The year 2015 was one with a lot of conflicting noises—ISIS, Paris terror and Paris Climate Change success, growth pessimism on the part of IMF and end of the zero-interest-rates by the Fed, low oil prices and a collapse in commodity prices presaging long downward pressure on inflation, migration from Africa and the Middle East outward to the West, the end of the BRICS magic, a turnaround in Venezuela and Argentina, China emerging as a Reserve Currency power at the same time as losing its reputation as an economy well-managed.
The signals however are clear for the long run. Growth will be low as will inflation. India has the enviable position of nominal GDP growth being below real GDP growth, but this only means India may be converging into the global economy. It has at last adopted an inflation target and a monetary policy committee, giving RBI de facto autonomy. It has to be seen whether this determination to keep inflation low is deeply embedded or only due to the happy accident of Raghuram Rajan’s clarity of thinking. But unless the prices of frequently purchased food stuffs are managed badly, inflation should disappear as a problem.
That apart, it has been a volatile and bitter year for the BJP. It has not been allowed to legislate by the Congress. Despite the vital importance of GST, frivolous interventions have been allowed in the Rajya Sabha by a helpless Chairman to prevent business being conducted day after day. Even the UPA II had better results to show despite heading a fragile coalition. This unique situation poses a stark choice for the BJP/NDA government. It will have to minimise legislation apart from the Money Bills, which don’t need the Rajya Sabha. It can rely on Executive powers to carry on governing.
It has been forced to do so anyway. On the Executive side, the government has notched up fantastic success on the foreign policy front. Not just its Pakistan policy, but friendship with Japan and the US, contacts with China, the good show at the Paris Conference as well as at Nairobi have transformed India’s image abroad. On the other fronts, railway minister Suresh Prabhu has been a success and the Railways are being overhauled. Stations will be modernised with public private partnership. Two factories to manufacture locomotive engines are starting in Bihar. Power, coal and new and renewable energy minister Piyush Goyal is another success story as is commerce minister Nirmala Sitharaman. Telecom minister Ravi Shankar Prasad has got results for Digital India.
There have been some remarkable reforms in creating direct transfer and the removal of CNG subsidy. Financial inclusion has been pursued and a framework of pension and social security created. At some stage, we need an outline of the architecture to explain what is done and how much more is needed to create an even preliminary welfare state. But there is no doubt that the mood-music has changed.
That said, the feeling is that despite the headline rate of growth of 7.5%, it does not seem like a booming economy. People are waiting for some bright signals. There is scepticism about the growth numbers, which the CSO has not done enough to dispel. It may be that the boom is away from high street and in e-commerce. Jobs are perhaps growing in the service sector, and not in manufacturing or the public sector. But the impression remains that the job situation is dire. ( Employment statistics are still very unreliable and it is time serious investment was made in improving them.)
Given the obstacles in reforming the Land Acquisition Act and the reluctance of the government to tackle labour market reform head on, we can conclude that India has missed the manufacturing bus yet again. FDI will come to “Make in India”, but its presence would be marginal. India will continue to rely on the services sector to get its growth. Manufacturing imports should continue to be cheap and if domestic politics is hostile to the growth of manufacturing (Congress has definitely become anti-growth), India may as well play comparative advantage and rely on services to generate jobs and growth.
The jobs challenge will be the most severe one. Agriculture is precarious activity for 80% of farmers who are struggling at a subsistence level and are prone to get into unsustainable debt and commit suicide. Manufacturing would have been the cure for their plight but with Congress having made the sale of land for manufacturing impossibly difficult, that option is closed. Infrastructure needs speeding up as does healthcare. A massive intervention to improve the provision of health care by training paramedical personnel, building lots of small hospitals across the rural areas and subsidising health care may break the incidence of poverty as well as ill health.
Parliament can shut down every day if it wants to. Let the government get on with the vital task of looking after people’s welfare.
The author is a prominent economist and Labour peer