P Chidambaram writes: Head buried in the sand

The Ministry of Finance (MoF) publishes a Monthly Economic Review. I did not think that a bunch of six young and enthusiastic economists, asked by the MoF to write such an essay for the Review, would consciously avoid the word unemployment as well as words such as malnutrition, hunger and poverty. (I wonder if it was whispered in their ears that the Prime Minister may read the article). The group of economists knows but will not admit that the omission of unemployment, malnutrition, hunger and poverty is a grave dereliction of scholarly duty.

Why a Review?

The Monthly Economic Review is a valuable document. I expected that the 2022 September Review (released on October 22, 2022) would give an objective mid-year account of the current situation and the strengths and weaknesses of the economy; indicate the course that the economy is likely to take in the next 6-12 months; identify the headwinds that the economy may face; and capture the trends in the world economy, and their impact on the domestic economy.

The September Review is a slim document — 33 pages of text dotted with graphs and charts and 3 pages of data. The text is divided into six sections and signs off with a Conclusion and Outlook. The sections reveal the concerns of the government: 1) Fiscal Position, 2) Industry, 3) Services, 4) Credit Demand, 5) Inflation and 6) External Sector. The inference is that unemployment, malnutrition, hunger and poverty are not among the concerns of the government.

Self-congratulatory

The tone of the report is self-congratulatory. The last sentence sums up the tone and the approach: "As is the case with batting in swinging conditions, balls well-left (policy errors avoided) will be as important as balls played well (policy decisions taken)." What the authors have omitted to mention are the dot balls (clueless against external threats) and the balls that almost got a wicket (rupee depreciation).

Every conclusion is intended to sweep the reader off her feet. According to the Review, revenues are buoyant, capital expenditure is rising, the quality of expenditure has improved and the fiscal position was healthy — until August. There is a grudging admission that government borrowing may lead to a surge in public debt. On industry, the Review cites several indices such as the PMI Manufacturing, the S&P GSCI Industrial Metals Index, the Business Assessment Index and the Index of Industrial Production and concludes that overall business sentiment has improved. On services, the Review is upbeat on inter-state trade, tourism, hotel industry, air passenger traffic, transportation and real estate and predicts that the sector is poised to emerge as a key growth driver.

Credit demand is growing at a healthy pace (16.4 per cent y-o-y) but tightening monetary policy and slowing economic growth may apply the brakes. On inflation, the Review has betrayed its evident bias. It absolves the government of any responsibility by throwing the blame on "geopolitical developments". On external sector, the Review is a mix of self-congratulation ("stabilized exports") and helplessness ("sustained imports"). It says that "the widening of CAD should also cease" and sticks to the estimate of 3 percent of GDP — a prediction that flies in the face of other estimates that CAD may expand upto 3.4 percent.

Strong Headwinds

What has been said in the Review, though biased and self-congratulatory, may be forgiven because the document will be history in a few weeks. What is infuriating is the cynical and callous disregard of matters that concern millions of people. On the day he assumed the office of Prime Minister of U.K., Mr. Rishi Sunak warned of a "profound economic crisis". Even an imperious President of China, Mr. Xi Jingping, characterized China's economy cautiously as "resilient".

The UNDP and the Oxford HDI have, in a report released on October 17, 2022, estimated that 228 million people in India were 'poor' in 2020 (which number worsened in the pandemic years). In the Global Hunger Index, India's rank is 107 out of 121 countries, a score that has declined in the last eight years. 16.3 percent of all Indians are undernourished, meaning that they do not get enough food. 19.3 percent of children are wasted, 35.5 percent of children are stunted.

The unemployment rate is 8.02 per cent. Recently, 37 lakh candidates in Uttar Pradesh filled buses and trains to reach examination centres to compete for a few thousand Grade 'C' state government jobs, indicating the extent of unemployment among graduate youth in just one state. The only safety net for the poor (MGNREGS) could not provide a day's work to 40 per cent of households seeking employment in 2020-21. The Review does not pay even lip sympathy to the issues of unemployment, malnutrition, hunger and poverty. Nor does it acknowledge the strong headwinds of global slowdown, de-globalization, protectionism, high interest rates, inflation and currency depreciation.

Last Saturday (October 22), the MoF warned on the economic situation and said that "this is no time for celebrations and complacency" but the Review took a contrary view. I wonder what changed between the morning and evening of October 22?