Rebooting Economy 46: Who is designing India's growth path?

Rebooting Economy 46: Who is designing India's growth path?

As India marches from one economic disaster to another, policy and planning appear to be victims of whims and fancies as and when they strike

It is not yet known on what basis the decisions were taken for demonetisation, locking and unlocking of the economy or import substitution to build AatmaNirbhar Bharat It is not yet known on what basis the decisions were taken for demonetisation, locking and unlocking of the economy or import substitution to build AatmaNirbhar Bharat

Officially, India would enter into recession (two consecutive quarters of negative growth) when the Q2 GDP numbers for FY21 are finally released later this month but the RBI's November 11 report has already declared that it would be minus 8.6%. The first-quarter growth had plunged to minus 23.9%.

Though the pandemic and stringent lockdown played big roles; the economy had lost momentum long before that. The GDP growth had plunged to 4.2% in FY20, from a high of 8.3% in FY17. Going by former CEA Arvind Subramanian's estimates that India's GDP growth was overestimated by 2.5% between FY12 and FY17, the FY20's growth rate could very well be 1.7% (4.2% minus 2.5%).  

As India blunders on, creating one man-made disaster after the other, the questions that beg for answers are many: Who really is planning and designing India's growth story? Where is its blueprint? What are the guiding principles?  

These answers are important because there is little evidence of key economic decisions being made on economic logic, robust analysis of evidence and data, institutional and intellectual inputs or deliberations.

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For example, it is not yet known on what basis the decisions were taken for demonetisation, locking and unlocking of the economy or import substitution to build AatmaNirbhar Bharat.  

Here is what is known.

Who designs growth and development policies of India?

Many may think it is the apex think tank Niti Aayog which replaced the Planning Commission and defends all key economic decisions even when evidence suggests otherwise or damaging to the people and economy.

That is because though the NDA-II dismantled the Planning Commission in 2014 for its Soviet-style government-guided five-year plans, Niti Aayog announced in April 2017 that it was preparing three documents that mimic planning: (i) Fifteen-Year Vision (ii) Seven-Year Strategy and (ii) Three-Year Action Agenda.

It released "Three-year Action Agenda 2017-18 to 2019-20" in August 2017, recycling old UPA-II era ideas and policies, except advocating two failed and abandoned ones: (a) PPP and (b) import substitution of 1960s and 1970s.  

The Seven-Year Strategy and Fifteen-Year Vision were never realised. Instead, "Strategy for New India@75" was released in November 2018, aiming at the government's proposed celebrations of India turning 75 in 2022, for which the Central Vista project is being rushed through the unprecedented health and economic crises.

This document qualifies to be called a five-year strategy or plan. Like its first document, it did not recognise the job crisis and the devastation caused by demonetisation while making claims like turning India into a $4 trillion economy by FY23 and pushing GDP growth to 9-10% by FY23. At the time this document was released (Q3 of FY19), the quarterly GDP growth was 5.6%, a steep fall from a high of 9.7% in Q2 of FY17, and yet, there was no mention of an economic slowdown.

It advocated boosting many new initiatives that were old ones but had been re-launched by the NDA-II after renaming: (i) "Make in India", launched in 2014 by renaming and rehashing UPA's National Manufacturing Policy of 2011 (ii) "Skill India", launched in 2015 by renaming UPA's skilling programme led by National Skill Development Corporation (NSDC) set up in 2008 (iii) "Digital India", launched in 2015 by renaming UPA's NeGP of 2006 (iv) "Swachh Bharat", launched in 2014 by renaming the existing sanitation drive and (v) "PM-JAY" or "Ayushman Bharat", launched in 2018 by renaming and expanding the failed and almost defunct UPA's Rashtriya Bima Yojna (RSBY) of 2008, among others.  

All of this would mean that instead of providing new ideas and strategies, Niti Aayog was parroting government programmes. It could have applied its mind on the glaring failures of RSBY, which the UPA-II sought to soft-peddle because of multiple failures that persist today. (For more read "Coronavirus Lockdown VI: How India's insurance-led private healthcare cripples its ability to fight COVID-19 ")

Its reading on GST went horribly wrong. It projected that the tax-to-GDP ratio would jump from 17% to "at least 22 per cent" by 2022-23. The finance minister had first admitted to problems in paying GST compensation to states in September 2019, at the CGT Council meeting in Goa, due to slowing down of the economy.  

Niti Aayog is peripheral to policymaking.

In the meanwhile, the Prime Minister changed his mind to five-year plans, and in June 2019 asked bureaucrats to make five-year plans for each ministry with well-defined targets and milestones.

Could they be doing it then?  

This is difficult to say because no ministry or department has claimed so nor does any indication exist. Planning requires expertise which departments and ministries may not necessarily have or necessary bandwidth can be built instantly.

Could it then be the finance ministry?

This is unlikely, going by the 2020 budget statement. It was more of an election manifesto or election speech and less of a budget. It didn't have budget allocations but carried a full discourse on an unrelated subject - Indus script and seals. The budget speech claimed that the script had been deciphered and provided illustrations, while archaeologists, linguists, and historians who have worked in the area claimed otherwise.

Further, there is no evidence to suggest that the finance ministry was part of the decision making on demonetisation, locking or unlocking of the economy or that it provided economic logic supporting these decisions.

The mystery would endure until more information is available.

What principles drive India's growth and development?

It may not be clear who actually is designing India's growth and development path, but the underlying principles are clear.

First underlying principle is neoliberal economics pushed by the International Monetary Fund (IMF), which involves cutting down government capacity and fiscal spending (small state or government), handing over public assets to private businesses and letting private businesses dictate and drive growth and development process.  

That decades of global experience and evidence show such policies have led to an upward surge of wealth and income to the top 1% or 0.1% people and dramatically increased inequality is no deterrent. India's own experience shows a sharp rise in inequality post-1991 liberalisation that was driven by the IMF. (For more read "Unravelling GDP growth I: More growth is producing more inequality and misery ")

Second is a fresh lease of life to crony capitalism and blatant promotion of private business interests.  

Many lucrative projects and contracts are mysteriously going to select business houses known to be close to the government. One of them is the Adani Group, which has landed contracts to manage all government airports (AAI) for the next 50 years even when it has had no known experience or expertise in running airports. The group has also got many coal and iron ore mines in mineral-rich Chhattisgarh and Jharkhand, often in violation of multiple laws governing forests, environment, tribals, and forest rights.

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Such is the drive to benefit private companies that earlier this year 41 coal mines were auctioned on the promise that it would create 2.8 lakh jobs and generate Rs 20,000 crore in revenue. When asked through an RTI application, the coal ministry replied in October 2020 that it had no data on jobs created or revenue generated from these auctions. Besides, it said it didn't have any report/survey/white paper/consultancy report/calculation to arrive at those numbers.

Ironically, the pandemic has seen active promotion of private healthcare by the finance ministry and Niti Aayog. Both have repeatedly urged states to provide viability gap funding (VGF) and handover government-run district hospitals to private players (PPP). (For more rad "Coronavirus Lockdown VI: How India's insurance-led private healthcare cripples its ability to fight COVID-19 ")

Both PPP and VGF caused incalculable harm to India's infrastructure push during the UPA-II years and contributed significantly to NPAs (For more read "Rebooting Economy XII: Is private sector inherently more efficient than public sector? ") and yet, on November 11, the Union Cabinet approved extending VGF for PPP projects ("social and economic infrastructure") till FY25.

For the benefit of defaulting private businesses, the Insolvency and Bankruptcy Code (IBC) has been diluted in protest of which former RBI Governor Urjit Patel resigned. (For more read "Rebooting Economy XI: Why are private companies so prone to financial frauds? ")

Third is to bypass every institution and norms of transparency and accountability in policy and decision making.  

The Planning Commission was dismantled in 2014 and replaced with think tank Niti Aayog that contributes little but cheers every government policy without applying mind and ignoring evidence, even when many like demonetisation, GST and lockdown turned out to be big disasters.  

The roles of Chief Economic Advisor (CEA) and Prime Minister's Economic Advisory Council (PMCEA) are not clear. The Parliament, opposition political parties, and public debates are completely out of the process. (For more read "Rebooting Economy 44: India's journey from one of the fastest growing economies in 2015 to slowest in 2020")

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Laws are increasingly passed through ordinances, bypassing the Parliament and then passed in both of its houses without proper deliberations or referring to Parliamentary Standing Committees. The agriculture reforms which drastically changed marketing and stocking arrangements were brought in through ordinances, without consulting states while encroaching on their domain. In the September 2020 Parliament session, several laws were passed in the absence of opposition parties and without discussion.

This antipathy towards institutions and consultations has led to a bizarre situation where all critical decisions, like demonetisation, lockdown, and unlocking of economy, AatmaNirbhar Bharat carry no burden of economic logic, facts or evidence.  

From a good reform, GST turned out to be a disaster precisely because of its shoddy design and lack of preparation and planning (not yet fully rolled out) but nobody raised a voice. This reform was launched at a midnight session of Parliament and called "second freedom movement" and the next morning it was postponed for two months.

Fourth underlying principle is priority to vanity projects over what is essential and prudent.

The first project the NDA-II conceived, completed, and showcased was a statue (Statue of Unity) in Gujarat which cost the public exchequer Rs 2,989 crore, while it came to power promising development. The statue was imported piece-by-piece from China at a time when the clarion call was "Make in India". This money could have been used to build schools and hospitals that India lacks.  

This was followed by a bullet train project worth Rs 1.1 lakh crore on the Ahmedabad-Mumbai route, a corridor the Indian Railways says has 40% seat vacancy. What was the logic then? It is also evident that basic steps like preparing a project report, viability report, vetting by experts, and the Railways were not taken. India didn't have enough fiscal space either, forcing it to take a loan from Japan.

Amidst the pandemic, one more vanity project was announced: demolition and rebuilding part of the majestic Lutyens' Delhi, the Central Vista, at a cost of Rs 20,000 crore. Everything was done in secret: its plan was not made public; Parliament was bypassed even when it involved building a new building for it and turning the existing one into a museum and without statutory clearances - something no democratic and civilised country allows.  

Work on the project is on even when the Supreme Court is deciding its legality. On November 12, design for a commemorative structure, three times the height of India Gate was sought, which would be built on Yamuna's floodplain to mark 75 years of India's independence.  

Further, on August 5, 2020, the Prime Minister performed "bhoomi puja" to build a grand temple in Ayodhya.

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By November 13, 2020, India had lost 128,686 lives to the pandemic and total virus count stood at 8,728,795. Its health system has proved grossly inadequate, highly exploitative, and has virtually collapsed.  

The UK's The Telegraph wrote about India's response to the pandemic in an article titled "India's healthcare system on brink of collapse again as it hits five million COVID-19 cases" and stated that "India's public healthcare system is one of the most underfunded and understaffed in the world, with just 1.50 pounds spent per citizen." (For more read "Rebooting Economy X: COVID-19 puts question mark on private sector's efficiency in healthcare ")

But the pandemic did not provoke building a hospital.

Fifth guiding principle is to work to in complete data vacuum and dismiss inconvenient reports.

The only time the Parliament met during the pandemic was in September 2020. The answers provided to it revealed the government was working blindly: no data on (i) job loss of migrant workers due to the lockdown (ii) death of health workers and sanitation workers fighting the pandemic, though India honoured them by petal showers from the sky (helicopters flew all around the country for that) and by banging utensils, blowing conch shells and lighting candles in balconies (iii) death of migrant workers who walked home during the lockdown (iv) death of policemen on pandemic duty (v) number of informal workers, who were hit the hardest due to the lockdown (vi) number of suicides by students during the lockdown etc.

Even before the pandemic, the routine Economic Census had been abandoned. The NSSO's consumer expenditure survey of 2017-18 was junked because it showed 'real' household consumption had fallen for the first time in 40 years - implying that poverty was growing, which the Niti Aayog confirmed in December 2019. (For more read "Rebooting Economy 41: India's growing poverty and hunger nobody talks about")

Sixth principle is not to recognise any crisis or problem.

The government never acknowledged the job crisis or job-loss growth after the PLFS of 2017-18 showed a 45-year high unemployment rate; it even denied job-less growth after coming to power while it had attacked the UPA-II over it. It never acknowledged that demonetisation and GST caused loss of millions of jobs, livelihood sources and devastated the informal economy, leading to an economic slowdown.  

It is yet to acknowledge mismanagement of the pandemic that spread the virus to the hinterland (migrant workers were forced to stay in urban centres to which 15 lakh international passengers had come in carrying infection and then let the migrants go home, carrying the virus with them to rural areas. On the contrary, India has been claiming to have managed the pandemic well when it is among the top in total cases and deaths due to the virus.

What these principles reflect is that economic policies are guided less by public welfare or desire to provide public goods.

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