Takeaway from Gujarat elections: Growth becomes truly big bang only when it...

Takeaway from Gujarat elections: Growth becomes truly big bang only when it is inclusive

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If Prime Minister Narendra Modi were to have a year-end appraisal, this would probably count as a ‘better than expected’ year. GST delayed didn’t become GST denied. The same government that had once tied itself in knots trying to amend the land acquisition bill has now shown enough political sagacity to convince the irascible opposition and sceptical states to sign the grand bargain.

A massive $32 billion bank recapitalisation package on the first anniversary of bankruptcy and insolvency legislation was a bold financial commitment to unclog the investment pipeline. Demonetisation was a juggernaut in probably the most literal sense of the term’s reference to the enormous crushing raths of the famous Jagannath temple. Outlawing 86% of the currency in circulation; only to win the mandate in a 200 million strong state with one of the highest poverty rates in the country – is an impressive play of political roulette!

It’s been a ‘big bang’ year – probably the closest to the sky high expectations of economic volte-face that came with Modi’s ascension to power. This year wasn’t just about bureaucrats arriving on time, doe-eyed first time ministers trying to make a difference, or institutions and schemes getting a shake-up, amidst an effervescence of cringeworthy acronyms (remember the early days when ‘FDI’ was supposed to stand for ‘First Develop India’). For hardship or for hope, this year has seen the government managing to assert direct impact on people’s lives, livelihoods and expectations.

But BJP’s victory in Gujarat elections has been underscored by a vicious rout in the rural belt. My co-panellist in a recent news debate, representing Congress, seemed to suggest rather patronisingly that while urban voters get easily seduced by government talk of reform, rural voters steeped in economic misery are less easily impressed.

It is however an interesting argument, one worth testing across the country. ‘Gujarat model’ is after all now the ‘India model’ too; one that focuses on sharpening governance to ensure that high tech industries and services find it easy to get licenses, land, power and infrastructure. The temptation of a smooth new flyover, or a state-of-the-art MNC factory, or as is the case in Gujarat, an imported bullet train – are trophies that any state government would salivate for.

There is nothing wrong, per se, with good governance promoting world class industry. However this often risks overshadowing reform in the arguably less sexy rural and farm sectors. Agriculture policy at a national level remains highly dysfunctional, with the government ironically controlling and at the same time losing control of farm market dynamics.

Farmers with rising input costs, increasing debt burdens, random export restrictions, almost non-existent safety nets and underwhelming floor prices set by the government – have grown increasingly impatient. The government’s masterplan of freeing agriculture marketing from the clutches of traders, and delivering a digital revolution for farmers is still far from making any difference.

The other tea leaf at the bottom of the Gujarat election cup has been the disenchantment of youth – forming political bubbles in the shape of quota demands and caste mobilisations. India has possibly the world’s largest cohort of under-35 adults, yet companies struggle to find decently skilled candidates. The mismatch leads to around 80% of India’s workforce being self-employed or in casual labour. A state inviting a world class car manufacturer to set up a factory should expect automation, rather than an answer to widespread unemployment. There will be growth, but it will be jobless.

South Korea may have a lesson for us in ‘big bang’ economics. Back in the 60’s it was a largely agrarian economy. But within three decades it got its economy and human development to the standards of developed countries. Yes, this involved making cars and phones and cutting edge electronics. But it also invested aggressively in universal healthcare, social security and education – so much so that its Human Development Index (HDI) rank jumped by as many as 26 places in those 30 years.

India’s HDI rank is presently lower than it was around 20 years back. Recall that this has also largely been the period of economic liberalisation, increasing prosperity and plenty of supposedly ‘big bang’ reforms. But as Gujarat elections once again remind, growth becomes truly big bang only when it is inclusive.

By – Aurodeep (Economist) in Times of India
Source: Times of India

 

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