Demonetisation spoils growth in 2016
As the year 2016 comes to an end, the Indian economy is at the crossroads, with the Modi government's handling of the economy by injecting investment and promoting entrepreneurial élan and enterprise being a mixed bag. No doubt with its good majority in the lower house of Parliament, it got several pieces of crucial economic legislations passed including the Taxation Laws (Second Amendment) Bill 2016 sans debate. In its two and a half years of being on the seat of governance, its track record in Parliament is not much to gloat over even as it may choose to blame the scattered Opposition parties that were made defunct after the 2014 General Election. But if not for anything else, the multiplicity of Opposition parties got their scattered wits together and stonewalled proceedings save a few sessions in both the Houses of Parliament throughout the second coming of the National Democratic Alliance (NDA) led by the principal Bharatiya Janata Party (BJP).
That the government of the day had to face two years of successive droughts both in 2014-15 and in 2015-16 with farm sector growth tepidly inching from a weak base this year was quite well known. But despite this natural mishap, the Modi government did not show much flair for the farm sector’s genuine revival when it was most needed in the initial years. However, it subsequently saw the writing on the wall in the widespread rural distress and tried to mend matters by some cosmetic inducements here and there. But the simple most important anti-farmer measure it took was to liberalise import regime for commodities and grains by slashing import duties indiscriminately and across-the-board with growers and farmers being subject to work under unfair competition from cheap and subsidised farm goods from the developed world. At a time when advanced economies like the US and the UK opted for a virulently protectionist leaders lest employment to natives should not be in jeopardy, it is a reflection of the Modi government that it did not find it fit to safeguard the swathes of its poor farmers who toil on the soil, despite all the harsh conditions, both man-made and natural.
The Indian peasantry is no doubt in silent resentment against what the British Prime Minister Theresa May eloquently excoriated against “the privileged few” with the Government at the Centre not budging from its obdurate posture of not encouraging the agricultural sector hook, line and sinker in an economy where a majority of people eke out their existence on cultivating a small holding, either on their own or behalf of the privileged landowners. This situation is fraught with risks if the authorities do not bring to bear some relief measures to the agrarian economy so that its inveterate ire is not translated into making India a permanent importer of even essential agricultural goods it needs for its growing populace.
On the industrial sector, the less said, the better as the manufacturing machinery remains in a moribund state, despite several initiatives like Make in India, Start-up India, Stand Up India, Zero defect, Zero effect programmes the Prime Minister launched with panache and fanfare. It is a pity that the manufacturing sector which alone could propel employment opportunities for millions of unskilled, semi-skilled, and skilled people is nowhere near the ambitious 8 per cent growth the policy wonks had been contending for decades. India’s ambition to be a developed nation before long would remain a pipedream if the requisite incentives for industrialisation even in frontier areas, if not the traditional ones like bricks-and-mortars, are not put in place with alacrity and avidity.
The clampdown on the black economy by declaring high-value currencies of Rs 500 and Rs 1000 no longer legal tender from the midnight of November 8 was a bolt from the blue as it hit more than most the ordinary people and effecting a deflationary spin to the economy. It would take a few quarters for the economy to effect a rebound in demand, particularly in a cash-driven society where the worst hit are the street vendors, small retail store operators and merchants who find the deficiency of demand engineered by the demonetisation. It is a paradox that proper preparatory works did not accompany the high secret action of the government and that numerous modifications and changes to rules and regulations of dealing with the aftermath of the measure left many puzzled and worried over the safety of their nest-eggs savings in their bank accounts.
The comport of the bank officials is far from satisfactory as nationalised banks, far from being affable to the poor customers, showed up their seamy side by being partisan to their wealthy and corporate clientele and restricting the amount normal account holders can draw drastically to the official limit of Rs 24,000 per week. When discretionary powers get devolved on financial institutions particularly in banks where many people have their money in safe custody, the resultant harassment to the public is inevitable as power goes to their head. Sometimes they also get worked up because of constant interference from higher-ups to do this or that for the privileged few!
As the year draws to a close, the situation does not appear to be easing for the harrowing public as the restrictions for withdrawing one’s money might persist till the process of re-monetising the economy is complete. While nobody grudges draconian actions against errant elements in the economy who profit by their nefarious activities, the ramifications and repercussions need to be duly reckoned lest the public do not feel short-changed or subject to undue inconvenience. Many doubt whether the blizzard of demonetisation would subside soon to enable people to resume their normal lives. Even assuming that its deleterious effects would be lived down by the forgiving public if only it purges the economy of all odious and obnoxious dregs, the picking up process would be a long drawn out exercise with many ordinary people finding the existence enervating enough. So as the New Year is all set to dawn, hope springs eternal that the hardships of the recent weeks would be behind and that better days would herald India’s tryst with destiny for a sustainable development.
(The views are strictly personal.)