India's New Government and Its Economic Outlook

Article excerpt

THE economic policies and actions of the new Indian government, which came into office following its election victory last May, will be driven by political objectives that are probably as crystal clear as those that any government has ever had to formulate. Wise after the event, politicians of almost all parties, political analysts, economists, academics and the pundits and commentators of print, radio and TV seem to have reached an almost unprecedented consensus about the lessons of the election.

Economic growth, at levels previously almost unknown, had benefited the urban, better off, better educated classes in a consumer boom of mobile phones for those sophisticated enough to use them, household appliances for those with space to accommodate them and TVs and videos for those with electricity to power them. Home computer sales jumped--to those already literate and numerate. Mobile phone sales went up 20 per cent in one year. The revolution in the outsourcing of helpline, back-office and front-office work from the US and Europe to India increased the job prospects and the salaries of the already-educated young of Bangalore, Chennai, Hyderabad and Delhi (see Contemporary Review, April 2003). This sector is now worth $3.6 billion and grows at 50 per cent per year.

But at the other end of the scale over 50 per cent of the people continued to have no phone at all and more than half of the rural and urban poor continued to have no electricity or running water. Countless more millions continued to live an impoverished life in slums and shanty towns within the cities.

Somehow, perhaps partly blinded by complacency, the commentators lost sight of some of the persisting facts of Indian life. The birth rate means that although the 'economic miracle' had been creating one million jobs annually, some nine million entered the workforce. The IT sector accounts for fewer than one million employees in a workforce of 430 million. World Bank figures state that India accounts for 40 per cent of the world's poor, i.e. defined as living on less than $1 per day. Even the politicians seemed to underestimate the importance of the fact that these illiterate, innumerate, people who try, sometimes unsuccessfully, to scratch a subsistence from village lands actually make up 70 per cent of the population and the electorate.

The clarity of the political objectives and economic policies for the government was such that it could be stated as keeping the economic growth going but getting more of it down to the lower levels. The trickle-down effect has to become more of a flow-down effect. Or in the more honeyed words of the government's 'common minimum programme' it aims for 'reform with a human face.'

For the purposes of this article, all the matters of getting the required national growth rate I am describing here as the macro subject, however untidy that may appear to the economic purists. The matters which are to do with getting resources to the under classes, I am describing here as the meso economic subject. I was tempted to use the word micro but that would have been even more unacceptable to the purists and I am just enough of a purist myself to feel that the subject was too far away from the normally accepted characteristics of micro economics. Meso economics may not be a commonly used term but I hope it serves my purposes in this article.

The government will be tested on how it manages the macro job of getting 7 to 8 per cent annual growth and on how it manages the meso job of how to get a full share down to the worst off. In both of these tasks it will be tested on how it can change the patterns of history and it will be tested on the matter of competence.

The Government's Macro Task

There is a discernible pattern in Indian politics and economics which shows that change has tended to take place only very slowly and gradually. This applies even when there have been, as in the recent past, radical changes of government. …