The COVID-19 lockdown exposes how per capita GDP is more important for our citizens than total GDP.
India’s GDP story is interesting: We crossed the UK two years ago, France last year, and will cross Germany and Japan in the next five years. That will leave only America and China ahead of us. But our per capita GDP story is embarrassing. We once equalled Korea (1960) and China (1997) but today there are 138 countries ahead of us. The COVID-19 lockdown exposes how per capita GDP is more important for our citizens than total GDP.
Why did India deliver political empowerment — despite the infertile soil of the world’s most hierarchical society — and botch economic empowerment? The magnificent recent book, Gandhi: The Years that Changed India, by Ramachandra Guha, suggests that while other patriots had used Swaraj to signify national independence, Gandhiji made India aware of its true or original meaning, Swa-Raj, or self-rule. Our collective political Swaraj hasn’t always translated into individual economic Swa-Raj because of inadequate formalisation, industrialisation, urbanisation, financialisation, and skilling. The Atmanirbhar Bharat Abhiyaan (ANBA) policy announcements last week react to COVID-19’s economic pain but are important moves in meeting Gandhiji’s vision of individual self-reliance and recognising poverty as the worst form of violence.
ANBA targets avoiding unemployment becoming hunger and illiquidity becoming insolvency. The agriculture package of Rs 1.63 lakh crore included farm-gate and aggregation point infrastructure, fisheries, animal husbandries, and others (animal vaccination, micro food enterprises). The non-bank liquidity package of Rs 5.94 lakh crore included MSMEs, NBFCs, MFIs, housing finance companies, power discoms, and others (PF, tax relief). The migrant and farmer package of Rs 3.16 lakh crore included concessional credit via kisan credit card, farmer working capital, affordable housing, and others (food, street vendors, microloans). The welfare and health package of Rs 1.85 lakh crore included women and pensioner benefits, MNREGA, emergency health response, and others (food, financial security). RBI’s liquidity measures of Rs 5.24 lakh crore included two phases of targeted long-term repo operations, CRR cut, marginal standing facility limit increase, refinancing facilities, and mutual fund special liquidity facility. ANBA’s structural reform in airlines, defence, etc, are exciting but reform to the Essential Commodities Act, APMCs and contract farming directly impact prosperity (45 per cent of our agricultural labour force generates only 14 per cent of GDP)
ANBA is also important for what it is not. It’s not a fiscal bonfire: Total spending may be higher if guarantees crystalise but for now, it marginally raises our already difficult fiscal deficit. It’s not an institutional assault — RBI’s role in ANBA keeps it away from the political minefield that the US Federal Reserve has entered by recognising RBI has lending powers, not spending powers. It’s not a mindless public sector expansion: The end of monopolies and new public-private partnership opportunities signal pragmatism and efficiency targeting. It’s not waiting for potential COVID upsides: it makes us worthy if risky global just-in-time supply chains get replaced by resilient just-in-case diversification. It’s not shutting off India from the world. It creates new openness to ideas, investment, and trade.
The unfinished agenda for ANBA 2.0 includes civil service reform (the steel frame has become a steel cage), government reform (Delhi doesn’t need 57 ministries and 250 people with Secretary rank), financial reform (sustainably raising credit to GDP ratio from 50 per cent to 100 per cent), urban reform (having 100 cities with more than a million people rather than 52), education reform (our current regulator confuses university buildings with building universities), skill reform (our apprentice regulations are holding back employers and universities), and labour reform (our capital is handicapped without labour and labour is handicapped without capital).
A modern state is a welfare state with formal private jobs. The idealisation of Scandinavian social democracies forgets that their dense social security nets are underwritten by remarkably free economies. The World Bank Ease of Doing Business scale ranks Denmark third, Norway seventh, and Sweden 12th of 190 countries. Despite — or thanks to — America’s capitalism, its central government spends 37 per cent of GDP (India’s spends 14 per cent) and its ferocious fiscal pandemic response involves $3 trillion government borrowing in the next three months.
People suggest the US can sustain its welfare state because it has the world’s reserve currency, but I believe America can afford its welfare state because of the productivity of its cities (New York’s GDP equals Russia with 6 per cent of the people and 0.00005 per cent of the land), companies (the $4.5 trillion revenue of its 25 largest companies is more than Germany’s GDP), and citizens (per capita income of $55,000). India’s welfare state does not lack intentions but lacks resources. No amount of CSR, philanthropy, or government borrowing can provide the resources for the care of our weak, vulnerable, and unlucky that will flow from more productive cities, firms, and citizens.
The global economic implications of COVID are unmodellable. India missed the manufacturing export train that China boarded but another may be coming. Even if it isn’t, India’s economy is weaker than predicted by Harvard economist Ricardo Hausmann’s economic complexity model. Our high economic complexity has not translated into economic prosperity because of regulatory cholesterol whose removal has begun. Policy reform is not the solving of a sum but the painting of a picture — 90 days after the lockdown ends, we need ANBA 2.0 to finish the job.
The poet Iqbal is known for his wonderful song Sare Jahaan Se Achha Hindustan Hamara and his philosophy of khuddi or individual self-reliance was an important inspiration for political freedom in 1947. But India bypassed economic freedom and missed her economic tryst with destiny. She has now made another appointment to raise her per capita GDP. As Iqbal wrote, “Tu Shaheen hai, Parvaaz hai kaam tera”. You are a falcon and it is your duty to fly. It’s not only our duty. It’s also our time.
Written by Manish Sabharwal, Chairman and Co-Founder, TeamLease Services
Disclaimer: This article was first published on The Indian Express. No changes to the content has been made.