The new National Democratic Alliance government is to present the Union Budget for 2024-25 on July 23. The previous Bharatiya Janata Party-led government had presented an Interim Budget on February 1, 2024. Before the budget is placed in the parliament, it is customary that the government presents an Economic Survey for the year gone by. It lists the economy’s performance in that year and the challenges ahead. This gives an indication of the correctives the government may implement.
But past experience has been that these prescriptions are often ignored.
Alternative elucidation
The implication is that the government’s political judgment is at variance with the economic needs of the people. The Budget is a complex set of documents which most citizens are unable to decipher. The real political intent is hidden behind a mass of data and populist announcements in the budget. The problems faced by citizens persist year after year in spite of the grandstanding.
The government uses the budget to show that the economy is doing well in spite of difficulties and that the citizens’ problems will be taken care of. For this data is selectively presented. Since the full picture is not revealed, analysts have to go behind the numbers presented to reveal the actual situation of the economy. So, while the establishment economists praise the budget the critics present the realistic situation and therein lies the importance of the alternative elucidation.
This problem is compounded by a) the non-availability of crucial data and b) its manipulation. For instance, Census 2021 is awaited. The pandemic abated after early 2022 and most nations have conducted their Census, but the process has not been started in India.
Why is this crucial?
The Census data is used for drawing the sample for most other surveys used for data collection. Now, the 2011 Census is used to draw but that does not account for the major changes that have occurred since then. Thus, the results are not representative of the situation in 2024.
Data on employment, agriculture output, unorganised sector, poverty, inequality, etc. are manipulated. For instance, the declining unorganised sector has been largely proxied by the growing organised sector. This gives an upward bias to Gross Domestic Product and its growth resulting in the paradox of the high official economic growth accompanying high unemployment and price rise.
The claim that multi-dimensional poverty declined in 2020-21, when the adverse impact of the pandemic was at its peak, is hard to accept. This false claim was projected to show that 24 crore people were pulled out of Multi-dimensional poverty between 2014 and 2024.
Given these data related issues, critics use alternative data to present the real picture. Since their analysis is at variance with the official claims, they are branded as ‘naysayers’ and asked, ‘Is there anything right in the economy’?
Also read: NiTi Aayog ‘Poverty’ Stats: Serious Theoretical, Methodological, Empirical Questions
1) Denial of adverse News
This misses the point of a critique which by definition focuses on the big picture and its short comings. It is true that as the economy grows many things happen or change. There are more roads, higher literacy, more hospitals, more automobiles, etc. But, these can be accompanied by persistence of poverty, poor quality education and health, etc. These shortcomings are a cause of concern for society and critics highlight that. The pandemic brought them into sharp focus. The situation has not changed much after the recovery from the pandemic since it has been uneven. The organised sector is growing at the expense of the unorganised sector which is declining and aggravating the problems of the vast majority.
The organised sector’s post pandemic recovery is reflected in the stock market valuations reaching record highs. The government also cites this as a strength of the economy. Foreign investors are also responding to this since they have no interest in the unorganised sector.
The government has consistently denied adverse news.
Not only have the national data on unemployment and consumption been denied, international adverse rankings on hunger, press freedom, religious freedoms and democracy have been rejected. Many of these international rankings are relative and not absolute but a low rank or slippage in ranking for India indicates that either the situation is worsening compared to other countries or actually there is a decline over time. In the last decade or so, press freedom and democracy have declined while religious persecution has increased in India as the regime has become more autocratic and has systematically used agencies to attack and splinter the opposition.
2. Black economy and missing data
Growing corruption damages the society and the economy. At present, the fight against corruption is restricted to the opposition, to weaken it. But, it is more important to check the corruption of those in power. They are the ones fouling up policies and harassing the public. In fact, the ruling party is seen as a washing machine – the cases against the corrupt who join it are dropped or put on the back burner. This selective fight against corruption is seen as political vendetta and discredits it.
The growing black economy, linked to increasing corruption, further vitiates data since it does not get reflected in the official data. Thus, policy and analysis are based on partial data with the black economy becoming their missing dimension. The result is policy failure because, `expenditures do not lead to outcomes’. Black economy is also characterized as `digging holes and filling holes’. That results in lower investment productivity which reduces the rate of growth of the economy compared to its potential. In brief, black economy has an adverse impact on poverty, employment generation, environment, inequality and so on.
For the reasons listed above, an alternative picture of the economy which is closer to the reality than the official narrative becomes crucial. The critics and so called `naysayers’ present such a picture and whether the government admits it or not, it receives an important feedback.
Policy change?
The Economic Survey for 2023-24 will be presented after a contentious election which has sent a message to the government that the public is unhappy with its economic performance. The ruling party’s claim in the run up to the elections that India has now become the fastest growing large economy and a Vishwaguru did not cut much ice with the public in large swathes of the country.
So, correctives need to be applied to existing policies to take care of the problems perceived by large numbers of people. This would require the Survey to more honestly reflect the realities of the last five years and especially of the year past, 2023-24.
It is true that rising economic distress was not the only issue on which many voted against the ruling party. But, it constituted the background to the public discontent. If the ruling party persists with the narrative of ‘the economy is doing well’ in the Economic Survey then no basic change in policies would occur and the problems would persist. It would impact the coming important State elections where the ruling party will have to face anti-incumbency.
Further, the possibility of implementation of ‘one nation one election’ having receded, every year till the next General elections, there will be four to five important State elections. So, if the policies remain unchanged, the ruling party will have to face further losses.
Some argue that it is not in the DNA of the present leadership to bow to pressures. Its inclination is pro-business and it would continue with that while denying the problems due to inequality, price rise, poverty, unemployment, slowing growth, etc.. But it is likely that without admitting these problems, concessions may be announced to the marginalised sections, like has happened in the case of the Maharashtra budget.
The ruling party could have tackled these growing economic problems in the last five years and especially in the last one year but it has been in denial. Its victory in the 2019 General elections and after that in some of the States and especially in U.P. and the three States in November 2023 perhaps lulled it into believing that no course correction was required. For this obduracy it has paid a price. Would it want this to continue?
Guarantees?
The campaign for the 2024 elections started with ‘Modi’s guarantee’ and that is also the manifesto’s title. But, which of Modi’s major promises have been fulfilled in the preceding decade? Then why would the public now believe that Modi would deliver on any guarantee in the coming years? Perhaps that is why this slogan did not cut much ice with large swathes of the public.
Some of the major economic promises that have been belied, are creation of two crore jobs annually, doubling of farmers’ incomes by 2022, ending of black economy, bringing back of black money held abroad, cooperative federalism, rapid economic growth and ‘acche din’.
Also read: ‘Modi Sarkar Ki Guarantee’ – Wall to Wall Propaganda Using Public Funds
Economic performance since 2019-20
The five years since 2019-20 have been impacted by the pandemic in 2020-22. The economy experienced the sharpest fall since Independence. The official data does not fully capture this adversity since data could not even be collected in the crucial months.
The extent of error in official data can be gauged from the inability of the official machinery to count the number of deaths. According to some estimates, more than a million deaths were not counted. Many were incapacitated for long and faced long-COVID and could barely work after recovery.
For these reasons data, especially for the unorganised sector, had a hole for 2020-22. Even when collected, like for unincorporated enterprises and multi-dimensional poverty, the samples used were not representative and therefore, estimates were incorrect. Due to the shocks, many of the unorganised sector units closed down and that could not be captured by samples based on the 2011 Census.
Also read: The Jobless Growth of Unorganised Enterprises Is Worrisome
In the case of agriculture, doubts have been expressed about the method of measuring the output. The government has been claiming record output of foodgrains. Yet, their prices have been rising. To check the price rise, the government imposed a ban on their export but prices continued to rise nonetheless. The only plausible explanation can be that there was no record output.
As already pointed out, the declining unorganised sector is proxied by the rising organised sector, thereby giving an upward bias to the growth rate of the economy. This is further vitiated by the incorrect estimates of the agriculture sector.
If it is assumed that the organised sector data is correctly measured then the official GDP growth rate represents only this component of the economy. If the rest is declining even by 5%, then the economy’s rate of growth instead of being 7% would be 1.6%. This is the case since 2016 when the first policy-induced shock of demonetisation occurred. If the rate of growth has been between 1% and 2%, the economy would not yet be the 5th largest in the world. It may possibly be the 9th largest economy. This would also belie the official claim that the economy would become the 3rd largest economy by 2027.
This slow rate of growth of the economy due to the decline of the unorganised sector underlies the rising unemployment, inequality and persisting poverty. It is also the reason that farmers complain of falling incomes and because of which they are demanding state support.
Persistent inflation undermines the real purchasing power of the families in the unorganised sector who cannot bargain for a higher wage. A lower rate of inflation does not mean lower prices so that the purchasing power of the workers continues to erode. It is businesses that benefit from price rise because their share of the output rises. In brief, family poverty is fuelled by unemployment and persistent inflation.
The black economy concentrated in the hands of the well-off, further aggravates inequality and poverty. If the promise of checking the black economy had been fulfilled, the tax net would have widened and the direct tax to GDP ratio would have sharply risen. Instead, it has hovered between 5.7% and 6.3%. This undermines the official claim of having checked black income generation. The citizens sense this as they continue to face day to day corruption in their life.
Further, digitisation was supposed to curb corruption. GST was also expected to do that. But, fake companies to claim input credit are being unearthed routinely. The official estimate of evasion of GST runs into lakhs of crores. Fake Aadhaar cards, hacking of accounts, etc. are proliferating. As long as the person behind the technology is dishonest, technology by itself cannot check illegality.
Also read: Is it Time to Call India a Digital Dystopia?
Digitisation was supposed to reduce the use of cash. But data shows that currency in circulation has risen and surpassed its pre-demonetisation ratio to GDP. Digitisation was supposed to simplify life but that has not happened. For instance, KYC has to be obtained every two years which burdens the citizens and bank staff without deterring the crooks who know how to game the system. It has also made transfers of securities cumbersome. Further, poorly trained staff and poorly designed systems result in unnecessary hurdles. Consequently, the unorganised sector lacking financial literacy is unable to cope with the growing complexity and has further suffered.
Government’s pro-business tilt is clear. The organised sector is being promoted at the expense of the unorganised sector. Further, the private sector is being promoted at the cost of the public sector. Monetisation of public assets has become another way to privatise. With rampant cronyism, select businesses are cornering the benefits. The revelations about the electoral bonds scheme points to cronyism. It opened a way of bribing in white.
Cronyism has promoted select big businesses. They are enabled to acquire profitable businesses. This is spoiling the investment climate in the country and resulting in many High Net Worth individuals (HNIs) to leave India. No wonder, investment levels have declined since 2012-13. This decline is compounded by inadequate demand due to the low purchasing power of the vast majority of Indians. 90% of the 30 crore registered on the E-shram portal declare an income of less than Rs. 10,000 – close to the poverty line. RBI data shows capacity utilisation of the organised sector hovering between 70% and 75% – a level at which investment would be low.
The pro-big business policies promote capital intensive sectors at the expense of the labour intensive ones. The government’s budget illustrates that. Whenever the budget deficit has increased, expenditures on labour intensive items are curtailed in real terms while those on the capital intensive sectors are maintained. For instance, allocations to MGNREGS, education, health and rural development were reduced while allocations to infrastructure were maintained.
Federalism in India is being eroded by the overbearing attitude of the Union government. GST was the last time cooperative federalism worked. The slogan, ‘double engine ki sarkar’ is a clear threat to the diversity of the nation and to federalism. It signals that the ruling party in the Centre will favour those States which have the same party in power. It is visible when the Centre plays favourites among the States in the grant of projects and transfer of funds.
Opposition-ruled states have complained of slow release of funds due to them for programmes like, MGNREGS. They have been denied foodgrains they asked for to distribute under PDS. The Centre has dictated that the picture of the PM should be displayed on items being given to the public as if it is a personal gift of the PM to the public. Even the COVID-19 certificates had to have the PM’s picture on it.
COVID was indeed mismanaged with a sudden lockdown which resulted in a deep crisis for the economy. This was followed by complacency which aggravated the crisis in the Delta wave.
Summing up
The above presents an alternative macroeconomic picture. The challenges of the social sectors and infrastructure need another piece.
The argument is not that the economy has not grown but who has benefited from it? Why are farmers protesting that their incomes are declining if agriculture output is rising? Why is the decline in the inflation rate accompanied by a decline in real incomes of a vast majority of workers? So, ‘acche din’ are not yet for the majority. Worse, the adverse impact of the policy induced crisis due to demonetisation and the faulty GST on the poor was aggravated by the hasty lockdown.
Employment generated by the system is minuscule compared to the annual influx of 24 million young who are potentially ready to work. Add to that the backlog of work required by the unemployed, under employed, disguised unemployed and those who have given up looking for work. Workers are increasingly dependent on self-employment in marginal activities earning them little income. There is a mismatch between the work a vast majority of the young are doing and their level of education, like, PhDs applying for peon’s job or MBAs applying for a safai karamchari – cleaning staff – job. Many of the young appear year after year for examinations which often get cancelled due to proliferating malpractice. The resulting frustration is manifesting in substance abuse, family violence and petty crime.
The official data is partial and manipulated to mask adversity. That is why an alternative picture needs to be sketched which captures the reality of growing economic, political and social instability in the country and rising strife. It unravels the need for drastic change in policies to solve the problems faced by the marginalised sections. This would not be a zero-sum game but a positive sum game for the nation.
Arun Kumar retired as professor of economics from JNU. He is the author of Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead, 2020.
