THE FLAGSHIP ANNUAL DOCUMENT OF THE MINISTRY of Finance of the Government of India, Economic Survey 2012-13 , was tabled in Parliament on February 27, the day after the presentation of the Railway Budget and the day before the presentation of the Union Budget. The lead author of the annual document had changed between the last year and this. While this may have brought about a change in style, the substance cannot be said to have changed significantly. The overall and unchanging refrain has remained the same for many years now, though the degree of sophistication with which the refrain is presented and the caveats inserted have varied. Basically, the refrain can be summed up as follows: Fiscal rectitude on the part of the government is not only non-negotiable but has to be achieved primarily, if not entirely, by reducing “subsidies” while retaining and possibly strengthening the so-called “incentives”. To this must be added the unwavering belief that opening up the Indian economy without let or hindrance to inflows of finance of any variety—of known origin or unknown, of short , “hot” flows or longer ones—and continued reduction/elimination of all restrictions on imports and exports is the way to go for the Indian economy. Finally, as was so eloquently reiterated in the Finance Minister’s speech while he presented the Union Budget for 2013-14 in Parliament, “…we must unhesitatingly embrace growth as the highest goal” .
The Survey for 2012-13 consists of 13 chapters and a large and very useful Statistical Appendix . The statistical appendix consists of 127 pages of tables providing detailed official data on a great variety of economic parameters and indicators, including time series data, which will be useful to all students of the Indian economy. The first chapter of the Survey provides a succinct statement of macroeconomic developments relating to the Indian economy, and a summary of some key themes dealt with in the remaining chapters in the volume.
The chapters of the Survey cover, in succession, the following: The issue of the ‘demographic dividend’ and its implications for employment Public finance; inflation and monetary management; financial intermediation; balance of payments and international trade (in two separate chapters); agriculture and food management; industrial performance; the services sector; the issues of energy, infrastructure and communications; the challenges of sustainable development; and human development.
Besides the tables in the statistical appendix referred to earlier, the chapters of the Survey also contain many useful tables relating to the economy as a whole and its various components and sectors. Regardless of whether one agrees with the uncompromisingly neoliberal standpoint of the Survey or not, it should be required reading in any graduate course on the Indian economy, with appropriate critical inputs!
‘Talking up’ the economy The year that the Survey covers is one characterised by a continuing global economic slowdown and a recession in the eurozone as a whole. Even in countries where output has grown, such as the United States, the rate of unemployment has hardly come down, and remains high. Recent data from the International Labour Organisation suggest that unemployment rates have remained high for quite some time now in all the developed capitalist countries, and one does not see any sign of them coming down even if output should recover to some extent.
While the Survey recognises the impact of the global downturn on the Indian economy, it seeks to make the point that domestic factors are also important in explaining the decline in the growth rate of gross domestic product (GDP) in India over the last two years. While this is reasonable, the Survey appears to take a rather optimistic view of the prospects for global recovery by talking of “early signs of a turnaround in the global economy”, though this is balanced by a reference to developments in both the advanced capitalist countries and in so-called “emerging markets” that “cast a shadow on the prospects of the global economy”. The authors of the Survey seem to feel a need to “talk up” the global economy, possibly because of their standpoint that the solution to India’s economic problems is to be found in an ever-greater integration of the Indian economy into the global capitalist economy.
Three problems Three problems currently dominate discussions on the Indian economy.
The first is the slowdown in the rate of growth of GDP to an estimated 5 per cent per annum during the period April-November 2012. It needs to be recalled that the initial projections of GDP growth rate for the Indian economy for 2011-12, the previous financial year, had been significantly higher than the figure now provided as the “second revised estimate” in the Survey, of 6.2 per cent. As late as February 2012, the Prime Minister’s Economic Advisory Council projected a rate of growth of GDP of 7.1 per cent for 2011-12. Further, the same body took the view that the rate of growth of GDP in 2012-13 will be 7.5 per cent. The Economic Survey for 2011-12 projected the GDP growth rate for 2012-13 as 7.6 per cent and that for 2013-14 as 8.4 per cent. Interestingly, it appears that sobriety does not always prevail when it comes to tossing growth rate numbers around. Reports have appeared in the media of an 8 per cent GDP growth rate being predicted for 2013-14 in the wake of the Union Budget for 2013-14!
The second is the large merchandise trade deficit and the historically high current account deficit (CAD).
During the first half of 2012-13, the trade deficit was 10.8 per cent of GDP and the CAD was 4.6 per cent. In recent years, three items, constituting “net invisibles”, were helping us cope with persistent trade deficits. One was remittances from abroad; the second was exports of services, mostly information technology and IT-enabled services; and the third, sizeable net capital flows into India from abroad, a large part of it from foreign institutional investors (FIIs). The Survey notes that “...increased outflow of investment income to foreigners has also played a part in reducing net invisibles”. But it does not explore the implications of this trend that will only become more and more important in coming years.
The third is the high rate of inflation, especially the persistently high rate of increase in the prices of food articles. The Survey notes that inflation in cereals was as high as 17.05 per cent in the third quarter of 2012-13 and argues that “...a major contribution to the fight against inflation will be to reduce the fiscal impetus to demand”. In ordinary English, this translates as cutting down expenditure on subsidies even while not seeking to raise resources from big business, domestic and foreign, on the grounds that investment must be incentivised and animal spirits of capitalists must be encouraged. Yet the Survey also notes that “...there has been a rise in the total profit to output ratio from 3.5 per cent in the 1980s to 5.4 per cent in the 1990s and further to 7.7 per cent in the 2000s in the factories sector”, while emoluments, interest costs and fuel costs have declined as a ratio of output.
Response to the three aspects The Survey ’s response to the three aspects of the crisis of the Indian economy as perceived by it is “structural reforms” that essentially translate into reducing the fiscal deficit by shrinking what are described, without elaboration, as “wasteful and distortionary” subsidies. The stress is also on reducing impediments to and “incentivising” investment. There is also some hot air on cash transfers as a means of making subsidies more effective and efficient. Thus, the Survey asserts, without any evidence, that “by translating a number of subsidies into equivalent cash transfers, it (Direct Benefits Transfer) can avoid price distortions and can target subsidies better to the truly deserving”. Then comes the punch line, revealing the real agenda: “This will help contain expenditure.”
Overall, while the Survey provides a useful, even if selective, account of developments in the Indian economy during 2012-13, its diagnosis of problems and the solutions it proposes remain firmly anchored in neoliberalism. Yet, it is the same neoliberal policies that have now brought the Indian economy to a potential foreign exchange crisis that can be as devastating as the one that the neoliberal reformers claimed was imminent in 1991. It is worth recalling that, in the wake of claims about an imminent fiscal and balance of payments crisis in 1991, the minority government of 1991 of the party that had not breathed a word about neoliberal reforms in its election manifesto unleashed the policies of unbridled liberalisation, privatisation and opening up of the Indian economy to relatively unregulated inflows and outflows of capital as finance as well as liberalisation of merchandise trade.
More than two decades later, we seem to be locked in a threefold crisis of the fisc, the balance of payments and price rise. In the meanwhile, over a quarter million farmers have committed suicide, the rate of unemployment has increased, and poverty and malnutrition remain as stubborn as ever. By the Survey ’sown admission, public expenditure on health and education remain abysmally low by international standards. Eight years after the 2004 national common minimum programme (NCMP), we are far from reaching the targets set out for public expenditure on education and health. Whenever these issues are raised, the neoliberal refrain has been that we ought to minimise the fiscal deficit and this must be done primarily by expenditure reduction, even as we give away thousands of crores of rupees by way of tax concessions in the name of incentivising investment.
In 2012-13 alone, the aggregate revenue forgone from Central taxes on account of tax concessions to the rich and the corporate sector are projected to be Rs.5,73,627 crore. If one adds the Rs.5,33,583 crore of forgone tax revenue in 2011-12, the total is a whopping Rs.11,07,210 crore. The bluff of deficit reduction through slashing subsidies must be called. Far from doing this, the Survey both reiterates the obsession with the fiscal deficit and sees the strategy for addressing it mainly through subsidy reduction. All talk of “inclusive growth” will remain just talk if the obsession with the fiscal deficit, which basically delegitimises government borrowing, and the policy perspective that refuses to put in place a more just tax system in the name of incentivising investment continue.
Democracy deficit There is a basic democracy deficit in Indian economic policy under neoliberalism. In November 2011, the then Finance Minister assured Parliament that no decision on foreign direct investment (FDI) in retail would be taken without consulting all stakeholders in view of the fact that the overwhelming sentiment in the discussion on the issue in Parliament opposed FDI in multi-brand retail. Yet, a few months later, another Minister of the government was assuring his counterparts in a meeting in the United Kingdom that the government had decided to go ahead with it. In the previous session of Parliament, the discussion of the same issue showed that the majority of members opposed FDI in retail, but the resolution opposing FDI in retail was defeated through parliamentary stratagems. With the economy opened to relatively unregulated inflows and outflows of capital as finance, the country’s economic policy has become hostage to rating agencies and speculators misleadingly characterised as investors. The Survey is not only not overly concerned with this situation but also seems to regard it as inevitable.
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