By Akshya K Panda
The Prime Minister recently gave a very encouraging signal when he said he was willing to pay a price for ushering in systematic changes. He stated: “I am aware of the big political price I will have to pay for the steps I have taken, the path I have chosen and the destination I want to take the country to. But I am ready for it.” During the last few years, ever since the NDA came to power, almost every week there is something different in the business-as-usual approach of governance. Just like human beings evolve, the economy and society also needs to evolve. This is called reform—not a bad word. A reform, no doubt, is risky as it displaces entrenched interest, as it happened in the case of direct benefit transfer (DBT). The country had been muzzled and restricted to the decade of 1950s, while continuing to follow business-as-usual approach—labour market institutions date back to the 1950s. Similarly, agricultural market institutions are decades old, and they deny farmers their legitimate earnings from the produce. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (or Land Acquisition Act, 2013), added more rigidity in the land market, in addition to entrenched rigidity in the labour market. The factor market remained range-bound, while the product market is made wide to free and fierce competition. After all, who are the beneficiaries of the 2013 Act—the rentier class the modern economic system tries everywhere else to dethrone. These institutions, along with MGNREGA and the extremely thoughtful Sixth Pay Commission bonanza for government employees, imposed a high cost on the economy. Land market and labour market remained invariant to market dynamism, a wage push was introduced putting the production space to extreme vulnerability. This is reflected in the steep decline in the share of manufacturing in GDP. In fact, nothing has been done in the last several years to lead the economy to the path of modernity and modern practices.
It is not surprising that the economy is still bracketed as factor-driven, compared to efficiency-based and innovation-based categories in the World Economic Forum classification. It implies we have not moved a step forward even after 65 years of planned development programme. In the face of fierce competition in the manufacturing space, our economy has moved from production-supported to consumption-supported. This explains the transition of the Indian economy from primary-sector-led system to services-led, bypassing the intermediate secondary-sector-led stage of development. The services sector comprises financial services, trade and hotels, low-skilled labour supply services, etc. These provide traction to the economy—whether it is 7.9% or 5.7% growth. But there is no reason to backtrack on reforms and none to anticipate backlash of reforms on the incumbent government. The political lexicon in the last few elections is not anti-incumbency, but pro-incumbency. The dispensation enjoys the electoral trust so far. The capitals market reposed trust, taking the Sensex from 24,374 to 32,807 from May 22, 2014, to December 4, 2017. Also, 84% of 115 parameters for measuring competitiveness of the economy have shown progress since 2014. All this is no mean achievement towards making Make-in-India a success. A big event for the economy is the U-turn for the first time in governance parameters (WDI). India has transitioned from an ineffective government (1996-2014) to an effective government (2015-17).
Reform essentially means change, and change displaces existing interest groups and creates new interest groups. The political economy system has to build the coalition of new interest groups — the aspiring Indian. A lot of discussion is taking place on demonetisation and job losses. People are citing data sources to put forward their points of view. It is tough to deny anyone’s claim. Demonetisation might have created job losses, but the magnitude of job losses is debatable in the absence of a national-level high-frequency employment data. The reason is unknown why such a vital data is still not collected at the required frequency. The gap was felt in 2008 but progress is elusive. I take a contrarian view. The IIP has a use-base classification of six sub-indices. A month-on-month and year-on-year will not convince anyone that IIP sub-indices were hit hard after demonetisation. It did not hit primary goods, intermediate, infrastructure (construction) and consumer non-durables. The capital goods sector was impacted for a long time for different reasons (loss of competitiveness). Many talk about its impact on small-scale sector, but small-scale is covered in IIP.
Thus, much of the so-called employment loss would be attributed to the informal sector where serious data gap exists. Post-demonetisation, the concealed cash came to the banking system, and digital tracking will unveil its true import. People who managed to convert black money into white are on the radar of the government. Expected reforms are bank recapitalisation, determination to selling off of CPSEs, maintaining gross fiscal deficit (to contain cost of capital), judicial reforms (enforcement of contract), rapid infrastructural (railway) build up through JICA loan, entry of private players into railway services, expansion of female labour force, a single labour labour code with focus on safety, women-only higher educational institutions, larger broadband coverage, and a lean civil service. Low-hanging fruits, as these are, would give rich dividend to the government, if only executed fast. The need of the hour is building on reforms, while the political capital is still reassuring. In fact, one single measure of selling off CPSEs, a legacy of the 1956 Industrial Resolution, would be a big achievement.