Tracking India's economic slowdown: Get real, growth will follow; do not waste the crisis
The stench of slowdown wafting down markets is such that the economy is gripped by angst and anxiety
The stench of slowdown wafting down markets is such that the economy is gripped by angst and anxiety.
Quarterly data on sales, across segments, are sliding in unison—from passenger cars to packaging material.
Agriculture is suffering due to a multiplicity of causes—the biggest being access to inputs and markets.
Editor's note: This is the sixth part of a series in which Firstpost’s columnists analyse the ongoing economic slowdown and offer solutions.
WhatsApp forwards advising recipients of the ‘economic crisis’ are now viral. The minders of India’s economy are stranded at a surreal intersection of introspection. Is it cyclical? Is it structural?
It is time to wake up and smell the coffee. When the supply side model fails to find demand what seems cyclical is fundamentally a structural slowdown. A slowdown which does not respond to interest rate cuts, which worsens despite government expenditure and which is deeper in rural marts than in urban markets is structural.
The stench of slowdown wafting down markets is such that the economy is gripped by angst and anxiety. Quarterly data on sales, across segments, are sliding in unison – from passenger cars to packaging material. And when innerwear sales slide you know the sheen of the economy has worn off. The persistence of bad loans on the books of banks and the near-collapse of the shadow banks is a loud May Day call.
The question is what can be done. In my book, Accidental India, I chronicled and proved that transformative change arrives in the wake of crises. Let us not waste this crisis. The first step to revival is to get real, invest in governance and dismantle the hurdles haunting the economy. This will enable employment, generate income and growth will follow.
Back to Basic steps
Exotic solutions may deliver headlines but solving day-to-day problems of the people will deliver sustainable economic growth and political capital.
Agriculture is suffering due to a multiplicity of causes—the biggest being access to inputs and markets. An Indian Council for Research on International Economic Relations (ICRIER) study shows India spends barely 0.16 percent of agricultural GDP or Rs 95 per hectare on advisory and extension services. Boosting investment in Krishi Vigyan Kendra and manpower will improve yield and incomes. Access to market demands a universal template for collective-contract farming. Agri reforms will make farming viable and boost growth.
Poor sanitary conditions cause disease and death. The Ministry of Environment, relying on 2015 data, informed Parliament last month that over 61,000 million litres of sewage is generated every day just by urban centres of India—and that barely a third is treated. Investment in sewage treatment plants will curb disease and deaths. Barely 18 percent of rural India has access to piped drinking water.
Creating an eco-system where communities take charge of groundwater and set up pay-and-use Water ATMs will bring down malnutrition deaths. Each of these initiatives will generate employment, incomes and growth.
Fill vacant government posts
Consider the data to get a picture of systemic apathy. There are 38.02 lakh sanctioned posts in the central government of which 683,823 posts are vacant. There are 23.79 lakh sanctioned posts for police personnel across states of which 5.28 lakh are vacant. There are 9.14 lakh sanctioned teachers posts across states of which 2.13 lakh are vacant. There are over 84,000 posts vacant in paramilitary forces—posts that could provide employment for ex-servicemen. Primary health centres in rural India have over 21,600 posts for doctors, pharmacists and lab technicians. Do the math—that is over 15 lakh jobs available.
There are 3894 urban agglomerations defined as census towns in 2011. In 2015, the Government of India asked states to convert 3784 of these into urban bodies—a directive which is buried in the states. Even at a conservative estimate, the conversion could create direct and indirect employment for 100 persons per municipality—that is over 3.8 lakh jobs.
It is astonishing that an economy struggling to create employment should leave positions vacant—particularly when they are in sectors critical for governance.
Get sarkar out of karobar
Of course, governance costs money. Where will the money come from? India’s taxpayers own the largest number of failing and failed public enterprises run by the centre and the states which lose around Rs 300 crore a day. Do the math to get the annual picture!
To get the sarkar out of karobar as is the case in Singapore, India needs to set up a Public Investment Trust to house all public sector enterprises. The idle and surplus land under these enterprises can be pooled under a national land bank and monetized—through sales for affordable housing, infrastructure and industry. The proceeds could be used to retire debt and reduce deficits.
State Electricity Boards do not recover billing for a fifth of power distributed— this costs taxpayers around Rs 80,000 crore annually. There are fixes available which institute equity and efficiency in the delivery of public services by dismantling politicisation of the last mile of delivery. Why not auction the last-mile delivery of electricity to private startups who can induct technology—digitisation, metering, time of use tariff, et al—and bring home the moolah
Coronary credit bypass
All economic activity is fueled by credit. Availability and affordability of credit is haunted by bad loans.
It is time the government stirred the National Investment and Infrastructure Fund (NIIF) from its persistent vegetative state and deployed it to house a bad loans company by accessing investments from sovereign funds. It could be a special purpose vehicle (SPV) and given the buzz that ‘New India’ can be called New India Trust. For the idea to sustain and succeed, banks must be recapitalised and hosted under a new governance system—perhaps similar to the Temasek or KFW model, a holding company accountable to Parliament. The shares of the holding company can be listed as ETF to raise funds.
Capillary flow in India’s economy is dependent on non-banking financial companies (NBFCs). There is an inexplicable apathy enveloping resolution of systemic risk represented by the failure of shadow banks—be it IL&FS or DHFL and the others creeping into the queue of collapse. The New India Trust could also host a restructuring programme designed for the NBFCs where the upside of recovery is shared.
Follow the money
The why is explained by this one factoid—between 2009 and 2019, spending by the Centre and states has shot up from Rs 21 lakh crore to Rs 53 lakh crore. Yet more children are going to private schools, more and more chose private hospitals and communities and are seceding from public to private service.
Legally speaking, elected representatives ought to hold governments accountable for outcomes. That does not happen. Bibek Debroy, Chairman of the Prime Minister’s Economic Advisory Council has mooted a body like the Goods and Services Tax (GST) council to monitor public spending. It is an idea worthy of applause and implementation.
Given the resource crunch, even if one accepts the government’s understated data on the deficit, it would be a good idea to set up the Expenditure Accountability Commission and task it to review the structure of spending and the architecture of governance. Its first task should be to shrink the size of government—dismantle useless ministries such as steel, chemicals, coal and even telecom. This calls for restructuring the 7th Schedule of the Constitution by handing back core subjects back to states—and provide for a performance-based incentive for higher allocations from the finance commission.
In conclusion, there is moral, political and economic imperative to dismantle the apparatus of denial. To argue that the slowdown is temporary is to live in denial. There is much that needs to be done. The thoughts listed are for the immediate and the medium term. As Keynes observed, the long term is a misleading guide to current affairs. In the long run, we are all dead.
(The writer is a political economy analyst and the author of Aadhaar: A Biometric History of India’s 12 Digit Revolution & Accidental India. You can email him at email@example.com and follow him on Twitter @ShankkarAiyar)
Read the other articles in the series here: