Dr. Susmit Kumar, Ph.D.

In a small town, if a factory, having couple of thousand workers, closes, it devastates the entire town, of population having say 10,000, because the total number of jobs lost may be two to three times of the factory jobs if we consider indirectly associated jobs as well, such as in schools, hospitals, apartments/homes, home repair related jobs, gas/petrol stations, restaurants, grocery shops and auto sector as factory workers would spend their income in these associated fields. In the US Rust Belt states, towns after towns have witnessed this devastation due to large scale shifting of manufacturing units to overseas. The owner of the firm would only consider the profitability of firm while deciding to reduce its workforce or its closure. But on the other hand, the government needs to take into consideration entire town before taking the same decision. The government should never take decision considering the country as a firm. That’s why I decided to keep the title of my new book as “India is A Country and Not A Company” (Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, Rupee 350, 212 Pages, 2018). India has not fought any war in last 46 years, i.e. after 1971 but it has spent hundreds of billions of dollars on defense without thinking about any profit from this sector. The wellbeing of its citizens should be the top priority of the government. It has to provide means to its population so that they can get minimum necessities, like food, housing, education and medical. The middle class wants jobs and not just the handouts. Hence using its resources, which are of course limited, the government has to provide jobs to them.

Let us examine following August 2017 statement of a US-based economist, Dr. Arvind Panagariya, then Vice-Chairman of Niti Aayog (India must lower, not raise, tariff walls, The Economic Times, August 11, 2017):

 

“… [Dr. Panagariya] has rightly pitched for lowering India’s peak Customs duty to 7% from 10%. Restarting the reform, that began in 1991 but got stalled after 2007-08, will enhance the quality of our domestic produce, make our products more competitive in the international market.”

 

The US has minimal tariffs in the world and as per the Dr. Panagariya’s theory, the US should have the most efficient manufacturing units. But instead the US has lost massive amounts of manufacturing units to other countries, mainly to China, resulting in tens of millions of lost jobs in the Midwest, also called the Rust Belt in the US. When the author went to the US for a PhD in late 1980s, 80% to 90% consumer goods sold in the US shops and malls were “Made in US.” But now nearly more than 95% consumer goods, sold in the US, are made by other countries, mainly by China. One can barely find “Made in US” consumer goods in the US now. Reaganomics have created America’s Frankenstein, China, and then sold the US to it, and now India is following the same path, mainly due to the US-based economists at the helm of administration.

It was blunder mistake on behalf of Mr. Modi to bring US-based ‘Imported’ economists to decide the economic policy of the country. These economists are job destructors. The US has lost massive amount of jobs in last three decades and it is surviving by printing its currency, which happens to be the global currency, to fund its twin deficits – budget and trade deficits (please see the Section (B) “Massive Amount of Job Losses). These US-based economists are in India for just 3 or 5 years tenure and thereafter, they go back to the US and hence their ultimate allegiance is to the US (and its failed economic policy) and not to India. There is no doubt that economists are brilliant people. They know that the defective “Reaganomics”, followed and preached by nearly all US economists, is indeed responsible for the creation of the Frankenstein China, massive amount of job losses and for the bankruptcy of the US, too. If they would deviate from the tenets of “Reaganomics”, their career in US is finished. India needs to implement an “Indian” economic system and not the failed US economic policy. The Niti Aayog’s policy papers, written under the guidance of the US-based “Imported” economists, are nothing but the death certificates for the Indian economy.

The recent Modi administration decision to open up the coal sector to commercial mining by private entities is going to result into layoff of nearly 3,00,000 employees in coal industry within next few years. If we consider the indirect and induced jobs due to loss of 3 lakh coal employees, we may lose anywhere from 6 lakh to 10 lakh jobs (please read the Section (A) below “Privatization – the Main Reason for the Dismal Job Growth in India” and for detail explanation, please read my article: The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy). In the beginning of 2016, the Coal India Limited employed 333 thousands (333,000) people and produced only 452 million tonnes coal (Coal India, Wikipedia) whereas in the same year, the US coal industry, which is wholly in private hands, employed only 50,000 people and produced 670 million tonnes coal which is nearly 1.5 times the Coal India Limited coal production (Coal mining in the United States, Wikipedia). Hence in near future, we will see layoff of nearly 300,000 (3 lakh) employees in Coal industry. For a private firm, profit is the number one priority and the job creation and safety of employees are the lowest priorities.

One major criticism of Coal India Limited (CIL) is that it is inefficient because as per Reuters, its output-per-man shift is estimated at one-eighth of US based Peabody Energy, the world's largest private coal producer (NITI Aayog proposes break up of Coal India into seven firms, The Times of India (Reuters), June 28, 2017). But if you take the dollar, being over-valued, nearly six-times vis-à-vis Indian rupee in PPP (Purchasing Power Parity) terms (please read my article: The US Dollar – A Ponzi Scheme), into consideration, there is not much difference in output-per-man shift in CIL and Peabody Energy. If US dollar goes to its PPP value, Peabody Energy would have to pay six times the present hourly rate to its employees so that employees can maintain same standard of living. In last couple of decades several large coal firms in US, which include the top two producers Peabody Energy and Arch Coal, had to file for bankruptcy. As per Niti Aayog draft of new energy policy, the share of coal in India’s commercial primary energy supply was 55% in 2015-16 and is expected to remain high at 48-54% in 2040. Hence coal being a vital resource in India, bankruptcy by large private firms in coal industry will have a profound adverse impact on the economy which is not acceptable for a country like India.

Apart from this, it is certain that in future, some crooks in the government would sabotage the CIL in order to help private firms. We all know how Air India was deliberately sabotaged by a few people in the UPA government a decade ago by purchasing a massive number (a total of 111) of new aircrafts, not needed by the airlines, and by giving up profit making routes and timings in favour of national and international private airlines, which led to a huge loss to the national carrier but came as a boon to private operators. Apart from this, they also leased planes from private operators even while the process to acquire new planes was underway. As per the FIR by the CBI, all these were done to benefit private companies (CBI files three FIRs on UPA’s aircraft buy, Air India decisions, Neeraj Chauhan, The Times of India, May 30, 2017).

I consider Mr. Modi, the best Prime Minister, India ever has had (please read my article: Modi, the Best PM, India Has Ever Had, but He Needs to Stop Viewing India from the Prism of Gujarat). In anti-corruption, foreign affairs, terrorism and security vis-à-vis Pakistan and China, Mr. Modi has done wonderful work, but in economics he has no significant achievement to show for. I will never doubt his sincerity and zeal to make a difference in the lives of ordinary people in India. But he is not getting good advice on the economic front.

In the 2014 Parliamentary Elections, the BJP was able to win the majority of seats by selling the idea of Mr. Modi as “the Development Man”. This was possible due to his outstanding twelve-year history of Gujarat’s development. As the Chief Minister of Gujarat, Mr. Modi was not a job creator at all. As per the news report Has the ‘Gujarat Model’ failed the smartphone generation? (Rajesh Mahapatra, Hindustan Times, December 10, 2017) despite increasing shares of both manufacturing output in the national economy and productivity, wages are lagging in Gujarat. The average productivity of a worker in a Gujarat factory is 1.8 times the all-India average. But the average factory wages in the state are less than the national average and among the lowest when compared to similarly developed states. Gujarat’s share in national manufacturing output was 18.5% in 2014-15, up from 13.8% in 2000-01. But the state’s share in the national manufacturing workforce, at 10.3%, is proportionately much lower and hasn’t changed much during the same period. During its three and a half years of the Modi PM tenure, the nation is also experiencing the same.

But the opposition parties and economists failed to highlight his defective development in Gujarat which was laid bare in the December 2017 Gujarat assembly elections in which BJP was able to win only 99 seats (against 115 in 2012 elections), was fortunate to win the majority of seats as it won 16 seats from the Congress Party, which won 77 seats, by less than 3,000 votes or less (Gujarat election: 16 Congress candidates lost by less than 3,000 votes, Hindustan Times/PTI, December 19, 2017). Had those seats gone to the Congress Party instead, giving Congress the majority, it would have been a disaster for Mr. Modi and BJP. Although there was a slight increase in vote percentage for the BJP against the 2012 elections, the party suffered a net loss of seats due to a steep decline in BJP votes in rural areas where people revolted against nearly two decades of Modinomics that has largely bypassed the rural areas.

His ‘Make-in-India’ is just a slogan for exotic items like Hyperloop, Bullet Trains, Seaplanes, defense items like F-16 Fighter jets and Gurgaon POD Taxi. Instead of increasing manufacturing jobs, India, like the US, has been hemorrhaging massive such jobs. During April-June 2017, India lost 87,000 manufacturing sector jobs. (Quarterly Employment Survey: 87,000 manufacturing sector jobs lost in April-June 2017, Indian Express, February 19, 2018) and also his policy has no significant effect on the trade deficit. Despite more than three and a half years of “Make-in-India” slogan, the nation’s trade deficit has been increasing year after year (India’s January trade deficit widens to highest since May 2013, Reuters, Hindustan Times, February 16, 2018), especially with arch-rival China. As compared to the $52 billion trade deficit with China in 2016, India already had a $44 billion trade deficit with China in only seven months of 2017 (India trade deficit to China expands to $44.51 bn in Jan-Aug period despite 40.69% surge in export, KJM Verma, Oct 7, 2017, www.livemint.com).

In his domestic economic policy slogan ‘sabka saath sabka vikas”, there is no place of the middle class. During his three and a half years rule at Center there has been dismal job growth, similar to what Gujarat has been witnessing since Modi took over there in 2001. His domestic economic policy stands for leaving job creation to large conglomerates by allotting them huge projects and giving hangouts, like free gas and free homes, to the poor.

For a private firm, profit is the main priority and the job creation the least priority. Therefore, middle class does not exist in the Modinomics. Like in the US, the middle class in India is being squeezed and pushed down towards to the lower class. Even an hourly US worker has a better living standard than a middle class Indian because of the over-valued US dollar and hence middle class Indians being pushed to lower class does not bode well for India. In US, an hourly paid ($12 an hour) worker can buy a brand new 40 inch LED Smart TV (sold for $300) from his only three days earning.

It is urgent that Mr. Modi needs to do the following:

 

(1)      Privatization of Coal industry should be immediately withdrawn. The current Niti Aayog’s administration needs to come up ways to create competition among the seven organs of the Coal India Limited. These seven companies would bid against each other for them. It would result in efficiency and also reduction in the price of coal. The resulting competitive pressure will foster efficiency and bring about substantial reduction in coal price. (please read my article on this topic: Coal India - Niti Aayog Needs to Treat India as a Country, Not as a Firm).

 

(2)       Before inflicting further damage to the economy, all the Niti Aayog’s policy papers (including three- and seven-year policy papers) written under the founder’s administration, need to be withdrawn.

 

(3)        Niti Aayog’s policy papers, mentioned in (2), should be re-written, giving importance to job creation, by the present administration headed by Dr. Rajiv Kumar.

 

(4)      Mr. Modi generally visits the East Coast (financial belt) and the West Coast (Information Technology belt) of the US and sees money everywhere. But to see the firsthand knowledge of the devastation in US caused by overseas shifting of manufacturing units, Mr. Modi needs to visit some cities, in the US Rust Belt states, like Lansing (Michigan), Flint (Michigan), Detroit (Michigan), Gary (Indiana), and Cleveland (Ohio). In Lansing, which is the capital of Michigan state, he would see nearly 30% to 40% shops (petrol stations, groceries, both large and small stores, restaurants, etc.) closed permanently on both the sides of the road. People in Rust Belt are so angry that they voted twice for Barack ‘Hussein’ Obama (not once but twice), a black person with Muslim middle name, and then a known white supremacist, racist, serial liar and misogynist who had never hold any elected position, in the 2016 US Presidential election, over the Wall Street favorite Hillary Clinton. Trump won mainly due to getting votes in the US Rust Belt states where people voted for him on just one hope that despite being not a perfect person, Trump might bring back the factory jobs, lost to foreign countries, in the recent three decades and more. It is worth to note that both Obama and Trump won all the Midwest states. On December 12, 2017, the Editorial Board of the USA Today wrote following about Trump in bold letters (Will Trump's lows ever hit rock bottom?, USA Today, December 12, 2017):

 

“A president [Trump] … is unfit to clean toilets in Obama's presidential library or to shine George W. Bush's shoes.”

 

[Note: USA Today shares the position of having the widest circulation of any newspaper in the United States with The Wall Street Journal and The New York Times (USA Today, Wikipedia) Every day It is printed at 37 sites across the United States and at five additional sites internationally]

 

(A) Privatization – the Main Reason for the Dismal Job Growth in India

At the central level, the government has privatized the departments’ vehicle system. Instead of each department having its own vehicles and drivers on its payroll, now private firms are providing cars to senior officers. A driver of one such private firm was complaining to me that he was getting only 10,000 rupees a month and every month he had difficulty in paying monthly fee of his daughter’s school. His predicament shows the adverse effects of the privatization.  Suppose there were 300 drivers on government payroll in a department before the privatization of their services. As government employees, they were getting, say, 30,000 rupees a month (in nearly all cases, government salaries for mid- and low-skill workers are more than what a private firm pays). After privatization, 300 mid-wage (30,000 rupees a month) salaried workers are replaced by the same number of low-wage (i.e. 10,000 rupees a month) workers. It is the owner of the private firm who is making the difference, i.e. he is making a lot of money. This transfer of income, from 300 drivers to one owner, inhibits job growth as one rich person’s economic activity cannot replace the economic activities of 300 mid-wage families. One (rich) family would not eat like 300 middle class people; it would not have 600 children (considering two children in a family) to go to schools/colleges; it would not buy 300 autos/cars; it would not live in 300 apartments/homes; it would not go to 300 doctors/hospitals for medical treatment – this list can go on and on. With 30,000 a month, a driver family can spend extra money on children’s schools/colleges, purchasing scooters, renting a better apartment, medical, hospitals, etc. Thus privatization of government jobs has drastically reduced the purchasing power of the people, who were earlier holding the similar job in the government. If say 5 lakh jobs have been privatized, it has eliminated maybe 5 lakh or more jobs due to reduction in purchasing power. This explains the drastic drop in the new job creation during 2015-16 which is mainly due to unrestricted privatization by Niti Aayog. For this very reason, the US also has been witnessing jobless growth.

 

(A) Massive Job Losses in the US

The US has been experiencing similar job losses due to the privatization as per the “Reaganomics” theory and also for shifting of jobs overseas since 1980s.

 

 

 

Despite the historic loss of millions of middle class jobs during 2000 to 2008 and job losses related to the record increase in its trade deficit since 1990s, the US economy kept on booming, firstly due to the tech stock bubble, and secondly the real estate price bubble. When the real estate bubble burst in 2008, the Bush administration (and later the Obama administration) had to spend trillions of dollars to prop-up banking and real estate sectors. US Fed reduced interest rates during the recession to spur consumer spending. Once low interest rate was able to kick-start the economy, the Fed raises the rate within few years. Prior to the 2008 Great Recession, the US had recessions in early 1990s and again in early 2000s. As shown in Chart below, the Fed reduced the rate to about 3% for about a year and a half at the onset of the early 1990s recession and then again it reduced the rate to about 1% for a year and a half at the onset of next recession which occurred in early 2000s, i.e. the Fed had to lower the bar for its rate in early 2000s recession from the previous recession. After the 2008 Great Recession, the Fed has to go down to 0 (!) percent for nearly 7 to 8 years, a move that has only inflated assets on the stock market, with no job recovery in sight. The reason for the failing of this policy is that banks are not finding enough people, with good credit rating (as they do not have good paying jobs), to provide loans to.

If you have a credit card with unlimited credit limit and with no expiry date, you and your family would live a luxurious life even if you do not work. The US has a similar credit card. But once China put an expiry date on the US credit card, i.e. once China replaces the US dollar with its own currency Yuan as global currency, the US would not have any option other than declaring bankruptcy, i.e. at that time, the US economy would be facing the 1990s Russian economy scenario.

According to Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends (“U.S. Debt Expected To Soar This Year,” Lori Montgomery, Washington Post, January 3, 2009): 

 

“While the current market for [US] Treasuries is booming, it’s unclear whether demand for debt can be sustained. There’s a time bomb somewhere, but we don’t know exactly where on the calendar it’s planted.”

 

The US dollar is over-valued; on Purchasing Power Parity (PPP) term, one US dollar should be only 11 to 12 Indian rupees only and hence even an hourly wage worker in US has better living standard than a middle class India. But once the US dollar goes down to its PPP level, monthly earning of more than half of US population would be just sufficient for food and nothing left for housing and medical expenses.

In an op-ed article, published in the New York Times, William Grieder, a bestselling author, wrote (“America's Truth Deficit,” New York Times, July 18, 2005):

 

“For years, elite opinion dismissed the buildup of foreign indebtedness as a trivial issue. Now that it is too large to deny, they concede the trend is "unsustainable." That's an economist's euphemism which means: things cannot go on like this, not without ugly consequences for American living standards. But why alarm the public?”

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