We are facing a critical situation in our economy today. If we look at historical data, we have not been able to sustain a 7-8% growth rate in our GDP over any considerable amount of time. Post-1991 reforms, we were on a growth trajectory for a few years, but political instability led to the reaffirmation of populist policies. 2 global recessionary phases and political turmoil have marked the last 12-15 years. In brief, our country has had inconsistent growth rates, much of which has a global cause-and-effect relationship to it. However, we need to face the harsh reality that we have failed to keep up with the aspirations of 1.3 billion people. We have not even been able to reap the benefits of our demographic dividend (around 60% of our population is less than 35 years).
This article attempts to establish a strong case for why there is a dire need to push for economic growth like never before. It also addresses the challenges that come in the way of the same, reiterating that the quest for unprecedented reforms and growth must be addressed soon enough.
Changing Times
Globally, fundamental and deep-rooted changes are going to be observed in the coming years and these shall drive emerging economies. For example, Japan’s current 125 million population will come to about 105 million by 2050 and just 74 million by 2100. Over the last few years, adult diapers have outsold baby diapers in Japan! So we are living in a world that is transforming, and there is bound to be a shift of economic and diplomatic power from the west to the east. We are blessed with abundant resources and a young population - this has given a rise to a boom in consumption and there has been a unilateral flow of investments. Therefore, now is the time to push for growth like never before.
Socialism and its relevance- The Nature of the Political Economy
At the time of independence, much of the population was poor and illiterate, and there was widespread societal oppression. So, there was a strong need for a welfare state. However, times have changed drastically and socialism proved counter-effective to our growth trajectory. The 1991 reforms were a change in political outlook and were meant to kick-start the liberalization process. However, no concrete policy changes have been incorporated to back these reforms so far. We are still living in the shadow of socialism and many of the laws, rules, and regulations are of that era.
Political Opportunism- a worrisome trend
Politicians and policymakers have been insensitive to the changing needs of the time and have shown the tendency to back populist demands instead of ushering in a fresh set of reforms. It is a shame that businesses and giant corporations are looked down upon by the public and their contributions-either direct or indirect are never credited upon. This is rare in countries like the USA, where businessmen and industrialists are looked up to by the public.
Somehow, we have not used our full potential, especially in areas of agriculture and industry. It is only now that some measures are being attempted by the government that focus on rapid development, such as the farm bills. If implemented properly, these will allow us to attain industrial competitiveness and enable farmers to realize much more value from their efforts. Political parties must put their ideological differences aside and realize that in the end, the developmental roadmaps are often similar. The opposition parties must critique and question the government in power, but a fine line exists between criticism and blunt activism for political capital - which is sadly crossed over fairly often in Indian Politics.
Opportunities in India- Past, Present, and Future
Now, with a growing global phenomenon of linked economies worldwide, there is a great opportunity for India. In India, every sector offers immense scope of penetration, since a large mass of the population is still developing. As income levels rise, there is a large scope for disruptive innovation. The services sector has continued to be the dominating contributor - but the nature of such businesses has evolved from being general BPOs to KPOs to potential big data analytics to FinTech, AI, ML, etc. The primary and secondary sectors, though mass employers, lack efficiency and productivity. These cash-rich sectors are rapidly changing and need upskilling to ensure competitiveness and achieve economies of scale. There is a critical need to either market link (get more and more people to the profitable spaces instead of transfer or semi-transfer payments like Minimum Support Prices) or move people away from agriculture and manufacturing spaces. Policymakers need to address this and effectively align the bulk of the workforce in the high potential-high earning sectors or the prevalent cases of disguised unemployment will continue to hinder our country’s growth trajectory.
The Paradox
There are many underlying concerns regarding the current fate of the economy, yet stock markets are booming at all-time highs. However, it needs to be understood that speculation drives stock markets, and the market does not necessarily mirror the economy. On the whole, even corporate performance isn’t indicative of economic performance- but a better-linked relationship must be established between the private sector and the broader economy. The current 2.5 trillion USD economy of ours needs wealth creators to increase the size of the economy. Fiscal constraints and governmental hurdles make it impossible for the government to undertake heavy investments, and thus private players need to be roped in for large-scale investment and production. It needs to be noted that monopolistic tendencies kill the very essence of privatization and harm the larger consumer subset of the economy, which historically has been a beneficiary of the privatization process.
Stability vs. Growth
Can we emulate 10-12% growth rates like those of China? Do we even need to emulate such aggressive growth rates? Should we go for more stable growth rates to accommodate social concerns? Some economists believe that such high rates are bound to collapse sooner or later, and thus a nation must go slow and steady at a 6-8% range to ensure consistency. With about 20% of people living in poverty or near the poverty level and given the nature of our macro-economy and the large population base to be covered, we need to bet for growth. We must ensure large-scale implementation of reforms, mass up-skilling and startup promotion. In short, we score poorly on most of the developmental indexes, and the more populous states are the ones that are least developed. It is clear that people need improved standards of living and better income levels and thus, reforms must be encouraged.
Conclusion
Change is always uncomfortable- reforms are a hard pill to take- but need to be taken keeping the bigger picture in mind- the health of our economy and its ambitious vision for itself. The analysis of the state of affairs of our economy provides a simple argument - it’s time to accelerate growth for our economy. We have been conservative and looked down upon businesses and growth. Governments at the helm of affairs have been way too cautious about spending and liberalization-that must change now, immediately.
Written by: Sarthak Dave (sarthak14dave@gmail.com)
Edited by: Divij Gera
The views and opinions expressed in the article are those of the author and do not necessarily reflect the official position of Youth Policy Review.