India is the fastest-growing free-market democracy in the world.” This was the line India used to woo foreign investors in the last decade. And it was absolutely right. The country was growing at 8-9% twelve years ago, was opening up sector after sector, encouraging a free press to voice dissent and holding free and fair elections at every tier of government. Two major international announcements recently brought in their wake a sad anti-climax to those heady days of growth, democracy and freedom.
The IMF declared that the world economy is perilously close to a recession, having grown at 2.9% in 2019. Its Chief Economist Gita Gopinath made a further point that India is responsible for 80% of the slash in the global growth estimate. This downward revision in growth is because of a stability in growth rates in the advanced economies and the falling growth rates in emerging market economies, particularly India. This is exactly in contrast to 2008 when the upswing in world economic outlook was on account of India’s economic growth rate, which was on an upward trajectory.
While India’s markets are pulling down the world economy, its wilting institutions are damaging the world’s democracy index. India has fallen 10 places and come to rank 51 on account of what the Economist Intelligence Unit’s ‘Democracy Index’ calls the erosion of civil liberties. The index also suffers from the falling levels in democracy in Latin America and Sub-Saharan Africa, too. What was happening in towns and villages by way of growing unemployment, consumption decline and poor tax collection, is now impacting the world economy itself.
At the turn of the century, India was on an upswing. The Kargil war victory, a complete sway over all the business emerging from Y2K fears and a large middle class coming of age made India a mouth-watering destination for global capital. The BRICS economies would lead world growth, said the eminent economists at Goldman Sachs. Russia and Brazil only flattered to deceive. South Africa collapsed almost as soon as it began to get noticed. India, the undisputed heir to China as the world’s growth engine, showed some enthusiasm 10 years ago, but has run out of steam now. Lying at the lowest level of the middle-income bracket, India seems to have got caught in a middle-income trap far earlier than any of the rest did.
The vision of India by 2020 was that of a free, upper-middle-income democratic country whose population would be covered with universal and modern healthcare and high-quality education for all children.
The slogan ‘JOBS FOR ALL’ of the year 2000 would deliver its promise. There would be no poverty, and no one would sleep hungry. Till 2016, we did stay on course, more or less. More than 270 million were pulled out of poverty and life expectancy in India went up to 69 years. The boat was sailing smoothly.
Demonetisation in 2016 and the GST that soon followed knocked the wind out of its sails. More than 11 million jobs were lost, and unemployment has hit a 45-year high.
The unemployment rate among the educated is upwards of 23%. The Greeks, at the same rate of joblessness, had already gotten rid of their Prime Minister. On education, while we did manage to get millions of children enrolled in school, we still have only 25% of our youth getting into college. The 10 million graduates every year learn very little and are in most cases unemployable.
In the 20 years from 1992 to 2012, we had reduced undernourishment by 9%. But this year, India is back at the top of the world hunger chart with 200 million sleeping hungry every day. India’s wasting levels among children are only better than that in the three poorest countries in the world. The 2019 Global Hunger Index ranks India 102nd out of 117 countries. Bangladesh at 88 and Pakistan at 94 perform better than India. Sri Lanka at rank 66 and Nepal at 73 are ahead by a lap and a half.
In the last six years of the current dispensation, there were some clear advancements made. The farm insurance scheme was implemented, gas cylinders were distributed, financial inclusion was ramped up and a new healthcare initiative launched. India moved up the Ease of Doing Business index at a breath-taking speed to rank 63 in 2019 from 142 in 2014. Prime Minister Narendra had made some big promises and several small ones, a total of 346. While the ones mentioned above were implemented, the rest withered away as the economic agenda got hijacked by a populist social program that has been carried out relentlessly.
A new Budget is awaited and the challenges for the finance minister are many. The fiscal deficit target appears to be slipping away at an unstoppable pace. Demand is growing sluggish by the day and capital investment from the private sector has all but stopped. What can the government do at this stage except to ramp up public investment, allow fiscal slippage and open up the economy more. Hopefully, it will not succumb to the ever-seductive ideological move of lowering tax rates. The corporate tax cut last year was just as bizarre as demonetisation, and just as frugal in achieving its stated objective.
The India consumption story has halted with a sudden brake. Democracy and its processes are under siege. There are enough complaints about the weakening of institutions.
The Thompson Reuters Foundation called India the most dangerous place for women in the world. Speaking at the World Economc Forum last week, Adair Turner of the Institute of New Thinking said it well when he asked India’s policymakers to wake up to the severity of its structural challenges and not to tell themselves silly stories about demographic dividends. If 2020 ends up with such large-scale unemployment and distress as we are seeing at its beginning, it will be a sad end to a great start made in the year 2000.
(Amir Ullah Khan teaches economic policy at the Indian School of Business and the Nalsar University of Law.)