The Modi government is smug with the expectation of an 8% growth in 2022–23. However, the environment around us is not currently conducive to this. India’s neighbours, with the exception of Bhutan and Bangladesh, are falling like ninepins with their economic chaos imposing additional costs on our nation.
With inflation being a major factor, danger is lurking in all corners for the country. Foreign reserves have sharply declined from 17 months imports to hardly 12 months and a further fall will follow a hike in Fed rates. Retail inflation at 6.75% is not going to decrease when the full transmission effect of steep rise in fuel costs are taken into account. It will spiral up as seen in the past and currently witnessed in the US, with additional financial costs to the government.
With the noose tightening around the neck of Russia, the dwindling supplies of oil and spares on which we are dependent is pushing us into Chinese hands as can be seen from the steep rise in imports from Beijing.
Our household savings, crucial for investment and now at a little more than 30% of GDP, have to improve to a level of 36% for the economy to grow at 8%.
The state of employment generation has not improved and large industry has shown a decline likely due to the increasing use of AI and robotics. Labour participation rate is down to 40% in 2021.
Here are some problems that have not yet attracted national attention: 1) The rapid introduction of electric vehicles will cause a sharp decline in employment in the automobile sector and hundreds of thousands could be jobless in the next few years. Increasing pollution will force India to shut down thermal power plants and coal mines leading to mass unemployment. To tackle this, the government has to work on a mission mode with the industry and all stakeholders so that social unrest is prevented.
2) Agriculture labour is 144 million strong and predominantly low paid. The government must enable a smooth transition of these workers into more productive and better-paying jobs to bring down the proportion of 42% population dependent on agriculture to 25% in the next five-seven years. District-wise planning would be necessary and this would be of lasting benefit and more enduring than distributing Rs 6,000 per farmer as no one amongst the 144 million agricultural labourers is benefitted by this.
3) The disparity amongst states in India is worrisome with Bihar having a meagre per capita income of Rs 50,733 as against the Rs 5.2 lakh of Sikkim. Fourteen states in India have a per capita income above $3,000 and 14 below $2,000. Though the disparity is growing day by day, no Economic Survey has dealt with this incongruity yet. We cannot afford this as it will lead to an increase in migration and attendant social and economic tensions. Dispensations by the Finance Commissions have not made any impact indicating the lack of governance in these states. Ministers should be more worried about this than issues of language and religion that provoke unrests.
4) The inequality in incomes that gives rise to the birth of Maoist-type organisations have to be addressed by reducing inequality rather than allowing it to increase sharply as happening in India.
5) In a country with diverse culture, language and religion, states will continue to assert their identity whichever party may be in power. But the Central government seems to ignore even the genuine feelings of states when introducing major reforms in education or agriculture that affect everyone. Political unrest and dissatisfaction will not help in accelerating growth.
So I would like to propose the following:
1) Government should levy a wealth tax of 3% on all shareholdings by individuals and organisations above Rs 25 crore share value being taken at the average traded price in the previous year. The tax should be extended to all properties owned and those paying a property tax in excess of Rs 50,000 per annum. This should net around Rs 1 lakh crore to be shared by the Centre and states equally. The amount should be used only for transitioning agriculture labour to more productive occupations, improving the quality and quantity of vocational education, and on improving health facilities in rural areas. The GoI should target economic improvement in poor states to reduce the gap in incomes.
2) The Central government should set up commissions with full involvement of states and businesses to tackle mass unemployment arising out of transformational changes in industry and in the power sector, particularly due to electric vehicles replacing internal combustion engine ones and coal plants shutting down with the consequent closure of coal mines.
3) The Railways should be directed to use their land for generating solar power to meet their requirement of power within three years.
4) Targeted completion of EV charging stations across all national and state highways.
5) Central and state governments should immediately introduce measures to cut down their consumption of fossil fuels by at least 10%, setting an example for others.
6) States and the Centre should fill up all vacant posts.
7) Last but not the least, the involvement of states in decision-making on national issues is a must and should be achieved by setting up national councils of state ministers on the pattern of GST (the author as revenue secretary convened the first meeting of the state finance ministers when Dr Manmohan Singh was the finance minister, which has become the GST council now) for agriculture, industry and exports, health and education as inevitably many states will be under regional parties and should not be allowed to be at loggerheads with the Centre on crucial national issues.
As the saying goes, “Never leave time till tomorrow which you can do today.” Time and tide wait for no man and the Modi government has to act fast before getting into an election mode.
M R Sivaraman IAS (Retd.) Former Revenue Secretary, Government of India