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Economy takes centre stage in India’s current political discourse

business Updated: May 25, 2014 11:30 IST

In 1992, frail conditions had prompted Bill Clinton’s campaign strategist James Carville to pen the now-famous phrase “it’s the economy, stupid” underlining the need to take hard decisions to deal with an embattled economy. The phrase rapidly evolved into the de facto slogan for Clinton’s US presidential poll campaign.

Nearly a quarter of a century later, India finds itself in a similar state. Poverty, growth and jobs have become the centre-piece of India’s current political discourse – a welcome, and progressive departure from the shrillness of the divisive caste-religion discussions usually heard in an election year.

The economy, which till recently was touted to emerge as a regional titan rivalling populous neighbour China, both in terms of size and rapidity of expansion, is now snowed under a raft of problems.

India is estimated to have grown at 4.9% in 2013-14. Most analysts reckon that the turnaround of the economy is unlikely to follow a steep V-shaped path. According to a recent report by credit rating and research firm CRISIL, the Indian economy has an even chance of expanding at an average of 6.5% annually over the next five years — a sign that the slowdown is stickier than earlier thought.

Slower expansion will affect job prospects. Weak income growth, on the other hand, will also affect sales of a range of goods. Elevated prices have hurt family budgets hard, coupled with meagre salary hikes. High inflation has prompted the Reserve Bank of India (RBI) to raise lending rates.

Jobs, pending projects
The Bharatiya Janata Party’s 3D view – demography, democracy, and demand – is an encapsulation of India’s current problems. The solutions, however, are far more complex than a catchy alliteration.

Greater income prompts people to spend more as they climb up the income and social ladder, an aspiration-driven phenomenon that partly explains why the BJP’s “Aachen din aane wale hain” poll pledge probably connected with a class of young voters.

On an average, about 12 million people join the queue of job hopefuls every year. According to government data, even during the rosiest years of growth, between 2004-05 to 2009-10, when growth averaged 8.43%, the economy generated no more than 2 million jobs for the 60 million who joined the workforce.

This unemployment comes at a time when every sector is short of skilled workers. Finding the right jobs for these armies of young aspirants, removing them from unproductive farm work, making them and their future generations skilled, is something the Narendra Modi-led government will have to have high up on the to-do list.

Roopa Kudva, CEO and managing director of CRISIL said: “The lowesthanging fruits are fast-tracking of projects in the pipeline. This will pave the way for better returns on investment, create jobs, lift income growth and spur private consumption demand.”

Projects worth more than 200,000 crore are running late because of pending clearances at ministries and departments. Quick decision making and speedier implementation are vital to overhaul India’s collapsing infrastructure.

“Reducing regulatory uncertainty and simplifying procedures for obtaining clearances would be a priority. It would also help boost investor confidence appreciably, if the government can set up a single window clearance facility for investment related to infrastructure projects,” Deutsche Bank India chief economist Taimur Baig wrote in a research report.

Inflation vs growth
By all indications, the price situation could worsen, given a higher likelihood of deficient rains this summer. Retail inflation data — that has jumped up to 8.6 per cent in April — has already shown that food prices have begun to rise again. For the incoming government, this isn’t quite a happy situation to be assuming office.

The immediate task of the new government would be to revive growth, but it cannot drop the guard on taming the inflation monster. The RBI has firmly maintained its commitment to its priorities on price control, even though it may come at the cost of lower growth. Growth is critical to create additional jobs and raise peoples’ income levels.

Promises to keep
Thomas Mann’s Nobel prize-winning book Buddenbrooks: The Decline of a Family shows how ambitions change over generations. The first generation spends a lifetime earning money and trying to secure a better future.

The second generation, brought up in relative affluence, aspires to climb up the social ladder. For the third generation, social prestige and opulence are a given. So, it looks for a life of music.

India today is a veritable medley of the three generations. For the new government, the real challenge is to match the aspirations of the vast majority of those who earn their keep from the farms but whose children also seek to earn money and social honour.