India Shining: Economics Redone

By Sunil Kumar

One of the most interesting aspects of life in India is the sheer multiplicity of opinions. And the presence of a humongous number of economists; all of whom seem to be engaged in a rather overt display of pompous academic posturing. Despite having a wealth of educated intellectuals spouting more pearls of prescient insight; the shape of things to come is as usual; “Bhagvan Bharose”(God Willing).

English: topographic map of India

Visit sunil-kumar.co.in English: topographic map of India (Photo credit: Wikipedia)

Without going into details; an Oxbridge economist with his crony Harvard ministers pushed India further down the slope with their brand of populism. Confirmed by publications including “The Economist” that never seems to shed its mantle of shadowy colonialism. Arvind Panagriya; the Columbia Professor believed to be close to Modi has issued a few recommendations for the incoming government.

Let me discuss this within the scope of this post; for my personal amusement. Anybody interested is more than welcome to add what he feels like. So; here goes; Panagriya is OK with the fiscal deficit as it stands; 4.5 percent. The outgoing UPA government wanted to peg it down to 4.1 percent; four basis points lower; although publications such as the Economist(again) believes that the fiscal deficit figures were cooked up the powers that were(the government that was). In fact; they are of the opinion that it could be up to 7-8% of GDP.

English: Jawaharlal Nehru Trust Port in Navi M...

Visit sunil-kumar.co.in English: Jawaharlal Nehru Trust Port in Navi Mumbai, India. One can see unloaded trucks on the right heading for the harbor cranes, while loaded trucks on left head out. (Photo credit: Wikipedia)

Panagriya wants the government not to be unduly concerned by the fiscal deficit figures insisting that they will gradually come down and advocates an increase in capital expenditure(payment for non-financial assets used in production for more than one year; expenses in electricty generation, telecommunication, roads) etc from 1.76 percent to 2.

India and China roughly at the same GDP level three decades back have seen a vast change; with China’s GDP per capita now four times that of this country. Although we have seen a rise in the number of billionaires especially in maximum city(Mumbai) and other cities in the country; the disparity of wealth is increasing; that will fuel more resentment in the long term. Education does not guarantee anything; and unless the government ensures that the people benefit(I mean everybody; not just the uber-rich or the utterly poor); we will sow seeds of unrest. A lot of newspaper space is devoted to the Maoists or the Dalits; but what about the educated middle class that would be most impacted by any change in the country’s trajectory!

Again; India’s relative success story in IT; pharma and other high-tech industry is supposed to have a trickle-down effect; as they contribute to 7% of GDP. Although Panagriya suavely argues that manufacturing should again be revived to match China; concrete measures to overhaul the system do not seem visible at this stage. Most entrepreneurs in this space have always bemoaned the rather short-sighted policies of the Indian government.

Shrinking involvement in the public sector is also a recommendation that has been debated at length. Modi has been known to give them operational freedom in Gujarat; and streamline their functioning; making them more professional. Coal India; that manages 80% of India’s coal output needs to be broken up; argues Panagriya. The point here is that despite being the largest such producer in the world; with one of the largest reserves; nearly 100 billion tonnes; the country imports nearly 70 million to meet its needs.

The reason for this has been widely detailed; inefficient, outdated methods; no use of modern technology and the narrow-minded grave digging opposition of vested interests of political parties including the country’s so called Left.

To quote another wise source;

“Indian coal is up to 45% shale and rock, noncombustible material that turns into fly ash in power plants. The sensible thing to do is to remove this non-combustible material before coal is loaded on to trains and sent across the country.

But Coal India does virtually no beneficiation of coal before it is despatched. This means that railway wagons careen around the country carrying useless shale and rock, wasting precious diesel and power in the process.

Roughly 40% of the Railways’ earnings come from coal. At least 50% of the energy spent on haulage will be on coal. Since 40% of the so-called coal is shale and rock, 16% of the Railways revenues come from and 20% of its fuel cost is spent on hauling future flyash all over the place.

The most urgent reform required in coal is to scrap state monopoly, open up mining, beneficiation(a process where extracted ore is seperated into mineral and gangue) and trading to private enterprise and break up Coal India into half a dozen companies so as to preempt a market-distorting behemoth.

The Indian economy should not be starved of power or burdened with avoidable import bills because of public sector inefficiency and corruption (sometime in the mid-1990s, Coal India suddenly wrote down its stocks by 6 million tonnes — all that coal just vanished!).

Recapitalization of banks(re-infusion of cash by any means) is another move advocated. Secondly; ending of subsidies. Again; as classical realpolitik goes; the economist in question mentions this should not impact the poor; but fails to mention the burgeoning huge middle class. Shri Modi”ji”; if we cannot remind you enough; this section of society has also been very enthused by your poll plank premises; and doing anything against us would amount to gross betrayal; if not a stake through the heart. In fact; kindly consider the needs of the urban middle class; that will gradually swell over the years.

Simplifying land acquisition for factories and a strong focus on investment and job creation are key factors essential for growth. If we were to have another discussion in the multiple forums available today; there would be no shortage of more ideas.

India’s GDP has to expand drastically if we are to reach where most predictions put us at in the coming decades. The median age of this nation is 26; youth discontent may not help this nation gain through a phrase again used by Shri Modi in his political campaign; the demographic dividend; the alteration of economic fundamentals due to a transition in society.

English: LCA TEJAS

Visit sunil-kumar.co.in English: LCA TEJAS (Photo credit: Wikipedia)

As fertility falls faster in urban areas, rural India is younger than urban India; while 51.73% of rural Indians are under the age of 24, 45.9% of urban Indians are under 24. However urban India still has a higher proportion in the key 15-24 age group than rural India. Channeling the workforce and creating employment opportunities in the relevant sectors is a challenge for the country.

We earnestly hope that the Planning Commission, the FM and the other elements of India’s massive bureaucracy coordinate to revive and zoom ahead the country’s economic story.

 

 

 

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