Manmohan’s Model
Bharat Jhunjhunwala

The cause of decline in the growth rate is the development model espoused by Manmohan Singh. He is providing freedom to big companies to destroy the jobs of the poor. The textile mills have rendered lacs of weavers unemployed. Then Man-mohan Singh tries to collect taxes from the profits made by the big companies and uses that revenue to purchase votes from the people by providing unemployment compensation through MNREGA or Direct Transfer of Benefits in cash. Problem in this model is that large number of people are left without any productive activity. They live on doles received from the government. Their energies are lost. Economic growth gets centered in few industrial areas. The loss of production that could have been done by these people is the root cause of decline in growth rate.

Manmohan Singh's model is to first deprive the people of jobs by providing free run to big companies; then imposing taxes on these same companies and use that revenue to buy votes. The UPA won the last elections on the back of NREGA and loan waiver. Strategy for the 2014 elections is to buy votes through cash transfers. That said in either case government revenues have to be used for doles. These expenditures have multiple ramifications. One, they edge out public investment. Two, the Government has to impose higher taxes on businesses to garner revenues. Note that UPA has consistently made efforts to raise the GDP-tax ratio. This leads to decline in business sentiments as is seen due to the Vodafone tax demand and the outcry against GAAR. Companies have fewer surpluses left with them for investments. Three, the Government has to borrow larger amounts from the market to fund these expenditures. This has led to hardening of interest rates and again hits at private investment. Four, the Government has tried to push the disinvest-ment programme. That is like selling the family silver for consumption purposes. All these policies stem from the idea that one can secure people's good by first depriving them of their jobs and then providing them with doles.

This model has been espoused successfully by Western countries and pushed by economists like Amartya Sen. But the circumstances of the West and India are fundamentally different on one crucial parameter—GDP per beneficiary. The GDP of the United States in 2009 was USD 13,800 billion. The population was 320 million. Assuming 50 percent welfare beneficiaries, welfare recipients would be about 64 million. The GDP per beneficiary would be about USD 86,000. The corresponding figures for India are GDP at USD 1,231 billion, population at 1.19 billion and 90 percent welfare beneficiaries. The GDP beneficiary works out to USD 1100. The US figure is about 80 times that of India. Indeed the level of beneficiary payment is lesser in India than in the US. Yet there is a qualitative difference in the GDP per beneficiary in the two countries. The US circumstance is like taking water from a huge lake and supplying to 500 persons. The Indian situation is like taking water from a dug well and supplying to 5000 persons. The well has to but go dry.

This is not to deny that the US is as much troubled with the welfare payments. These make for more than one-half of Federal Government expenditures. But do not forget that the US is facing low growth rates for many years. India cannot afford to follow the US model for two reasons: the GDP per beneficiary is low and compulsions for high growth are pressing.

The Government is providing free run to big businesses to ruin the common man and petty businessman. The huge handloom industry has been wiped out. FDI has been allowed in retail trade. These policies are leading to more unemployment. Forced land acquisition and easier environment and forest clearances are adding to the pain. They may be good for industrial development but certainly not good for the affected people. The proposed Goods and Services Tax does not help. The imposition of one single rate of tax on the bicycle consumed by the poor and the Mercedes car consumed by the rich is certainly not pro-people even if it is pro-growth. These policies are adding to the pain of the common man and to burden on the welfare system. Manmohan Singh should have taken the lesson from the US troubles with the welfare expenditures to cut them and find alternative ways of securing people's welfare. Instead he is trying to implement those very policies with a greater gusto in circumstances that are much adverse.

Vol. 45, No. 43, -May 5-11, 2013

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