Aatmanirbhar Economics: A Critical Evaluation

As India emerged out of the cusps of the third lockdown, which lasted for around two weeks, the Centre said that it was in favour of opening up the economy. It had no real alternative to this quandary- almost replicating the likes of a catch-22 situation- after all, domestic industries and firms have been battered by the dip in production and consequent revenue loss due to a total disruption in supply chains. The pandemic, which has harboured an economic impasse of monumental proportions, also dumped with it a tide of unbearable suffering and a string of humanitarian challenges amongst the less privileged. A full-blown migrant crisis today threatens the very societal strand that fuels India’s growth and has been exacerbated multifold by a complete lack of empathy and concern for their case. Amidst such harrowing times and with widening mass-scale distress evident in the economy post the lockdown, direct fiscal intervention by the government was the need of the hour.

The ‘Aatmanirbhar Package’, a relief and stimulus package announced by PM Modi as worth ₹20 lakh crores, or nearly 10% of India’s GDP, was quick to raise hopes. Would the ruling dispensation opt for cash benefits and tax holidays, and relieve stressed sectors of their humongous debt burdens? With the net worth of the package split into five tranches, it necessitated a patient wait to find out whether the government was sincere in its attempt to provide an escape route. The bane of the pandemic’s impact soon blossomed into an opportunity for the government to drive home much-needed reforms, particularly in agriculture, defence, DISCOMS and the MSME sectors. Perhaps the most significant changes that came to fruition were the re-categorisation and easy capital access for the MSME industries, amendment of the Essential Commodities Act for agro-allied activities, automatic FDI approval of up to 74% in the Defence sector, and increased support for privatisation of strategic sectors. On closer introspection, however, much of the package is merely liquidity support from the RBI’s earlier market measures and credit guarantees by the government, and the direct fiscal impact and cash outgo for the government stands pegged at less than 1% of the GDP. A break-up of the same will further illustrate matters.

Looking beyond the obvious

It is evidently clear that the net cost of the Aatmanirbhar financial stimulus package to the government is much less than the projected 10%, realistically hovering somewhere around 5.29% of the GDP (Edelweiss estimates). However, direct fiscal support, which was most anticipated, was a huge let-down- totalling to a plaintive figure of 0.49% of the GDP. It does not come as a surprise, as the package involves RBI’s liquidity-boosting measures which were made earlier as a part of the scheme. Although the government controls the fiscal policy, the RBI is an autonomous body and decides the monetary policy through its bi-monthly MPC meetings. It is crucial to understand that the government’s expenditures and the RBI’s measures are not equivalent and hence, are not additive prima facie. Nowhere in the world has such a fiscal package been declared, which involves the support of the apex bank. An excellent case-in-point would be that of the United States’ $3 trillion (approximately ₹225 lakh crores) package, which was completely governmental expenditure and did not hold into account the effects of the Federal Reserve’s decisions. All in all, the deal is primarily aimed at supply-side measures, and there exists no provision for cranking up demand-side figures through a resort to deficit financing. The Aatmanirbhar Package is effectively medium to long-term in vision and does very little to alleviate the concerns of the economy in the immediate vicinity.

Let us take the case of the Micro, Small and Medium Enterprises (MSME) sector. A substantial chunk (nearly 94%) of these are labelled as micro industries, which were earlier handicapped by rigid investment parameters. The recategorisation now permits a more fluidic definition of the industries, basing the division on a turnover-based criterion to allow for higher investment limits. The differential grading for manufacturing and services MSMEs have also been eliminated. Under the new norms, micro industries should have an annual turnover fewer than ₹5 crores and an investment of less than ₹1 crore. This is a remarkable hike from the earlier investment criteria of a maximum of ₹25 lakhs for manufacturing industries and ₹10 lakhs for service-based firms. However, apart from the contextual change in definition, there is not much to cheer for. Instead of directly infusing money into the MSME sector, the government has chosen to tread the path of credit guarantees, by facilitating cheaper and easier loans to the tune of ₹300,000 crores. A provision for subordinate debt has also been included for “stressed” MSME firms and is worth ₹20,000 crores, out of which the government will partially guarantee ₹4000 crores. Thus, even in the event of a failure, the government will back up the lender with a part of the recovery amount.

However, credit guarantees often take time to materialise in totality. Loans are not instant; and even if the floodgates are opened, it is unlikely that the banking sector would like to get itself submerged in a torrential volume of small-sized loans. Rather, it may give rise to cronyism, where more prominent players are accorded the sizeable portion of the pie, while the comparatively insignificant firms are left in the lurch to fend for themselves. Even in the best-case scenario, availing of the credit facilities extended by the government may not do much good. The Chamber of Indian MSMEs (CIMSME) noted with displeasure that while they were hopeful of direct measures such as the waiver of electricity charges, salary payments and the like which would have helped them to stay afloat amidst the turbulent times, availing of new loans was simply put, an unviable option. Product marketing, sales and realisation of revenue is not possible in the pandemic situation owing to several curbs and restrictions. With no new contracts in sight and demand for the goods at an all-time low, industry scions are of the view that marginal utility for fresh capital would be negligible at best. Additional loans without sufficient production would also drive up the Incremental Cost Output Ratio (ICOR), thereby hampering growth.

The stimulus package also failed to bring about solid relief for the two worst-affected sectors post the lockdown: hospitality and aviation. A report prepared by the Confederation of Indian Industries (CII) with Hotelivate estimates a whopping loss of ₹30,000 crores in the hospitality sector due to high room vacancies and decreased takers for their F&B services. Even high-worth chains as Hilton and Hyatt have tied up with food delivery services to salvage whatever income is possible. Similarly, the cash-drought aviation sector- which has seen no commercial business for nearly two months now- had very little to look up to. Several requests for bringing the ATF under the ambit of GST and suspension of airport charges were ignored. A report by CRISIL, a rating agency, prognosticated a downturn of around ₹25,000 crores. However, most of the announcements made were retrospective in nature and were cardinally minor amendments to earlier introduced laws.

Final Thoughts

The post-COVID era may nourish fables of de-globalisation around the world, stoking alluring chimaeras of self-sufficiency and protectionist tendencies in an increasingly nationalistic global order. Under the garb of improving self-reliance, the government has now mandated procurement of local products and supplies for tenders below ₹200 crores. The move is regressive, fosters inefficiency and promotes pricier alternatives. India being an assembler economy, does not have the necessary technical know-how to immediately embark on manufacturing high-quality goods at a fraction of the current cost. In strategic sectors as defence, atomic energy and space research, opting for inferior products to re-energise local supply chains is an absolute no-no. Instead, financial support using Direct Bank Transfers (DBTs), skilling ventures, and clearing bureaucratic red-tape for MSMEs should be the preferred way out. A trading system with an unstable network of national embargos need not be necessarily safer. Protectionism will only aggravate the widening inequality divide between the poor and the rich. An inward-looking policy, after all, enfeebles the recovery and leaves the economy vulnerable in the long run. Perhaps India could take lessons to make its supply chains resilient not by domesticating them, but by diversifying them- thereby deconcentrating risk and benefitting from the economies of scale.

The foremost woe with the Aatmanirbhar India package is that despite having a robust focus on intent and execution, it falls trap to the idea of credit guarantees to resuscitate the economy from the vices of a two-month lockdown. There is not an iota of doubt that by going for supply-side measures instead of cash infusion and tax discounts to revive demand, the government has taken an enormous gamble. A successful recovery will be nothing short of a historic accomplishment; if not, the government risks going down the slippery slope of economic volatility for years to come. Both the BSE Sensex and Nifty tanked after the final tranche was announced, signalling disappointment for the regular investor. At this critical juncture, we have nothing concrete to comfort ourselves with, but to keep our hopes transcendentally pinned on Robert Frost’s philosophy: “Two roads diverged in a wood … I took the one less travelled by, and that has made all the difference”.

Much like a wager, indeed, only with the stakes raised incredibly high this time.

Combating India’s Population Problem

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A national lockdown has brought to the forefront the immense neglect and sorrow lives that those at the bottom of the societal strata have to live. With several horrific tales of hunger, accidental deaths and a near partition-era exodus doing the rounds, it is natural to feel upset by the overwhelming stench of unimaginable hardships on countless men and women. On closer introspection, I realised that the root of the immediate crisis lies not only on the draconian lockdown alone but also on years of an exponential expansion of the population. The virus of population growth is as potent a threat as the present pandemic that has afflicted the world; if left unattended, this seemingly benign sore will metamorphose into a malignant one.

India’s unchecked population surge has come to be a source of concern for many. With a landholding of only 2.41% and home to nearly 18% of humankind, India is beginning to reel from the severe stress its population exerts on it. While a youthful population is generally looked upon favourably, an excess of such a feature also carries with itself an array of perils. With increasing unemployment, inequality, starvation and a faltering economy amidst a host of other depressing issues, it is evident that India cannot afford to expand in terms of its demographic size any further. It is time to undo the vices of the past and implement family planning norms on a war footing, thereby paving the way for sustainable national development and growth in the decades to come.

While the rest of the world is ageing, India has managed to retain its youth bulge. A youth bulge essentially points out that the young disproportionately outnumber the elderly in our country. The higher the figure, the better the productivity and national output rates. Much of the developed world order is progressively poised to morph into ticking time-bombs, with their workforce shrinking at a greater pace than those entering it. Europe is a classic case-in-point, with North America tailing behind. India, which has nascently entered a stage where it can reap the benefits of such demographic dividend, is hardly in a state today to encash on the bonus. The reasons are aplenty.

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Our woes are on many fronts. Widening inequality has condemned the poor to remain fixated in poverty, while the rich have become more affluent. Joseph Stiglitz, in his book ‘People, Power and Profits’ wrote that those born in poverty, often find it difficult to escape the vicious debt trap in their life span. Add to that a growing rural-urban gap, with massive influxes of migrant workers towards metropolitan and tier-one cities every year. Such trends have consequentially led to the establishment of migrant colonies clustered in unsanitary living conditions called slums. Mumbai’s Dharavi is one such example. A combination of unfortunate factors has also pushed the average day-worker on the brink of starvation. The 2019 Global Hunger Index ranked India 102 out of 117 countries, which were evaluated on a three-indicator basis. It comes as no surprise, therefore, that malnutrition is equally rampant among the deprived. 37.9% of children below five suffered from stunted growth, while 14.5% of the population was undernourished, the report concluded.

Education and healthcare are like the two wheels of the chariot of sustainable growth. A humongous population count relegates education and skill-building onto secondary positions, as most are compelled to lend a helping hand to their family incomes at early ages due to ensuing poverty. In 2015, the school dropout rate was nearly 17%. In the age of Industry 4.0, only a handful are skilled enough to make careers out of their capabilities. The world’s most prosperous countries have made a successful transition towards being knowledge economies, rather than being content with the tag of an assembler nation. The 2016 ASER report publicised much of the glaring loopholes of primary education across India. Hence, apart from bolstering investments made in the field of education in the short run, the long term idea should be to stabilise population growth and build intensively on the human capital we have then. This notion can also be extended onto healthcare; modern medical care is beyond reach for the deprived in India. Equitability in healthcare can only be brought about when population growth is considerably low and benefits of advancement can reach those who require it the most. It has been observed that the trickle-down economic theory- the idea which professes that a rising tide (read, development) shall lift all boats- does not hold good in populous countries.

On the policy front, the importance of family planning was realised even before independence was attained. In fact, in 1951, India became the first developing country to implement a state-sponsored family planning programme. The Radha Kamal Mukherjee Committee (1940) was one such pioneering venture, which was commissioned by the Indian National Congress to evaluate the chapter of population control. It was followed by the Bhore Committee (1943) and post-independence, was looked into by the Five-Year Plans prepared by the now-defunct Planning Commission. Yet, all of these committees and plans emphasised on self-control to curb further growth. As governments became increasingly concerned about the outcomes of such rapid spurts, in 1976, the National Population Policy was constituted. The NPP (1976) was radically distinctive from its precursors and advised incentivisation as the way forward to control the population. It noted, “… to wait for education and economic development to bring out a drop in fertility is not a practical solution. The time factor is so pressing, and the population growth so formidable, that we have to get out of the vicious circle through a direct assault upon this problem as a national commitment.” Such a radical measure also led to experimental legislation on compulsory sterilisation, enforced during the emergency era, which ultimately ended in a fiasco and was rolled back. However, the viciousness with which the Union government combated the issue brought with it a fair share of the limelight.

A Statistical Overview

The above plot, sourced from Census estimates in 2011, clearly shows a negative relationship between population (independent test variable) and literacy (dependent variable). As population increases, a degradation in literacy rates is observed. Most of India’s northeastern states have fared excellently well on literacy counts, and have significantly controlled their population growths. We can further expand upon this idea, if we take a look at Human Development Index (HDI) figures for Indian states (2018 UNDP data).

A polynomial-order decreasing trend line relationship was observed between Population and HDI. Theoretically, an HDI score of 1 indicates all-round development. HDI scores are based on the standard of living, literacy, and healthcare access. It is no surprise, again, to observe states with high HDI scores having a comparatively lesser population than those who fare poorly on their HDI scores. It is evident from the graphical visualisation that Uttar Pradesh, Bihar, Madhya Pradesh, and West Bengal are clear laggards when it comes to development and population control. Kerala and Goa serve as model states, with high HDI indices as well as a low population count. The final chart would attempt to illustrate the Total Fertility Rate (TFR)’s relationship with the Crude Birth Rate (CBR, per 1000 people) over the decades.

The above plot brings out the positive side of our efforts against combating the population menace. Over the decades, we have been successful in continually curbing the TFR and consequentially bringing down the CBR at the same time. It is in alignment with the vision of the National Population Policy (2000), which aimed to bring down the fertility rate to 2.1 by 2045.

A Way Forward

Clearly, not all is lost. The battle to reign in our population count has begun to be taken seriously at all levels in recent times. It was heartening to see Prime Minister Modi bring to spotlight the grave threat, labelling ‘population explosion’ as a challenge for the upcoming generations. He equated efficient family planning with patriotism, and openly called for state governments and the central government to act together over a long-term solution. However, it is not only an urge for chauvinism that should drive forward the momentum to bring in immediate reforms, but also economic profits. Ashoka Mody and Shekhar Aiyar’s work at the IMF estimated the demographic dividend for India (the additional growth in per capita income due to demographic factors alone) for the next few decades, assuming optimal conditions to reap the benefits:

A two-child policy is also the need of the hour, apart from usual awareness drives initiated by the government. Assam was the first state to implement coercive disincentive tactic to solve the pestering problem, by denying government jobs to those with more than two children. The Union government may also adopt such a policy, but any such order should not be retrospective in nature. Simply put, any such disincentive should be applicable only for future applicants after a minimum period of nine months, so that prospective employees should make a concerted effort towards the governmental objective. Family planning measures are also heavily impacted by the standard of living. As more migration takes place from rural hinterlands onto urban metropolises, people will automatically regulate themselves to having a bare minimum number of children so as to meet the rising costs. Monetary incentivisation, in the form of tax benefits and other compensatory reliefs, shall go a long way to combat this vice in India.

We have no control over the world we inherit, but we have complete control over the world we leave behind. However, credits where due: the present dispensation does seem to actively view this as an immediate concern to be worked upon. Effective family planning measures, especially in a country as diverse and broad as India, shall offer our progeny a fair chance at living a life of dignity and bridge the inequality. Humankind will be on the slippery slope to hell unless we take stock of the birth rate on an urgent basis.

Machiavelli’s words ring true today, exactly as he had prognosticated:

“When every province of the world so teems with inhabitants that they can neither subsist where they are nor remove themselves elsewhere… the world will purge itself in one or another of these three ways (floods, plague and famine).”
Niccolo Machiavelli