The runoff myth

Economists’ comments on the budget explain the state of the Indian economy. They also reveal ideological divisions about how the health of an economy should be measured and the prescriptions for improving it. The finance minister’s rectitude has been hailed: there are no “populist donations” or increased taxes on income and wealth. Everyone agrees that investments in physical infrastructure will benefit the economy in the long term, but also in the short term, by creating more jobs. However, there are concerns that how the money will be used by the Center will further weaken states, just when they need to do the heavy lifting on public welfare. And it is disappointing that health and social security benefits remain grossly inadequate.

Former Finance Minister P Chidambaram summed up the budget as follows: “No work, no welfare, only wealth”. The great “wealth creators” are free to create wealth for themselves – wealth that, supposedly, will accrue to the masses. Around the world, evidence shows that the economic policy paradigm of first increasing the overall size of the pie by cutting taxes at the top and then “redistributing” wealth has not brought benefits. benefits to people. The trickle has dried up while the spurt has increased, with policies aimed at making it easier for investors to make their business of making more profits for themselves. Gandhiji said he was not against wealth creators. He praised wealth creation. However, this should not be at the expense of workers and welfare. Wealth creators must be trustees of the wealth they create, not its exclusive owners.

India’s economy suffers from a chronic “demand side” problem that is compounded by misguided economic policies. Young people who have gone to school in greater numbers than before, even learning vocational skills, cannot find employment. They leave the job market and see no hope in it. The CMIE estimates that in UP, the number of working-age people who are employed has declined over the past five years, from 43 percent to 33 percent; in Punjab from 49% to 30%; in Goa from 49% to 32%; and in Uttarakhand from 40 to 30%. If people don’t win, demand won’t increase and business investment won’t be attractive. Moreover, frustrated young people are a powder keg for social unrest.

People around the world are reacting to the financial globalization of the past 30 years. Addressing leaders of the Confederation of Indian Industry (CII) in May 2007, then-Prime Minister Manmohan Singh, celebrated as the provider of freedom for business with the 1991 reforms, warned: “ The time has come for the wealthier sections of our society to understand the need to make our growth process more inclusive; avoid conspicuous consumption; take care of those who are less privileged. He called on Indian businesses to “be a partner in making ours a more humane and just society”. Business feared he would lead India back to ‘socialism’ – a bogeyman for neoliberal economists and their ‘Washington Consensus’ of ‘minimum government’, ‘ease of doing business’ and lower taxes on businesses. companies and on wealth.

In his book, Davos Man, Peter Goodman explains how the wealthiest people influenced the economic policies of democratic countries from the 1990s to enrich themselves. Thomas Piketty documented how wealth inequality has grown alarmingly in Capital and Ideology. Wealth has accumulated at the top, with regressive tax policies accompanied by deregulation. Public spending on social reforms has been cut. Piketty reveals how the most inclusive periods of economic growth – when a rising tide has lifted all boats – have always coincided with periods of heavy taxation of wealth to fund public education, health care and social security. It also reveals that when inequality grows intolerably, governments divide and conquer, and the persecution of minorities increases with the politics of national identities.

Goodman says the “man from Davos” has propagated the “cosmic lie” that “cutting taxes and deregulating markets will not just produce extra wealth for the wealthy, but benefits for the lucky masses – whatever something that, in real life, has happened zero times.”

He says that the Davos Man “would have us believe in a false binary choice as a defense of the status quo, either accept globalization as we have known it for decades or give our fate to the Luddites operating under the influence of retrograde ideas. ”.

The global economy must emerge from deregulated hyper-financial capitalism, which has given too much freedom to easy money. Neo-liberal Indian economists are also scaring us with false binary choices: That we must continue as we are, or we will return to the pre-1991 era of control. They must get out of their ideological ruts. First, until the economy grows, there will be no resources to invest in human development – ​​whereas China invested in human development before its economic take-off. Secondly, that an unprepared industrial sector will thrive in global free trade – whereas the UK and the US (as well as Japan and China as well) have developed their industrial sectors behind protective walls, and then demanded that others open their markets to their corporate power.

Political divisions by religion and caste are once again tearing apart the Indian social fabric. India’s economy needs to grow inclusively to fix it. To grow, it must close human development gaps and build national industrial capabilities. Until then, it will remain a colony for stronger countries to develop their businesses with their intellectual property. India will remain strategically vulnerable to its powerful neighbor across the border, which has not embraced Davos Man’s theories. Indian policy makers urgently need to discover India’s own development model, adapted to the context, and get rid of outdated economic theories.

This column first appeared in the print edition of February 15, 2022 under the title “Ruisellement Myth”. The author is a former member of the Planning Commission

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