ECONOMY
GDP PROJECTION SLIDES
The Indian economy: What is the real way out of this crisis?
- Markandey Katju
The Indian economy: What is the real way out of this crisis?



The International Monetary Fund (IMF) has lowered its global economic growth projection for 2020-2021 due to sharp decline in the Indian economy, which is now estimated to grow 4.8% in 2019-2020, whereas in October the IMF had projected an expansion of 6.1% for it. 

In recent months the Indian economy has tanked, with sharp downturn in manufacture and sales in the auto sector and other manufacturing units, sharp dip in the IT sector, and real estate sector in the dumps. There have recently been massive lay-offs, and record unemployment. 12 million youth are entering the Indian job market each year, but jobs are getting less, as even the National Sample Survey, a Govt of India organisation has admitted.

At the same time, prices of foodstuffs and fuel have soared. The future looks even more gloomy, and the Indian politicians at the helm of affairs seem to have no inkling how to resolve this crisis, and so all they can do is to resort to gimmicks to divert attention of the people e.g, building Ram Mandir, Cow Protection, Yoga Day, Swatchata Abhiyan (cleanliness drive), abolition of Article 370, Citizenship Amendment Act, etc and making Muslims a scapegoat responsible for all the country’s ills (like Jews in Nazi Germany).

What, however, is the real way out of this economic crisis?

The way out is rapid industrialization of the country, as that alone can create the millions of jobs needed to wipe out unemployment and generate the wealth required for the welfare of the people (for education, healthcare, housing etc).

However, there is a basic hurdle to rapid industrialization, and that is this : while there is no difficulty in increasing production, the products will not be sold because our people are poor and hence have little purchasing power. 

India today is not the India of 1947. At that time we had few industries and few engineers, because the policy of our British rulers was broadly to keep us feudal and unindustrialised. After Independence, however, there was a limited degree of industrialization, and today we have thousands of bright engineers, technicians, scientists, etc and we have immense natural resources. With these we can easily step up production rapidly. 

But the problem is how to sell these products? After all, they have to be sold, but our people are poor and have little purchasing power. So the basic problem is not how to increase production (that can easily be done) but how to raise the purchasing power of the Indian masses?

In India we have plenty of economists, many having Ph.D.s from Harvard, Yale or the London School of Economics, but not one has any notion how that can be done. 

In January 1914 Henry Ford raised the wages of his workers (in the plant manufacturing his Model T cars) from $ 2.25 to $ 5 per day. That was of course done to stabilise his workforce, but it did raise the purchasing power of the American masses, as other American manufacturers were compelled to do the same. However, it is unlikely that Indian businessmen will do likewise.

In the Soviet Union the main industrialization began in 1928 after the adoption of the First Five Year Plan. The methodology adopted by the Soviet leaders was broadly this : the government fixed prices of all commodities, and every 2 year or so lowered them by 5-10% (sometimes wages were also increased by 5-10%). Even with the same wage, the worker could now buy more goods, as prices had been reduced. This way the purchasing power of the Russian masses was increased by state action, and thus the domestic market steadily expanded.

Simultaneously production was also stepped up, and the increased production could be sold as people had more purchasing power. This process went on steadily after 1928, resulting in rapid expansion of the Soviet economy and creation of millions of jobs, which wiped out unemployment.

This happened at a time when after the Wall Street Slump In 1929 the Great Depression set in in America and most of Europe, thousands of factories closed down, and millions were unemployed.

It may be noted that the purchasing power of the masses was raised in the Soviet Union by state action, not private enterprise. I do not mean to say that India too must adopt exactly the same technique as the Soviet Union for raising the purchasing power of our masses, but I believe that like in the Soviet Union it can only be done by state action, not private enterprise. 

This, however, can only be done in another political system, not the present one which we have in India. What that alternative system will be under which the purchasing power of the Indian masses rises and the Indian economy rapidly grows is difficult to predict.
 
 
Justice Markandey Katju is former Judge, Supreme Court of India and former Chairman, Press Council of India.
 
 

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