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Living in denial

Economic deceleration is real. Acknowledging it is the first step to recovery

Written by Yoginder K. Alagh | Updated: October 13, 2017 1:43 am
Reserve Bank of India, RBI, indian economy, GST, GST slabsm GST cut, GST rate cut, Arun jaitley, inflation, Jobs, India GDP, GDP growth rate, India GDP growth rate, Gross Domestic Product, jobs in India, unemloyment, unemloyment rate in India, emloyment, new jobs, business news, BSE sensex, market news, PM Modi, Urijit Patel, repo rate cut, Indian express The deceleration of growth in 2012 was policy induced. The trouble later was equally so.

Delhi’s denials of reality would be funny if it weren’t for the tragic consequences. On the economy, this denial dates back to 2012 when Manmohan Singh was in charge and Rahul Gandhi has only now underlined that unemployment was the problem. Yashwant Sinha has edited a book on The Future of the Indian Economy and documented the continuing crisis.

Employment is only a part of the story. Arvind Panagariya was more direct. The corporate sector has performed well, he said. Investment output and employment have been rising. He took averages to make comparisons, which is not good statistics for analysis of short-run changes, for if there are three numbers 5, 10 and 15, the average is 5 but there is wild oscillation. Panagariya has written a good book on the Indian economy but he is not a great statistician. His use of averages to force the argument that the blip last year and this year will be reversed is flawed. Fortunately, his successor, Rajiv Kumar, says it is difficult but doable.

The deceleration of growth in 2012 was policy induced. The trouble later was equally so. The economy decelerated and voters correctly placed the blame on the UPA government and voted it out. Rahul Gandhi is absolutely correct in accepting the mistake on behalf of the then ruling party and saying that it needs to be corrected. Panagariya is too good an economist to ignore the non-corporate sector and its importance in the economy when the corporate sector is less than a tenth of the economy. In terms of output and employment, the non-corporate sector is important because jobs are created there. But for the sake of debating points, the fact that the national accounts data doesn’t show a rosy picture and includes performance of the non-corporate sector, was slurred over. Yashwant Sinha has also started a debate and in a piece in these columns established that the reversal of the slowdown was simply not there.

S. Gurumurthy had the courage to say that since Atal Bihari Vajpayee’s days, employment has been on the back burner. Half a problem is solved if a mistake is admitted and an amendment is made. But the empire struck back. On Rahul, a commentator close to the establishment said that speeches in America won’t matter in eastern UP. Another said that Berkeley and the Ivy League schools don’t matter. I went to the University of Pennsylvania, and also taught there, including at Wharton and Swarthmore College. Working as I do in Gujarat from 1968, I hold the motel owner-NRIs in high esteem. Many are engineers and so on, who went into motels since other options were not there when they settled in America, and being intelligent and well-trained, made a success of them. But the Ivy League and the professional crowd is also important, have strong connections at home and their opinion is respected in India. In fact, they remain more often than not more connected with India than the motel NRIs and so should definitely not be ignored.

Sinha asked the beleaguered establishment to get back to the drawing board. One commentator strangely argued that he was wrong because real rural wages have been rising. Abhijit Sen, now back at JNU, had pointed out a decade ago that the rural wage rate is rising but unemployment is there in a big way. This conundrum needs to be worked on rather than being wished away. Another commentator was to argue that imports are rising so Sinha must be wrong, but we are a continental economy. A senior minister could only abuse Sinha; strange since the finance and planning ministries have been known for their professional stance.

One can only hope that the policy response will be more professional. The so-called stimulus package should not just give us lectures on reform. Someday, we will get to one or maybe two rates and have a real GST, which then, after six months, will start working. Until then, we can call it a GST but with five rates it’s not unlike a sales tax. Some day, the demonetisation effects will wear off. Also please don’t end it all by telling the ministries to spend more efficiently based on existing financial allocations. If reports are correct, the captive secretary saying ‘yes sir’ must have gone out sniggering.

Efficiency doesn’t improve by lectures. Assuming that working styles will remain more or less the same, design a real stimulus. If you do your job and raise demand, the economy will respond magnificently.

The writer, a former Union minister, is chancellor, Central University of Gujarat

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More From Yoginder K. Alagh
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    y.k.alagh
    Oct 16, 2017 at 2:10 pm
    I wrote the average of 5,10 and 15 was 10. That is a typo.
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      anil
      Oct 14, 2017 at 9:15 am
      Please read newspapers carefully, exports increased by 28 , Car increased by 11 , two wheelers by 10 , MUDRA loans given to 1.87 lakh crores rupees in which maximum i.e. 60 are SHISHU i.e.blow Rs 50000. travel by Air increased by 26 . Inflation is controlled. Creating pessimism is the highest form of disservice to humanity. Be Positive and feel positive. Fact based criticism is OK.
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        Ramesh Nittoor
        Oct 14, 2017 at 1:09 am
        Transformation from mixed-economy mode of which Dr. Alagh was one of the policy makers to a genuine legal, market economy which PM Modi promised in his SriRam College speech is a difficult task. The four layers of mixed economy, PSU, Crony capitalists, professional private sector and informal sector have to coalesce into one legal market economy mode, this requires both crony capitalism and informal sector to disappear. Crony capitalists who spawned NPAs is the next challenge. Slowdown is inevitable and healthy at this stage, if it creates basis for higher, sustainable growth. Single pointed focus on GDP is not the answer. It is necessary to focus on other aspects as well. These include, tax compliance, efficacy of price signaling, inflation and real interest rates productivity measures etc. The transformation process needs high degree of complexity in measure process, and what matters is the real change at streets and homes. Inferring incorrectly risks derailing success of India.
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          Ramesh Nittoor
          Oct 14, 2017 at 2:55 am
          BJP has set the target of doubling income in rural sector within six years. The income growth will have come from agriculture as well as non-farm sector growth, and disproportionately from the latter. While the roadmapfor structural changes to legal market economy mode appears feasible if the political commitment continues there is no such clarity on how rural income doubling can be achieved. The government policy makers have a responsibility to show how PM Modi's stated target for doubling rural income shall be realistically achieved.
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            Ramesh Nittoor
            Oct 14, 2017 at 3:38 am
            Land market reform in agricultural and other non-agrarian rural lands, market linkages to urban centers, access to scientific inputs via an array of universities and other ins utional structures, improving the reach of banking, these domains require attention and deserve to the primary focus of development. BJP is expected to be guided by DeenDayal Upadhyaya's idea of अन्त्योदय, hence rural development is the core political issue. So far, while real work is done on digital economy reach to funnel welfare, the task of enabling and facilitating sustainable market mode of development has been less than satisfactory. PM Modi spoke evocatively about this aspect in the context of his famous speech on MGNREGA in Parliament, but the follow up policy actions are not clear.
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              Ramesh Nittoor
              Oct 14, 2017 at 5:25 am
              Indian bureaucrats made per Steel frame mould, may have delivered in funneling welfare measures but they are naturally out of depth when it comes to market oriented reforms in rural economy. Here the think tank nurtured in developed west available for financial market and infrastructure reforms are not very useful. The policy framework has to evolve within native milieu, from IRM, IIM, Universities, but above all from political insights. Here the overreliance on bureaucrats and economists for policy making may be the reason why BJP has failed to deliver credible outcomes. Market economy development in this domain is primarily a political activity, wherein political parti tion directs efficient allocation of government resources for rural infrastructure development.
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                Ramesh Nittoor
                Oct 14, 2017 at 7:50 am
                There is an interesting article in ET ----How India favoured the kshatriya feudalism to market-based economies of vaishyas By Devdutt Pattanaik ---- the dissolution of caste based feudal order to more equitible social order based on entrepreneurial ethos, scientific, artistic and technical skills for making of an adhunik bharat is primarily a political challenge, for the real task is to first enable rule of law to reach the hinterland, next to invest in ins utions to regulate and sustain market economy activities. PM Modi has spoken about this vision several times, but political traction on the ground level, has not assumed center stage yet. The MNREGA sentiment, the noble vision of Congress President, a continuation of Mai-Baap welfare state, has not yet been complemented in any appreciable manner by the Namo worldview based on self-respect and social equality.
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            2. Employ Ment
              Oct 13, 2017 at 7:49 pm
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                K G
                Oct 13, 2017 at 6:30 pm
                Extremely extremely surprised that someone like Yoginder Alagh overlooks macro economic stability, any economist worth his salt will tell you the importance of macro numbers but since this is Modi bashing season so tweak a few arguments and you have a lot of ignoramuses in the comments column clapping you on. Thank god the voters think otherwise and back PM Modi, Maharashtra panchayat elections are an indicator.
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                  G.Ranga Chary
                  Oct 13, 2017 at 6:49 pm
                  Macro economic stability or micro economic aspects, should promote overall welfare of the people in the country. When this does not happen it is natural for people to criticize. Things should not be attributed to well meaning criticism.
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                    DILIP
                    Oct 13, 2017 at 7:51 pm
                    Mr. Chary are you on crack cocaine? Do you really understand macro/micro economics are you parrot tosh for the sake of it. Do not blow in the wind and sell snake oil. In any economic indicators always look at the hard data available on the ground. Farmers yield is increasing, per capita is increasing disposable income is increasing due to good monsoon, translating into higher tractor and goods vehicle s, infrastructure is improving standard of living on the rise, economy is growing inflation is low, demand consumption and manufacturing has rebounded, in fact I can list out litany of other economic factors to prove that there is no unduely concern about economic growth. Growth over 7 per cent is soon to spike. The slow down is based on Fake NEWS and massaged data being espoused and peddled by stupid GADARS in India to fool and mislead the ignorants and to attack Modi for political falsity. look beyond the political bluster.
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                      Thrinethran T
                      Oct 14, 2017 at 1:37 am
                      Why? The economy has been put through a wringer of tightly sequenced systemic reforms. Since these are by their very nature disruptive, the rate of growth has registered a decline over five consecutive quarters. The measures are aimed at formalisation, improved reporting and tax compliance, the need whereof nobody could dispute. The sequencing of the measures which involved pain and disruption for the informal side of the economy, amidst fiscal consolidation and monetary tightening, are certainly debatable. As are specific devices concerning meticulousness and sensitivity. But detached observers can also discern that the economy will be healthier and less susceptible to both serial bubbles and the booming black,. which were the earlier features.
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                        coldnclinical
                        Oct 14, 2017 at 4:29 pm
                        This Dilip pest is a mad man. Please read his reactions to others. He has lost it and seems some kind of a fraud. Ignore his tirade.
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                      2. Sunny KS
                        Oct 14, 2017 at 2:49 am
                        Why in Global hunger index our rank is increasing last year 96 to 100
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