Wanted: A policy direction

India has lost a decade chasing multiple, and sometimes contradictory, economic goals

Think of a title for India’s current economic policy. Is today’s policymaking guided by a strong push towards manufacturing? ‘Make in India’ does suggest it is. Or, are we moving towards self-reliance? ‘Atmanirbhar Bharat’ promises us that. A third way of looking at India’s policy direction is to see how the RBI is keeping interest rates low and easing our monetary policy to push for increased production and growth. Or, could we refer to our policy as expansionary, where the government spends more than it taxes, thus deepening the fiscal deficit to ensure consumption gets a boost? At another level, is India’s economic policy being led by its large and bustling service sector, or are we leveraging nearly half our workforce that is engaged in agriculture? We have promulgated some really brave labour laws, but withdrawn the controversial farm laws that sought to reform agriculture.

On the trade front, are we sustaining our exchange rate at its lowest ever to boost exports and discourage imports? Or, as some analysts have said, are we even now keeping the exchange rate higher than its real and effective value to make imports cheaper? If not any of these, then does our policy aim at employment generation, given the huge youth population in the country? Or is it guided by the Prime Minister’s constant encouragement to the citizenry to stop being job-seekers and become job-creators instead? Are we moving towards disinvestment, as indicated in the process of privatising Air India, BSNL and LIC? Or are we nationalising when we invest public money into Vodafone or merge our banks into larger State-owned entities?

The answer to all these questions could very well be ‘yes’ and, at the same time, ‘no’. Truth is, we do not have any clarity anymore. While we have seen some remarkable labour law reforms recently to boost manufacturing (although not put into effect yet), we also have been hesitant on the bankruptcy code. We moved towards a GST regime hurriedly, but are not even discussing GST reform, timely refunds and the inclusion of alcohol and fuel in the list. Corporate taxation was slashed even as the fiscal deficit kept mounting. We have a quaint situation where even with low taxation, there is little capital formation and capacity utilisation, while consumption demand is sliding down month after month.

Where does this leave us now? Soon after Independence, we were clear that we wanted a large public sector, and the State built big factories and even bigger dams. In the 1960s, India’s economic policy was clearly guided by agriculture and the Green Revolution. The 1970s saw an unapologetic move towards nationalisation and self-reliance. The 1980s saw a major push on technology, telecom and education. The 1990s were dedicated to opening up the economy, both domestically and globally. The turn of the century saw us strongly push for foreign investments and focus almost completely on the pace of GDP growth. Each decade can thus be clearly demarcated by a major policy direction. The last decade, however, broke ranks. It is difficult to give it any caption.

That is why some of us are eagerly waiting for the Budget speech. Finance Minister Nirmala Sitharaman has been quiet for some time, and understandably so as she prepares the Budget from which so many stakeholders anticipate her leadership in giving India’s economic policy a clear direction. Last year, we expected her to make healthcare the centrepiece of investment in infrastructure and service sector growth. While announcing that healthcare would indeed be centre-stage, rather shockingly, the Finance Minister allocated Rs 71,269 crore for the health ministry, down from the Rs 78,866 crore the ministry had actually spent in the previous year. The education budget, too, was cut by more than Rs 6,000 crore.

All this left most experts puzzled. What was the government signalling? In what direction was economic policy headed in a country that was struggling with a colossal breakdown of the already broken healthcare system? The education system, closed for two years now, with minor windows when it struggled in getting to a hybrid model, needs large amounts of money to get back to where it was. It needed a strong push to reach the lofty goals that the New Education Policy has prescribed by way of multi-disciplinary, skill-based and experiential learning for all. On top of all these were the distressing visuals of millions of migrant workers helplessly walking hundreds of miles back to their hometowns as the lockdown rendered them unemployed and vulnerable to hunger and homelessness. Never was the absence of social security felt as it was when these hapless workers, left to fend for themselves overnight, went back to villages they had left years and decades ago.

In this backdrop, will we see some clarity from the Union government now? What are expected are bold moves that signal a return to consistent growth in production and employment. The fiscal deficit will mount to nearly 7% while government debt is set to cross 80% of the GDP this year. However, these unprecedented amounts, if handled well, will only deliver a strong message of an expansionary policy that will seek to increase jobs and wages and lift up consumption demand, which has been sliding down since 2016. What we need is an end to the policy confusion and a movement towards an unambiguous push to an economy that must go back to double-digit growth quickly.

The Economist has called the last decade a “lost decade” for India. The next one cannot be surrendered to multiple objectives that are in conflict with each other. It will have to be a decade in which the policy will be remembered as one that created millions of jobs for a young population. This youth bulge that India’s demographic transition has produced must be targeted with a clear policy that brings in mobility, new skills and higher wages that will in turn induce demand and bring in fresh investments, both foreign and domestic. All eyes on February 1 now.

(The writer is a Professor of Economics at MCRHRDI, Government of Telangana, and teaches Public Policy at ISB and TISS)