Saturday, April 23, 2016

Growth Matters or Policy Matters?

Growth Matters or Policy Matters?
After a high growth rate decade of 2001-11, its fall in 2 years pull the economists back in field to discuss new economic strategies for India. One of the best economics pair of post independence Mr. Manmohan Singh and Mr. Montek Singh Ahaluvalia failed in running the growth engine that delivered the magical figure of average growth rate of 6.7%.  

It all happened with Government policies & programmes and with the active participation of investors, entrepreneurs and workers of formal and non formal sector. Many good work in the areas of infrastructure development including village roads have been achieved. The economy value went upto 30% in dollar terms and India became a country of 60 billionaires ($). Per capita income rose up. Poverty dropped down in all sections of society. It dropped more in Schedule Castes and Minorities due to their main stream association. It has proved that there is a direct relation between growth rate and reduction in poverty level.

With the richness of the Government treasury, it gave room for the Government to implement social insurance schemes of employment guarantee (Mnrega) and Food Security. It was sharing of profit amongst the have not. 

But were they true steps? People can argue in favour and against, depending upon their position on the side of the table. For Mnrega, some say it was a step to transfer of purchase power by getting money in the pocket of the poor. But some will question the cost benefit, opportunity cost and choice for better alternatives. State like UP and Bihar with large number of poors created less jobs but AP and TN utilised more fund under Mnrega with less Bpl people. The programme did increase wages of workers in farm and non farm activities but was that happened due to Mnrega or  alternative jobs availability is a question again may be argued from both sides.  Mnrega did increase the bargaining power of the workers. 
Similarly consumption of protein by poor is an issue but not the consumption of cereals as per consultation statistics.  The poor is in need of protein security not cereal security.  Eggs to wheat/rice. But one can argue that savings from cereals cost can be spend on education and health need of the poor family for their growth. 

The money earners have to creat hue and cry on this spending and the Government to justify sharing profit earned through policies to distribute amongst the voters who voted them to power.

Now after the fall of growth rate in 2011-12 and 2012-13; the economists started looking at different models:

Some suggest Chinese model of merchandise production through organised larged units.

Some suggest South Korean model of export based development. The State funded education policy to develop skilled workforce (women) to produce exportable goods. (The graph of education went so up that PhD guy may find working in Mcdonalds!)

Some suggest the Latin American Countries; Argentina model of "Inside Economy Recovery". Focusing on strengthening local economy with focus on infrastructure development for employment generation. Infrastructure development was linked with job creation. To avoid layoff,  Government pay 50% of wage bill if company keeps the worker employed. Tax Collectors were employed to recover taxes. Paid only sovereign debt. No external conditionality accepted while borrowing funds. Reach out for  Social Security providing health care etc. In 5 years, the output was: GDP growth rate 8%, drop in poverty from 56% to 20%, reduction in external debt, massive increase in employment, low fiscal deficits, etc. 

Brazil focused on poverty reduction, 'zero hunger'. Put the money in cities, investment on power generation, use all/suitable  alternative. 

After 2008-9 crisis; many countries use stimulus of packages; i. e., massive public spending, tax relief/ targeted relief, stimulate demands, facilitate consumption, investments and employment growth, etc. Brazil put the money in cities and in power generation.  China put money in cities and small municipalities. European countries spent money on bank packages.

Growth matters provided it distributes the fruits equitably.  New York City where 8,50,000 millionaire income earners (doesn't include wealth) lives in a population of 10M; the BPL population is also high. Therefore poverty and inequality are to be addressed. 

Every State - Country has to finds its own path. However success stories can be studied and suitably applied with modifications.

All realised that strong State, State efficiency, State civil society relations & impact, good microeconomics policies necessary to sustain growth. 
Where India should go? Copy other countries models? Elephant walks like Dregon? With approximately 200 Central and State labour laws, India can't develop a merchandise model of mass production (China) through large units as day by day entrepreneurs opt for automation to labourers.
Informal sector has a big roll to play. Government policies should promote "production mass" instead of "mass production".
We are a world leader in Intellectual Property. (We r highest in to 5% and bottom 5% too!). Merchandise exports (quality goods) at competitive rate is not our cup of tea at present as country like Bangladesh, Colombia, Sri Lanka are surpassing us. 

But the world is in need of skilled manpower. Kerala with highest HDI in the country trailed in growth rate, but its youths earning good money abroad and sending cheques to the natives regularly. We have proven our ability in producing engineers and IT professionals.  But failed doing the same in producing Doctors and para medics. MCI norms and corruption charges over their incharges are well known.  We shall look at the world market and produce large number of engineers, doctors, managers, para medics and service staff. The way Bihar, Eastern UP, Jharkhand etc are meeting the workers requirement of the country, India shall export skilled manpower abroad.  Those who can't make it will serve the nation. (Similarly like the best tea export !!!) 

Is India rural or urban? 62% GDP comes from urban based activities but people live in slums and  are Bpl. Urban local bodies are not performing.  There is deficiency of urban infrastructure.  There is a need for more State intervention in financing local bodies to improve basic infrastructures. Simultaneously worry about social sector policies to address poor people.  Invest more on knowledge and focus on implementation of programmes with proper capacity building. 
Target weak areas/groups and run a programme instead of rewarding individual behaviour because collective justice is important. Freedom of behaviour either political or economical is important for the growth. 

Let us follow a "Inclusive Growth Model"; building capacity, addressing employment and social security need of a large population by implementing "India First" policies to sustain equitable growth of the Country.

Punamchand, '85, Gujarat, Ph-5
2 November 2014, WDC

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