[dropcap]T[/dropcap]HE Chief Economic Adviser, Krishnamurthy V Subramanian, is a serious academic with numerous articles in refereed scientific journals. He must be happy that the Economic Survey (2018-19) is not a refereed publication: it would not have made it past the desk of a journal editor’s assistant.
The showpiece of the Economic Survey (ES) is a hashtag: #Economy@5trillion(Preface, Vol. 1). $5 trillion works out to Rs 375 trillion assuming an exchange rate of Rs 75 per USD in 2024-25 (footnote 1, p 4, ES (Vol 1)). This, according to the ES, will require the economy to grow at 8% per annum (pa) in real terms which, assuming an inflation rate of 4%, works out to 12% pa in nominal terms. Can India consistently grow at 8% pa for the next five years? The experience of the last couple of years is not encouraging and some of the macroeconomic indicators are quite dismal as is discussed below. And what happens if the real rate of growth is just 7%? Simple: inflation will have to rise above 4% to ensure that we still hit the target growth rate of 12%.
How will India become a $5 trillion economy? The proposed strategy is no different from what is required for any economy to do well: more investment, savings, jobs and exports. This is, of course, easier said than done. If the authors of the ES had looked at their own Statistical Appendix, they would have realized the dire situation in which the economy finds itself. Table 1.9 (p, A25, Vol 2) shows that the ratio of savings to GDP in the last three years of the UPA (which, by all accounts, were the worst in terms of management of the economy) was 33.5%; the ratio of investment, to GDP, was 33%; and the ratio of private sector investment to GDP was 25.9%. These numbers have worsened during the first four years of NDA rule: savings ratio has fallen to 31%, investment ratio to 28.9% and private sector investment ratio to 21.8%. Does the ES show any recognition of this? Apart from platitudes, there is little.
Nudge approach
Consider this: “To experience the potential of the perfect blend of Industry 4.0 and next-generation infrastructure, it is necessary to clear the decks which are obstructing the way forward” (p. 226, Vol. 2). Surprisingly, there is no reference to agriculture in this strategy for rapid growth. Incidentally, whatever happened to the promise of doubling farmer income by 2022? It has been hidden away in an annexure in Vol. 2 (p. 196) with no discussion of the progress made till date. Maybe a similar fate awaits the $5 trillion economy.
The strategy for making India a $5 trillion dollar economy is to be supplemented by some tactics (p. 12, Vol 1). Of these tactics, behavioural economics seems a particular favourite to which an entire chapter has been devoted (Chapter 2, Volume 1). A lot of policymakers seem enamoured by the “nudge” approach of behavioural economics and it is often seen as a magic wand to bring about changes in social norms.
This is not to deny that in some cases a nudge might shift social norms in a socially beneficial direction eg towards the usage of toilets in place of defecation in the open. But I am quite sceptical about changes in social attitudes towards the girl child by posting selfies of fathers with their daughters (Box 2, p 39, Vol, 1). I am also disturbed at the shoddiness of the claims that there is a positive correlation of access to toilets with female literacy and negative correlation with the percentage of females getting married before the age of 18 years. The messaging here is that the nudge towards the usage of toilets has somehow brought about a beneficial change.
The authors of the ES might protest that they have not suggested any causal relationship and that they are merely pointing out correlations. But the whole thrust of the nudge approach is that a paternalistic policy maker makes its move first (eg provision of toilets) and the good effects follow. It is also important to remember that the nudge can be a double-edged sword resulting in grave harm to society. It is no surprise that the ES makes no mention of the biggest nudge of them all, namely, demonetization, which as per government folklore, apparently encouraged people to move towards a cashless economy.
It is sad to see the ES peddling simple-minded “solutions” and giving credence to slogans like $5 trillion Indian economies. This harks back to the 1970s when similar empty slogans were common under a different prime minister. Maybe if Twitter had existed then #GaribiHatao might have become viral.
Ajit Karnik is a Professor of Economics, Middlesex University Dubai
