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Can Modinomics address the issue of inequality?

 

Bhubaneswar,

Last updated 06 Jul 2016 01:02 IST

  India, Economy, Investment, Narendra Modi, Modinomics
Foreign direct investment (FDI), large industries and Modi’s dream of smart cities may not get the economy to the right track because they would require more land which would rather have serious impact on agriculture. As a result, indigenous communities and people living in rural and forest areas will be displaced and marginalized with greater impunity. Small farmers will face the brunt and there will be distress migration.
 

With Organisation for Economic Cooperation and Development’s (OECD) prediction of a growth of 5.7% in 2014 and 5.9% in 2015, regaining its "stable" rating from Standard and Poor's (S&P) after over two years of embarrassment of being downgraded, Indian economy is perceived to have a surge during the rule of Prime Minister Narendra Modi. But, many economists and world bodies also apprehend, the growth may not benefit the poor and deprived sections of the country but, rather, widen the gap between the needy and the affluent.

Though inflation and rise in prices of food products and essential commodities are still issues of larger concern, Raghuram Rajan, the head of the Reserve Bank of India (RBI), is inching closer to a formal inflation target.

He hopes to limit rises in consumer prices to 8% by the start of next year and 6% in 2016, as per the Economist magazine.

Modi’s ascendance to power at a time when dormancy ruled over India’s economic growth has been seen as a hope by the corporate world and world economic leaders who see India as a potential ground for economic and trade activities.

“Foreign investor confidence has returned after Modi was elected in May, pledging to revive investments and boost growth,” says Rafael Nam of Reuters news agency adding, “Shares have surged to record highs this year and bonds have also rallied, in a remarkable comeback from last year, when India suffered its worst market turmoil since a 1991 balance of payment crisis - all based on the promise held by Modi's agenda.”

   

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The gap within the rural poor and rich and urban poor and rich is increasing, which could be a cause of concern for the government pushing for ‘inclusive development.’

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United Nations’ Economic and Social Commission for Asia and Pacific (UNESCAP) too has similar projection about Indian economy, which says in its report of Economic and Social Survey of Asia and the Pacific-2014, "The economy is expected to enjoy stronger growth momentum of 5.5 per cent in the fiscal year 2014, underpinned by solid expansion in the industrial and services sectors.”

At the same time, the UNESCAP report also cautioned that the gap between the poor and the rich is growing in the Asia-Pacific region and there has been an increase in income inequality in many major economies including India, China and Indonesia.

The Gini coefficient - a measure of income inequality - between early 1990s and late 2000s increased from 30.8 to 33.9 in India, the report said.

Now the question is can Modi government’s economic policies deal with the issue of inequality and narrow down the gaps?

After coming to power, Modi government announced poverty alleviation, inflation control, promotion of agriculture, job creation, infrastructure development, creating an atmosphere to ensure ease of doing business as its priorities. The recent slogan of “Make in India” to give a boost to the manufacturing industry and the campaign to mobilise investment for realisation of it is nothing new from Modi as this has been the norm since introduction of economic policies of liberalization, privatization and globalization.

Foreign direct investment (FDI), large industries and Modi’s dream of smart cities may not get the economy to the right track because they would require more land which would rather have serious impact on agriculture.

As a result, indigenous communities and people living in rural and forest areas will be displaced and marginalized with greater impunity. Small farmers will face the brunt and there will be distress migration. Environmental laws shall be compromised to promote industrial and infrastructural development. There will be only some diluted regulatory mechanism to govern the operations of corporate investors! Such policies are going to increase inequality and widen the gap between rich and the poor.

As Nobel laureate economist Joseph Stiglitz points, “Unfettered markets lead to economic and political crises. Markets work the way they should only when they operate within a framework of appropriate government regulations; and that framework can be erected only in a democracy that reflects the general interest – not the interests of the 1%. The best government that money can buy is no longer good enough.”

“The rural poor’s expenditure increased 10.5% while the expenditure of the rural rich went up 31.5%. At the same time, in urban areas, the expenditure of the poor increased by 15.8% while the rich experienced a growth of 29.1%. So, the gap within the rural poor and rich and urban poor and rich is increasing, which could be a cause of concern for the government pushing for ‘inclusive development’,” says India Spend, the pioneer of data journalism in India, on basis of data produced by National Sample Survey Organisation (NSSO).

“Any economic model that does not properly address inequality will eventually face a crisis of legitimacy,” says Nouriel Roubini, professor of economics at New York University.

This is a point Modi government and its think tanks have to ponder upon!

To narrow down the gap, the government needs to promote policies, which would safeguard the financial interests of the poor in a globalized market. While FDI and large industries are required to boost manufacturing sector and create job opportunities, farming as an economic activity, agricultural exports, natural resource based industries in rural India are equally essential to ensure economic growth of the deprived rural communities and to deal with the issue of inequality between rich and the poor.

 Basudev Mahapatra

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