What most economists continue to overlook
By now, there is consensus among economists that there is a serious crisis in India’s economy. Public debate on the way out has begun. But it seems that most economists remain concerned with the economic prospects of only a small section of Indian society.
Many economists have identified stagnation in the rural economy as the cause of the problem. But if the rural economic crisis is merely the cause, and not the problem itself, what is it that they refer to as the ‘economy’, which they are concerned about? Is it only the formal metropolitan economy that they are talking about? And so, are they not interested only in the economy of a few?
Further, it is sobering to realise that when the business press speaks of ‘the markets’ (as distinct from ‘the economy’) it is referring typically to financial and stock markets, overlooking most of the real economy and the welfare of the people who work in it. The latter usually interest the economists only insofar as they represent a good part of the potential aggregate demand in the country, and this too only insofar as the latter affects corporate market prospects and economic growth. This, despite the fact that over 90% of India remains informally employed a generation after the reform era began.
Economists broadly agree that the demand from the rural informal economy has all but dried up. But they are only interested in the revival of demand from the informal economy so that it can feed the formal economy. The revival of the informal economy for its own sake is not their concern. In other words, the plight of the vast majority of the nation does not seem to be of direct interest to them. And so, their discussion of what is actually going on in the rural economy is sparse.
If the demand from the rural economy has declined, it is because it has itself been sucked dry after decades of hostile policies or passive neglect. The government’s attitude towards agriculture has been to extract as much as possible from the farm and farmer without any direct concern for the farmer’s health and wealth. Nor any regard for the health of the water and the soil.
Even policies presented as help to farmers have saddled them. The Fasal Beema Yojna, for example, has (through rising premiums) facilitated a robbery of the farmers by private insurance companies at the expense of public sector banks. In years of consecutive nation-wide droughts, the government did not fulfil its duty to provide relief. Then the government imposed demonetisation and GST. Village industries have been bled so that they could not even recover from these shocks. Handloom, a large and sustainable employer, especially of women, has been dealt a body blow with an unfair taxation policy, to name just one problem that afflicts the craft sector. If, by some miracle, the informal economy was to revive itself by means that do not feed the formal economy, much of India would be doing well, but it would alarm many economists. So, if the rural population managed to somehow resolve the agrarian crisis on its own, saved up its income and invested it in rural enterprises which might bring back livelihoods and wealth to the village, many of our economists would be surprised, and still worried for the prospects of the metropolitan economy. But if the term ‘economy’ really refers to all Indians, all of these things should be a concern to our economists, not just market valuations, overall growth, corporate or State investments, refunds and aggregate demand. But that is also not enough. We must go one step ahead of where most economists dare to go. It is important to acknowledge that the primary and secondary sectors (and indirectly the tertiary sector) rest on a shrinking ecological base. This ecological base is now in severe crisis.
A World Bank study from 2013 showed that India is losing annually for the last several decades something like 5.7% of its GDP to environmental losses like deforestation, air, and water pollution. This means that if a rigorous environmental audit is carried out, most of the touted economic growth of recent times is nullified by the devastating ecological consequences of the self-same growth process. A similar conclusion has been reached by a much more recent (2018) government report from the Ministry of Statistics and Programme Implementation. Today, the scientific evidence is clear: if business as usual continues, this is a terminal crisis for not just this civilisation, but for humanity and for much of life on Earth. For economists to look away from this predicament amounts to criminal intellectual denial, when you take account of their status as policy experts. And solutions born of this denial will only be false ones, birthing new, unpredictable problems in the bargain.
The crisis has developed because our economy has eaten away at the ecological base all these decades. Large scale industrial projects, infrastructure, mining, urbanisation and industrial agriculture have wreaked havoc on India’s natural ecology. Vast forests have been denuded, depriving adivasis of healthy habitats and livelihoods. Mighty rivers have been killed by dams and then been made receptacles of municipal and chemical wastes. India’s large artisan fishing population has been dispossessed as a result. Soil fertility has gone down and land has been degraded at a fast pace, and on a large scale. India now has the largest groundwater deficits in the world. And so, farming has only got tougher.
Prescriptions that further erode the ecological base will only take us into the whirlpools of deeper crisis. Thus, conventional macroeconomic policy proposals that entail increasing overall consumption should be reconsidered because of their ecological consequences.
Prescriptions that economists give have to be in sync with the fundamental changes required to avoid an ecological catastrophe. Instead of emphasising overall growth, they have to be socially and culturally innovative in terms of reallocating shrinking natural resources in more equitable, just, and sustainable ways. The prevailing patterns of both private and public investments have to change. New ‘growth poles’ have to develop in the countryside, relatively autonomous of the predatory demands placed on the rural economy by urban centres. Economics must at last tie into ecology. The nursing back of forest, land and water has to be at the centre of attempts to resolve the economic crisis. These tasks are all labour-intensive and have the potential to generate much rural employment. This restoration has to be for its own sake, and not only so that we may continue to extract at will from nature. A new ecological ethic of renewal and sustainable use has to take the place of an overriding profit and growth motive.
Experts trained in an economic philosophy founded on the relentless conquest of nature may find this difficult to accept. But these times of an existential ecological crisis call for a radical change in the ways economics is thought. Here, it may be helpful to recall the words of John Maynard Keynes in the preface of his book, The General Theory of Employment, Interest and Money, which helped the world recover from The Great Depression in the 1930s: “The composition of this book has been for the author a long struggle of escape...a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”