Time to Share the Pain

The Economic Times - January 28, 2013

As prices rise and subsidies are cut, India needs some more socialism to keep markets working

This Republic Day, can we consider a commitment to have more honest discourse on matters that affect all Indians, discussing not just the gain but also the pain of policy decisions; and from the standpoints of different segments? "Why complicate matters, let's stop discussion and just execute," is a refrain we hear too often. But we are a complicated country and being simplistic isn't a solution. Stretching the intellect and thinking through how to balance and share the gain and pain equally amongst all Indians is the solution.

Recent economic policies may give stock market investors reason to cheer, but many Indian households are in pain and it is about to get worse. The 'there-is-no-choice' discourse propagated by analysts and business leaders is that the price rise of cooking gas, telecom, diesel and train fares is good for aam aadmi because it will make industry more profitable, reduce the fiscal deficit, cut interest rates, inspire more confidence for investment and individuals to borrow to spend, and lead to a higher GDP growth rate number. As a result, many Indians will have opportunities to earn more, spend more and live better. India will become a more attractive FDI destination and that will, in turn, lead to more benefit for aam aadmi.

The only trouble is that the time between the immediate price rise — on top of past price rises of petrol, vegetables and electricity — and the eventual rise in income isn't being discussed. And the extent of pain and which segment of Indians bears how much of it for how long, causing what consequences, isn't being discussed either. What's to be gained discussing it?

Maybe we will understand the human consequences of economic reform better and work harder to innovate better policy. Maybe we will understand the likelihood of social unrest and anger over inequality, not so much of income gain but of unequal expenditure pain and about being forced back to a lower level of lifestyle. Whichever way you push the numbers of share of income or expenditure or surplus of income minus expenditure, the top 20% of India does not come under stress due to prices rising faster than incomes.

If we assume that the 45 million folios in equity mutual funds come from this segment, then they will see their wealth rising again, and their borrowing power enhanced, because banks like lending to them more than to anyone else. The bottom 20-30% may not realise the gains promised from welfare schemes and cash subsidies immediately, but they can see that it is real; largely rural, and very low in income thus far, they will have the staying power to ride out this "tough times call for tough decisions" phase. But it is the middle, especially the 30th-60th percentile of income, especially urban, which will be hurt the most for a variety of reasons.

What happens to Gita, the part-time housemaid in Mumbai, the Indian equivalent of Joe the Plumber. A year ago, she worked part-time in four houses in an upper-income locality, earned Rs.8,000-10,000, lived in a chawl, and sent her kids to municipal school. Her husband earned about the same. She decided to move from the chawl to a faroff but better place to live, requiring her to take a bus, train and autorickshaw to work, taking two hours each way; however, her kids went to a better government school and the neighbourhood was safer.

Her husband lost his job, but they were optimistic enough to set up a cooked lunch supplying business, targeting hawkers and shopkeepers near home. This market existed because such people had improved their incomes and wanted to eat better than they used to. She could package nicely, with cheap, easily-available plastic pouches, and she invested in big cooking utensils.

She netted Rs.250 a day, worked from home, had more time for her kids, sent the older one for tuitions, bought 'leggings and top' for them. After the gas price hike, and subsidised cylinder limit, her business became unviable. She couldn't pass the price hike to her customers because they too were inflation-hit; many scaled down their food quality and went back to what they used to eat earlier.

She decided to come back to some of her old jobs, but wanted to keep her business going while she waited for things to get better. Now she works double shift, commuting costs are Rs.50 per day, and doesn't see her children. Can't she work nearer home? The locality is more price-sensitive and is cutting back on household help.

The madams she works with are reluctant to pay her more, unless she works all day, in which case she has to abandon her business. With a fridge, she can be more efficient, but she cannot get a formal loan. She and her kids have cut back on many things they had taken for granted, and it will take quite a while before her quality of life gets back on track.

Parallel to demanding labour laws to enable hire and fire in the organised sector, we need to set liberal minimum wages for all unorganised occupations and outsourced or contract workers. Does that make us a high-cost economy? Yes, but it preserves the striving, enterprising, aspiring society, without which a consumption-driven economy will not grow.

Everyone needs to take a haircut, when the government is urged to bite the bullet: profit margins, India's top 20%, unorganised employers, banks and NBFCs. It's time to start to share the pain if not the gain.