Economic
Highlight
New Delhi, 28 January
2019
UN Predictions
FISCAL TURMOIL, UNEVEN GROWTH
By Shivaji Sarkar
The global economy is
stagnating and income inequality is increasing concerns over growth, as India
enters a vibrant political phase and pines for economic direction. The phase is
critical. World stagnation, as the UN has predicted in 2019 and 2020 in its
World Economic Situation and Prospects (WESP) 2019, has ramifications for
India. Its efforts for economic recovery would be affected impacting its future
budgetary provisions.
Will its political
wisdom be able to address this? Would Opposition Congress trying to fight on the
“front foot” with Priyanka Gandhi being formally launched as AICC General Secretary
and Rahul Gandhi as a sober campaigner, be able to make a difference? Another crucial
question is whether the Congress has a vision beyond Manmohanomics?
Remember, the Manmohanomics
of 1991 did one good thing. It ushered in partly in practice more in theory an
era of liberalisation. The path has since been followed willy-nilly by all
successive governments, irrespective of the political colour. All finance
ministers after Manmohan Singh, did so. That was good given there was a
predictability of the course. But with years the supposed liberalisation, talked
in 1991, got lost somewhere. It has lead to a firmer grip by the bureaucracy or
the government itself on the course and lives of the people and their
businesses.
This has led to a
certain level of GDP growth but the social distribution of wealth has been
convoluted, leading to severe concentration of wealth, in one per cent people
and the growth of wealth of the multitude in most cases either getting minimal
or reduced, as per OXFAM. The worst has happened to the daily wage labourers,
with their earnings coming down.
The WESP has noted
the trend continuing in different regions. Though it predicts a three per cent
annual growth till 2020 globally, it sees deceleration to two per cent in the European
Union and the US, “as the impulse from fiscal stimulus in 2018 wanes. The
Brexit or not has shaken the European economy”. China too is slowing down to
6.6 per cent. Several parts of Africa, Western Asia, Latin America and the
Caribbean are likely to see incomes stagnating.
Without mentioning
India, WESP states: “Even where per capita growth is strong, economic activity
is often driven by core industrial and urban regions, leaving peripheral and
rural areas behind”. This is happening in Indian farms and rural areas. And,
the political fall-out marked the recent Assembly elections. The global
slowdown has had an impact on Indian exports and can cause domestic discontent.
Peculiar to Indian
scenario, the WESP says, there “is a confluence of risks with the potential to
severely disrupt economic activity and inflict significant damage on
longer-term development prospects. The risks include waning support for
multilateral approaches; the escalation of trade disputes; financial
instabilities linked to elevated levels of debts; and rising climate risks, as
the world experiences an increasing number of extreme weather events”.
The prediction is
pessimistic and India is suffering many of these. Growth is not being reflected
in people’s happiness. This is the greatest challenge to the political
contenders for the 2019 elections. So far, no political party has shown that it
has a grasp on the situation. Instead, all of the parties are in a wilderness
failing to understand the crisis.
The Indian voters
need an answer. The Opposition is very vocal that the ruling BJP does not
understand the phenomenon. True or not, do any of them understand? The recent Assembly
polls brought to the fore not only the crisis but also that if a Telangana
government brought a half-baked solution for increasing farmers’ income by
paying them Rs 4000 (now Rs 5000) per acre of their holding, all others
consider this as only an instant vote-catching mechanism.
The announcement of
Priyanka Gandhi leading eastern UP, once a Congress citadel has warmed up
politics. One would have liked to see if there was a firm economic pattern
also. No regional or national party has shown that vision, concept or wisdom.
Sadly, the parties
are suffering from myopia. They have lost sight of the fundamental problems.
Competitive rhetoric is raising doubts. People are in a quandary. They do not
find a solution to joblessness, underemployment and falling incomes and a
continuous rising inflation. The governments have lost the will and control to
correct the situation.
So the UN Chief Economist
and Assistant Secretary-General Elliott Harris states: “Alongside various
short-term risks, there is an increasing urgency to deal with much more
fundamental problems”. He does not find sustainable development goals being
achieved or poverty elevated till 2030. So do neither the political parties in
this country. They are busy in caste politics, religious divide and raking up
parochial issues. All lead to ignoring the 2030 SDG. Worse, India does not seem to have yet found
the path.
A country that was
once led by its own economic wisdom of Chanakya, that followed Gandhian
principles, Marx, Engels, socialism or Keynes, and now the market economy or
Deen Dayal Updhyay’s integra humanism, today finds all of these have failed and
now it does not have a model to follow.
The governments are
only tightening financial conditions through the banks and other instruments of
taxation or interest rates. The UN says this can lead to financial turmoil. The
WESP says “as global financial conditions tighten an unexpectedly rapid rise in
interest rates or a significant strengthening of the US dollar could exacerbate
emerging market fragilities, leading to heightened risk of debt distress. This
risk can be further aggravated by global trade tensions, monetary policy
adjustment in developed economies, commodity price shocks, or domestic
political or economic disruptions.”
That exactly is
happening here. Large external financing needs and limited policy buffers are
particularly vulnerable to financial stress. Often it is said that the country
should spend more on research, which it is doing. Its research investment in
theoretical non-productive research has grown phenomenally. Universities are
producing more doctorates. But fundamental thinking is eluding.
This leads to uneven
economic growth. The fears of incomes stagnating further would be real. It says
double digit growth is required. That is also not a solution. Growth and
amelioration of conditions are not synonymous.
So the government may
continue or change for the present, ground realities may be disturbing and
solutions half baked. Income inequality, as feared by the UN, is likely to
aggravate. For a solution there has to be dialogue and the political leadership
has to be sagacious. A tall order! --- INFA
(Copyright, India
News & Feature Alliance)
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