Where Are The Jobs? This Query Should Be Addressed Not Only To Modi, But Chief Ministers Too

Where are the jobs, Modiji? Where is the growth? These are questions one hears frequently from economists and politicians. Where are the achche din you promised in 2014?

These are good questions to ask of parties in power. But our emphasis is off the mark. These are questions to be asked not only of the centre, but also of the states. ‘Where are the jobs’ should be a question asked as much of Akhilesh Yadav or Devendra Fadnavis or Mamata Banerjee, as Narendra Modi. Job-creation, economic reforms and investments are not the job of the centre alone.

Let’s get some numbers right. After the 14th finance commission, around 62 per cent of tax resources are with the states, and not the centre. This means, two-thirds of the solutions to economic problems lie in the states’ domain. At best one can say that central policies are not conducive to growth. The resources are not the problem.

Post-GST, the goods and services tax, there is going to be a further diminution of central financial power, for the Modi government has essentially written a blank cheque to states to get them to sign on for GST.

Under the GST deal, states are to get full compensation for revenue losses, and a 14 per cent annual rise in revenues. What this means is simple: Finance Minister Arun Jaitley and Narendra Modi have effectively guaranteed a doubling of state revenues in five years, never mind the state of the national economy or central finances.

In the 2017-18 budget, 57 per cent of the centre’s gross tax revenues go to states. If one includes capital receipts, including receipts from disinvestment and spectrum, over 50 per cent of the centre’s receipts go to states.

Isn’t it time we asked the states what they are doing about jobs and growth?

The macro reality of India is that the centre’s resources during the GST period are going to shrink in relative terms, especially if some states face a GST revenue crunch. This means the centre will be handing over its own resources to make good its promise of 14 per cent annual growth in revenues.

If net central revenues as a percentage of gross domestic product (GDP) shrink as more GST-related transfers take place, on what basis do we ask Modi to deliver the jobs? Shouldn’t states, which collectively have more resources than the centre, do some of the hard work and heavy lifting?

Even otherwise, central government expenditure as a percentage of GDP has been falling, as Manas Chakravarty argues in a Mint newspaper analysis.

Between FY2012 (fiscal 2011-12) and the coming financial year (2017-18), central government expenditure has fallen from 14.9 per cent of GDP to 12.7 per cent. Even after deducting subsidies and interest payments, expenditures have fallen from 9.3 per cent to 8 per cent.

And capital expenditure – a key driver of the investment cycle when banks are stuck with bad loans and companies over-leveraged – has just about stayed level. The Modi government has certainly increased public sector investments compared to the final years of UPA-2, but even after all the huffing and puffing over the last three years, capital expenditure in FY2012 and FY2018 (next financial year) are just about the same at 1.8 per cent of GDP. If the centre is unable to invest more than this, is it any wonder that the investment cycle is slow to revive?

The problem is that the national and international media live in Delhi, and the only thing they can see is the centre’s budget and its actions.

Little wonder, they tend to think it is the centre that is not delivering. The states are happy to spend their booty in providing free laptops and honorariums to Imams, instead of focusing on reforms and jobs that they can do. State politicians are also busy skimming the cream off real estate, by artificially making land too expensive and unaffordable, both through extortionate stamp duties and arbitrary building laws. If real estate prices were made reasonable, it would be the biggest job creator in India. States are also busy over-regulating job-creating sectors like taxi services, where Ola and Uber alone can create millions of jobs if given lighter and more sensible regulation.

It is time to look elsewhere for answers to the question “where are the jobs”. Every time one asks this question of Modi, two questions need to be asked of state chief ministers too.

The states cannot get a free pass on growth and jobs. They can’t just swallow all the cash coming from Delhi, waste it on freebies, and then pretend that Delhi has to produce growth and jobs.

It is time to turn the harsh glare of the spotlight onto states.