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The Hindu Analysis Free PDF Download

Date: 18 November 2019

The state of India’s economy is deeply worrying. I say this, not as a member of the Opposition political party, but as a citizen of this country and as a student of economics.

By now, the facts are evident to all —

  1.  nominal GDP growth is at a 15-year low;
  2.  unemployment is at a 45-year high;
  3. household consumption is at a four-decade low;
  4.  bad loans in banks are at an all-time high;
  5.  growth in electricity generation is at a 15-year low — the list of highs and lows is long and distressing.
  • But the state of the economy is worrying not because of these disturbing statistics. These are mere manifestations of a deeper underlying malaise that plagues the nation’s economy today.
  •  A nation’s state of the economy is also a function and reflection of the state of its society. The functioning of any economy is the result of the combined set of exchanges and social interactions among its people and institutions. Mutual trust and self-confidence are the bedrock of such social transactions among people that foster economic growth. Our social fabric of trust and confidence is now torn and ruptured.

Industrialists live in fear

  • There is a palpable climate of fear in our society today. Many industrialists tell me that they live in fear of harassment by government authorities. Bankers are reluctant to make new loans, for fear of retribution. Entrepreneurs are hesitant to put up fresh projects, for fear of failure attributed to ulterior motives. Technology start-ups, an important new engine of economic growth and jobs, seem to live under a shadow of constant surveillance and deep suspicion. Policymakers in government and other institutions are scared to speak the truth or engage in intellectually honest policy discussions. There is profound fear and distrust among people who act as agents of economic growth. When there is such distrust, it adversely impacts economic transactions in a society. When transactions among people and institutions are negatively impacted, it leads to a slowdown of economic activity, and eventually, stagnation. This perilous state of fear, distrust and lack of confidence among citizens is a fundamental reason for our sharp economic slowdown.
  • There is an air of helplessness too. Aggrieved citizens find nowhere to go to air their grievances. Public trust in independent institutions, such as the media, judiciary, regulatory authorities and investigative agencies, has been severely eroded. With the erosion of trust, there is a lack of a support system for people to seek refuge against unlawful tax harassment or unfair regulations. This makes entrepreneurs lose their risk appetite even further for undertaking new projects and creating jobs. This toxic combination of deep distrust, pervasive fear and a sense of hopelessness in our society is stifling economic activity, and hence, economic growth.
  • The root cause of this rupturing of our social fabric is the Modi government’s ‘mala fide unless proven otherwise’ doctrine of governance. The premise of the government’s policy framework seems to be that economic participants have mala-fide intent unless they can prove otherwise. This suspicion that every industrialist, banker, policymaker, regulator, entrepreneur and citizen is out to defraud the government has led to a complete breakdown of trust in our society. This has halted economic development, with bankers unable to lend, industrialists unable to invest and policymakers unable to act.
  • The Modi government seems to view everything and everyone through a tainted prism of suspicion and distrust due to which every policy of previous governments are presumed to be of bad intent, every loan sanctioned considered undeserving and every new industrial project deemed to be crony in nature. And the government has positioned itself as some saviour, resorting to foolhardy moral-policing policies such as demonetisation, which have proved to be ill-thought-out and catastrophic. Wrongful evil characterisation of everyone and a ‘good-vs.-evil governance’ doctrine cannot be a recipe for healthy economic growth.
  • The role of social trust in economic development has been well-documented, right from the times of Adam Smith to the modern-day discipline of behavioural economics. The tearing of our social fabric of trust is the fountainhead of our current economic malaise. For economic growth to revive, it is very important that our torn social fabric of fear and distrust be stitched and knitted together to enthuse trust and confidence. It is very important for businessmen, capital providers and workers to feel confident and exuberant rather than being fearful and nervous. This is possible only if the government sheds its ‘mala fide-unless-proven-otherwise’ doctrine and begin to trust India’s entrepreneurs.
  • India’s economy is perched in a precarious state currently. Incomes are not growing. Household consumption is slowing. People are dipping into their savings to maintain similar levels of consumption. Headline GDP growth is accruing almost entirely to the creamy layer at the top.

 Risk of stagflation

  • The real worrying trend is that the most recent retail inflation numbers have have shown a sharp increase, especially the food inflation figure. Retail inflation is expected to rise even further in the coming months. Continued increase in inflation combined with stagnant demand and high unemployment will lead to what economists term as ‘stagflation’, a dangerous territory from which it becomes very hard for large economies to recover. While we are currently not in stagflation territory yet, it is prudent to act quickly to restore consumption demand through fiscal policy measures since the impact of monetary policy seems muted.
  • It is my belief that India’s fragile economic situation calls for the twin policy actions of boosting demand through fiscal policy and reviving private investment through ‘social policy’ by inspiring trust and confidence in the economic participants in our society.
  • India is now a $3-trillion global economic powerhouse driven largely by private enterprise. It is not a tiny command and control economy that can be bullied and directed at will. Nor can it be managed through colourful headlines and noisy media commentary. Shooting down messengers of bad news or shutting off economic reports and data is juvenile and does not behove a rising global economic powerhouse. No amount of subterfuge can hide the performance and analysis of a $3-trillion market economy of 1.2 billion people. Economic participants respond to social and economic incentives, not diktats or coercions or public relations.
  • Sadly, this self-inflicted economic wound comes at a time when there is a unique and opportune moment in the global economy for India to capitalise. The slowing down of China’s economy and exports has opened up a large export opportunity for India to fill. India should aim to garner an elephant’s share of this export opportunity by fostering a climate of confidence and economic dynamism away from the current climate of fear, distrust and pessimism. With the government having an absolute majority in the Lok Sabha and the global oil prices being low, this is a once-in-a-generation economic opportunity to catapult India to the next phase of economic development and create new jobs for hundreds of millions of our youth. I urge the Prime Minister to set aside his deep-rooted suspicion of industrialists and entrepreneurs and nurse us back to a confident and mutually trustworthy society that can revive the animal spirits and help our economy soar.
  • The Y.S. Jaganmohan Reddy government in Andhra Pradesh is set to make all government elementary schools ‘English-medium’ from the next academic year. There has been the expected party-political denouncement of the decision, despite the fact that it is really just the scaling up of a policy proposal made during N. Chandrababu Naidu’s tenure, when English was introduced as the medium of instruction in a select number of schools as a pilot project.
  • The push for English as the medium of instruction in government schools in Andhra Pradesh, as in other States including Karnataka and Tamil Nadu, is due to two related factors. 1. First, there is a belief that English-medium schooling can guarantee good jobs. 2. Second, economically constrained families are shifting their children from free government schools to private English-medium schools.
  • It is to try and reverse this trend (which also poses a threat to government teaching jobs) that many State governments have made at least some of their schools English-medium or started English-medium sections.
  • Research, from India and across the world, shows that children who get educated in their mother tongue learn better than those who start school in a new language. A new language in the early school years, especially one that is not used outside school, can become a barrier to learning. This is also plain common sense: if a child speaks or understands the classroom language, engaging with new concepts, ideas and information is easier, as is learning to read and write. Even researchers who advocate privatisation of schools as a quality improvement measure accept that English-medium schools are not the solution. A study of learning outcomes in government and private elementary schools in Andhra Pradesh has found that children perform best in Telugu-medium schools.

Ignoring the evidence

  • Governments, while making policy changes favouring English-medium schools, have ignored the evidence. For politicians, it is a win-win situation — they are able to give a mass of voters what they appear to want, at no significant additional cost. For the influential middle class, it is comforting to believe that poor children are getting a leg-up through English-medium government schools. Even some Dalit intellectuals who claim to speak for the most vulnerable hold that it is English-medium schools that will emancipate them, and that those who disagree are hell-bent on retaining the status quo.
  • Even ignoring all the evidence about language and learning, what sort of English-medium schools does the government promise? At the very minimum, such schools will need teachers who, apart from being knowledgeable in the subjects they teach, are also fluent in the medium of instruction. No State government can claim that a majority of teachers, especially in elementary schools, are English-fluent, not even the ones who teach English. The vast majority of them have had their entire education in their mother tongue or the State language, and have spent their working lives teaching in that language. With rare exceptions, any English they have is bookish. ‘Retraining’ them, through short-term language courses, would not transform them into teachers for English-medium schools. On the contrary, it will handicap them, making the best of them resentful, and the disinterested even more so.