First we denied it. Then we ignored it. Then we justified it as the necessary side-effect of “cleansing the system”.
It’s a bit like the memorable scene from Casablanca, when the policeman Captain Renault is “shocked, shocked to find that gambling is going on here!” Having been aware of it for years, business leaders, opinion writers, social media influencers and colleagues in your office are now shocked, shocked to find that the Indian economy is facing a slowdown. Having convinced ourselves that the Narendra Modi government’s policies cannot be at fault, we are now debating whether the economic slowdown that began in 2017 is cyclical or structural.
An unconscionable lapse
It is astounding that there are serious-minded people in the country who think the Indian economy might not have structural problems. What then are chronic complaints of difficulties of land acquisition, hiring, shortage of skilled manpower, regulatory logjams, tax terrorism, corruption, and vagaries of the judicial system? Why is there a shortage of good schools, doctors, hospitals and drinking water? Why do we have loss-making public sector behemoths casting a pall over many sectors of the economy? And if we didn’t have structural problems, why, why, why do we have 450 million people in or close to poverty?
Yes, there are cyclical factors — a global slowdown and blows to international trade — that have turned negative over the past couple of years. But any diagnosis that ignores the underlying structural problems is massively ignorant, myopic or defeatist. In any event, misdiagnosing India’s economic problems is an unconscionable lapse, because economic growth is nothing short of a moral imperative for a country of half-a-billion poor people.
That’s because economic growth is the only known antidote to poverty. It is thanks to post-1991 economic growth that India achieved historically unprecedented – barring China – reduction in poverty. By one measure, poverty went down from 40 per cent of India’s population in the early 1990s to just below 15 per cent by 2016. There can be no greater moral enterprise than lifting hundreds of millions of people out of abject poverty within a framework of individual freedom and political rights.
What GDP growth rate means
It is not unusual for most people to think of economic growth rates as a number that you see on television and on websites of business newspapers, along with stock market indices and currency exchange rates. What does it mean if the annual growth rate were to fall from 8 per cent to 5 per cent? More than three million people emerge out of poverty for every percentage rise in Gross Domestic Product (GDP). It means at least nine million people stayed poor and millions more ate less, spent less on health and education and saved less in that year. It means millions faced setbacks that plunged them back into poverty. It is at the margin — near the poverty line — that every percentage point of GDP growth makes the most difference.
Even if your argument is that not everyone can benefit from a growing economy, requiring the government to redistribute wealth, it is only economic growth that can generate the tax revenues for that.
The Indian economy will have to grow at over 10 per cent per annum every year to become a five-trillion-dollar economy by 2024. The Reserve Bank of India (RBI) now projects a growth rate of 6.9 per cent for the next year. If this rate is sustained, then it will be 2027 before we get to the five-trillion mark. That’s assuming the official growth rate is accurate. The difference between 10 per cent and 7 per cent is not just that it will take us longer to achieve an arbitrary size of five trillion, but that tens of millions of people still won’t be able to cross the poverty line.
Citizens’ moral duty
Ahead of this year’s Lok Sabha elections, economist Shruti Rajagopalan argued that economic growth is a moral obligation to the poor but the “problem is that both the current government and opposition parties are making an unconscionable moral choice by ignoring economic reforms and pandering to voters with freebies. In the current election, candidates have not even bothered with the usual lip service paid to economic progress. There is silence on reforms, no talk of growth and little being said about aspirations and opportunity. It is down to promises of loan waivers, jobs in government and reservations in educational institutions—in exchange for votes. Across the board, our political leadership has displayed a policy as well as moral bankruptcy that will leave hundreds of millions of Indians impoverished.”
She is right, of course, but she absolves citizens for their disregard for economic growth. It may be that Indian voters do not connect economics to politics. Governments that promote growth and development are not systematically rewarded — and anecdotally at least, we could list Narasimha Rao, Atal Bihari Vajpayee, S.M. Krishna and Chandrababu Naidu as prominent examples of being electorally punished despite delivering strong economic performance.
Even now, when confronted with brutal facts of a grave economic slowdown, if our response is to exchange delusional ‘facts’ on WhatsApp, can we really hold the Modi government accountable over its failure to steady the economic course?
The author is the director of the Takshashila Institution, an independent centre for research and education in public policy. Views are personal.