In a nation’s history, a year is just a point in the continuum of time. Yet, some periods stand out from the crowd. Our guess is that 2014 could well mark the beginning of such a period.
Among the many insights into economic behaviour is the theory of revealed preference, which says buying actions are the best marker to a consumer’s mind.
If you have bought a product, you have revealed your preference for that good, a fact of vital importance not only to its producer but to its rivals as well. Until the Internet came along, marketers had very sketchy data about buying preferences for anything from automobiles to beverages. Online interactivity, on the other hand, has taken targeted advertising to heights unimaginable even a few decades ago when mass media was unidirectional.
What is true of the consumer is also true of the Indian voter. Hardly surprising, then, that as we enter the business end of the 2014 Lok Sabha elections, political parties are expending so much of time on social media to get a peek into the voter’s mind, for nobody’s sure about her preferences.
What, however, is certain is that the economy needs an overhaul after sputtering over haywire prices. Stubbornly high food prices have been emblematic of our inflation woes, as onion prices, along with most vegetables, have quadrupled ahead of a general election.
India’s wholesale inflation has breached 7% and retail inflation has touched double-digits at 10%, as consumers continue to battle a sticky spell of high prices, deepening problems for a government trying to push growth.
Apart from roiling consumers, India’s high inflation has hobbled the government’s efforts to pull the economy from a decade-low slowdown.
Creation of decent jobs outside of agriculture is one of the biggest challenges that confront the policy makers trying to achieve faster, sustainable and more inclusive growth. This fits in perfectly into Polish sociologist Zygmunt Bauman’s classification of modern society that “cast[s] employment as a key — the key — to the resolution of the issues of, simultaneously, socially acceptable personal identity, secure social position, individual and collective survival, social order and systemic reproduction.”
Spinning new jobs, therefore, is critical for India’s long-term socio-economic equilibrium.
For this to happen, growth or rise in earnings, greater investment and, above all, speedier project implementation, are necessary conditions. Achieve this, and jobs and the ability to spend will follow.
Large corporations that are visibly, and aggressively, global are important. But as many experts point out, they are, in a sense, incidental to India’s future, which appears to lie in the millions of small, micro and medium enterprises that are spread across the dark tanneries of Mumbai’s Dharavi slum township, in the room-sized waste-recycling units of outer Delhi and elsewhere in the country. Put together, these grubby factories contribute to half of India’s factory output, 45% of exports and employ more than 60 million people.
Least recognised is the ailing agriculture sector, which employs half of India’s population, about 600 million people, produces no more than 15% of GDP and lives from monsoon to monsoon. Without any rapid improvement in infrastructure, education, or institutions there will be fewer jobs created outside of the farms increasing pressure on land and lowering incomes. Introducing urgent reforms in agriculture, India’s most unreformed and least productive sector, should, therefore, be at the core of current policy-making.
Rapid obsolescence and the fast-falling cost of technological acquisition are adding to the growing divergence between skills and jobs on offer, which can result in serious sociological imbalances. The idea of a permanent job has more or less disappeared.
A modern, competitive economy will have to offer its citizens an abundance of options to positively exploit a basket of opportunities. To be sure, more than two decades of reforms have only increased economic freedom by a very large degree. For instance, the set of choice of desirable jobs for a young graduate has expanded vastly from medicine, engineering, and government services earlier to working in a coffee bar to a retail superstore now.
It is vital for the government to press ahead with critical reforms, some of which need to be voted into law by Parliament. Hiking the FDI ceiling to 49% from the current 26% in India’s rapidly growing private insurance sector is more about reversing the slowdown in India’s economy, and less about allowing foreign investors access to household savings. India is in dire need of resources to fund its infrastructure needs to build highways, ports, airports and railways.
Investment decisions are well thought-out and predicated on a variety of factors including global perceptions about the destination country. Importantly, we cannot lose sight of the fact that India will be competing with other emerging nations to attract from the same pool of dollars.
What is clear is that whoever forms the government in 2014 must have a stomach for unpopular choices to revive the economy and provide clean governance. Whether it is the crying need for governance reform, fresh investment in crumbling urban infrastructure or addressing our shortcomings in the fields of health and education, much needs to be done. Challenges are all around us, but solutions are also within sight. Over the next few days, HT will carry columns by experts across various fields, offering their advice on ways in which we can solve these problems in the coming months and years.