of roadmap preparation was lost the day Planning Commission was scrapped. This is also true for states where State Planning Boards headed by competent people simply do not exist. Our leaders (including the Prime Minister) always talk of political upmanship and rarely about the economy. The economy once derailed takes a lot of effort and time to gear up. The two sure-shot ways to lift the economy out of morass are boosting exports and maximum spending on productive infrastructure projects. The earlier economic boom in 2008 was entirely due to exports in textiles and IT sector. Also, a record was set to commission new power projects worth 55,000 MW of power. This alternative cannot work now because of recessionary trends in the world market. The only alternative
left now is the aggressive spending on infrastructure projects in the ten sectors mentioned above. These projects will boost the economy in three ways. Firstly, spending huge amount of money will provide jobs and boost the sale of materials and manufactured products. This process will circulate the money at a greater speed and make the economy vibrant. Secondly, projects will create new resources. For example, construction of a storage dam will provide enough water for irrigation and generate power while also helping enhance agricultural production. Thirdly, some projects save energy and reduce imports. For example, electrification of railway tracks will save a huge amount of diesel and save the environment and foreign exchange.
The government must first prioritise the list of projects and calculate the amount required to execute those projects. The money should be mobilised from reducing freebies(wheat selling at Rs. 2 per kg. under Food Security Act). There are many untapped resources available with the government, sale of land or properties, offloading PSUs, mines, reducing theft of taxation and bringing more people in the tax net. If the Government still falls short of the target, then it should levy infrastructure cess on profligate use of resources like petrol. But adequate money resources should be raised at all costs to complete the ten types of projects mentioned above.
The timely completion of these projects in ten sectors will remove poverty, keep recession at bay and stimulate growth. India will no longer be called an underdeveloped country. There is no other short cut to achieve prosperity or stimulate economic growth.
Views expressed are strictly personal