The Economic Survey for 2018-19, presented by Krishnamurthy Subramanian, Chief Economic Adviser (CEA) to the government, has all the trappings of a lecture on management at a business school where flowery jargon often fills in for economic logic. To make matters worse, there are unprecedented and significant deviations on the national income assumptions for the current year between Subramanian’s estimate and those presented a day later by Finance Minister Nirmala Sitharaman in her Budget.
The Survey, delayed this year because of the Lok Sabha election, was expected to address several grave issues that have been plaguing the Indian economy for the last several years. The unmistakable signs of an economic slowdown—most strikingly demonstrated by auto sales data for June 2019, which were the worst in two decades—were an important issue that the Survey was expected to address.
Related to this were the vexatious issues plaguing the Indian statistical system, most notably the key data on national incomes illustrated by the controversial estimates of the gross domestic product (GDP). The expectation that agricultural growth in the current year will likely be half of that in the previous year marked another significant worry. A steep decline in rural incomes caused by a combination of collapsing output prices and stagnant wages added to expectations that the Survey would offer a road map to address this vital question.
Another expectation centred on the prolonged slowdown in private investment, which, for far too long, has been blamed on the disinclination of banks to lend or on the high cost of credit. Related to this was the situation that the Indian financial system—not just banks but also the so-called shadow banks—is currently in, saddled by the burden of non-performing assets. To add to the gloom was the escalating multidimensional trade wars unleashed by the Donald Trump administration in the United States that presented a worrying prospect for Indian exports.
In all, Subramanian had enough on his plate before he prepared his maiden Survey. But his performance was disappointing.
Cliches abound in the Survey. Managerial lingo, always a poor and fuzzy substitute for macroeconomic logic and rigour, dominates the report spread over three bulky volumes (including a statistical appendix). Thus, we have Subramanian waxing eloquent on how the “sky blue” cover of the Survey has symbolic significance because it marks “an unfettered approach in thinking about the appropriate economic model for India”.
However, in keeping with the overall managerial approach to economics, it simply asserted that the “unfettered” logic would enable the country to “shift gears” to approach the target of making India a $5 trillion economy for which a sustained annual growth of 8 per cent was necessary. Nowhere in the report is the small matter of how this gear shift may happen or what needs to be done to achieve this target elaborated let alone explained.
There is much irony in this because the Survey itself contains indications of several of the structural problems that the Indian economy now faces.
For instance, private investment, especially in fixed capital formation, has been sliding during the current decade. Between 2011-12 and 2017-18, private investment in fixed capital formation has declined by a whopping six percentage points of GDP.
Overall capital formation in the Indian economy has also slid by a roughly similar magnitude, which indicates that investment is plagued by structural problems that cannot be attributed merely to an adverse lending environment or to high interest rates.
The obsession with reining in the fiscal deficit, has, meanwhile, ruled out any scope for the government to intervene countercyclically by investing imaginatively in order to a spark a recovery in the investment climate. Instead of frontally addressing the issue of a demand crisis, which is what the decline in agricultural incomes and the failure of private investment in industry indicate, Subramanian regurgitates the familiar argument that India needs to go on the path trod by the East Asian tigers decades ago.
The advocacy of such a path is not only utterly ahistorical but pays no attention to the fact that the world has moved on in a significantly different trajectory since this glib assertion was made more than two decades ago in India.
This Survey marks a significant departure from the exercises of the past. The Economic Survey has generally rested on some model of economic rationale. One may disagree with the logic of the articulation, but it was generally accepted that some form of economic reasoning was part of the framework. Subramanian’s Survey is quite different as it exalts vacuousness to a virtue.
Consider this: “We depart from traditional thinking by outlining a growth model that views the economy as being in constant disequilibrium—a virtuous cycle or a vicious cycle. When the economy is in a virtuous cycle, investment, productivity growth, job creation, demand and exports feed into each other and enable animal spirits in the economy to thrive. In contrast, when the economy is in a vicious cycle, moderation in these variables dampen each other and thereby dampen the animal spirits in the economy.” What does one make of this inanity that passes off as a policy response to the grave problems plaguing the Indian economy?
So, Subramanian goes on and on about how investment is the “key driver” and how it needs to be placed on a “self-sustaining virtuous cycle”. He offers a rather strange comparison with China, arguing that growth would occur if only India can get savings and investment on an upswing. This assertion has no basis in logic for several simple reasons.
For one, neither the Asian tigers nor China had a passive state that watched from the sidelines for private investment to happen; instead, they played an active role by not only investing but by playing an enabling role.
Second, and crucially, these countries had mostly sorted out their major problems of illiteracy, access to health, malnutrition and the other major factors that not only affect quality of life but also have a significant impact on labour productivity. Subramanian’s abiding faith in exports—at a time when the international trading climate for exports is the worst in decades—is touching but utterly misplaced. One wonders how he missed the wise words of his doctoral supervisor, Raghuram Rajan, at the University of Chicago, who famously retorted to Prime Minister Narendra Modi’s “Make in India” mantra by calling for “Make for India”.
Rajan, the former Reserve Bank of India Governor, had remarked that Modi’s call was utterly inappropriate in the context of slack international trade and urged India to focus more on the domestic market to promote manufacturing-led growth.
Throughout the Survey, problems are addressed in a simple-minded fashion. On the weighty issues such as poor access to health care and education, persistent gender biases, sanitation and malnutrition, it has little to offer in terms of direction.
Instead, Subramanian calls for “behavioural change,” which he claims were in evidence in Modi’s Swachh Bharat Mission, Jan Dhan Yojana and Beti Bachao Beti Padhao campaigns. He argues that a similar “behavioural change” can lead to success on issues such as gender equality and a march towards “a healthy and beautiful India”, apart from bolstering savings and improving tax compliance and credit quality.
The managerial advice to address these persistent social and economic problems is completely new in an Economic Survey. Subramanian devotes an entire chapter to behavioural economics, which has been hyped in recent times in a completely different context in societies completely different from India.
For instance, the reality with respect to the so-called success of the Beti Bachao Beti Padhao campaign is that it rests on the anganwadi and midday meals scheme that are part of the well-regarded Integrated Child Development Services scheme, which has been around for nearly 45 years. Of course, nudging a change in social behaviour can make a difference, but the much more important issue is about the state putting money where its mouth is.
Sadly, Subramanian misses both the historical and social context and the critical role of public policy in furthering social change.
Data as a public good
An apparently innovative suggestion in Subramanian’s Survey is the advocacy of a march towards making data a public good that is “of the people, for the people and by the people”. While there may be nothing objectionable to this at first glance, the fact that the suggestion comes in the context of the Modi regime’s persistently egregious approach to economic data on many counts—the most shocking being the data on GDP and unemployment—marks this out as particularly ironical.
The suggestion comes at a time of growing worries about citizens’ private data leaking copiously from government departments. This is enough to indicate that it is an offhand suggestion without regard to the serious consequences that may lie in store for citizens.
A similar lackadaisical approach is in evidence with his suggestion to the demographic transition that would result in a higher share of an ageing population in the next few decades. Subramanian urges States to prepare for such a future, but how and with what role for public investment in health care is left open-ended. Instead, he suggests that India ought to prepare for the transition by raising the retirement age in a phased manner. In doing so, he is apparently unaware of one of the defining problems of India today: the rising unemployment among educated youth, both men and women. Of course, he harps on India’s “demographic dividend” when millions of young Indians are still asking, “Where is my dividend?”
When Subramanian was appointed CEA, many were surprised because of his relative obscurity among economists. However, to the politically astute, it was evident that he was destined for high office in the Modi regime when he published articles in popular newspapers defending Modi’s demonetisation move in 2016. He termed it a “revolutionary” move in the fight against black money and also argued, against the current of mounting evidence, that demonetisation did not hurt the poor.
Throughout the Survey, Subramanian calls for fresh thinking that is free of the prevailing orthodoxy in economics. But he has little to offer except crumbs of advice that are the stuff of management schools. The political right-wing in India has always sought legitimacy in academic realms either by usurping positions in branches such as history and archaeology, but success has largely eluded it in economics.
Even those who are inclined to support the BJP fear its Hindutva tag and only offer outside support. Subramanian, by mouthing a curious mix of swadeshi logic and voodoo economics, but without appearing to hurt neoliberal sentiments, seems to have ticked all the boxes in the Hindutva scheme of things at North Block, which has been declared off limits to journalists by the Modi regime.