India is now officially the world’s fastest growing economy, with GDP growth of 7.6 per cent in the past year. This is why it has been lauded as the new Asian tiger, or even elephant on steroids, in a global economy that otherwise is full of gloom and showing signs of impending crisis. The fact that India is a huge beneficiary of the low global oil prices is another reason for seeing it in a “sweet spot” that brings a lot of potential for growth.
But it is surprisingly hard to see much evidence of this rapid economic growth on the ground in India, or even find it reflected in indicators that most people would appreciate. The way national income is calculated has been changed, and it has found skeptics even among the government’s own economic advisors. So while GDP growth is apparently still rapid, employment continues to stagnate, especially formal employment that provides any kind of social or legal protection. Real wages (that rose throughout the previous decade) have been falling for a year now, more sharply in rural India. The agrarian economy is close to crisis, as farmers reel from the effects of two consecutive poor monsoons and reduced public spending that could affect agriculture. Public delivery in nutrition, health and education is in a mess after massive fiscal cutbacks in previous years.
Investment rates in the economy are actually falling (down to less than 30 per cent of GDP last year compared to around 34 per cent in previous years) and industrial production is limping along, growing at only around 3.5 per cent. Both exports and imports are falling. Banks, particularly public sector banks, are facing financial stress, burdened with large unpaid debt from infrastructure investments many of which have stalled. So many people ask: where is all this so-called growth actually occurring?
Obviously, we need measures to increase domestic demand by improving wage incomes and possibilities of employment. More real spending on agriculture, on social sectors and on employment schemes can do this directly and indirectly through very large multiplier effects.
Sadly, the Budget just unveiled by India’s Finance Minister has missed this chance….
All this because it wants to keep its fiscal deficit targets,….More insanity.
The Modi Government and India’s Economy
Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.
Cross posted from Triple Crisis