Everyone is an economist — from the homemaker making the household budget to the dairy owner who rears cows to supply milk, from the small business entrepreneur who manufactures parts to the construction major who builds and sells apartments.
They must, perforce, abide by the rules of the game embodied in the sector-specific laws and the general laws of contracts and taxes, the conventions of the trade, and the relationship with one’s counterpart/customer. These are knowns; actually they are known knowns. The best known is money. The protagonist in our story will take appropriate decisions mostly on the basis of the known knowns.
The protagonist could turn out to be wrong, because of the unknowns — both the known unknowns and the unknown unknowns. Over a period of time, the protagonist may master the unknowns too.
The protagonist may be elected as the chief minister of a state and may deliver an impressive account of governing the state. As long as the protagonist manages the best known known — money — all other knowns and unknowns are manageable. It is only when the protagonist has to travel beyond the knowns and the unknowns that there is trouble.
That trouble is called the market. And when the market is millions of individuals unrelated to each other taking individual decisions in an environment of fear and uncertainty, and impelled by different motives, the market is not simply trouble, it is big trouble.
The best laid plans of mice and men can often go awry in the market. Size and scale matter. Giving an exam on a balanced budget does not present as many challenges as making the Budget for a government. Running a state does not throw as many challenges as governing a country.
Prime Minister Narendra Modi was the chief minister of Gujarat for about 12 years. His Finance Minister, Ms Nirmala Sitharaman, holds an MA degree in economics from Jawaharlal Nehru University. Between them, they thought — and why should they not? — they were competent economists capable of managing the Indian economy.
Alas, they find themselves in the unenviable situation of presiding over the slow decline and imminent collapse of the Indian economy. In the last six quarters for which official figures are available, India’s GDP growth was, in per cent, 8.0, 7.0, 6.6, 5.8, 5.0 and 4.5.
From all accounts that we hear, the Prime Minister and Finance Minister are worried, but will not show it — at least not yet. There is an apparent division of labour between them: the decisions are taken by the PMO and implemented by the Ministry of Finance. And there is mutual suspicion and a blame game between the mandarins in the two offices.
Now, the two main protagonists of the story are floundering and struggling to control the price of the humble onion, a staple among the poor and the middle class. Substitute ‘onion’ by one of a number of things that could go wrong, and what do we have?
Besides, household consumption is down according to the NSSO. Rural wages have declined. Producer prices are down, especially for farmers. Daily wage earners get work for no more than 15 days a month. Demand for MGNREGA is up.
Both durable and non-durable consumer goods are selling less. Wholesale price inflation has climbed up to 1.92 per cent and the consumer price inflation stands at 4.62 per cent. The plant load factor of all thermal plants is about 49 per cent, meaning thereby that one-half of all thermal capacity has been shut down because of lack of demand for electricity.
The government thinks it can wish away the impending disaster. The fault of the government is its stubborn and mulish defence of indefensible decisions taken in the past — demonetisation, a flawed GST, tax terrorism, regulatory overkill, protectionism and centralisation of decision-making in the PMO. Thanks to demonetisation on November 8, 2016, a man-made catastrophe was unfolding. Despite warnings, the government did not pause to take stock or reflect.
The Economist has called the government an ‘incompetent manager’ of the economy. With no other option, ministers have resorted to bluff and bluster.
The government has acknowledged that the economy is in a slowdown, but denied that there were ‘structural’ issues that need to be addressed. The government has described the problems as ‘cyclical’. It is a small mercy that they did not identify the causes as ‘seasonal’!
India’s economy is being run without the aid and advice of competent economists. The last one was Dr Arvind Subramanian. Imagine teaching a doctoral programme without a professor or performing a complicated surgery without a doctor! Running an economy without reputed economists — and through incompetent managers — is the same.
Website: pchidambaram.in @Pchidambaram_IN