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Economic slowdown and Systemic shift of the Indian model

, December 20, 2019, 0 Comments

economic-slowdown-indian-model-marketexpress-inIn the context of the discussion on the Indian economic slowdown, a significantly different perspective can be offered based on the thesis of an ongoing disruption in the structure of the global economy (deglobalization), coupled with field observation during a long journey between Andhra Pradesh and Uttarakhand via Maharashtra, Madhya Pradesh, Uttar Pradesh and the NCR capital region.

one-MarketExpress-in At the global level, tensions between the United States and China are much more than a single trade dispute. It indicates a geostrategic shift of the world around the superpower status of each other, but much beyond the emergence of a post-globalization world in terms of relocation of world production and trade structures in the context of two major challenges facing the planet: on the one hand, climate change and environmental sustainability more broadly, and on the other hand, unemployment and mass underemployment coupled with an explosion in inequality.

two-MarketExpress-inWhat is happening in India in this context? Should we look at it from the perspective of a classic business cycle? An episodic economic slowdown? Or rather, a more structural trend of the Indian economy in a post-globalized world that must then be placed in a long-term perspective of the evolution of the Indian economy since the 1960s: adoption of the Green Revolution in the mid-1960s and its well-known perverse effects today; then internal liberalization policy in the 1980s and its perverse effects in terms of capturing monopoly rents for the benefit of a few powerful groups closely linked to public policies (crony capitalism); then opening to economic globalization in the 1990s and its initial euphoric effects before discovering its liabilities in terms of deindustrialization and mal-development; finally, a return to reality with the global crisis of 2008 and the search since then for a new economic model more sustainable in socio-economic and environmental terms.

three-marketexpress-inYes, undeniably, the current slowdown partly expresses a classic phase of the business cycle, but largely depressed by a totally misplaced economic policy.

The new government that arrived in business in 2014 may be characterized by a schizophrenia between modinomics and modipolitics. The first is itself dual, even confusing. On the one hand, a supply-side policy obsessed with “improving the business climate” within the orthodox framework of the World Bank’s Doing Business, in reality the pursuit of the globalization paradigm with the idea that India could replace China as a global magnet. On the other hand, a populist demand politics targeting the rural electorate. The real modinomics, i.e. The one that was actually implemented, actually expressed a political prior with a very short-term perspective: to be re-elected at any costs and to win the majority in as many States as possible.

All experts agree that the modinomics flagship programme, “Make in India”, has failed. The reason is quite simple: we are now in a post-globalization world with an easy-to-measure deglobalization with indicators such as export + import opening ratios on GDP (X+M/GDP) declining sharply.

The second reason is that real India continues to be marked by major deficiencies in terms of infrastructure and logistics, but above all in the quality of administrative and political governance, with a very significant increase in corruption at all administrative levels, as revealed by the 2019 India Corruption Survey and confirmed by all our field discussions.
The third reason is that in practice, the economic policy of a populist nature has followed a “political demand” orientation in the sense of the two American political scientists Llyod and Suzanne Rudolph (In Pursuit of Lakshmi, 1989), as opposed to a “political command” following a firm orientation determined by the leaders’ vision of the country’s medium-term interest.

All this has resulted in the perception of an extremely confused economic policy as perfectly analyzed by Puja Mehra in a long article published in the Times of India: “Groping in the dark on the economy”, with this quite lucid analysis: “The government economic philosophy resist any characterization because it changes so frequently”. On the one hand, the affirmation of a liberal policy within the grid of the World Bank’s Doing Business survey. On the other hand, decisions that remind us of Chetan Bhagat’s popular novel “The three mistakes of my life”: the surprise demonetization of 2016, which completely broke the economic cycle on the demand side when the global environment was so promising for India; the hectic and hasty implementation of the GST, essentially designed for the large organized sector, but totally unsuited to SMEs, which form the bulk of the Indian economy; and finally, the long delays and the arm wrestling with the RBI on what constitutes the main obstacle to boosting investment.

The structural financial crisis in the banking and the para banking sector as a result of the credit boom of 2011-15 and the populist Mudra loans programme, which amounted to nearly 20 Lakhs crores, of which 4 have already defaulted, and probably half of which will turn out to be bad loans in the coming years. The refusal to listen to Governor Raghuram Rajan’s warnings before his more or less forced resignation, motivated by the government’s refusal to be transparent about the huge debts accumulated by India’s largest conglomerates, is clearly at the root of the liquidity crisis that has plagued the Indian economy since mid 2019.

It is therefore difficult to be surprised by the marked slowdown of the Indian economy with a clear warning from one of the India’s wisest economists: Shankar Acharya, in his monthly Business Standard column: “Growth prospects dim” (12/09/2019), followed by an even more pessimistic analysis in his November 2019 column: “The jobs crisis worsens”. Is it just a reversal of the business cycle? In this case, economists know how to intervene, as shown by the US FED since 2008 with a well-balanced policy mix between monetary and fiscal policy according to the room for maneuver available. Lack of luck of India, in addition to the lack of room for maneuver in monetary policy, the hasty policy choice was to cut corporate taxes sharply, while all economic science textbooks are clear on its inefficiency and even its counterproductive nature in the event of insufficient aggregate demand. However, this is the analysis of all Indian economists, and in particular since the publication of the NSSO report showing a stagnation in consumption since 2011 and even an 8% decline in rural areas.

On the other hand, at a time when confidence in the future of households and entrepreneurs is an essential element in shaping expectations, the Modi 2 government is playing to stir up hatred throughout the country, starting with the repeal of Article 370 guaranteeing a certain autonomy for Muslim-majority Kashmir, followed by an essential amendment to the Citizenship Act that challenges the secular nature of the Indian Constitution in favour of a fundamentalist Hindu ethnic-religious definition. Instead of strengthening the country’s unity, the Modi-Shah government is moving towards the worst-case scenario envisaged by a team of about a hundred experts gathered in 2005 around the World Economic Forum, including Rajiv Kumar, now deputy chairman of the Niti Adyog: Akanda Bharat, i.e. A deeply divided and conflicting India.

four-marketexpress-inPahale India, the shifting economic model ahead

Above all, we can take another perspective than a simple cyclical crisis in the context of a totally new global environment characterized by major uncertainties and confronted with structural issues concerning full employment, inequalities, the demand for a relocation of economic activities, and finally the very rapid deterioration of ecological conditions, including climate change but far beyond reality.

Well beyond modinomics or modipolitics, India seems to be facing a structural challenge of its economic model whose evidences can be seen every day on the ground in the countryside, in medium-sized cities and of course in mega cities in deep crisis. But it can also be seen as solutions and opportunities that emerge from everywhere and suggest a fundamental optimism for those who have confidence in the common sense of people.

Concerning the challenges, it is enough to travel in the Real India and to observe:

(i) Massive unemployment and underemployment of young people, while India is unfortunately at its peak of demographic transition, so that the challenge of the demographic dividend has become the challenge of demographic liabilities, including from the socio-political point of view of a lost youth tempted by extreme adventurism.

(ii) The massive accumulation of environmental liabilities in the form of the accumulation of waste everywhere in the open air, a water crisis in both quantity and quality, an air crisis with particle indices now among the most dangerous in the world, detestable indicators of food quality and nutrition in general, with tangible signs of deterioration in the average health of the population, either through excessive sugar and fat consumption or malnutrition of the working classes. Finally, urban congestion whose costs is added to the GDP, but never subtracted to the real welfare. Today, each growth point is probably offset by a corresponding deterioration in the quality of life in India. Paradoxically, the objective of maximizing growth is nothing less than a goal of deteriorating the quality of development.

(iii) Rural stress related to the Green Revolution model is becoming a daily reality in the rural world, which represents two thirds of the Indian population. Thousands of suicides are in reality only an epiphenomenon of a much larger depression that can be observed in Indian villages deserted by young people or by men who have left for the city to provide a minimum subsistence to their families;

(iv) With the inhabitants of urban slums, at least 500 million Indians are currently deprived of basic needs such as housing, food, education, and have such low subsistence incomes that they are still not integrated into the market economy with daily income levels ranging from 50 to 200 rupees per person per day. And all the noise around the populist programs of toilets, gas bottles or small Pucca houses of the PMAY-G does not hide their miserable character for those who visit the Indian countryside. As with the demographic dividend, dividends from the Indian market have not yet materialized to the point that prices are increasingly declining with clear limits on the viability of companies, whether they are mobile phones or basic Cookies like Parle.

How can these challenges be addressed? Natural farming as a systemic paradigm shift

It is clear that the Business as Usual scenario has no chance of meeting these challenges. It would be necessary to have a proactive long-term vision, but unfortunately any transformation from above seems impossible because of a short view of the political neta, which have their eyes fixed on the rolling electoral tests and seems to enjoy purely ideological confrontations. On the other hand, it is extremely reassuring to observe a deep movement from below (bottom up), where civil society and the business world are forced to be innovative to adapt to the crisis of the Indian productivist model of the 1990s. We are thinking of innovative business models along the lines of the Patanjali chain of stores, one of the few economic successes of recent years that has spread simple and healthy products in depth throughout India. But it seems obvious that the emergence of a mass movement around natural farming (NF) is today the real breakthrough innovation that could lead to a possible change in the Indian economic paradigm.

What are its solutions and why natural farming is much more than an agricultural issue. The results of our field surveys with Vijay Kumar in charge of Zero Budget Natural Farming in Andhra Pradesh (ZBNF) or the Indian guru of NF Subhash Palekar, show that NF is a systemic response to the following challenges: employment, gender equality, aspiration of young people to live a better life, quality food, better health, a response to climate change and environmental degradation, and the relocation of the Indian economy around dynamic rural areas and second- and third-level cities to overcome the structural urban crisis in India. It also includes the conceptual breakthrough of the great Indian economist Raghuram Rajan, as expressed in his major book “The Third Pillar”: the urgent need to revitalize the community economy between the state and the market that have become incapable of bringing prosperity to all.

Relocation as a response to the crisis of globalization does not mean the end of external openness back to autarky. In fact, as can be seen from China’s New Silk Roads (BRI) strategy, the real opportunities are now emerging in the world, particularly with India’s neighbors in Africa and Southeast Asia. While most Indian companies continue to be obsessed with the North-South axis of trade and investment, there is a radical shift towards South-South trade based on a renewed internal model. Here again, we are thinking of the new agricultural paradigm that is essential if Africa is to feed its three billion inhabitants at the end of this century with immense needs for innovations tested in India, such as mini solar water pumps, improved seed banks, or microfinance structures geared towards women in self-help groups.

Conclusion: A Sarvodaya model for the 21st century

A new model for the Indian market requires inclusive development around new business models that are more sustainable geographically (locally), socially and environmentally. It also involves a new type of cooperation with third markets such as Africa and South-East Asia, pooling the experience curve in the Indian market with robust and proven business models, including with foreign companies based in India. But instead of targeting the upper middle classes alone, which are in the process of Westernizing their way of life, or dreaming of a globalized india Inc., we must offer them the opportunity to move towards the new economic model that Natural Farming brings with it, with more techniques that are quality labor intensive and environmentally neutral. In particular, we must abandon all the rhetoric about growth at any costs, including the $5 trillion GDP target. Because all economists know that GDP is a gross productivist measure and not a measure of well-being and prosperity. It is now necessary to target ecological stability and inclusive economic development with a principle of relocation that is finally close to the Gandhian model of Sarvodaya.


The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.