Too clever by half?

When Arvind Subramanian, the present Chief Economic Adviser to the Ministry of Finance who took office way back in October 2014, presented his first Economic Survey, the one for 2014-15, there was considerable novelty on offer, at least in form. He made the point that “all Economic Surveys bear the imprint of the incumbent Chief Economic Adviser”. He also made the following observations: “Inspired by the International Monetary Fund’s World Economic Outlook, this Survey departs structurally from its predecessors and presents its output in two volumes. Volume 1 discusses the outlook and prospects as well as a number of analytical chapters addressing topical policy concerns. Volume 2 describes recent developments in all the major sectors of the economy and contains all the statistical tables and data. In a sense, Volume 1 is forward-looking but gaining from the perspective provided by the recent past, which is the subject of Volume 2.” With the fourth Economic Survey presented by the same author, the novelty has worn off. But the Survey does not cease to interest the serious reader. One has, however, a sense of deja vu when a fully ideological document is once again sought to be passed off as an impartial and objective analysis of the Indian economy in the year gone by, together with policy guidelines and suggestions both for the immediate future and for the medium term.

The first volume consists of nine chapters. It starts with a discussion of the state of the Indian economy through an analytical overview and discusses the outlook for policy from the neoliberal perspective that informs the entire document. It then goes on to discuss the Goods and Services Tax and issues arising from it and seeks to explore the Indian economy itself through the prism of the GST using a huge amount of data thrown up by the GST implementation process. It then turns to the very important issue of the slowdown of investments and savings in the Indian economy over the past several years and lessons to be learnt from similar episodes at various points in time in other countries. The fourth chapter deals with fiscal federalism and accountability in a country of India’s size, diversity and multiple levels of government. The fifth chapter looks at factors that may stall India’s progress to the status of a middle-income economy arising from its status as late entrant to a process of “convergence” under way. The sixth chapter discusses climate, climate change and agriculture with reference to India. Further departing from the traditional notions of what an Economic Survey might be expected to cover, the volume then goes into issues of gender and son preference. This is followed by a chapter titled “Transforming Science and Technology in India”. The first volume concludes with a foray into ensuring “timely justice” as a follow-up to “improving ease of business”. As can be seen, the Survey is nothing if not ambitious. It believes that every major issue under the sun that India faces can be tackled by a particular analytical framework, though that framework is never named in the document. Implicit for the most part and, occasionally, in an unguarded moment, explicit ever so briefly, the approach is essentially neoliberal.

Engines of growth

The first chapter of the first volume sets out the agenda for the government in the coming year, and beyond: “ The agenda for the next year consequently remains full: stabilising the GST, completing the TBS[twin balance sheet problem]actions, privatising Air India, and staving off threats to macro-economic stability. The TBS actions, noteworthy for cracking the long-standing‘exit’problem, need complementary reforms to shrink unviable banks and allow greater private sector participation .” And beyond the year? Here is the answer: “ Over the medium term, three areas of policy focus stand out: Employment: finding good jobs for the young and burgeoning workforce, especially for women. Education: creating an educated and healthy labour force. Agriculture: raising farm productivity while strengthening agricultural resilience. Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines—private investment and exports .” Note the insistence on private investment and exports being the only two truly sustainable engines of growth. The state, in this narrative, is not seen as an agent of growth or development even when in a subsequent chapter the decline in investment rates is recognised and discussed.

The Survey acknowledges that “[there is]…the ongoing international and national debate on the role of markets and states, private capital and public institutions. All over the world, there is a reassessment of the respective roles of the two with a clear tilt towards greater state involvement. The new international case is based on the need to redistribute to check growing inequality and cushion against the impact of globalisation. It is also based on the need to regulate, for example, the financial sector to minimise risks and the technology sector to check growing market power and its misuse as a communications medium.” However, it immediately adds: “But India is in a grey zone of uncertainty on the role of states and markets. Limitations on state capacity (Centre and States) affect the delivery of essential services such as health and education.” The Survey follows up its scepticism about the role of the state as an agent of development with some fancy footwork that leads it to declare: “So, one might say that India had moved from ‘crony’ socialism to ‘stigmatised’ capitalism.” Not only is this a loose and meaningless statement, it makes the bias of the author of the Survey obvious: Socialism can be “crony”, but capitalism can only be “stigmatised” (unfairly, perhaps, one is tempted to say). The eruption of such remarks in the middle of some interesting analysis and the skilful, if sometimes rather heroic, use of data of uneven quality drawn from different sources hamper one’s appreciation of the Survey.

Never mind, let us move on, for the Survey has much to offer. It does admit, for instance: “It is striking that the Centre’s tax-GDP [gross domestic product] ratio is no higher than it was in the 1980s, despite average economic growth of 6.5 per cent, the most rapid in India’s history.” There you have it, the benefits of growth have not trickled down much in terms of public provisioning of, for instance, health and educational services that could have enhanced people’s capabilities.

On agriculture, the Survey notes: “In the last four years, the level of real agricultural GDP and real agriculture revenues has remained constant, owing in part to weak monsoons in two of those years.” This brings out implicitly the near impossibility of doubling farmers’ incomes by the declared deadline of the ruling dispensation. The Survey also admits in its discussion of climate change and its impact on Indian agriculture that “…levels of volatility continue to be high and substantially higher than in China where the ups and downs have been virtually eliminated”. The implications of this admission for the earlier claim in the Survey that private investment and exports are the only two sustainable engines of growth need to be reflected upon. Clearly, the experience of China has much to offer in terms of the state being an engine of growth and of stability.

In the discussion on science and technology in Chapter 8 of the first volume, the Survey notes: “…countries like China, Japan, and Korea, have seen dramatic increases in R&D as a percentage of GDP as they have become richer. India, on the other hand, has only seen a slight increase. In fact, in 2015, there was a sizeable decline in R&D spending even as GDP per capita continued to rise. At its current rate, India would just barely reach a GERD [gross expenditure on research and development] of 1 per cent of GDP by the time it was as rich as the USA.” Once again, the key role of the state in the countries mentioned is relevant to the argument about what the engines of sustained economic growth are. Instead of pursuing this point, the Survey simply goes on to state: “…India needs to redouble its efforts to improve science and R&D in the country first and foremost by doubling national expenditures on R&D with most of the increase coming from the private sector and universities.” Note again the emphasis on the private sector.

While the Survey remains committed to fiscal fundamentalism and seeks to keep fiscal deficits to a minimum, it makes the following observation: “However, setting overly ambitious targets for consolidation—especially in a pre-election year—based on optimistic forecasts that carry a high risk of not being realised will not garner credibility either.” It does not appear that the Union Budget has heeded this piece of advice from the Survey.

Decline in investment

The Survey devotes a good deal of space to a discussion of the serious decline in gross investment in India as a proportion of the GDP. It notes: “The ratio of gross fixed capital formation to GDP climbed from 26.5 per cent in 2003, reached a peak of 35.6 per cent in 2007, and then slid back to 26.4 per cent in 2017.” And that “…no other country seems to have gone through such a large investment boom and bust during this period”. It adds: “…policy priorities over the short run must focus on reviving investment. Mobilising saving, for example via attempts to unearth black money and encouraging the conversion of gold into financial saving or even courting foreign saving are, to paraphrase John Maynard Keynes, important but perhaps not as urgent as reviving investment.” It also frankly and ominously adds: “India’s investment decline seems particularly difficult to reverse, partly because it stems from balance sheet stress and partly because it has been usually large. Cross-country evidence indicates a notable absence of automatic bounce-backs from investment slowdowns. The deeper the slowdown, the slower and shallower the recovery.” But it has nothing to offer as a response except for the bland statement: “The focus of investment-incentivising policies has to be on the big and small alike. The ‘animal spirits’ need to be conjured back.”

And who will perform the conjurer’s trick? Here the limitations of the neoliberal outlook that informs the Survey become evident. Why does it not recognise the possibility that the state can be the engine of revival of investment? Because to do so would be to accord a role to the state that neoliberalism cannot countenance. An active state as an investor in the economy is anathema to finance capital. Even the notion, in the context of fiscal fundamentalism, that fiscal deficit norms, if for argument’s sake they have to be met, can be met by appropriate taxation of the richest sections of society and not merely through expenditure reduction is not acceptable to neoliberals. Of course, the threat of exit of foreign finance capital would be invoked to oppose a scenario of the state as an investor and a less fundamentalist approach to managing government finances. But this only implies that you cannot be half-hearted in the fight against fiscal fundamentalism. If necessary, a country has to be prepared to impose capital controls and some trade restrictions and stare down international finance capital. That, however, would be an unthinkable strategy under a regime of neoliberalism that the Survey broadly espouses.

Systematic review

The second volume of the Survey provides a systematic review of the performance of the Indian economy over the current financial year, mostly using data available up to the end of the second quarter. It makes the following important observation: “The differences in the nominal growth between GVA [gross value added] and GDP have also increased in the last few years. This is indicative of an increase in the share of net indirect taxes in GDP.” In fact, one can go further and point out that a key feature of the present government’s tenure has been the relentless imposition of more and more indirect taxes, which greatly burden the poorer sections. GST, which brings enterprises with an annual turnover between Rs.20 lakh and Rs.1.5 crore into its net, is a case in point as was the refusal of the government to pass on the benefits of lower international crude oil prices to consumers.

The first volume of the Survey makes the point: “Healthy and educated individuals, with the ability to adapt and learn on an ongoing basis, need to be the core of the future labour force.” But the data on government expenditure on social services, drawn from the second volume of the Survey, tell us what has actually happened, for instance, over the four years of the present government (see table).

The data presented in the second volume of the Survey also bring out the rather spotty performance of agriculture and the failure of public policy to respond to it through greater public investment. In the four years of the present regime, the GVA in agriculture and allied activities grew at annual rates of −0.2 per cent, 0.7 per cent, 4.9 per cent and 2 per cent (projected). But public investment in agriculture remains extremely low, extension services and the research system are weak and there is no talk of genuine land reforms to address problems of equity in rural India. The Survey is, on the whole, rich in detail, has many useful analytical discussions at different levels of aggregation, and would serve as a useful resource for students and scholars, despite its deeply flawed neoliberal perspective.