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Indian Express
2 days ago
- Business
- Indian Express
Fiscal and investment credibility, not headline numbers, will drive India's economic growth
Written by Deepanshu Mohan & Ankur Singh Two critical trends have occurred with little discussion or critical reflection. One is the recent data showing inward FDI (Foreign Direct Investment) capital flows reducing, as against the rise observed in outward FDI (capital moving out of the country), which indicates weakening investor confidence and/or low growth in capacity utilisation of existing (or already invested) private capital in key sectors. According to the RBI, India performs well in terms of greenfield FDI (new projects) investments announced during 2024–25, following the US, UK, and France, as the fourth destination most preferred by investors. But what's important is to distinguish 'gross flows' of investment from 'net flows'. As reported and explained, 'Gross flows account only for the FDI that flows into the country. It doesn't take into account the funds that flow out due to foreign companies repatriating funds to their head offices overseas, or foreign investors selling off investments in Indian companies, or Indian companies investing in ventures overseas. Net flows, after accounting for the outward movement of funds, collapsed to just around $400 million in 2024–25, down from over $10 billion the year before.' This is worrying and signals a structural shift in India's FDI-led investment ecosystem. Beyond this trend, Moody's cut the United States' sovereign credit rating on May 16 from AAA to Aa1. The downgrade wasn't in reaction to a crash, a pandemic, or a war. This was also not a sudden moment of fiscal slippage. It was something slower and far more dangerous: the normalisation of fiscal recklessness at the heart of the global monetary order. The timing of this also matters. Unlike the S&P downgrade in 2011, which followed the debt-ceiling standoff, or Fitch's move in 2023 amid post-COVID distortions, Moody's decision came in a year of relative economic calm, at least on the surface. Inflation is easing, unemployment is low, and global markets are more stable than they've been in years. That's what makes the downgrade quietly radical. Under Trump's presidency, the US has doubled down on a mix of tax cuts, tariff wars, and populist spending — all without credible offsets. The so-called One Big Beautiful Bill, heavy on headline-friendly promises like tax exemptions on tips and overtime pay, masks an extraordinary fiscal burden. Independent estimates peg its ten-year cost at over $5 trillion. That's on top of a debt-to-GDP ratio already exceeding 120 per cent. That shift matters for every other country trying to navigate a world built on dollar stability. It matters most for emerging markets like India, which borrow trust before they borrow money. If even the US can lose its fiscal halo, no country is immune from scrutiny. In India, elections have long served as budget announcements. Whether in the corridors of the Centre or on the campaign trail in the states, fiscal responsibility is often the first casualty of political ambition. Loan waivers, free electricity, subsidised gas cylinders, unemployment stipends, direct cash transfers — the list of election-time giveaways has grown longer with each cycle. In recent years, nearly every state election — from Haryana to Jharkhand, Delhi to Maharashtra — has witnessed a scramble among parties to outdo each other in promises of material entitlements: free rides, free water, free laptops. India's general government gross debt stands close to 80 per cent of GDP. Its combined fiscal deficit continues to hover above prudential norms. Yet our politicians treat the budget as an open-ended ledger for electoral engineering, diverting scarce public funds toward short-term voter appeasement rather than long-term nation-building. This erosion becomes all the more dangerous in the context of a shifting global climate — one in which financial markets may no longer be willing to turn a blind eye to fiscal indiscipline, however well-wrapped in democratic legitimacy it may be. Moody's downgrade of the United States marks a turning point. When the world's largest economy, issuer of the global reserve currency and anchor of financial markets, sees its sovereign creditworthiness questioned, it signals a recalibration in how markets view risk. This is not a one-off judgement. It is part of a broader repricing of fiscal credibility — one that should worry emerging economies more than most. With the US downgrade, the club of AAA-rated sovereigns has grown even more exclusive. Germany and Canada, which were long considered models of stability, too are now grappling with their own budget imbalances, prompting speculation that they, too, may soon fall off the list. For India, the implications of this are twofold and urgent. First, it is a reminder that the global financial order no longer offers blanket indulgence to profligacy. Its capital markets remain vulnerable to swings in foreign sentiment, and its monetary policy is constrained by external balances. In such a landscape, credibility must be consistently earned. Second, India's vulnerabilities are institutional. Beneath the headline numbers, what is often ignored is inconsistent tax enforcement, erratic regulatory actions, and delays in judicial and insolvency mechanisms. These are not peripheral issues; they shape how investors price long-term risk. On FDI, behind the headline numbers shared earlier — often denominated in billions of dollars — India has been affected as well. As a share of GDP, net FDI into India peaked at 2.65 per cent in 2009. According to a recent study, other preferred destinations for FDI, such as China or Vietnam, have also seen net FDI as a share of GDP fall in recent years. I have argued earlier that India needs productivism — to borrow from Dani Rodrik's reasoning — and must prioritise the dissemination of productive economic opportunities and investment capital across all sectors and segments of the workforce. This will help utilise effective capital mobility for job creation as well. All this requires a critical shift from fiscal management as a crisis-response to fiscal credibility as the default posture. Markets don't send warnings like this twice. Deepanshu Mohan is Professor of Economics and Dean, IDEAS, Office of InterDisciplinary Studies, Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities. Ankur Singh works at CNES
Indian Express
10-05-2025
- Business
- Indian Express
As the IMF bails out Pakistan yet again, accountability is the casualty
Written by Deepanshu Mohan On May 9, in a tense session marked by geopolitical friction, the International Monetary Fund approved Pakistan's 24th bailout: a $1 billion disbursement under the Extended Fund Facility and $1.3 billion from the Resilience and Sustainability Facility. India abstained in protest, citing Pakistan's role and responsibility in the April 22 Pahalgam terrorist attack that killed 26 people, warning that the IMF loan might be indirectly misused for state-sponsored terror. Despite India's concerns, the Fund pushed forward with the appropriation, prioritising regional stability over New Delhi's objections. The moment marks a continuation of Pakistan's long, tangled waltz with debt and the role of international financial institutions in supporting it. Since 1958, Pakistan has secured over $28 billion in IMF arrangements. One needs to perhaps picture the neighbouring economy — like many failed states surviving on foreign aid or development assistance — as a gambler at a table where each bailout is a borrowed chip to cover the last round of losses. Even now, the IMF hesitates to declare Pakistan's debt unsustainable, fearing that doing so will scare off other lenders. It's what former State Bank of Pakistan governor Murtaza Syed calls 'extend and pretend'. The cost of this strategy is borne not in Washington, but in Karachi, Lahore, and Quetta. Pakistan spends around 65 per cent of its tax revenue on interest payments, which leaves little for its own people. Education receives just 1.7 per cent, and health only 0.8 per cent. The Human Development Index of Pakistan lags at around 0.540, trailing behind Bangladesh. The literacy rate is at 60 per cent, and child mortality hovers at a staggering 67 per 1,000 births. For all its loans targeting the development of schools and hospitals, World Bank audits reveal up to 40 per cent of funds are lost to delays or corruption. Where does the money go? Craig Burnside and David Dollar, in a paper titled 'Aid, Policies and Growth', studied the relationship between aid in all its forms (the term often used for development assistance) and growth for developing nations. The impact of any development assistance, the authors find, closely depends on the state's institutions and policies. In countries where corruption and institutional failures are commonplace, most aid or development assistance is wasted. It also indicated the hegemonic influence of the US (through bilateral and multilateral assertion) in ensuring aid for strategic reasons, often in the name of providing developmental funds. In the shadow of Pakistan's $131 billion debt mountain, a stark choice looms larger with every loan that it receives: Spend the money on guns or growth. The IMF's latest bailout is meant to provide fiscal oxygen for growth. With reserves falling below $4 billion, enough for just a few weeks of imports, the infusion offers momentary relief. But growth is conditional on the robust presence and action of 'good' institutions, which the Pakistani nation-state has lacked due to a decades-old internal conflict between the army and the elected state. This makes any transparent, objective function of the state difficult. According to the Pakistan Economic Survey 2023–24, the defence allocation for FY2024–25 is Rs 2,122 billion, which constitutes 1.7 per cent of the country's GDP. This represents a decrease from 2020's defence spending of 2.6 per cent of GDP. A 2024 report by the Human Rights Watch highlighted that Pakistan paid about seven times more per person to service its external public debts than it did on healthcare in 2021. Entities like the Fauji Foundation, Army Welfare Trust, and Shaheen Foundation run everything from fertiliser plants to insurance companies, often outside the purview of civilian audits. In 2023, the military formalised its economic power with the Special Investment Facilitation Council (SIFC), chaired by Army Chief General Asim Munir. Meant to attract foreign investment, the SIFC brought in just $1.9 billion in FDI in FY24, a figure dwarfed by India's $70.9 billion haul. Critics argue that the IMF and World Bank are complicit, not through intent, but through indifference. Loan conditions typically target fuel subsidies, civil service pensions, or tax reforms that affect the public. But social sector budgets remain stagnant, and the military remains untouched. Its budget is sacrosanct, and its political power is unchallenged. The ousting of Imran Khan and the post-election manoeuvrings of 2024 have only reinforced the army's grip on civilian institutions. India's abstention on May 9, by challenging the $1.3 billion Resilience and Sustainability Facility, voiced a growing unease over the international community's continued funding of a regime where strategic priorities overshadow systemic reform. This is a test for the IMF and its peers, which are caught between stabilising a geopolitical linchpin and enabling a cycle of dysfunction. India's protest, sparked by the Pahalgam terror attack and subsequent developments, flagged a deeper issue: The IMF's cheques often bypass accountability. The Fund's 2024 reports hint at 'geopolitical considerations' trumping fiscal rigour, a nod to Pakistan's role as a buffer for other geopolitical interests. If austerity sparks unrest, then the world need only look at Kenya's 2024 riots, where IMF-backed reforms triggered violent protests and eroded public trust. The Fund's credibility hangs in the balance. It is increasingly seen as a lender propping up regimes that suppress dissent rather than deliver reform. The World Bank faces similar questions, as its governance and development projects stall in countries where entrenched elites prize control over change. For global powers, the implications are not just economic but strategic as well. India's rare protest signals a turning point: The international financial system can no longer afford to bankroll dysfunction in the name of stability. As the IMF prepares its next disbursement, the real test lies in not ignoring the cost of misgovernance. The writer is Professor of Economics and Dean, IDEAS, Office of InterDisciplinary Studies, Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities. Ankur Singh contributed to this article
The Wire
07-05-2025
- Politics
- The Wire
Is Modi Govt's Caste Census Move Just a Tool For Power Politics or Real Social Reform?
Menu हिंदी తెలుగు اردو Home Politics Economy World Security Law Science Society Culture Editor's Pick Opinion Support independent journalism. Donate Now Politics Is Modi Govt's Caste Census Move Just a Tool For Power Politics or Real Social Reform? Deepanshu Mohan 44 minutes ago Several questions continue to arise as to what could have caused this unanticipated move by the BJP-led government and its sudden alignment with the opposition's pressed idea of conducting a caste census. Real journalism holds power accountable Since 2015, The Wire has done just that. But we can continue only with your support. Donate now Illustration: The Wire The Bharatiya Janata Party-led government recently announced that it would be conducting a caste census with the next scheduled general census. The announcement came as a U-turn taken by the current administration since the BJP has never shown any keen interest in conducting a caste census, which was often put forward by the opposition parties, stressed by the Congress member of parliament, Rahul Gandhi. During a 2023 Lok Sabha session, when Gandhi demanded the Union government to conduct a caste census, Prime Minister Narendra Modi stated that the four biggest caste categories for him were 'women, youth, farmers and the poor'. Now, the government itself seems to acknowledge its folly of apathetically ignoring caste as an issue of policy deliberation and intervention. Still, several questions arise as to what could have caused this unanticipated move by the BJP-led government and its sudden alignment with the opposition's pressed idea of conducting a caste census. A clear resonance of its timing needs to be mapped with the upcoming Bihar assembly elections. Bihar assembly's own leader of opposition, Tejaswi Yadav, has alleged previously that 'BJP and RSS are against reservations, that is why they don't want to conduct a caste census.' So, the Union government's announcement became a point of proving to the public that it was them, not the opposition, who acted upon conducting the caste census. Historical context of caste census matters A lesser known fact regarding conducting a caste census is that it was predominantly undertaken by the British administration as a periodic exercise, with the last caste census conducted in 1931 under the Raj. Due to the periodic census being taken, it showed the inequalities between castes and also resulted in movements to forward historically backward castes. Later, the UPA government in 2011 had conducted a socio-economic and caste census, for which the data was never made publicly available. The reason for non-reporting was due to the large anomalies that existed with the caste data. In Indra Sawhey v. Union of India (1992), the Supreme Court mentioned the importance of the collection of caste data for reservations and furthering the aim of affirmative action. Arguing for a caste census Beyond numbers alone, the issue of caste census offers a vital mirror to India's layered social realities and deepended socio-economic inequalities. For many Dalit and OBC communities, it reveals that their struggles are not isolated but part of a shared experience of exclusion. Over time, the circulation of caste data has fostered a collective awareness and solidarity among the marginalised. This awareness has shaped a distinct political imagination, one grounded not in abstract ideals of nationhood but in lived realities of deprivation. The caste census, then, is not just a tool of enumeration – it is a vehicle for reimagining the nation through the lens of social justice. Caste census is crucial for understanding and addressing social inequality by providing detailed, caste-specific data highlighting disparities across various socio-economic factors. By capturing information inter alia on education, employment, income and healthcare access, it reveals the unequal distribution of resources and opportunities among different caste groups. For instance, the 2011 census recorded a 66.1% literacy rate among SCs, significantly lower than the national average of 72.99%. NFHS-4 data revealed that SC/ST households had lower monthly per capita expenditure than general caste households. Health disparities are stark too. Such data helps identify areas where marginalised communities are lagging, such as in education, where certain castes face higher dropout rates, or in healthcare, where Dalit women, on average, live 15 years less than women from dominant castes. Such detailed information is critical for policymakers to design targeted interventions, ensuring that resources are allocated effectively and policies like reservations are grounded in recent, accurate data. Furthermore, the caste census would enable ongoing monitoring of social programs, helping assess whether efforts to reduce inequality are successful and if new strategies are needed. Myth or reality? Though positioned as a tool for ensuring social equity or equal opportunity in access terms, caste census also presents serious concerns rooted in historical and logistical complications. Past censuses, like those in 1871 and 1931, revealed arbitrary classifications, such as grouping beggars, cooks and mendicants under vague categories, highlighting the difficulty of capturing caste complexity. The 2011 SECC recorded over 46.7 lakh caste names with 8.2 crore errors, exposing the administrative chaos that such exercises can trigger. Misclassification is rampant – surnames like 'Dhanak', 'Dhanka' and 'Dhanuk' span SC and ST categories depending on the state, often leading to incorrect enumeration. These challenges are magnified when caste data is used to push for 'proportional reservations.' Thus, the process of caste census is an uphill battle which must be held in accordance with the constitutional ethos of equality (Article 14) and dignity (Article 21), aligning with global standards under the UDHR, particularly Articles 1 and 7, which uphold equality and human dignity. Article 340 of the Constitution of India, which mandates the investigation into conditions of backward classes and recommends action, must be made a reality via a caste census. Any manipulation or misuse of data that could lead to unjust policies must be addressed with caution, as such actions risk violating the principles of 'fairness' and 'due process' laid down in Maneka Gandhi v. Union of India (1978), The release of the Bihar Caste Census Report 2023 has also revealed a significant shift in understanding the state's demographic landscape. The state is set to go to the polls later this year. Its census report showed that over 63% of its population comprises OBCs and EBCs, with EBCs alone making up 36.01% of the population. This challenges the traditional dominance of upper castes in Bihar's political and social spheres. The Bihar report highlights significant gap between the state's dominant 15.5% upper-caste population and the 84% of marginalised castes, underscoring the need for more robust affirmative action policies. Notwithstanding these issues, the announcement for caste census by the Union government came a day after Prime Minister Modi met Rashtriya Swayamsevak Sangh chief Mohan Bhagwat, whose organisation hasn't always been a supporter of reservations. Notably, the Modi government has a long list of failed promises to account for. Be it the promise of two crore jobs annually, failure to provide a legal guarantee for MSP, or the promise of free ration to 80 crore people for five years. The grand vision of 'Viksit Bharat' too appears directionless and distant at this point without a clear action plan for ensuring progressive, inclusive human capital development for all, while minimising inequalities of access and outcomes. It remains to be seen whether the caste census will become just another political distraction, aimed at deflecting attention from the escalating security crisis in Kashmir and swaying votes, or if it will deliver meaningful change. Either way, it must be pursued in line with constitutional values of justice, fairness and equity. Deepanshu Mohan is a professor of economics, dean, IDEAS and director, Centre for New Economics Studies. He is a visiting professor at the London School of Economics and an academic visiting fellow to AMES, University of Oxford. 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