The economy is doing just fine, may suggest BJP supporters while others may contest it as strongly. But perhaps the Finance Minister will do well to address growing inequality and tax the rich
An Indian car dealer selling BMW or a Mercedes Benz car is, in all probability, quite happy with the economy. So would be people selling French wine, Louis Vitton products or running a luxury restaurant, which would be almost always full. It would be natural for people to exclaim and wonder why economists and at least some sections of Indians are so worried about the economy.
Indeed, luxury restaurants are reporting business as usual. Luxury tourism has not slowed down. Reliance has reported a 13.5% growth in its profit in the third quarter of 2019-20. And Mukesh Ambani has grown richer by more than 12 billion US Dollars in 2019 —in other words by ₹85,000 Crore. Just 10 Indians, the richest ten, are worth sixty per cent of India’s GDP if one includes their wealth abroad. Seven of these 10 richest Indians became richer by 26 billion US Dollars while the remaining three became poorer by two billion Dollars!
80% of our wealth is appropriated by just 10% of our people. In other words, if the economy is growing at 5%, as much as four per cent of it is being appropriated by these 10% rich Indians. The remaining one per cent of the growth are going to 90% of Indians. There are income and wealth disparities even among these 90% people, which is why the poorest 25% of Indians might actually have become poorer.
Barely a few years ago, the share of the richest 10% of Indians in national wealth was 50%. Had the economy grown by 8% then, only four per cent of the growth would have accrued to one-tenth of the rich then while an equal share of the growth, the remaining four per cent, would have benefitted the remaining 90% Indians. In contrast, they are likely to get one per cent of the growth this year if the economy grew by 5% this year.
This illustration shows why manufacturers and dealers of mass consumption, like biscuit packets worth Rupees five, are in such dire strait. Growing inequality and unequal distribution of wealth have a moral dimension to them. But inequality does not benefit the market economy either.
Will the Budget address this issue? Will wealth tax, inheritance tax etc.
be reintroduced in the budget? Unfortunately, the Modi Government already faces criticism rom within for tilting towards the Left. It may therefore be difficult for the Government to tax the rich as much as the situation warrants.
The heat and dust generated by the controversy and protests over CAA and NRIC, some believe done deliberately by the Government to divert attention from economic issues, have driven the economy out of the media. But by accounts the situation is grim and the economy is sliding into the ICU. Can the FM salvage the situation is the question. But then there is growing recognition that she is but a pawn and that the budget is being finalized largely by the PMO, if not the PM himself.
The Union Budget over the past few years has increasingly reflected the PMO’s imprint. Demonetisation in November, 2016 , it is now acknowledged, was decided by the PMO acting on its own. Similarly, the hasty implementation of the GST on the eve of the Gujarat election was again a decision for which the PMO was responsible. Decisions like introducing electoral bonds as a Money Bill or cut in corporate taxes last year, months after the budget was presented, also bore the unmistakable imprint of the Prime Minister.
So, while Finance Minister Nirmala Sitharaman will be reading out the budget speech on February 1, 2020, it will be Narendra Modi’s budget.
In December, 2019 the Government belatedly acknowledged that it had bungled by interfering with economic statistics. A 28-member Standing Committee on Economic Statistics was set up last month, with its first meeting scheduled for January 6, 2020, to improve the quality of statistics. This followed in the wake of widespread criticism of dressed up statistics or the government either disowning statistical reports or refusing to make them public.
With government’s figures suspect and the former Chief Economic Advisor Arvind Subramanian asserting that GDP figures in India had been consistently over-estimated, the assumptions made while budgeting will require much closer scrutiny than even last year, when the budget relied upon two sets of GDP growth figures, 11% and 12%, while making projections.
The former CEA estimated that the GDP in 2019-20 could be between 3 to 4%, and not even 5% that experts have projected. It remains to be seen what the Economic Survey and the Budget project, but if the growth is actually 3% then it would be the worst in two decades.
The outlook is made more grim because of the country-wide unrest in the wake of the CAA which is likely to affect growth. The assumption that the unorganized sector is growing at the same rate as the organized sector may not be correct. And by all accounts inflation is actually higher than what is admitted or perceived.
(The author is a former PSU chairman. The views are his own.)
source: NH
