The way out
Discussing the impact of the global recession and current phase of geopolitics on the Indian economy and suggesting ways to alleviate the same
How is India's stimulus package of 20 lakh crore working? The question resounds amidst negative growth projections and global recession of 3-9 per cent. As India is going to leap into the highest number of COVID cases, managing demand in a situation of estimated 25 crores people going down again the poverty line and loss of salaried job numbering 1.8 crores is a steep, horrendous task. No other government since independence is faced with such an economic disaster post-1980s. Nirmala Sitharaman's allusion to unforeseen circumstances and the pandemic setbacks has to be read in this context.
When a Government could stave off a deep recession like the present one created by an invisible non-human and viral force de majeure? Limited efficacy of epidemiological modelling when virus reproduction is an unknown, all other known unknowns of economics are bound to remain unpredictable. While liquidity and portfolio management remains at its best matched with careful austerity, certain non-demand driving accelerators like defence and administrative vista expenses deepen the delay in catching up with rising COVID curves. The glut created by these non-demand expenses and the cleavage created by receding demand curve causes both underutilisation of resources and monetarist spending without impacting receding income and employment. Why is the Government forced to spend more on non-demand driving items like defence than on-demand driving employment generation activity in Corona times? What deflects the Government from demand driving acts? The best answer lies in military-industrial connections that remain as a compelling prerogative of the demands of sovereignty such that military production and purchase of arms assume a higher demand in a global moment of the general squeeze of demand, to which nation-states are forced to comply.
Insulating the Indian economy from rapid undervaluation owing to global turbulences in the capital and export market no doubt marks a reduced capacity to expand global demand for Indian products, yet no immunity can be achieved without strategic routing through defence and space production. So the path taken for a self-reliant defence production by reducing arms import over a period of time fits into defending India's economic sovereignty. Two questions that remain unanswered in this move are, how import of sophisticated weapon systems from elsewhere by India fare in this and how privatisation in defence and space along with increases in fuel prices can help 'self-reliance'.
Is it that the Government is collecting funds for funding fiscal deficit from private parties while leaving the task of running the wheel of industrial production to the private corporate houses? How does the Government intervene meaningfully in regenerating growth and productivity that would necessarily precede any market-driven demands to which the private sector can respond? The apparent division in the policy framework does not add up well leading to disintegrated sectoral markets that refuse to follow the monetary policy cues that the Government intends them to make out. The stimulus worth 14 lakh crore to the industry along with tax exemptions worth another 3-4 lakh crore for industries through the banking sector could not yet translate into a secular overturning of the pandemic induced policy shortcomings.
Comparing with China would be profitable at this juncture. Multilateral trade as an option is a calibrated strategy by China when it is losing markets in the USA, UK, ASEAN and India by passing off the backlash to India. Military invasion in Ladakh until it regains its trade wind in the lost markets is a way of defending its economic interests in India. Could Indian have freed itself from this plight as Russia did? Complex geostrategic economic considerations for India to develop a deterrent defence around its land, water and air boundaries gets entwined with its urge for reviving the COVID hit economy. Could India have done it without antagonising China? Prerogatives of securing Indo-Pacific and South China Sea routes for maintaining India's oil and other strategic supply forced it to play a politics of deterring China from becoming the sole arbiter in these maritime routes. Further, India's timely policy of giving a place to artificial intelligence giants who are leaving China by providing an alternative production space in India had to match up with alliances like QUAD and its attendant new military cum trade ties with Taiwan, Japan, Indonesia and Malaysia. Also, the usual role of India in providing food and other strategic technical supply to SAARC regional allied despite Chinese game of attrition is an economic challenge that called for expanding production of arms, exporting consumer goods and augmenting water treaties etc., in SAARC, each of which is a daunting task in itself. External pressure on India's economy is a combined outcome of Chinese military and diplomatic manoeuvrings added with India's own self-defence strategies, the effect of which has to be handled by India based on the available lifelines within the Indian economy. Rapid credit-funding of productive activity in the private sector combined with a stimulated demand in food and manufacturing could have been an ideal way out, but real world economics does not leave much elbow room for the Union Government.
A calculated de-growth theory of fair and equal demand contraction in the inner circuits of the economy could be a better way out. As is known, de-growth does not go against the generation of income, employment and growth through demand and supply-side management, it is possible to think of a strategy of combining human, natural and social capital that provides a larger elbow room to policymakers to manipulate the inflow of capital without affecting the demand situation. De-growth theorists like Kate Raworth advocate for sustainable and replenish-able uses of natural ecosystems that would create a steady-state 'doughnut economy' that is self-sustaining and that does not require doses of stimulation. By modifying the 'doughnut', India can build a strong internal immunity through stimulated demand in the primary and service sectors and meet the external challenges from China and can insulate its economy from such pressures.
This whole exercise would require a reduction of the impact of slowdown and recession by shifting away from resource utilising practices to resource conservation. Such a shift shall expand manifold replenishable resources in rural, agricultural and ecosystem-based economies at the local level. This can weaken lending demand, but it will certainly stop the falling GDP by optimising factor costs to drive income and employment bottom-up and in turn, enable India to ward off the negative impact of global recession and geopolitics.
The writer is a philosopher and political analyst. Views expressed are personal