Views & Reviews
Economic Slowdown and You
The Indian economy is making headlines for worrying reasons, bringing to mind a book of AmartyaSen and Jean Dreze, “An Uncertain Glory”, written about the Indian economy at a time when it was making headlines for buoyant reasons. Expectedly, analyses are and would be made concerning, why the current economic slowdown? And suggestions made on, how to reverse the going deceleration in economic growth? The questions of why and how should be of interest to all: and not only scholars or policy practitioners. Of immediate concern to all, however, as actors in an economy, which would also prompt us to the questions of why and how, is a question of what. What does this economic slowdown mean to me, say as a government employee, or a corporate sector employee, or a farmer, or a beneficiary of welfare schemes? All these would (and should) ultimately cause a critiquing of government for its conduct of the economy; and also a critiquing of economic thinking that informs economic policies in practice.
For answering the question of what, the economy can be thought of as a cake, for reason of illustration. In essence, the economic cake is produced by means of four factors of production, viz., Land (denoting all resources that come of land), Workers (blue collar as well as white collar), Capital (including the money and technology employed) and entrepreneurship. Each individual in different economic roles-within one of the stylized four factors of production-receives one of the four factors of payments, viz., rent, wage, interest and profit. Owners of land and of the scarce resources that come of it or owners of built-spaces (for dwelling and working) receive rent. Workers receive wages, or salaries. Owners of invested capital receive interest. Entrepreneurs receive profit. The economic cake can thus be divided into four slices corresponding to the four factors of payments. The relative size of each slice is a question of distribution, which inter alia entails questions of value (i.e., distribution of the cake through price mechanism) and value judgement. The economic impacts, positive or negative, are not spread equally across the different categories of actors-or across the four slices-in an economy. To state the same in the form a question, which slice relatively stagnates or shrinks the most or least; or relatively expands the most or least? For while those receiving rent may be gaining, for instance, at a time when those receiving wages may be losing. With these questions apropos distribution, we are not presently concerned, not in any way because they are of no salience. Distribution (or say income inequality), to note in passing, also determines the quantum of production, or economic growth.
It is not hard to perceive that if the economic cake is growing, the size of each slice increases, which we call an increase in welfare, or growth, or development as the case may be. And it is not difficult to imagine the implications of a fixed-size or shrinking economic cake, which we call, depending on the order of severity, stagnation, or slowdown, or recession, or depression. The current economic reality is that the cake is not growing at the desired rate, which spells multiple negative consequences. We can put this into perspective by answering the question posed at the outset, what does this economic slowdown mean to me? That is if the deceleration is not reversed sooner than late.
For a government employee, a sustainable higher revision of pay is not possible in an economy losing its steam. It assumes greater salience for a salaried economy like Nagaland’s, where the demand for goods and services of non-salaried (in the farm sector, commerce sector, or entertainment sector) comes from the salaried in the public sector. Economy of today is largely driven by Demand. Demand for a good or a service is created when there is a desire as well as an ability to pay for the same. In our state presently, ability to pay is largely generated from the public sector. We won’t answer here whether the going state of economy is good or bad, but take note of the correlation that, stagnation in the public sector would be translated into the private sector. A farmer and hence the son studying in college, to cite as an example, are made worse off.
For a friend working outside the state in corporate sector, he not only faces the possibility of stagnation or even reduction in salary, but also of retrenchment, which is a reality today in the automobile sector. In the context of our state again, it has the potential consequence of enhancing the observed craze for government sector jobs, with the return of those working outside. It may exert pressure to accentuate the already imbalanced state government’s budget allocation for salaries and pension head at the cost of development expenditure head. And accentuate the already high fiscal deficit, which essentially means, transferring the credit of our today’s living to tomorrow or possibly to the coming generation. It should be noted here that the fiscal deficit in context is not for reason of investment, which creates assets and hence returns to clear the deficit after a lag. A situation is then created where the private sector is laying-off workers, and the government is fiscally constrained (and for rationale of efficiency) to create employment in public sector; and thus the rise in unemployment.
There is a category of individuals which did not feature in the slices we mentioned above. The physically, mentally, or socially handicapped and the economically poor-the well-being of whom indicates the level of development or character of any society-who are the beneficiaries of welfare schemes and poverty alleviation schemes. Government raises fiscal resources largely by way of levying taxes on the slices of the cake. It means that the resources at the disposal of any government, and hence its ability to spend on enhancing the quality of life, especially of those in need depends on the growth in the size of the cake. Although the exchequer of Government of Nagaland is mostly transfers from the Centre, the reckoning made here still holds. It is not hard to imagine the adverse impacts on the category in question in the event of a prolonged slowdown.
Economic problems breed social problems and contribute to political instability. Hence we should be concerned with the going shape of the economy. A highly stylised theoretical frame to analyse the economy is outlined with an intention to engender, if only a spark of interest, in asking the questions of What, How and Why of the economy. The analysis taken up here on What brings out the importance of accelerating the slowing economy. And so prompts us to the question of How, which also entails the question of Why?