ECONOMIC NOTES

When Some People Feel Good

Jayati Ghosh

WHEN rulers start to believe their own lies, it may be the beginning of the end for their rule. Such a tendency seems to have overtaken the NDA government at the centre, which seems to have convinced itself (and much of the English language media) that a “feel good factor” is now dominant in the country, which will supposedly sweep them to victory in the coming national elections. This “feel good factor,” in turn, is supposed to be based on recent economic growth and the material achievements of this government, which are regularly touted on the national media through advertisements paid for with taxpayers’ money, on “India Shining.” 

It is not surprising that the current government --- and the parties that are involved in it --- are trying to put the best possible gloss on what is at best a very mixed economic picture, and at worst, a story of stagnation, decline, neglect and even deterioration for a substantial part of India’s population. What is surprising, however, is the fact that at least parts of the government seem to have fallen for their own gloss, and therefore have lost a basic sense of reality.

STARK REALITY

The recent past has witnessed the slowest rate of employment growth in post-independence history, agrarian crisis and worsening food security for the poor across the country. There are daily reports of starvation deaths and increasing numbers of suicides by indebted farmers unable to cope with the strain. Small producers are being wiped out in many sectors. Most of India’s citizens live in more fragile, vulnerable and insecure material circumstances than before, and their access to basic public services has declined or become more expensive.

Most of all, the youth face bleak and shaky futures, with little hope of secure employment, as job opportunities have simply not kept pace with the growth of the labour force. This collapse in employment generation is starkest in the rural areas, where the rate of increase of all forms of work (including casual, part time and subsidiary jobs) has been less than 0.6 per cent per year --- that is only around one third the rate of growth of the labour force. But it is even noticeable in most urban areas.

This was cruelly evident some months ago, when around 30,000 petty but secure jobs for Class 8 pass workers in the railways, paying Rs 6,000 per month, attracted more than 7 lakh applicants, most of whom were heavily over-qualified with graduate and post graduate degrees. The examinations for these jobs were surrounded by rioting, which claimed many lives in some states, reflecting the growing desperation of ordinary young people.

All this seems to be forgotten by the powers that be, as they harp on Indian’s large foreign exchange reserves (which are really a sign of slack in the economy) the recent mini-boom in the stock market and in IT related sectors, the availability of easy consumer loans and new consumer goods and other supposed signs of “Shining” India. The reason that they, or indeed anyone else, can even begin to think like this is because of the dramatic increase in income inequalities in the recent past.

BENEFITTING THE ELITE

This has meant that India is indeed shining for a small minority of the population, around 10 per cent of the people (mostly the rich and middle classes in large cities) who are benefiting from the highly unequal pattern of growth of the past decade. Indeed, this minority has probably never had it so good. The economic strategy followed by the government has not simply meant the withdrawal of the government from its basic responsibilities in providing a range of goods and services. It has also entailed systematic tax cuts in favour of the rich (especially large capital) and other incentives designed to boost their income and consumption. Along with this, global integration has increased the job opportunities for this favoured group, as financial and other services and IT enabled activities have expanded.

While all this affects a relatively small proportion of the population, it is this section whose interests dominate the media and increasingly, the policies of the central government. And the NDA government has now confused this small group with the Indian people as a whole, with disastrous consequences.

What else can explain the extraordinary set of measures (amounting to a virtual mini budget) that was announced by the finance minister in the first half of January this year, apparently in anticipation of elections? In blatant violation of parliamentary norms and procedures, the finance minister declared a wide range of tax concessions and expenditures intentions, as pre-election sops.

The harsh joke is that these measures will positively affect only a very small proportion of the electorate, even as they cost the state exchequer huge amounts that will have to be paid for later. Most of these measures will benefit the already rich. The most wide-ranging cuts relate to customs duty. The peak rate for non-agricultural goods has been reduced to 20 per cent from 25 per cent; customs duty on cellular telephones has been further cut while laptop computers can be freely brought in as baggage; customs duty on coal and some equipment and components has been brought down.

Inland travel tax and foreign travel tax have been abolished and excise duty on aviation fuel has been halved, in completely unnecessary measures that will reduce the price of air travel, which is only indulged in by the rich and middle classes. The amount of liquor that can be imported duty-free has been doubled.

These measures imply a huge loss of revenue: the estimates are that the government will lose more than Rs 9,000 crore, and possibly up to Rs 11,000 crore, in the rest of this fiscal year alone, just two and a half months! Of course this means that someone will have to pay later for this unjustified generosity to the rich now. This temporary largesse only adds to the consumption boom of the rich without improving material conditions for the vast majority of Indians.

NO RELIEF TO THE VAST MAJORITY

But apart from that, just think what could have been done with this amount of money. It could have been used for productive employment generation schemes in the rural areas, which would have increased rural employment and provided much-needed infrastructure. It could have provided better basic infrastructure to our schools and health centres across the country, a significant proportion of which still lack even the basic buildings. Ironically, these measures would probably have done far more to improve the government’s popularity and given it a better pre-election boost, than the tax cuts in favour of the rich and middle classes.

The other measures, which are supposedly to provide for agriculture and rural infrastructure, are so minor as to be laughable. The finance minister announced grand plans for a Rs 50,000 crore infrastructures and manufacturing fund, an agricultural infrastructure fund of Rs 50,000 crore and a small and medium industry fund. These may sound impressive, but the total budgetary allocation for all of these funds amounts to only Rs 2,200 crore over an entire fiscal year. This is one more example of a grand scheme being announced, without any real resource commitment on the part of the central government. It also means that effectively there is no relief for cultivators or for small units and the people employed by them, or for the millions of jobless people.

All in all, therefore, the purportedly “populist” measures of the central government before the elections are likely to be popular only among a tiny section of the electorate, and provide no relief to the vast majority. The very fact that the government can even think that these measures will help it electorally, is a sign of how much it has lost its grip on reality.