The truth about the economy is different
The middle class today is feeling insecure because the public services are poor and most people are saving 30 per cent to 40 per cent of their incomes to face problems in the future. Many fear job losses, inflation and others feel worried about healthcare expenditure in case a family member falls sick. Then there is insecurity about the future of their children. Only expensive English medium schools can give a child a good future. Few will know or care about the strong fundamentals that the leaders talk about. Most only know about their daily problems of survival”, says the author.
In India economic problems seem to sort themselves out on their own over time. Now the rupee is slowly climbing up and the stock market is also showing signs of rebound. At least temporarily – and the economic leaders of the country are once again harping on the ‘sound and strong fundamentals’ of the economy. One may not understand what these are. If it is GDP growth, 4.4 per cent per annum in the first quarter of the current fiscal is hardly indicative of ‘strong’ fundamentals. India needs at least 6 per cent growth in order to absorb the 12 million people who enter the job market every year. The recent data on employment show that only seven million jobs a year were created between 2009-10 and 2011-12. The developed countries can afford to grow at 1 or 2 per cent because they have their ‘fundamentals’ in place – high human development, efficient infrastructure, reliable institutional framework, round-theclock availability of power and clean drinking water from taps and a good quality of life.
If the economic gurus are talking of the current account deficit, again 4.2 per cent of the GDP is high and now the government is talking of controlling the non-essential imports to reduce it. The rupee has depreciated 20 per cent in the last four months and imports have become expensive. Export growth has picked up no doubt but many exports contain imported parts and components and to the extent they use such parts, their costs will go up and they may suffer. Even in gems and jewelry exports for which India is known internationally, India has to import raw precious and semiprecious stones and pearls from abroad. These are cut or processed and made into jewelry. Gold too is imported. Thus there is some doubt whether export growth will pick up exponentially with the depreciation of the rupee. Some exports like software and business processing services will, however, become competitive. Another fundamental of the economy is industrial growth which unfortunately has been plunging and the latest data show a negative manufacturing growth (-1.2) and low mining sector growth. If manufacturing growth is shrinking, fewer jobs will be created and there will be a higher rate of unemployment.
It is the only sector which absorbs semi-skilled labor. The service sector growth too has slowed down. The service sector contributes around 60 per cent of the GDP and its high growth had been the key driver of India’s GDP growth in the past. But the service sector does not create as many jobs as the manufacturing sector and it has few highly paid jobs and the rest are low-paid informal jobs. The high-end jobs comprise only 2 per cent of the entire service sector jobs like IT, business and financial services, insurance and real estate. Agricultural growth too has not been up to the mark of 4 per cent. There is widespread inequality in the agricultural sector because 80 per cent of the farmers are small and marginal. Unless agricultural growth rate picks up, farmers and farm labor would not be fully employed and there will be a pressure to migrate to towns and cities. Low agricultural productivity is keeping the incomes of small farmers low. Migration has its dark side as it leads to the growth of slums and 18 million people in India are living in slums in different metro cities. Mumbai has the biggest slum population in India. Another fundamental is the fiscal deficit of the country. Indeed to the credit of the Finance Minister, Mr. P. Chidambaram, the fiscal deficit has been contained at 4.8 per cent of the GDP. But how this has been achieved has not been spelt out. If it means the compression of important government expenditures, then the long-term impact may be disastrous.
As compared to China, India’s foreign exchange reserves are small at $275 billion or equal to seven months’ imports. But recent reports suggest that India is in a vulnerable situation because the total external debt is $390 billion. Around $85 billion will be needed to cover the current account deficit and the corporate sector debt is around $172 billion. Inflation is another fundamental which is not totally in control especially if you take the food inflation or the Consumer Price Index into account. The Wholesale Price Index too is likely to go up further because of yet another diesel price hike soon which will have a cascading effect on all prices. Thus one wonders how the leaders are bandying about the strong fundamentals of the economy. In a recent book by Jean Dreze and Amartya Sen “India and its Contradictions: an Uncertain Glory” many serious problems of the economy have been discussed. Most importantly, the authors have pointed out the low achievements on the human development front, especially in gender, health and education in which inequalities in India seem to be more glaring than in Bangladesh and Nepal. In public healthcare especially there has been little progress so far. Even as private clinics and hospitals are sprouting all over metro cities, one is scared of entering them because no one knows how much they would charge.
Exorbitant charges and unnecessary tests are the bane of private healthcare and patients remain helpless. No wonder India has one of the highest out-of-pocket expenditures on healthcare in the world. Public healthcare expenditure is still less than 3 per cent of the GDP. Another fundamental is infrastructure – roads, the Railways, the iron and steel sector, coal and power which can hardly be termed as world class. There is a huge power deficit and 80,000 villages remain without electricity. The delivery of public services remains dismal at most places – be it sanitation, sewage or availability of safe drinking water. If you ask an average person whether he or she feels secure in the present situation, the answer is likely to be ‘no’. Insecurity is also reflected in the behavior of the people who have been buying gold like never before. Why are people hoarding gold? Part of it is tradition but a lot of it is due to insecurity. The middle class today is feeling insecure because the public services are poor and most people are saving 30 per cent to 40 per cent of their incomes to face problems in the future. Many fear job losses, inflation and others feel worried about healthcare expenditure in case a family member falls sick. Then there is insecurity about the future of their children. Only expensive English medium schools can give a child a good future. Few will know or care about the strong fundamentals that the leaders talk about. Most only know about their daily problems of survival.