On 24th July 1991 Dr. Manmohan Singh presented his budget to the parliament in which he stated that until November 1989 when his Congress party was in office the economy was doing well but things changed after that. He informed, “in sum the crisis of the economy is both acute and deep. We have not experienced anything similar in the history of independent India.
As solution, he welcomed foreign investment, deregulation of domestic sector, proposed 20% disinvestment in public enterprises, encouraged investment in mutual funds and shares, encouraged accumulation of private capital, brought austerity in the government spending, prepared a road map for reducing fiscal deficit, abolished export subsidies, increased price of fertilizers, reduced subsidies, increased indirect taxes but did not want to touch the rich.
All this he did with the conditions imposed by IMF & World Bank. The Structural Adjustment programmes of IMF was implemented from July 1991 in full swing though it had started from 1980s.
What was surprising then was that the economist Dr. Manmohan Singh who had stressed on self reliant and people centered development in the report, “The Challenge to the South”. The report of the South Commission of which he was secretary general and Julius K. Nyerere of Tanzania was the chairman, completely did opposite of self-reliance.
Now in an article in the Hindu dated 3rd August 2020, Dr. Manmohan Singh & Praveen Chakravarty, titled, “Rebuild India’s Confidence, Revive the Economy” write that these are extraordinary and difficult times. The economy will contract, the deep impact will lead weaker sections to slip into poverty, enterprises will shut down, unemployment will increase and due to inability to feed children will be affected.
There is not dispute about it. But the solutions are the same as 1991. Borrow from international funding agencies, do not print more currencies but provide direct cash benefit to people.
Direct cash benefit to people has to be given as done in most of the countries. That should be used to build rural & urban infrastructure, help employment generation through public investment by the government in various sectors and encourage states to spend by providing them money.
It is because of the Structural Adjustment programme and other conditions of reducing government expenditure, selling shares of public sector undertakings and public sector banks, reducing social security that the income inequality has increased to a proportion unimaginable.
When 10% of the population possessed 40% of the wealth Dr. P.C. Mahalanobis rang the alarm bell. It lead to various efforts of Nationalisation. SBI, LIC, banks, creation of public sector undertakings, providing credit to the poor sections of the society etc. Development finance institutions were created.
All what was done to help the majority and reduce the wealth of the top 10% to 30% were reversed after 1991. Today 10% of the population own 88% of the wealth. The bottom 60% own hardly 5%.
With the pandemic, the government should stop using it as an opportunity to carry forward its divide and rule policies, spoil the environment, change labour laws in the name of ease of doing business, implement an education policy which will lead to apartheid and start working on revival of the economy. We don’t have to go to IMF or World Bank or ADB or AIIB.
What is to be done?
- Mobilise resources by taxing the rich 10%. Use wealth tax, transaction tax, income tax, corporate tax etc. India is a poor country with rich multi billionaires including the 4th richest in the world.
- Mobilise the peoples saving with higher rate of interest and arrest the trend in buying or smuggling gold.
- Where is that black money for which the government brought demonetisation? What happened to those arrests, court cases? Income tax notices? Bring that money.
- Give freedom to the public sector undertakings and public sector banks. Give them a goal- without interference. They will achieve it.
- Stop giving extension to executives and officers who are yes men. They are the ones who destroyed the economy even before Covid-19.
- Increasing fiscal deficit is not a crime if you use it wisely. Borrow from RBI, allow them to print money, borrow from banks which have huge deposits of the people, allow states to borrow at 4% rate of interest (More than the reverse repo rate)
- Increase public spending through government, MGNREGA, extend it to urban areas, create infrastructure for education, health, food processing, agro industries, common facility centres, marketing outlets – there are plenty of areas where government and public sector can enter.
- Give support to co-operatives and co-operatives banks. They reach the poor sections of the society. Their lending has multiplier effect.
- Nationalise education and health care. Provide education and health care free to all citizens.
- Allow local economies to grow. Allot funds to panchayats and other local bodies through the state government. Decentralise, distribute – democratise the system and make it transparent. If there is a will, there is a way, not the Dr Manmohan Singh way.
Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.