Justice Markandey Katju-
Shekhar Gupta is one of the well-known journalists of India, and like almost all Indian journalists he is totally superficial while posing to be an ‘intellectual’. In his YouTube show ‘ Growth in free fall, ugly economic data ‘, in the portal The Print, he has projected himself to be an expert in economics and given suggestions how to fix the Indian economy.
There is no doubt that the Indian economy is in the doldrums, GDP falling below 5%, auto, IT, real estate and other sectors in terrible shape and millions unemployed. There has been a lot of discussion on this on the media, and so I am not going into the details of the malady. The question is how to cure it.
Shekhar’s suggestion is (1) the state should get out of the business of business. For this, public sector banks (after first consolidating them ), Air India and other public sector enterprises, should be privatized (2) the rupee should be weekend, to encourage exports.
So the cure, according to this wizard in economics, is ‘ Ganga snaan ‘, i.e. more encouragement to private enterprise and more privatization.
But what this genius misses to note about our economy is the central point: there is little demand, and there is little demand because most people in India are too poor to buy.
Our national aim, and the solution to India’s massive socio-economic problems is rapid industrialization and making India a highly developed country (like North America or Europe), for only then can we generate the wealth for providing for the welfare of our people, and creating millions of jobs. We did not have the potential for this in 1947 as then we had very few industries and very few engineers (since the policy of the British rulers was broadly to keep India feudal and backward). After 1947 the situation changed, a heavy industrial base was set up and there was a limited degree of industrialization. Today we have two of the three requirements of becoming a highly industrialized country (1) a huge pool of technical talent, engineers, technicians, scientists, etc. (our IT engineers are manning Silicon Valley in California, and there are Professors in the Science, Engineering and Medical Departments in many American Universities) (2) immense natural resources.
However, what is still lacking is a huge domestic market, and the cause of that is that most of our 1350 million people are too poor and so have very little purchasing power. After all, the goods manufactured or produced must be sold, but how can they be sold when people do not have the money to buy?
So the problem is not how to increase production (that can easily be done) but how to raise the purchasing power of the masses?
In the Soviet Union, rapid industrialization began in 1928 after the adoption of the First Five Year Plan. The methodology adopted then was broadly this: prices of commodities were fixed by the government and were regularly reduced by 5-10 % every 2 years or so (sometimes wages were also increased by 5-10 % ). In this way, by state action, the domestic market was steadily expanded, because when goods become cheaper a person can buy more goods, even though his nominal wage remained the same (real wage is relative to the price index). Simultaneously production was stepped up, and this increased production could be absorbed in the domestic market (since the people’s purchasing power had increased). This rapid industrialization created millions of jobs, and unemployment disappeared in the Soviet Union.
This way the Soviet economy rapidly developed, at a time when the Great Depression, starting from the Wall Street Slump of 1929, had engulfed America and Europe, a quarter or third of whose workforce had become unemployed, thousands of factories having closed down.
Now the important thing to note here is that this was done by state action. So, to leave the problem to private enterprise, as Shekhar suggests, will solve nothing. Businessmen are not fools, and they will not invest when there is no market. As Keynes pointed out, free capitalism no longer works as a self-regulating mechanism (the ‘invisible hand’ of Adam Smith) but increasingly leads to destructive results.
It may also be mentioned that we cannot over-rely on foreign markets for the growth of our economy, as that would be precarious. That market may be cut off by a recession in the host country, or captured by a foreign power like China, which has become increasingly aggressive. So, for stability, we must basically depend on our domestic market. We have a huge population, and if we can increase their purchasing power our problem would be solved.
Of course, this is not possible within the present system in India, so the economic crisis is going to get worse in the coming days.
[Justice Markandey Katju is former Judge, Supreme Court of India and former Chairman, Press Council of India. The views expressed are his own]