| There
is a resurgence of economic triumphalism among Indian
elites, who have been celebrating how the Indian economy
withstood the global crisis to maintain respectable
rates of output growth. Despite price rises, consumer
demand is buoyant, especially for goods and services
consumed by the rising middle classes. The housing market
is experiencing yet another boom, fed by increasingly
dubious lending patterns of the major banks. Services,
especially the ''modern'' services, continue to flourish
despite all the recent evidence of widespread scams.
So most private investors, both local and foreign, are
bullish about future prospects.
But the story is rather different if you step out of
the confines of this small minority. There are no significant
improvements in the indicators that matter for most
people, like stable employment, better livelihoods,
reduced hunger and more basic human development. Large
parts of the country continued to languish in generally
dreadful conditions. India continues to have the largest
number of hungry people in the world, and our nutrition
and education indicators are down there with Sub Saharan
Africa. Because economic growth has not generated enough
productive jobs, the bulk of the work force is in very
fragile and precarious forms of self-employment. Wages
have barely risen as profits have exploded, jobs are
hard to come by and people are being displaced for projects
that bring no improvement to their own lives. All this
leads to a growing number of disaffected youth whose
frustrations make them more prone to violent or socially
undesirable behaviour.
The commonality across these two very different worlds
is concern with inflation (especially food inflation),
which has emerged as the biggest immediate economic
problem in the country today. For most people in the
country, the other big concern is productive and gainful
employment. So what are the messages in the Union Budget
about the government’s intentions to address these issues?
The dramatic increase in all the stock markets indices,
once investors had absorbed the implications of the
Budget announcements, said it all. This is a Budget
with very strong income distribution implications: very
clearly favouring the upper income categories of the
population, and likely to reduce the real incomes of
wage earners and self-employed.
This Budget will definitely add to the cost-push pressures
that have already led to rapid increases in prices in
the past two years. To control food prices, it was essential
to focus on measures that will increase food supply
and expand distribution, as well as to ensure that marketing
margins and speculative activity do not go up by providing
more resources for public distribution. But no resources
have been set aside for this.
Meanwhile, indirect taxes have been increased, even
on previously exempt items of mass consumption, which
have been brought under the VAT regime. The Finance
Minister announced his intention to abandon subsidies
on kerosene and fertiliser, in favour of cash transfers
to a designated category of beneficiaries. This means
first of all an increase in the market prices of these
goods consumed by the poor and by farmers, with uncertain
later monetary transfers for a subset of consumers.
Petroleum prices were recently deregulated, itself a
problematic move in a period of extreme global price
volatility. To lessen the burden on the people, it was
widely expected that the government would at the very
minimum reduce its own tax rates, since it is anyway
getting windfall revenue gains from the high world prices.
But this has not been done, and fuel prices are therefore
likely to keep increasing. Since oil is a universal
intermediate that enters into all other prices, this
will obviously have a further impact on inflation.
In any case, the attempt to control the fiscal deficit
by restraining expenditure has other adverse effects,
which affect the chances for gainful employment. Cutting
public spending has negative effects on other economic
activities because it operates to reduce demand for
them. This in turn affects both employment prospects,
so here too, there is little to cheer about.
The inadequacy of public services in health and education
is very well-known, but they are also strongly related
to the fact that the government simply does not provide
enough resources for quality service provision. There
is hardly any increase here, so Indian will continue
to have some of the poorest human development indicators
in the world.
The adverse implications of such a strategy go beyond
this. There is a growing number of disaffected youth
whose frustrations make them more prone to violent or
socially undesirable behaviour. Growing inequality and
material insecurity increase the receptivity of local
people in depressed areas to ''extremist activity'' designed
to overthrow an economic system that is seen to be completely
unjust.
The resulting instability can have all sorts of expected
and unexpected effects, as governments across the developing
world are finding in painful ways.
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