A government with a mandate can bring about structural changes needed for economic growth

After a decisive verdict in the Lok Sabha election, Prime Minister Narendra Modi begins his new term faced with the difficult task of reviving economic growth and fixing India’s job problem. In a conversation moderated by Anuradha Raman, Rathin Roy and M.R. Madhavan discuss the challenges ahead for the economy and polity. Edited excerpts: You have been saying that India is going through an economic slowdown. The government, on the other hand, says everything is fine. Rathin Roy:If you look at the state of the economy, we’ve had very sound macroeconomics over the last five years. Our fiscal deficits have been reasonably under control. Inflation is low, and the balance of payments problem and current account deficit are also reasonably under control.

I don’t tend to get alarmed by short-term ups and downs. The trouble is a more long-term one and it’s a bipartisan problem. It’s a consequence of the way we have grown over the last 25-28 years, which is that we haven’t been an export-led economy and I am presuming that this will not happen in the near future. But you are not going to make the Indian economy rich by merely exporting. You have got to make it rich by producing what people in India consume. And the trouble is, so far we have been meeting the consumption demands of those who have become more and more affluent over the last 28 years, and that is the top 150 million Indians. When you go to Bombay and look at what they call leading indicators of economic growth, you hear about four-wheelers, two-wheelers, air conditioners and fast-moving consumer goods, but this is not what all of India consumes, it is what some Indians consume. And so far this was okay because 150 million is a big market. It’s a bigger market than Germany, so growth was just fine.

But what I am noticing now is that this consumption demand is beginning to plateau. Therefore, we really have to now think about how, without subsidies, the next 200-300 million Indians and their consumption demands can spur growth in the years ahead. And what do they consume? They consume what we consume. A nutritious meal, clothing. They would like to buy one house in their lifetime, they would like decent health and education. So unless we move away from our four-wheelers, two-wheelers and air conditioners-based economy to an economy in which these things are produced at affordable prices, growth will begin to peter out. And I wouldn’t like that because there’s huge potential in the Indian economy to change the composition of growth such that our growth is sustainable and we complete our development transformation without subsidies. A beginning has been made by thinking about agriculture as a place where we maximise output to doubling farmers’ income. That’s positive. The NDA government promised affordable housing and healthcare. So I’m quite confident that the sort of plateauing of India’s growth story can be avoided if economic actions to do so are put in place.

Affordable housing for all has been a policy of almost all governments in the past. Governments over time have placed emphasis on nutrition and health and we have several programmes targeting the population that is outside the growth story. So, what is different this time?

RR: Until this government increased the scale of it, affordable housing was essentially given to people with a subsidy. Now, here’s my proposition. If you’re earning, let’s say, twice the minimum wage in Delhi, that would mean ₹16,000-₹18,000 a month. Now, if you are earning ₹16,000-₹18,000 a month over a 30-year period, what is the likelihood that you will be able to buy a housing unit with a secure land title and amenities that some would consider minimum for someone with those kind of wages? The probability is very low. There is plenty of land available with the Government of India. But the government has given it away to media companies, group housing societies, clubs. I am saying you take the land and re-purpose its use and provide modest but decent housing to people who earn the minimum wage, through the market without subsidy.

Coming to nutrition, yes, we have talked about nutrition but I challenge any economist in this country to tell me in any part of the country what the non-subsidised price of a nutritious meal is. They won’t be able to. That’s why this doubling of farmers’ income initiative is so important because we are saying okay, if we double farmers’ income, then it is reasonable to expect that they won’t need subsidies. This is the kind of economic calculus that we have to start doing.

With textiles it is a different matter. Upmarket textiles are mostly made in India. But if you go to Fashion Street [in Delhi] and try and buy a ₹400 shirt, you will discover that it is made in Bangladesh and Vietnam. So why are we uncompetitive compared to Bangladesh and Vietnam? The answer is we are wage uncompetitive. And how are we wage uncompetitive? Wages in U.P., Bihar, Chhattisgarh and Odisha are not much higher than in Bangladesh or Vietnam. But wages in south Gujarat and Tiruppur are higher. So we are not able to make textiles in our country because we are unable to actually locate industries where wages are low. We are also increasing regional inequality because if you ask the question which I often ask, which is that since 1991 what has been the major benefit to eastern U.P., Bihar and Jharkhand, I would say it has been in the migration to the south and west of India. We have to change this. And these structural changes are what I am pointing to as barriers to India’s growth story going forward. So, you say from 1991 respective governments have not really focused on the structural shifts that need to be made to change the growth story? Where does the fault lie?

RR: I don’t think that is the right way of putting it. If I go back and break up the objective of the development state in India, I would say that from 1950 to about 1971, the objective was self-reliance and we succeeded. From 1971 to the late 1980s, the objective was to continue with modernisation but also to end poverty and hunger. We succeeded in substantial measure. From 1991 onwards, macro-economic stability became very important as the world globalised and old formulations broke down. So, what we had to do was find our place in the growth story that was consistent with some economic liberalisation which was not terribly iniquitous, and be successful in transforming the lives of at least the first 150 million Indians. And we did that quite substantially. The period from 2004 till very recently is the period when we tried to recognise that productive inclusion was not happening. Hence we had MGNREGA, Sarva Shiksha Abhiyan. We’ve had mixed results. This is why I have been uncomfortable with the Nyuntam Aay Yojana (NYAY). The development state needs to continue the business of development. NYAY or universal basic income is not development.

You also mentioned in an interview that if we don’t look at these things, we are going to probably end up like Brazil and South Africa.

RR: That was, of course, rhetorical, but I do want to point out something that is not rhetorical. If you look at the history of post-war development, you have Japan, South Korea and now China. You can see how they have transformed the lives of the majority of the population. That’s what I call a development transformation. But if you look at countries like Brazil and Indonesia, they have not done so. Despite the per capita income of Brazil being four times that of India’s, there is endemic poverty and crime there. So there are two development stories, and a linear growth path may not actually lead to a development transformation. We have to choose in favour of getting productive inclusion into the economy. By that I mean how to get people to participate in growth and what are the factors that inhibit them from taking part... you have to fix that.

How is this huge mandate going to play out in Parliament? M.R. Madhavan: Clearly, the structure of the Lok Sabha in terms of parties has not had any major change. The BJP had a majority on its own last time. It has a slightly larger majority on its own this time. The NDA enjoys a very comfortable majority now. The largest Opposition party is the Congress and it remains without the post of Leader of the Opposition. What is worrying me — and it has nothing to do with this Parliament or this government or the last government — is the structure that has been built up.

I would say 1985 was the break point when we ended the parliamentary system of the Indian government by passing the anti-defection law. We have a Parliament. We have a set of bosses who tell everybody under them to vote in a particular way in Parliament. The period from 1985 to 1990 was bad. After that we had coalition governments where you needed to convince your allies of what you wanted to do. But in a single majority government, you don’t need to convince anybody. So one huge check is gone and this goes against everything that a parliamentary democracy stands for. Why do we have a Parliament? We have it as there is legitimacy when representatives discuss issues in public and reach some sort of a consensus.

There was another check which developed from 1993 onwards. This has disappeared in the last five years. That is the committee system. Committees were behaving in a reasonably non-partisan manner. They were discussing Bills and coming up with good recommendations. They have continued to do that in the last five years but there was one major issue, which is that only 25% of the Bills were referred to committees. When the Bills were referred to them, the committees did a great job. For example, the Insolvency and Bankruptcy Code went to the joint committee. It made a number of changes and all of them were accepted. Committees were performing a check. But we are not referring that many Bills to the committees. I hope the new Parliament will look into that. The other check was the Rajya Sabha. That could change in 2021-22 when the BJP/NDA has 45% of the seats.

The primary job of Parliament is to hold the government accountable for its actions. I would say the burden of this will always fall on the Opposition and I hope that they learn something from the British and say, let’s form a shadow government. Let’s allocate certain people with certain responsibilities. From day one we will focus on our job. Clearly, there are over 350 with the government and we have about 200 in the Opposition, but 200 is not an inconsequential number. Let us at least organise ourselves so that we can hold the government to account for its action. Will they do that?

Background: Towards the end of the previous government’s tenure, a number of controversial bills were introduced in Parliament. In the social sphere, the government introduced the Transgender Bill, the Surrogacy Bill, and the Trafficking Bill.

In each of the cases, the draft legislation was — correctly — introduced with the aim of addressing an existing lacuna in the legal landscape. However, when it came to the content of these bills, consultation with impacted communities was effectively eschewed, and the result was a set of drafts that, far from protecting rights, actively harmed them. Unsurprisingly, therefore, the draft bills were met with a spate of objections and protests.

The Transgender Bill: It did away with the fundamental and non-negotiable principle — and one recognised by the Supreme Court in its NALSA judgment — of the right to self-determination of gender identity. Instead, it placed such decisions in the hands of government-appointed committees, extending state control over gender identities rather than liberating or emancipating them. It also contained deeply suspect provisions on gender reassignment surgery.

The Surrogacy Bill: It excluded LGBT individuals from its ambit (despite their recognition as equal citizens under the Constitution by the Supreme Court). It imposed discriminatory age restrictions upon men and women. Also entirely outlawing “commercial” surrogacy (instead of regulating it with appropriate safeguards) opened up space for underground and unreported exploitation of women, effectively creating a black market.

The Trafficking Bill: It criminalised begging without providing any manner of effective alternatives and failed to distinguish between non-consensual trafficking and consensual sex work. It thus opened the door to criminalising livelihoods on the basis of what was effectively a set of narrow, moral objections.

The Citizenship Bill: Advertised as a measure for benefiting the vulnerable and the marginalised, the bill would have granted fast-track to citizenship to persecuted minorities from neighbouring countries, who were Hindus, Sikhs, Jains, Buddhists, Parsis, and Christians — but not Muslims.

This was, at a very basic level, illogical and self-contradictory, apart from being clearly discriminatory on grounds of religion: the examples of the Ahmadiyyas and the Baloch in Pakistan make it clear that, just like any other identity, there are communities of Muslims in neighbouring countries who face persecution on the basis of their religious beliefs. Strong movements in the northeastern States — concerned both about the demographic consequences and the anti-secular nature of the bill — ultimately forced the government to not go through with the legalisation.

It presumes that the people living in India are interlopers, unless they prove otherwise. The last government was planning to implement it pan-India. Such a move would be a nightmare of administration and implementation, as the example from Assam has shown.

There has been considerable — and continuing — confusion over the methods and form of identity that one can use to “prove” one’s citizenship (including “family trees”, which have been found to have a disproportionate impact upon vulnerable and minority claimants). The overlapping functions of the NRC process and the Foreigners Tribunals have added to the confusion.

Core problem: Each of the bills dealt with intimate subjects such as individuals’ decisions of what to do with their body, personal dignity and autonomy, and gender identity. They concerned the rights of some of the most vulnerable and marginalised members of our society. They were drafted without adequately consulting with, or listening to, the members of the communities who were impacted. Instead of guaranteeing and securing the rights of these communities to be free from state interference, they extended the state’s control and domination. They were met by extensive and widespread protests from the communities themselves.

What lies ahead? While the government is entitled to frame policies, and draft and implement legislation to enact those policies, there are certain constraints upon how it should go about that task. At the minimum, the voices of those who will be directly impacted by the policy should be listened to and engaged with in good faith. The basic constitutional principles and values ought to be respected.

Connecting the dots: In the social sphere, the Transgender Bill, the Surrogacy Bill, and the Trafficking Bill were introduced by the last government. Discuss basic issues with each one of them. Also highlight the importance of engaging with the stakeholders and following basic constitutional principle before re-drafting these bills.

Modi 2.0 presents a new window of opportunity to usher in some fundamental reforms for the Indian economy. A modern dynamic economy requires a robust statistical system to provide precise and real time estimates of several critical indicators.

One of these is unemployment — which has been at the heart of prolonged acrimonious public debate in India for several years. Now is the time to move beyond the politics of unemployment to the real and pressing issue of measurement of unemployment.

Way ahead: Measurement of economic indicators, for example the unemployment rate, is an apolitical issue that requires statistical expertise of the highest standards.

Before the release of any figure, it is imperative to discuss, debate and deliberate the methodological issues around the measurement. For example, to measure the unemployment rate, it is practically impossible to conduct a periodic census of all citizens above 15 years. Therefore, we have to rely on the second-best option of conducting sample surveys, and the natural question is then about the size of the sample survey. Therefore, there can be no credible discussion on changes in unemployment from one period to another in the absence of a paper that outlines in detail the underlying sampling methodology.

Even if the sample size issue is addressed to minimise what statisticians call sampling errors (the sample size might not be large enough to address the question of interest), there are issues relating to non-sampling errors. For example, suppose there is a job boom in the economy and the employed overwhelmingly refuse to participate in such surveys or do not answer all questions, then it is possible for the survey to indicate high unemployment. Therefore, non-participation is an important issue and methodological rigour requires for a survey to have transparent strategies to prevent or minimise these errors.

Having local and real time socio-economic indicators: India is a large, complex and diverse economy that is undergoing structural transformation. Hence, we are moving towards precision policy-making which requires local and real time socio-economic indicators. The nature and incidence of unemployment, for example, differs from state to state. This requires local measures of unemployment so that economic policies can be tailored depending on local conditions. For instance, unemployment is a rural phenomenon in several states, while in others it is concentrated in urban areas.

Involving state governments: The state governments will have to participate along with the central government to have comparable uniform measures of periodic unemployment. Unfortunately, at present, several state governments do not have the capacity to conduct regular surveys. Robust statistical systems will require that we begin to create such local capabilities urgently. It is time to move beyond one-size-fits-all solutions to more inclusive solutions that take into account local conditions.

Conclusion: Any figure should be accompanied with a wise and reasoned account of its liability to systematic and fluctuating errors. For a figure as important as the employment-unemployment data, which is to serve as the basis of many important decision, the accompanying account becomes important than the figure itself. To enhance India’s statistical capabilities, India move beyond the politics of it and focus on measuring with precision.