India must avoid growing into a dystopia

The Budget that was presented recently, has received almost universal praise in the English language media. Clearly, those who praise it are happy with their own economic situation or at least view their economic future as bright. How representative this cohort is is moot. Anyhow, they see the Budget as pro-growth, and their prognosis is plausible. Data presented in this newspaper (January 13, 2023) show private investment plans during the first nine months of this year to be over 50% greater than what they were a year ago. India it seems is on a roll as far as economic growth is concerned. But is income all we should be concerned with when valuing an economy?

As in many other instances, Prime Minister Narendra Modi has led the focus on the size of India’s economy. In 2019, upon re-election, he proposed a target of $5 trillion within five years (2024-25) for India’s economy. As the date approaches, it is clear that the goal is unlikely to be met. This has not held back the enthusiastic cheerleaders, however. News that was sprung some months ago of India having overtaken the United Kingdom to become the world’s fifth largest economy seems only to have buoyed their spirit. Next, as 2022 drew to a close, the London-based consultancy Centre for Economics and Business Research (CEBR) predicted that by 2035, India’s economy would reach $10 trillion and become the world’s third largest by 2037. Even as this is sounded from the West, home-grown soothsayers have not been left behind. A few days ago, a leading Indian financial daily calculated the average annual growth needed to take India to the number one spot globally by 2047, and indicated that this is not a pipe dream. It is an altogether different matter that its calculation was of nominal GDP, which implies that the target can be reached with a little help from inflation.

The West’s self-interest in India

India’s rise on the global stage attracts attention in the West. First, there is an element of awe that a country once a byword for famine has finally sloughed off the deadweight of colonial exploitation that lasted two centuries. Second, India is not only a relatively rare democracy in the east but also the largest one in terms of population. As all the countries in the West are democracies, western elites see a possible alliance of interests.

India has warmed to this, and it makes strategic sense. The economics is not far behind, though. India’s growing economic size has made it attractive in a way that it was not before. This is not as a market for goods though as the West’s manufactures are no longer alluring to Indians. But its fast growth is an investment opportunity for the surplus savings of the West. As a fast growing economy, investing your money in India is likely to fetch you the highest returns globally. So, the continuous hum from the West about India’s growth reflects a deep-seated self interest. But how should we in India view the rosy predictions of the growth of its economy? There are two aspects to this. First, can we assume that current growth rates will continue? And, second, can we afford to be sanguine about the consequences of our growing economic size?

The issues of employment and the ecology

Let us simply assume that India will grow into a $10 trillion economy in 15 years. This would be over three times its current size. Will size bring along the attributes that we would like to see in an economy? Or will it, in a worst-case scenario, lead us to a dystopia induced by their absence? In particular, will the economic growth lead to employment opportunities for a growing population of youth and generate the social and physical infrastructure necessary for a good life? Or will it magnify the rising economic inequality and ecological insecurity? None of these outcomes is inevitable but a creative economic management of the growth process would be necessary to bring about the positive ones and to avert those that are negative. I shall confine myself to employment and ecological security, respectively.

Unemployment was barely mentioned in the Finance Minister’s Budget speech. Government data show that in mid-2022, unemployment among urban males was much higher than it was a decade ago. Taking another approach to the problem, data from the private sector, namely Centre For Monitoring Indian Economy Pvt. Ltd., show that the number of people employed in December 2022 was less than it was in 2016. Clearly, the growth of the national economy has not generated an equal growth in employment. For the mass of the unemployed, concentrated in agriculture, employment opportunities will arise only when there is demand for goods in the production of which they can participate. Growth of the IT sector or of exportable manufactures will not be of much use here as this is a cohort with low education and skills. Increased demand for goods of mass consumption alone will lead to an expansion in the demand for these workers. For an expansion of this demand, arresting the price of food would be essential, as only then will low-income households have enough to demand more manufactured goods. Instead, we have today a persisting inflation driven by the price of food.

Our experience of the past decade suggests that India could well grow fast over the next decade-and-a-half without generating sufficient employment for the legion of unemployed youth, especially in rural areas. Fast growth would be cold comfort for them if employment opportunities do not arise. Only a concerted policy focus can create the conditions for employment generation in India. Currently, we do not have an employment policy, either at the Centre or in the States. Welfarism, defined by the free or subsidised distribution of private goods, is no substitute.

On the infrastructure push

In the continuing unemployment, we have seen that growth does not guarantee the things we would aspire to in the economy. On the other hand, we can see that unbridled growth will almost certainly result in outcomes we would like to avoid, such as ecological insecurity. I shall point to one such outcome associated with a public investment thrust now focused on physical infrastructure. The frenetic building of new elevated national highways, implemented by riding rough-shod over local communities, often cuts a swathe through the countryside, destroying agricultural land and jeopardising livelihoods. State governments have not been far behind when it comes to encouraging disastrous geo-engineering projects. Plans for infrastructure aimed at religious tourism have, surprisingly, found favour with formations as diverse as the Bharatiya Janata Party in Uttarakhand and the CPI(M) in Kerala. These are States that have only recently witnessed landslides and flooding, causing great suffering to their people. Across India, political parties seem to be pursuing growth with a view to enhancing their electoral prospects, without concern for a possible negative fallout.

India needs growth as it has a backlog of poverty. But the growth that one often sees does not do enough for improving the lives of the poorest, such as by generating employment, and is ecologically harmful. Size is valuable only when it enhances the well being of the population.