Neoliberal refrain

Economic Survey 2010-11 presents the annual restatement of neoliberal faith, embellished with elegant but highly superficial arguments.

THE Finance Ministry's annual survey of the Indian economy, Economic Survey 2010-11, provides a great deal of interesting official data on many facets of the performance of the Indian economy, both in 2010-11 and in the immediately preceding years. While being uneven in its analytical rigour across chapters, it contains a great deal of informed and every now and then engaging discussion of key issues and challenges facing the Indian economy. It is also the case that any student of Indian economy would greatly benefit from a careful reading of the Survey and from the wealth of official statistics provided both in the Statistical Appendix and in the various chapters. Yet, in an overall view, one has to say that if the Economic Survey of 2009-10 was an exercise in seductive sophistry, the Survey this year carries the same narrative forward.

The Survey has 12 chapters and a detailed statistical appendix. The first chapter provides a crisp, if selective, discussion of the state of the economy and the prospects ahead. The second chapter, ambitiously titled Micro-foundations of Macroeconomic Development, tries to provide the theoretical rationale for the essentially neoliberal perspective that informs the Survey as a whole. The third chapter discusses fiscal developments and public finance in relation to the Indian economy in 2010-11, with projections for the medium term. The fourth deals with Prices and Monetary Management, the very clubbing suggestive of a specific viewpoint that links inflation primarily with money supply. The fifth discusses financial intermediation and markets while the sixth and seventh deal with balance of payments and international trade respectively. The next discusses agriculture and food management while the ninth discusses industry. The tenth chapter provides a detailed account of the performance of the services sector while the eleventh discusses energy, infrastructure and communications. Finally, the twelfth chapter reviews issues of human development, equity and environment in the context of the Indian economy in recent times and the current period. Interestingly, the cover of the Survey has the IS-LM diagram familiar to all graduate and postgraduate students of economics in the dominant Anglo-Saxon tradition, and a sentence on the back cover helpfully explains that The cover depicts the classic IS-LM diagram developed by (Sir) John Hicks to elucidate Keynesian macroeconomics.

This writer could not help recalling that a famous disciple of Keynes, the distinguished economist Prof. Joan Robinson, had characterised Keynesian Economics' as a bastardisation of Keynes. Among other things, she was highlighting the fact that the IS-LM framework takes away Keynes' emphasis on uncertainty and on the role of expectations and animal spirits of capitalists as keys to understanding the macro-economy under capitalism. The broadly neoliberal perspective of the Survey is consistent with the essentially pre-Keynesian thrust of both the Hicksian IS-LM paradigm and the so-called grand neoclassical synthesis that the late Paul Samuelson had hailed.

The first chapter provides an essentially self-congratulatory assessment of the performance of the Indian economy in 2010-11, noting that the rate of growth of GDP for the year at 8.6 per cent and the forecast growth rate of 9 per cent in 2011-12 signify a rapid return to the high-growth years of 2005-06 to 2007-08 from the temporary dip caused since 2008 by the impact of the global recession. The Survey hails the 5.4 per cent growth rate of agriculture, though this comes after dismal growth rates of -0.1 per cent and 0.4 per cent respectively in 2008-09 and 2009-10. Within an overall positive assessment of the performance of the Indian economy, the Survey does make the point that, our economy has vital links with the industrialised nations. Hence India will be adversely hit in the event of a serious crisis in any of the major industrialised nations. It does not, of course, bother to discuss the wisdom of the large degree of integration of our economy with the economies of rich countries that has emerged over the two decades of neoliberal reforms. It ends the chapter on an optimistic note that, powered by research and innovation, the next two decades should see the Indian economy grow faster than it has done in the past.

Most chapters in the Survey dealing with specific sectors present, as may be expected in an official document, a positive view of the developments over the year. However, there is also some recognition of problems and difficult challenges ahead. Discussing food management, for instance, the Survey admits that we have often priced (procured grains) so high that there were no buyers. Not releasing foodgrains defeats the purpose of bringing down market prices. In a different context, it says that ...the country has done well on growth', but needs to press more on the peddle for inclusion'. The Survey admits the crisis of stagnation in agricultural GDP and agricultural productivity. It argues that the real challenge in agriculture sector is to enhance capital investment in the sector by both public and private sectors in a sustained way. However, it makes no mention of the need for redistributive land reforms or of the ruinous impact of neoliberal reforms on the sector and on large segments of the agrarian population. The continuing occurrence of farmers' suicides does not even merit a mention in the Survey. In the discussion on industry and manufacturing, the Survey notes somewhat ruefully that the share of manufacturing in output has not grown significantly over a long period. It admits that China has been the most successful in building the world's largest manufacturing base by giving special attention to technology development and by gearing FDI policy to technology transfer. It even suggests that there is a strong case for enhancing public investment in this regard.

The second chapter is a very distinct feature of the Survey. It is all about seemingly sophisticated argumentation, unencumbered by any serious reference to empirical evidence, but embellished by frequent reference to new research in behavioural economics or similar references that sound adequately sophisticated and esoteric. Invariably, the argumentation, in each instance, is to recognise a current problem (inflation, food insecurity, high interest rates charged by microfinance institutions, and so on), explain why any strategy involving government intervention to deal with it was likely to be counterproductive, and close off with conclusions that lead to essentially neoliberal policy prescriptions. Thus, we get the conclusion that a quick way to bring in modern supply chain management systems and retail sellers into the picture, which will help curtail the margin between farm gate and retail prices, is to allow foreign direct investment (FDI) in multi-brand retail into India. The core philosophical position stated in the chapter is that markets have a natural propensity to deliver on efficiency.... This breathtaking generalisation is taken as a given and not as something to be established by defining the concerned terms rigorously and providing the necessary analytical and empirical arguments in support of the claim. This generalisation is followed by a caveat of sorts that markets ...do not have any innate propensity to equity or equality. It is then argued that government should play an enabling role vis-a-vis the market, facilitating trade, exchange and enterprise. There is no attempt to spell out the nature of the markets that would deliver efficiency', a term also left undefined!

However, demarcating itself from the diehard neoliberal, the Survey says: When it comes to distribution and mitigation of poverty, government has to be more proactive with positive intervention. In case you thought this was an acceptance of the need for public provisioning, you would be wrong. For we are told: However, wherever possible, the intervention should take the form of direct transfer from better-off sections to the poor, with as minimal a tampering with prices as possible.

When the prior distribution of assets and incomes thereof plays a key role in determining the structure of production and of prices, what is sacrosanct about market' prices? Further, when one drops textbook assumptions of perfect competition, and also recognises, as Joan Robinson once put it, that in the real world we are constantly lurching from one out-of-equilibrium position to another, where are the links between prevailing market prices and outcomes and any notion of efficiency? Given the stated philosophical' framework of the Survey, it is no surprise that on every issue of importance, the final policy prescriptions largely involve leaving the market' to function without let or hindrance, and seeing the role of the State as supporting and enabling the markets to function as they do. Markets are not seen as power structures or as sites of struggle for dominance. Nor is there an adequate recognition of the fact that market power translates into political power and thus the power to shape policies. Such a recognition would immediately alert one to the fact that the state cannot easily perform redistributive acts that run counter to those powerful in the market'. An annoying feature of this chapter is its didactic character.

Human development index

In the final chapter, we learn of the country's poor standing in terms of human development even among comparable countries. Thus, on indicators such as life expectancy at birth or mean years of schooling, it is sobering to learn that we are behind Pakistan and Bangladesh as well as most other comparable Asian countries such as Sri Lanka, Vietnam and China. The figure for mean years of schooling in India is 4.4 as against 4.8 for Bangladesh, 4.9 for Pakistan, 7.5 for China and 8.2 for Sri Lanka. Our Human Development Index (HDI) rank was 119 out of a total of 169 countries in 2010.

The Survey tries to put a gloss on this poor record by arguing that we have had a rate of improvement in our HDI figure that is greater than those of many high human development nations and of many developing countries, though China has a higher rate of improvement. This seems quite unnecessary and overly defensive. It is better to admit that it is scandalous that we have the kind of human development indicator levels that we do despite nearly three decades of high GDP growth.

Similarly, in an ill-informed discussion of inequality, inferences are sought to be made regarding income inequality when we do not have any credible large-scale household surveys to estimate incomes at all. An effort is made to show that income inequality is lower in India than in Brazil, China and many other comparable countries. In fact, as Madhura Swaminathan and Vikas Rawal have shown in a recent paper, India's villages exhibit a large degree of income inequality. +2

It is true that in recent years, the share of expenditure on social services' in total expenditure of the Central government has gone up. However, it needs to be noted that even now it is not only abysmally low in relation to the needs, but not large enough to get us anywhere near even the modest goals set out in the first United Progressive Alliance (UPA) government. Thus, the National Common Minimum Programme (NCMP) of UPA-1 was committed to raising the combined expenditure of the Centre and the States on education to 6 per cent of GDP and that on health to between 2 and 3 per cent of GDP.

However, as per the Budget Estimates for 2010-11, the spending on education was 2.98 per cent of GDP and that on health was an even more meagre 1.27 per cent. The fact is that the neoliberal policy framework makes it very difficult to mobilise resources on the scale required for achieving the stated commitments since it frowns upon effective taxation of the well-to-do.

On the whole, despite interesting nuggets and, occasionally, stimulating intellectual argument, the Survey remains what it has been for more than a decade: A celebratory review of the performance of the economy and an annual restatement of neoliberal faith, albeit embellished in recent years with some elegant but highly superficial arguments in favour of a slightly more sophisticated variant of neoliberalism than was the case before 2004.