Averting a $10-Trillion Dystopia

In 2019,  upon re-election, Prime Minister Narendra Modi proposed the target of US $ 5 trillion for India’s economy by 2024.

As the date approaches, it is clear that the goal is unlikely to be met. This has not, however, held back the enthusiastic.

News that sprung some months ago – of India having overtaken the United Kingdom to become the world’s fifth largest economy – seems only to have buoyed their spirit. Next, as 2022 drew to a close, the London based consultancy Centre for Economics and Business Research predicted that by 2037 India’s economy would reach US $ 10 trillion to become the world’s third largest.

Admiring projections of India’s economy originate in the west. The Chinese establishment is silent but it could not have escaped its attention that a larger economy for its neighbour would make it likely that military aggression will be repulsed in a way that it was not in 1962.

On the other hand, it is not surprising that India’s rise on the global stage attracts attention in the west.

First, there is an element of shock, if not awe, that a country once a byword for famine has risen phoenix-like from the debris of Europe’s colonialism.

Secondly, India is not only a relatively rare democracy in the east it is also the largest one, and the most populous country of the world. As all of the west’s countries are democracies, India is seen as a valuable political partner.

Also, India’s economic size makes it a potential market for the west’s goods and its fast growth is an investment opportunity for the surplus savings of the west. The west clearly has skin the game of growth in India. How should we in India view this shift in its perception?

The basis of the predictions of India’s Gross Domestic Product emerging from global think tanks is not public knowledge. Very likely they are no more than a projection into the future of recent trends. But let us for a moment assume that it will materialise, making India a US $ 10 trillion economy in 2037.

It may be that a vein of competitiveness is struck in some sector and India’s exports will grow even in a relatively stagnant global economy. Perhaps the animal spirits of private investors will be kindled by the mere announcement of optimistic projections. Both these outcomes will propel India’s economy, of course, but the million-dollar question remains, ‘What will be the character of this economy,’ which at US $ 10 trillion dollars will be thrice the size of India’s current GDP.

Will size bring along the attributes that we would like to see in an economy or will it, in a worst case scenario, lead us to a dystopia induced by their absence?

In particular, will the economic growth lead to employment opportunities for a growing population of youth and the social and physical infrastructure necessary for a good life or will it magnify the rising economic inequality and ecological insecurity?

None of these outcomes is inevitable but a creative economic management of the growth process would be necessary to bring about the positive ones and to avert those that are negative. A consideration of employment and ecological security is crucial.

India’s unemployment rate is estimated to be at a record high. This implies that the accelerating growth since the 1980s has not generated an equivalent growth in employment.

For the mass of the unemployed, concentrated in agriculture, employment opportunities will arise only when there is a demand for goods in the production of which they can participate. Clearly growth of the information technology sector, or even of exportable manufactures, will not be of much use here as this is a cohort with low education and skills. Increased demand for goods of mass consumption alone will lead to an expansion in the demand for these workers. For an expansion of this demand, arresting the price of food would be essential, as only that will low-income households with enough to demand more manufactured goods. There is no awareness of this whatsoever in the agricultural policies of either the Union government or the states.

It may be noted that the rise and persistence of the current inflation in India are related to the price of food and much less to that of imported commodities. So, India could well grow fast over the next decade and a half without generating sufficient employment. 

The role of public policy in employment creation is to exploit the link between education and employment. An educated workforce is more productive. Where this greater productivity leads to higher wages it creates demand for goods, drawing the unemployed into production.

While over time the percentage of the population with formal schooling in India has increased the quality of education has declined. The rise of EdTech, delivering instruction via information technology, is testimony to this. The need for even poor parents to provide expensive private tuition to their children points to the abject failure of the public schooling system in India to impart the contemporary equivalent of the basic necessities in education.

Also read: What Govts Can Do to Make the Most of EdTech

Money flowing into IT-enabled tuition is more money withheld from flowing into the consumption of manufactured goods, thus holding back the expansion of employment. Apart from making already employed workers more productive, education has the potential of creating the wherewithal for entrepreneurship.

The greater part of the Indian workforce is self-employed. But the self-employed require more than just education to ply their trade. They require the producer services they cannot generate by themselves. Ranging from electricity to waste disposal services these can be provided to scale only by the public sector. An highly efficient public sector would be needed to enable India’s self-employed to flourish rather than struggle to eke out a living, as most of them do today.

Only a concerted intervention can create the conditions for employment generation in India. However a perceptible shift in the stance of India’s political parties augurs poorly in this regard.

The national and regional parties have re-positioned themselves as benefactors of the population, visibly channeling funds to private bank accounts and less visibly underpricing public services. While historically a trademark of the regional parties, the Modi government has re-branded ‘development’ to mean income transfers to farmers and free food to a constituency much wider than the poor. This shrinks the fiscal space for health and education spending.

Of late this welfarism, defined by the public provision of private goods, has been combined with a public investment thrust focused on road building. The building of national highways has often involved riding rough-shod over local communities who have no say on whether a highway should be built cutting a swathe through the countryside, destroying agricultural land and bringing roaring traffic to where once there was the sound of water flowing. State governments have not been far behind when it comes to disastrous geo-engineering. Projects aimed at religious tourism have found favour with political formations as diverse as the Hindu nationalists in Uttarakhand and communists in Kerala. These are both states that have only recently witnessed landslides and flooding, causing great suffering to their people. There are also states that have set trillion dollar targets for their economy.

Pursue growth if you will but it would be naïve to not see that some of the things that matter from an economic point of view, such as employment, would not necessarily be served by it. Equally, recognise that growth can lead to a dystopia if public policy does not respect the imperatives of a science-informed democracy.

“Ill fares the land where wealth accumulates and men decay,” wrote the poet some two centuries ago.

Pulapre Balakrishnan teaches at Ashoka University, Sonipat, Haryana.