THE POLITICSECONOMICS DISCONNECT IN INDIA

MUCH LIKE THE COMMON SENSE AGAINST THE RICH IN THE CASE OF NOTEBANDI, THE IRRATIONAL EXUBERANCE FOR THE GETRICH FANTASY IS HARD TO ARGUE AGAINST

Asuicide is always a crushing tragedy. It is legally considered to be extreme and irrational, as we all believe that human life is our most precious triumph. Ironically, the suicide note always argues the opposite: That there are rational motives which compel people to end their lives. Such is what we learn from the 25-year-old IT engineer Gopikrishna Durgaprasad, who jumped off the fourth floor of a Pune hotel because “in IT there is no job security. I’m worried a lot about my family”.

There are statistics that can now back the claim that jobs in India’s once most dynamic service sector are not only drying up but that a range of new (automation) technologies are rapidly eliminating or rendering redundant thousands of existing positions. But is it not the case that India could also be the most happening place for a 25-yearold IT professional to turn a ‘self-employed risk-taking entrepreneur’? Why did this not occur to the aspiring Durgaprasad? How troubling, we should ask, have problems of rationality and reason become in India today?

Take demonetisation, for instance. To a rational economist, ‘notebandi’ appeared irrational. Politically, however, for vast swathes of the Indian underclass and for those who were left out of India’s economic growth story over the past two decades, the sudden elimination of high-value currency notes which they never had in plenty — appeared like a real and rational way of ending corruption and ill-gotten wealth. No amount of haranguing about economic theory, it seems, could unsettle good old fashioned common sense conviction.

For the stock market in India, on the other hand, its moment of ‘irrational exuberance’ is being widely celebrated. This past week, both the 30-share Sensex and the broader Nifty index touched a new high after a strong rally in stock prices. The Sensex, which on Thursday crossed the 32,000-mark for the first time, has risen more than 3,000 points, or 10%, over the past 12 weeks, a period that broadly overlaps with the first quarter of the current financial year.

This turnaround in market sentiments has, in fact, no connect with the real economy. Manufacturing growth slipped sharply from 2.6%in April to 1.2% in May; exports fell from $246 billion in April to $240 billion in May and $235 billion in June, while a demonetisation-induced deflation in food prices threatens to undermine rural demand and a speedier economic recovery. Add to it the supply-chain disruptions following the implementation of the Goods and Services tax, which has yet to come good on its claim of being independent India’s biggest tax reform.

In the weeks to follow, most companies are expected to report weaker quarterly earnings with a subdued outlook for the rest of the year. Tata Consultancy Services (TCS) opened the calendar, reporting a 10% year-on-year drop in net profit and a net decline in its workforce for the first time since 2010. TCS, India’s biggest employer of software engineers, also announced it would shut down its Lucknow centre and “relocate” the 2,000-odd staff working there. That’s just one sign – more will follow – of how the job market and the economy on the whole might be going from bad to worse. Global investors know it. That’s why they have not been buying much in Indian equities – FIIs have been net sellers so far in July. Their growing disillusionment perhaps manifests in how publications such as The Economist and The New York Times have chosen to report the India story in recent times.

Yet, just like the underclass and notebandi, a spectrum of domestic investors from the middle to upper classes want to sustain the irrational belief that the stock market need not have anything to do with the real economy. And very much like the common sense against the rich in the case of demonetisation, the irrational exuberance for the get-rich fantasy is hard to argue against.

Clearly, there seems to be a visceral disconnect in India between the economic real and the political unreal, between economic belief and political reason. One wonders, if Durgaprasad’s suicide squares these circles?