October 08, 2023

Economy in Distress

LAST Sunday, lakhs of central and state government employees converged in the capital New Delhi, demanding the restoration of the old pension scheme. The coverage of this massive rally was limited to describing it as an event, obscuring the reflection of a deeper economic malaise afflicting our country. According to the old pension scheme, an employee was entitled to receive 50 per cent of their last salary drawn as pension. This amount was also adjusted yearly to account for inflation. The new pension scheme, on the other hand, returns to retired employees an amount which is invariably not more than half of what they used to receive under the old pension scheme. The law mandates that all those who entered service after 2004 will only avail of the new pension scheme.

The fact that this has become a burning issue impacting elections in various states 20 years later reflects a deeper cost of living crisis afflicting India, with rising prices and lower incomes. Even the middle class is finding their livelihoods becoming more miserable. When the new pension scheme was brought for legislation in parliament, the CPI(M), adhering to the principle that pension is a right of a worker and not a dole, opposed the new scheme. Today, the reasons for our opposition are being vindicated.

The shrinkage of real incomes of our people, apart from making living more miserable, also adversely impacts the economic health of the country. Lower purchasing power in the hands of the people translates to lower domestic demand, dampening investments, as there is no market for the products produced by such investments. Investments grow only when what is produced is sold to make profits and generate growth. With no demand, investments, and hence economic growth cannot happen. This is the fundamental problem plaguing the Indian economy today.

With the cementing of the communal-corporate nexus under the Modi government, the bulk of the wealth generated in the country is cornered by cronies. The Adani affair is a classic example. The country's wealth is diverted to enrich a few cronies at the expense of the majority of our people. Modi's economic policies are further buttressing the process of creating two Indias – a shining India for the rich and a suffering India for the poor.

But the relentless propaganda of the Modi spin machine projects a resurgent India as moving towards becoming the third-largest economy in terms of GDP in the world. Irrespective of who leads the government, India will be third in 2027 on the basis of current statistical trends. But the truth lies in India's standing in terms of per capita GDP. India today ranks 142nd in the world in terms of per capita GDP.

The recent G20 Summit was used to project India as the emerging economic powerhouse, but the truth again lies in the facts. Among all the G20 countries, India has the lowest per capita GDP and ranks the lowest in terms of human development indices. We also record the lowest labour participation rate in the economy, indicating the highest levels of unemployment.

This continuing decline in people's purchasing power is impacting the macroeconomy. New proposals for investments in the economy have declined over the last year by 72.5 per cent in government investments and 79.2 per cent in private investments.

A big hue and cry is made of the grand success of ten years of "Make in India." What is the truth? Manufacturing growth has averaged 5.9 per cent since 2013-14, falling short of the target of 12-14 per cent. The GDP share of manufacturing remains stagnant at around 16.4 per cent, against the target of 25 per cent. Jobs in the manufacturing sector declined from 12.6 per cent to 11.6 per cent between 2011-12 and 2021-22. With great fanfare, Modi announced the Vishwakarma projects for OBCs from the Red Fort, claiming to spend Rs 13,000-15,000 crores for skilled artisans. However, what was announced in parliament was a Rs 13,000 crore package of loans to be disbursed over the next five years with a five per cent interest rate!

Rural distress is also mounting. The demand for MGNREGS, which reflects distress levels for survival, grew by 16.3 per cent last year and a whopping 29.4 per cent from 2019-20. The Economic Survey 2022-23 reports negative growth of real wages.

The net result of all this is the shrinkage of economic activity. This is reflected in the decline of labour-intensive exports like apparels, marine products, plastics, gems, and jewelry. India's share in the global market is sharply declining, which means domestic employment in these sectors is also sharply declining.

The result is that the unemployment rate in August 2023 was 8.1 per cent. Youth unemployment (15-24 years) in 2022 was 23.22 per cent. Among graduates, it is a whopping 42 per cent. In August 2023, nearly 2 crore families demanded work under MGNREGS. This is a Modi-induced destruction of India's demographic dividend.

With falling employment comes rising prices. Inflation has consistently exceeded the 6 per cent tolerance limit of the RBI for the last few years. Worse, this inflation has been driven by rising prices of food and essential items.

A cumulative result of this crisis is the decline in the financial assets of households as a percentage of GDP, dropping from 15.4 per cent in 2020-21 to 10.9 per cent in 2022-23. People are selling their family silver to survive. The net financial assets of households plummeted from 11.5 per cent to 5.1 per cent.

People's incomes on the decline, prices rising, unemployment soaring, and a decline in manufacturing growth, reflects a deepening economic distress. What is needed is to stop patronising the growth of riches for cronies and instead use State resources for public investments to build much-needed infrastructure that will generate jobs and enhance domestic demand levels in the economy. However, given the Modi government's total obeisance to foreign and domestic capital to maximise their profits by looting India's national wealth, this crisis can only worsen. To ensure that India's wealth is productively invested for the growth of the economy and the welfare of the people, it is imperative to ensure that the BJP does not control the reins of government and State power.

(October 4, 2023)



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