Morgan Stanley (MS), an international financial institution, has come out with a report on India claiming that India was already on a path to growth, but the country’s drive towards digitization may put it on track to be the world’s fastest-growing economy over the next decade.
MS’s study makes the claims primarily on two initiatives: “digitization of India’s predominantly cash-based economy, and reforming its archaic tax system.”
The report has sent waves of euphoria.
We are not here to be optimistic or pessimistic. We are here to look at facts.
India’s GDP per capita (2016) is US$1,709 per capita. A 10% growth rate would make India grow by US$171 per capita over the next year. China with GDP per capita (2016) is US$8,123. A “mere” 6.5% would make China grow by US$528 per capita over the next year. Compare India’s growth per capita of US$171 with Chinese of US$528. We can do similar comparisons between India and many of the world’s large economies and realize that India is, alas, not the world’s fastest-growing economy.
In reality, there is nothing visible to underpin MS’s expected growth rate of 10%. Currency system is a medium of exchange. People use whatever keeps their transaction costs the least. For growth to happen you have to increase the productivity of capital and labor. How can you do this by forcing digitization of money? Force against what is optimal in views of the society merely means that the cost of transactions will go up. Indeed, as people have discovered over the last one year, the economy has not only suffered, it has also gone into a trauma.
Take a walk outside your home and meet retailers. Ask them how much better they are today than they were last year. In inflation-adjusted terms, a daily wage earner now earns at least 15% less than what he did a year ago. Across the board, shops and businesses have closed, gone bankrupt, or have suffered a reduction in business. There is an environment of doom and gloom among entrepreneurs. One might even ask how India grew by 5.7% as announced in the recent economic survey. India’s growth rate has instead been likely negative. This had to happen for forced digitization and imposition of the new GST system—which were not natural to the Indian economy—have significantly increased the costs of doing business.
Even before the huge unnecessary suffering imposed as mentioned above, India wasn’t doing well. The Indian information technology industry, something Indians have been very proud of, is rapidly shedding jobs. Exports are falling, in relative and absolute terms. Industrial sector is failing to grow. If there is any visible growth it is in the government sector—this is fake growth, will increase corruption, and will undercut any possibility of future growth.
More than half of Indians are below the age of 25. About 12 million (1.2 crore) Indians enter the workforce every year. Most of these have been groomed to believe—through the propaganda of the media, the government, and the fake intellectual environment—that India stands at a cusp of major growth given its demographic dividend. Indian employers, alas, cannot find employees. They find as many as 80% of Indian engineers unemployable. The situation is similar if you look for a plumber or an electrician. Indians are extremely unskilled and badly educated. Indian companies prefer to grow—which they aren’t for now—using capital rather than labor.
India’s so-called demographic dividend is actually a major liability.
Having seriously harmed the flow of money, Indian economy is likely not growing. It is very likely regressing. Hoping and being arrogant is not going to change anything. In fact, it will remove the possibility of our self-reflecting on the problems that India faces, which are very deep and very wide.
As the youth continue to enter the workforce and urbanize without getting jobs, there are many black swans staring at India, including a very real possibility of rapidly increasing crime. India has no time to feel arrogant or hopeful. It must get down to business quickly. But is there any social or political will?