An international agency UN Conference Trade and Development (UNCTAD) has predicted highly uneven growth despite possibility of a bounce back but global output trends of 2016-19 would resume not before 2030. The agency notes that growth has been the slowest since the post 2007-8 financial crisis, in the 2011-20 decade since 1945.
An important UNCTAD recommendation is to revive the public sector as critical instruments of long-term development. The report observes that the pandemic has seen an emergent consensus around the need for significant public sector intervention. A call India needs to heed amid its move for fast-paced privatisation. It suggests that expansionary fiscal measures that most governments are doing may end up “only as fire-fighting tools”. Consolidating these in public sector infrastructure could come up as “critical instruments in long-term development”.
The UNCTAD Trade and Development Report 2021 expects India to grow at 7.5 per cent in 2021 and 6.5 per cent in 2022, but “insufficient to regain the pre-Covid-19 income level. The world may grow at 5.5 percent, may be the highest in five decades, but amid too many pitfalls on regional, sectoral and income lines. It does not rule out sharper than accelerated deceleration next year.
It warns policymakers to trudge carefully particularly on deregulation. The developing economies, which as per it include India also have been hit harder than during the global financial crisis, while “new heavier debt burden reduces their own room for fiscal policy”.
India’s growth despite being next to China “is poised to slow down” because of the inherent fragility in coping with the pandemic and restoring employment and incomes. Even the high growth is insufficient to remove “the widened income and wealth inequalities and rising social unrests”.
The UNCTAD warns of rising corruption and rent-seeking saying, “Within advanced economies, the ‘rentier’ class has experienced an explosion in wealth, while low-earners struggle”. The classic statement by its General Secretary Rebeca Grynspan signifies that the governments would have to be more careful in observing the trends and act with caution to check widening gaps, both domestic and international, so that growth luxuries are not enjoyed by “fewer and fewer privileged people”.
Even then, in 2022, UNCTAD expects global growth to slow to 3.6 per cent leaving world income still 3.7 per cent below where its pre-pandemic trend would have put it; an expected cumulative income loss of about $13 trillion, as per 2015 dollar values, in 2020-22. Timid policy or, even worse, backsliding, could pull growth down further.
The world is not out of the woods. Indian efforts of four-year Rs 96,000 crore reprieve for spectrum dues to telecom companies; Rs 25,938 crore production-linked incentive (PLI) schemes for automobile sector, Rs 120 crore for drone industry, Rs 10683 crore for textiles and others announced for 13 sectors during the last one year is expected to raise minimum production to around Rs 37.5 lakh crore over five years and create additional jobs of about one crore.
While the aim is good and incentives should be welcome, the UNCTAD points out the problem of inflation too. Rising prices in India is a constant concern of the Reserve Bank of India. The WPI inflation in August has touched 11.39 per cent against 11.16 per cent in July. It means that retail inflation is galloping. It affects the purchasing power of the people and has affected overall growth, wage and supply conditions. RBI Deputy Governor Michael Patra on September 16 says that persistent supply shocks pass through of imported price pressures to retail prices and building wage pressures. “The easing of headline inflation from current levels is likely to be grudging and uneven. Inflation will remain high till 2024 despite the RBI working for a 9.5 per cent growth”, he adds.
Despite some seasonal moderation in food prices in India, the UNCTAD believes food prices would rise and could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis.
The RBI is under pressure to increase its lowest interest rates. This is also affecting yields of depositors and hits the overall economy. The nation has witnessed that higher interest yields in the past had helped the country grow. Interest is mistakenly considered as income where as it is mere hedging against inflation. If inflation is high and interest rates low on deposits, it hits capital building. The policy parameters as pointed out by UNCTAD need sharpening for having a critical balance.
Tax levying in India has also irrationality. Taxing the deposits appears retrograde, GST on self-managed housing societies has come under scanner of Madras High Court on September 14; the retrospective tax on corporate has caused serious loss of foreign investment and maligned the country. The policy of taxing commodities and fuel is leading to an overall distress.
With over 40 to 45 per cent indirect taxes, tolls, cesses, fees, user charges and continuous hike of all other levies like municipal and property taxes, it is necessary to review why the country should have income-tax at all or why it can’t be at par with corporate income tax of 15 per cent. Taxes on individuals repress growth and international institutions also feel that tax burdens should reduce. The governments would have larger revenue returns with higher turnovers.
The UNCTAD is concerned of the decades of declining wage share and wants wages to rise for a better balance between wages and profits. Despite a decade of massive monetary injections from leading public sector and central banks, economic stability remains missing.
It may be a sequel to this that National Crime Research Bureau finds crimes rising during the pandemic – digital crimes and cyber monetary frauds, including internet banking by 11.8 per cent; social disorders rise 21-fold; other IPC crimes four-fold; 12.4 per cent rise in offences against public tranquility, and 78.1 per cent in environment crimes. Cyber frauds are growing the most in Telangana, Maharashtra, Odisha, Bihar and Assam. It may be a mere tip of the iceberg as there are many cyber crimes that are difficult to investigate like cyber bullying and forcing people to pay money through digital transfers. These hit the growth processes and policing cost is high.
The UNCTAD also wants global reforms to the international economic architecture promised after 2008-09 crisis, but abandoned “in the face of ‘rentier’ class” is now implemented for definite growth worldwide”. India needs to take cue for correcting the policies and path for taking the country ahead.—INFA