I find it hard to believe that 31 years have passed since the trumpet sounded for the first time on a change in economic policy: the devaluation of the rupee on July 1, 1991. It was a dramatic, disruptive gesture, and denounced vehemently. The opposition was so vehement that PV Narasimha Rao wanted to suspend the next stage.
Dr Manmohan Singh pretended to fulfill the Prime Minister’s wish to ‘hold back’, Dr C Rangarajan, the RBI Deputy Governor was ‘unavailable’, and the bugle sounded again announcing a further devaluation in 48 hours! It was a two-step dance that was choreographed in advance and performed with great skill.
The rest can be summed up in two words: pure courage. In quick succession, the government announced trade policy reforms, the new industrial policy and an innovative budget. The world sat up and noticed the courage, clarity and speed of the government. The elephant had begun its dance.
Affirm an open market economy
Over the past 30 years, since a Congress-led government ushered in the era of liberalization, the country has reaped enormous benefits in terms of wealth creation, new businesses, new entrepreneurs, a huge middle class, millions of jobs, exports and lifting 270 million out of poverty. Yet, undoubtedly, a significant number live in extreme poverty. There is hunger, as evidenced by India’s ranking 101st (out of 116 countries) in the 2021 Global Hunger Index. Malnutrition is widespread among women and children, as a revealed the National Family Health Survey-5. Learning outcomes are poor, as revealed in annual state of education reports. There is massive unemployment. Periodically there is high inflation. Inequalities in income, wealth and gender are widening. There are strong regional inequalities. Many sections of the population are being denied a fair and equal opportunity.
We cannot deviate from the path of an open, liberal and market economy. It would be suicidal. Yet we need to take stock and, given global and national developments, redefine our economic policies. It takes the courage, clarity and speed of 1991.
Global and national developments
Consider global developments. The rich nations have become richer and the gap, for example, between China and India has widened. China’s nominal GDP in 2022 will be $16.7 trillion and India’s $3 trillion. Digital technology will invade every aspect of human life. Data will be the new wealth. Automation, robotics, machine learning and artificial intelligence will dominate the world and the role of humans will be redefined. 5G, Internet 3.0, blockchain, metaverse and unknowns will define the spaces of the new world. Climate change will leave its consequences and the human race will struggle to cope with it. We will run out of fossil fuels and will be forced to increase renewable sources of clean energy to sustain life on this planet.
Consider national developments. The synthetic fertility rate (ISF) fell to 2.0, which is below the replacement rate. The proportion of the population under the age of 15 fell from 28.6% in 2015-2016 to 26.5% in 2019-21. This is the beginning of the end of the demographic dividend. The average farmer produces more and yet his position in life has not changed. He/she thinks that farming is not viable and that his/her children do not want to start farming. Urbanization is rapid and the urban unemployment rate is rising. Digitization is growing; the same goes for the digital divide between the poor and the middle/rich class. Majoritarianism is seeping into public discourse and the politics of polarization and hatred will weigh heavily on the economy. No nation can become an economic power if 20% of the population is excluded from the political and economic structures of the country.
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Exclusion is doomed
The case for a reset is compelling. The country will not accept jobless growth, let alone the jobless growth of recent years. The cornerstone of growth must be “employment”, everything else will flow from job creation. From the lofty promise of creating 2 million jobs a year to the pathetic argument that ‘selling pakoras’ is work, the Modi government has let down hard-working families who had invested everything in their children’s education and who are now facing unemployment. The Modi government may be able to get away, temporarily, with the seductive appeal of Hindutva, but soon young people will realize that Hindutva (and a polarized and divided society) will only bring employment to person, whether Hindu, Muslim, Christian, Sikh or belonging to another faith or atheist.
This discussion leads us, inevitably, to the altered balance of centre-state relations. Never before have these relations been so strained; never have state finances been so fragile. The States’ own resources have decreased. There is a growing disenchantment with the GST, thanks to the way it is administered. There is a total breach of trust between the Center and the States. There is even talk of GSTexit, à la Brexit. The Center has encroached on the legislative domain of the states and uses its executive and financial powers to force the states into obedience. Not only the policies of the Modi government, but the path it has chosen will lead to the destruction of federalism.