parijataka
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Lord Meghnad Desai says UPA-I reaped the benefits of the good work done by NDA and UPA-II is reaping the bad effects of their bungling and corruption of UPA-I
Maybe UPA only cares about inclusive development, UPA-I's high-growth results were only a NDA hangover
We are at a cusp. It may be that the Congress plan for Pranab Mukherjee will succeed and the UPA-II will lose its most hard-working minister. Or it may be that Mulayam Singh and Mamata Banerjee have a point and it should be Dr Manmohan Singh who should be elevated to the Presidency and Pranab should be spared for more hard work. The Congress may lament its old ways and make him PM at last; 28 years too late but, then, better late than not at all. Or old habits may die hard and Rahul Gandhi may step in as PM after Dr Singh, leaving Pranab in a limbo.
Whichever way the cookie crumbles, the question is: Will economic performance improve? Will we see an end to the paralysis of governance that has plagued the UPA-II? One interesting observation in this respect that I came across is that the UPA-I as well as the UPA-II are not in the business of enhancing GDP growth. After all, look at the NDA, which boasted about India Shining and lost the 2004 election. The UPA would rather pursue inclusive development (ID); indeed, on a recent TV panel, a Congress spokesperson claimed that it had successfully done so. Hence the steep rise in subsidies since the UPA came to power.
If this is the case, two questions arise. First, what are the signs of ID that India has achieved? The government has not put forward any systematic account of ID. One may cite the MGNREGA but that is an expenditure whose impact on employment and output has yet to be shown to be substantial. There are rumours, if not indications, that the rural labour market is tight. There has been outmigration of some ready-made garment industries to Bangladesh thanks to the difficulty of getting cheap labour. If rural incomes have risen, that may be an achievement to boast about, whatever the losses to industries relying on cheap labour.
But we have seen a recent decline in the take-up of the MGNREGA expenditure and so this development may be on the wane. India's ranking in the Human Development Index has not markedly improved during the UPA years. What about poverty? The debate about poverty levels is, of course, a strange one in India, with the reformers claiming the headcount is down while the 'progressives' (champions of ID) claiming that this is far from being the case—rather, poverty is endemic and on the rise. This clearly is not consistent with the claim that for the last eight years the UPA has been pursuing ID successfully.
But even so, the second question has to be asked. If the UPA does not care about GDP growth but only about ID, how come it achieved such good GDP growth results for so long? One answer is, as Milton Friedman used to say, lags are long and variable. The high-growth results of the UPA-I may have been due to the good things done by the NDA, which did not bear fruit during 1998-2004 but later. The good effects having worn off by the time we came to the UPA-II, things began to go awry. Thus, every quarter since the UPA-II came to power has seen a higher rate of inflation than GDP growth. This is a reversal of the normal behaviour of the Indian economy, which has an inflation-averse citizenry. Rarely have we had a persistence of inflation with as little action to combat it as we have had lately. This is also part of ID because it only cares for rural consumers; and higher inflation for the urban consumers seems to be part of the equity package, as urban consumers are richer.
If this is so, what we have had during the last three years was not a paralysis of policy but the implementation of a policy to achieve precisely the results we have seen: there's been slowing of GDP growth and benign neglect of inflation; we have seen an increase in subsidies to the detriment of the budget deficit but, for all that, this has not been unplanned; slowing down of FDI has only been to revive self-sufficiency. Since GDP growth has been argued as being not sufficient for ID (perhaps not even necessary?), what we think of as failure has always been the objective of the government.
This is the sort of good news that is bad news. We surely need both growth and ID. The trade-off between equity and growth cannot be so sharply negative as the champions of ID seem to claim. After all, ID is expenditure-intensive and tax revenues are buoyant only if GDP growth is robust. The trade-off between growth and ID must be positive for a considerable range before it becomes negative. It will also depend on whether growth is employment-intensive and whether inflation is not likely to have regressive effects.
Note for the next PM/FM: Can we get better trade-offs please between growth and ID?
The author is a prominent economist and Labour peer
