The NDA needs better economists – Business Line–09.02.2018

Textbook adherence to fiscal discipline, thanks to its current crop of advisors, forced the Centre to ignore critical areas

The Economic Survey assesses that the worst is over for the Indian economy (the ill effects of demonetisation are behind us and GST will over time deliver great value) and 2018-19 will end with 7-7.5 per cent growth, making India again the fastest-growing major economy in the world. The key caveat is, says the Survey, that international oil prices will not disturb external and internal stability.
Implicit in this assessment is an endorsement of the soundness of the economic policies followed for the last four years. But the Union Budget coming right after the Survey signalled a somewhat serious course correction which would imply that all was not right with the policies followed by the NDA government. Several measures directed at the farm sector made up an attempt to set right a failed farm policy or put in place one where nothing meaningful has existed earlier.

Reality bites

The budget also announced a major step forward in bringing affordable healthcare to the country’s poor, indicating that the widely discussed inadequacies of public health services in the country had not been addressed till now. While in these two areas the budget has sought to address policy inadequacies, in another major area of perceived failure — the inability to create jobs promised in the 2014 election campaign — the challenge has not been met head on.
The budget has announced substantial investments in infrastructure to build roads and railway lines and easing the pathway to creating more affordable housing, hoping that this will create the missing jobs.
It can, of course, be argued that the course correction that the budget seems to signal is by no means an admission of policy failure. For four years, sensible policies were followed, which desisted from sowing the seeds of structural problems for the future. The foremost and in fact key policy cited in this regard is the determination to steadily take forward fiscal consolidation. If the exercise is moderated in the coming fiscal year, then it is not an admission of failure but merely acknowledging the reality that you cannot be tightfisted much in an election year.
While some action has been taken to address these issues, indicating that there is some acknowledgement that they exist, there is one key area in which there has not been much public comment and, consequently, no acknowledgement of the existence of the issue. This is the problem of growing income inequality.

Mind the gap

This issue is critical because it is arithmetically quite possible to have a hard core of deprivation even during a period of stellar economic growth simply by the additional wealth remaining mostly in the hands of the already better off. If to growing income equality and is added the failure to create anything near an adequate supply of new jobs, then the foundations of a socially explosive situation are laid.
As yet there are no signs of acute social distress, except for serious disaffection among farmers and a feeling of being left out among groups like the Patels, Jats and Dalits. But by the time the sense of economic and caste deprivation coalesce, social pressures can take on serious dimensions.
How have present high levels of inequality emerged? After economic liberalisation came, growth and fiscal stability were given priority. But realizing that some were being left out of the fruits of liberalization, during UPA rule a key policy initiative, the rural employment guarantee programme, emerged. But under the present dispensation income inequality concerns have again virtually disappeared. The jobs scheme gets the same nominal and hence lower real allocation this year as in the last. (However, there is a focus on gender bias which translates into lower wages for women.)
Why this unconcern? The answer, in all likelihood, lies in the ideological and social makeup of the country’s current rulers. Not having had any truck with leftist or socialist economic thinking in the first place, the BJP has been quite comfortable with the idea of a market driven economic order.
The roots of the party being in the trading community is well known but the rationale behind the party’s economic thinking extends beyond simply going by what traders and businessmen prefer (otherwise demonetisation would not have been attempted).

Need, good economists

A key reality, seldom articulated, is the absence of economists of substance among people to whom the party turns for direction. The BJP has few economists among its supporters with any kind of intellectual heft, capable of radical, in the sense of out-of-the-box, thinking.
Arun Shourie would have fitted the bill but he is an outcast. Raghuram Rajan and Arvind Subramanian have the necessary heft but who has been listening to them? Demonetization seems to have gone through without a reference to Rajan and a nod from Subramanian.
In the absence of solid economic brain power to guide it, the government has depended on senior civil servants with a committed market friendly orientation to work out economic direction and policy. The result is textbook adherence to fiscal consolidation and eschewing any solution that veers away even a little from the market fundamentalist ethos.
A case in point is the budget initiative to address the deficit in public healthcare by giving poor people a handsome health insurance cover. The scheme will focus on in-patient secondary and tertiary care, when the cardinal requirement is the need to strengthen primary and preventive care.
The issue is, why not spend the resources instead on strengthening the public health service which all can access. Instead of following the American model, widely considered second best, why not follow the European model.
The writer is a senior journalist

via The NDA needs better economists – Business Line

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