India's lost decade
India in times of climate change, global realignment and industrial policy
From 2020 and beyond, what India is facing is a lost decade. The economy of India is in serious stagnation and there’s no brains in New Delhi to do anything about it. There are four overlapping factors which are creating a crisis for India. The summary is as follows -
Longstanding issues and structural problems of Indian economy - Mass unemployment, poverty, inequality etc has been and endemic problem in India. India is demographically fast expanding but most of the labor force is unskilled, uneducated, unorganized with minimal productivity. Overwhelmingly, women remain outside of labor force. Infrastructure deficit, most of energy production and fuel is still based on coal, Oil & gas. The supply chains are fragile, modes of transportation & connectivity are poor & broken at many levels. Most of the economy is still rural agrarian informal unproductive. Economy lacks innovation, investment in R&D and scientific advancement.
Ecological crisis of India - Majority of India is facing acute water scarcity. Much of the groundwater & fresh water reserves are exhausted or otherwise polluted as rivers & water bodies are dumping ground of industrial waste & sewerage. Crisis of Air pollution that’s reducing 11.9 years of life of every citizen in polluted Indian cities. Over 2 million deaths from air pollution alone every year. Unplanned urban expansion leading to destruction of green cover and illegal colonies that are unfit for habitation. Ill-planned infrastructure projects in ecologically sensitive areas that are causing floods, land slides and other environmental disasters.
Climate change - Rising temperature of planet is creating new problems and aggravating India’s existing problems. The heatwaves, erratic monsoons, flash floods, droughts etc are damaging the farm production, undermining food security, increasing health risks of labor force as well as undermining the productivity. The extreme climate incidents are intensifying which are further aggravated by structural problems like lack of infrastructure (flood control, water irrigation etc) and poor supply chains and improper urban planning.
Lack of competent leadership - Perhaps the biggest problem of India is lack of brains in national leadership. India’s political system and leadership it produces has no competence to make economic policy even in normal times let alone in times of crisis and challenges. The longstanding problems have dragged on since decades and accumulated a lot of inertia as political governments (of all stripes) continued to roll down the can.
Most of the population, nearly half of India’s labor force is tilling fields in rural agrarian sector which produces very little. India’s GDP of $4 Trillion looks large but it’s a derivative of 1.4 Billion people which translates into roughly $2700 per capita, comparable to that of backward African nations. Most of the nation is still rural, lacking basic amenities like reliable supply of electricity, safe drinking water, sanitation, healthcare, schools, housing etc. In previous decades, there have been pledges by government to modernize India by developing industrial manufacturing sector with higher wages to substitute low wage farm sector but that never transpired.
India’s manufacturing sector remains small, greatly lags in value addition and lags far behind in global competition and other emerging markets.
India is a carbon intensive wasteful economy. Most of the power production still comes from Coal & Gas and even most of the coal power plants run on obsolete emission standards, meaning they are highly polluting. Over 40% of population still use biomass as household cooking fuel which alone comprises of 13% of India’s greenhouse emissions. Much of the economy is controlled by few corrupted oligarchs, who don’t make any innovation or technological progress. Remainder of economy is informal, running on small scale factories which have no technical growth.
India’s increasing emissions from power production
Indian private sector is driven by monopolies of oligarchs that have expanded and penetrated into diverse sectors but without any innovation. A conglomerate (Adani group) owns coal & gas mines as well as ports as well as Airports as well groceries business as well as multimedia business as well as Real estate. Another conglomerate (Tata) produces automobiles as well as groceries as well as appliances as well as Information technology services as well as Real estate as well as defense equipment. Another conglomerate (Reliance/RIL) owns telecom business as well as news media empire as well as eCommerce retail business as well as Oil refineries as well as financial services etc.
Underlying factor of much of Indian private sector is oligarchical drive for expansion and rent seeking, rather than making any concrete technical progress. In this aspect, India is similar to post soviet Russia. With few exceptions (generic medicines etc), India’s exports are otherwise driven by commodities like Farm goods (Rice), precious stones and Petroleum products. Indian conglomerates are generally noncompetitive in global markets (few exceptions like IT services) even after pouring massive govt subsidies into them. Some of the conglomerates are even noncompetitive in domestic sector, relying on large state subsidies, (unmerited) govt contracts and bank bailouts (debt reliefs-evergreening of loans) to stay profitable.
In mainstream economic thinking, ecology isn’t given much significance. The focus of policy is production, employment & productivity. But no economy can operate without a sustaining ecology. India faces serious ecological crisis on multiple levels. Most of the fresh water resources of country are nearly extinguished as over half of population is affected by drought and water scarcity. The fresh water resources of India have been heavily polluted as rivers and water bodies are convenient dumping ground for factories and sewerage (1, 2, 3). Riots and civil disorder over water are now common in country. India is home to most polluted cities of the world with pollutant levels that shoot up 10-20-30 times the safe limit. Over two million people die from Air pollution alone.
GDP figures can be misleading indicator of progress. Like they will tell you how much more automobiles are sold this year. While the world is moving towards EVs, India still overwhelmingly producing ICE (internal combustion engine) vehicles - an obsolete technology in present age. The more of ICE vehicles are produced, the more emissions and pollution they cause. Nevertheless, it translates into higher GDP. The energy consumption of India is growing and more coal, oil & gas is burnt, all that adds to GDP. As global warming & heatwaves accelerate, the power consumption is accelerating for sustaining human life. To produce more power, India is burning more coal and gas which further aggravates environmental damage & more emissions.
Tallest statue in the world in India recently built with a cost of $390 million. These type of symbolic modernization projects are common in India
Much of the infrastructure expenditure by government has three features. First is symbolic modernization, giant vanity projects. Second is so called PPP infrastructure projects (private public partnerships) which are means of enriching oligarchs connected to government (1, 2, 3). And third, much of the investment is done without any long term view, ecological sustainability and planning (1, 2, 3).
A Tunnel project in New Delhi, built at cost of $100 million is submerged in rains. The project was built without proper technical planning. There are many such failed projects in Indian cities.
GDP number alone can be a useless measure. The type of production, the underlying technology of industry, the ecological sustainability, the equitable distribution of national income etc - all these indicators combined tell you about the health of economy. Economies in 21st century are driven by investment in R&D and scientific progress, areas where India has always been lagging far behind.
If the Climate change models turn out to be even half correct, the world is staring a serious crisis. Major countries in the world have started adapting their economy to new challenges by implementing carbon-decoupling transition. Western countries, US and EU, have been pouring massive subsidies into green energy transformation and adoption of electric vehicles as a part of their industrial policy. China is perhaps the most aggressive in green transformation by rapidly adding renewable power capacity, building mass public transport nationwide (HSPR to substitute high emission domestic Airspace travel) and aggressively building ecosystem of EVs. This is a decade of industrial policy. The Governments around the world are waking from long coma of laissez-faire and directing policies to reshape their economy to needs of 21st century. It’s yet to be seen whether the approach taken by countries will be sufficient to avert climate crisis and to what degree.
High speed rail system is an alternative to domestic Air travel
India is nowhere on world stage in this era of industrial policy. There’s no initiative, not even acknowledgement of problems either at socioeconomic level (mass unemployment, poverty, inequality etc) or at ecological level (climate change disruption, destruction of environment, extinguishing of natural resources etc). To succeed in 21st century, you need competent technocratic governments, a competitive national industry which strive for innovation and a skilled labor force that drives technical progress. The theme for 21st century is also based on proactive big fiscal, capital intensive and high wage economy. The Governments in countries are directing big investments, promoting higher domestic wages and stronger unions.
In present age, quality is preferred over quantity in labor markets. High quality labor force will drive today’s capital intensive economies. The wages are going higher, the working hours going lower. Here India is still trapped in late 20th century mindset of globalization, trying to attract foreign factories on basis of sweatshop wages. You may have heard Indian plutocrats asking Indian employees to work overtime, as much as 70 hours a week. However, with automation, AI and more sophisticated assembly lines that will drive the production in 21st century, the TOIL will be a worthless thing.
China, the export powerhouse of the world, no longer plans to be competitive based on low wage manufacturing alone. Their industrial policy is based on capital intensive transformation with focus on cutting edge technology. For example, more emphasis on manufacturing high end chips that run electronics (computers, smartphones etc) and less emphasis on low value addition menial assembly work of widgets. The low value assembly factories are now leaving China to 3rd world and emerging markets. Some of the assembling work has also come to India which Indian Govt project as an achievement.
Some nations and activists have adopted a line that affluent nations have caused the most emissions in past so they must bear the financial burden of Green transition. It’s not that the India didn’t do large carbon emissions out of love for the environment. The fact is, India (& other 3rd world states) didn’t know how to grow their economy. India and other poor nations remained paralyzed in economic policy and political failures in all these decades. They remained un-industrialized unproductive and backward, hence their carbon emissions in the past were relatively low. But tragically, these backward nations are now the ones who face the worst brunt of Climate change (1, 2). These poor nations (that includes India) now find a huge infrastructure deficit and sustainability crisis.
While it’s highly desirable that affluent nations give necessary technology, finance and assistance to developing nations to make green transition and build sustainable infrastructure, unfortunately the developing nations are left to carry their own bags. This is another theme of 21st century; the developed nations are fending for themselves leaving poor nations in the lurch. The responsibility to rebuild economies in poor nations in climate change era is left squarely on their local governments with no assistance from affluent nations. Hence it’s even more demanding and challenging for developing nations to formulate policies with only limited means and resources.
India is a primitive society which has pretty high tolerance for failures. There’s mass unemployment, poverty, corruption and falling standards of living but people tolerate the existing structure as normal. The disasters like Demonetization, the ultra reactionary reservation policies, the regressive tax system etc are well tolerated, celebrated even. Millions of Indians died in pandemic, government’s gross incompetence and apathy was on display. But people accepted it and still chose to elect the same incompetent politicians in next elections. Millions of people die from India’s air pollution as Indian cities have become gas chambers. People don’t complain. There’s massive structural violence in Indian society which Indian people have accustomed to & well tolerated like boiling frogs.
Will the cataclysmic impact of climate change be the event that will change everything? It depends on how big the cataclysm will be and how far reaching the impact. Early indicators spell trouble. Most of the Indian economy is rural agrarian which is pre-modern. It’s heavily dependent on monsoons, lacking water security for irrigation and the supply chains of farm sector (storage and transportation etc) are very weak. With erratic monsoons, high temperatures, flash floods, much of the farm production will be at constant risk. This will translate into food insecurity and inflation. All this we have already started facing regularly. When crops are destroyed by lack of rainfall or flash floods, the price of staple commodities (Tomato, Onion etc) multiply within days (1, 2, 3). This has terrible impact on country where majority of population is still poor.
The impact of ecological crisis and climate change will be across the spectrum; from rural villages to urban cities, from the poorest people to the middle class and rich. The lack of national flood control infrastructure destroys farm produce and cause inflation. The floods also brings urban cities to creeping halt and damage of property. The water scarcity overwhelmingly impacts the poor but now even rich & middle class urban areas are also feeling the brunt (1, 2).
People in Indian village getting water from well. Groundwater reserves in many parts of country are already exhausted or near exhaustion
Overwhelmingly, India’s labor force is exposed to extreme climate. The rural farmers, the unorganized and migrant workers etc are on the frontline of extreme temperature. How will extreme temperature impact their health and productivity? India’s healthcare and welfare system is already stretched pretty thin. How will it be able to cope with rising public emergencies in coming year?
Another theme of this decade is De-globalization. The old international economic order, for better (& also for worse) is crumbling. The protectionist policies for building strategic industries are making a comeback. Tariffs, trade restrictions and regionalization of world trade is happening. The new economic trends are based on growth of cutting edge technology; semiconductors, AI, Biotech, Green tech etc and governments are fire-walling their supply chains of strategic sectors. The countries which have the capital in these areas will be on the podium of superpowers. Another thing happening abreast in world economy is AI transformation of cyberspace industry. This probably will shrink the marginal product of India’s IT sector labor force. India’s IT sector labor force is one exception where India has reaped the most benefits of globalization as cheap labor of Indian tech cities harnessed the outsourcing opportunities of western countries. Now this golden goose may also face trouble.
India doesn’t fit into this transformation, neither does Indian politicians have any capacity to adapt to these changes. On one hand, western states are hoarding and denying technology to poorer nations. On the other hand, India is unable to partner with China due to geopolitical tensions. Thus India is getting isolated in this fast moving world.
While the world is moving fast and global economy is reshaping to new challenges, India is regressing in many ways. Another worst thing in last decade in India is country re-inventing its national identity away from a secular state and towards a religious authoritarian state (Hindu nationalism). Religious nationalism is a distraction to divert society away from substantive issues like mass poverty, unemployment, food insecurity, falling standards of living etc. The political system of India is also in serious decay. In the latest elections, 46% of elected Parliamentarians are criminals and gangsters. This is similar to Russia’s Mafia state where the most corrupted incompetent criminal elements (connected to Oligarchs) control the government. Such states are inherently unproductive and unstable.
In times of crisis, imbecilic political leaderships can’t contemplate any solutions, instead they quarrel among themselves. You have seen how central and state governments blame each other for floods, water scarcity, inflation and crumbling infrastructure (1, 2, 3). While blame for mismanagement lies everywhere, the failure emanates from central govt because it has the most responsibility for crafting national policy for Climate change and ecological crisis and for financing the necessary infrastructure. But with criminals and Gangsters ruling top position, it’s difficult to fathom how India can find its roadmap in this century.