Dr Ashwani Mahajan
As the date of formation of the new government is coming closer, discussions on the new government’s proposed economic agenda are warming up. Given the fact that economy is in doldrums; common man is in deep distress due to inflation, unemployment, malnutrition, shrinking industrial production, weakening of rupee due to international payment problems; the significance of the economic policies of the new government increases manifold. Competitiveness of the Indian goods is declining globally, due to endlessly high rate of inflation. On the one hand costs are rising and on the other hand consumer and investment demand is at its low. The result is that industrial growth, which was more than 8 percent annually for the last one decade has now gone into negative zone and in 2012-13, industrial production instead of increasing, rather declined by 0.2 percent.
Advocacy of Foreign Investment
Policy makers and a section of the industry and media feels, that come what may, foreign investment (both direct and portfolio) is the only option for well being of the economy. They don’t even think the necessity of going into the cost benefit analysis of foreign investment. Policies of the UPA Government exhibit the similar mindset; the mindset that foreign investment, foreign resources and western model of development are the only path, which can lead the nation to prosperity; then it is immaterial, how the same is mobilized.
We need to understand the hollowness of the arguments of globalization apologists. Moreover, the growth of foreign investment is assumed to be equivalent to the development efforts; such that the well being of the country is proportionate to the inflow of foreign investments, without even caring about the fall outs of the policy. In the initial years of globalization, its supporters used to argue that inflow of resources from across the border may supplement resources apart from bringing new technology. However, at that point of time, advocacy of foreign investment did not include the argument that foreign investment will help fill our current account deficit (CAD) in the Balance of Payment. The argument, which was most forcefully put forward in favour of globalization, was that the policy of opening up of our imports will give the country the opportunity to increase exports. It was argued that if we open up, our farmers will be able to sell their flowers in California’s and other foreign markets. However, that could not happen. Our farmers could not fulfill their dream to sell their products in foreign markets, rather Imported fruits have definitely eaten over a big chunk of Indian market. Chinese products including electronics, toys, power plants, machinery and equipments have flooded Indian markets. Import liberalization has made Indian economy a net importer, so much so that our imports have reached more than 28 percent of GDP, while exports could reach only 17 percent of GDP. Difference between the value of imports and value of exports, that is, the trade deficit, has jumped to 11 percent of GDP. Foreign investment, which was being posed as panacea of all economic ills, is now being presented as fate accompli. Now, it is being said that it is meaningless to talk about the merits or demerits of foreign investment, as the same has ceased to be matter of choice, as it has become a compulsion to fill CAD in balance of payment.
Globalization is not the Solution
Today GDP growth is considered to be equivalent to development and improvement in living standards. Apologists of foreign investment and globalization give the credit of relatively higher rate of growth to the new economic policy of Liberalization, Privatization and Globalization (LPG). GDP growth reached an average of about 8 percent; and now India was being termed as emerging economy. Though supporters of globalization have been arguing that this growth is coming through globalization route and whole economic scenario is undergoing a change due to this policy. However, though GDP growth has picked up drastically, lives of the commoners do not show any signs of improvement. Statistics of Annual Survey of Industries of the last 20 years indicate at erosion of real wages of the workers. It is notable that GDP has more than doubled in the last ten years, but the poor, workers, farmers and small entrepreneurs have been treated badly in the process, in terms of incomes, quality of employment, work conditions etc.
Since, with globalization situation of the commoners deteriorated due to jobless growth on the one hand and rising inequalities on the other, obvious response of the government was enacting National Rural Employment Guarantee Act and the Food Security Legislation in the name of entitlement and loan waiver schemes for farmers to divert minds of the farmers for failure to bring any improvement in lives of the agriculturist. Due to obvious limitation for borrowings, fiscal deficit was being financed by borrowing from RBI, which in turn provides the same by printing of more currency notes, with natural implication on inflation. The inflation for many years now has been going in double digit. Impact of inflation has been more pronounced on food products, namely, grains, fruits and vegetables, cooking oil etc. and many other things consumed by the poor. High rate of inflation prohibits interest rates to go down and without reducing interest rates, we cannot encourage growth. Employment creation in the country cannot be left to the government budget. Similarly provision of food security through PDS or children diet through mid – day meal are all short-term measures, which rely on continuous government financing.
What should the new Government do?
Today it is imperative to have a state policy that ensures sustainable and productive employment opportunities for the poor and unemployed. For this we will have to transform the methods of production. We need to incentivize the farmer by giving remunerative price and end apathy towards agriculture; control imports especially consumer goods and capital goods, of which we have capability to produce ourselves; keep in check the prices and thereby reduce interest rates to encourage growth; and in general a human face to our economic policy.
(The author is Associate Professor, PGDAV College, University of Delhi)
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