Hailing the NaMo legacy
NDA’s slipshod approach has crippled India’s economy — inducing a dismal slowdown
Wait for but a few months more and we will find our country facing such a huge fiscal deficit that all of us would be astounded. The Narendra Modi government has been left with the singular option of going for the desperate move of so-called strategic disinvestment to meet the fiscal deficit. The government has refused to accept that this is a fire sale, a distress sale and indeed, a desperate sale.
To fill the gap of fiscal deficit, the government has already stripped the Reserve Bank of India of 1.60 lakh crore rupees. Despite this, it is almost impossible for the Modi government to plug the holes of a rapidly slowing down economy. The issue has become so explosive that there is a chaotic situation in almost all states where there are no funds available even for paying necessary bills.
Prime Minister Narendra Modi says there is no recession. His finance minister Nirmala Sitharaman says there is no recession. Their audacious argument is that there could be a little 'cyclical slowdown in the economy because of global reasons' but the health of the Indian economy is good. If this is their diagnosis of the problem, how can we expect any useful prescriptions? Economists feel that the Modi government is clueless and cannot correct the path of the economy.
Technically there is no recession. But is this slowdown of the economy acceptable? Millions of jobs have gone, millions of enterprises have shut down and half of the country's installed thermal power capacity is closed down because there is no production in factories so they do not require any electricity.
Experts of global financial systems have warned India not to view its economic slowdown as cyclic and realise the dangers of a serious structural slowdown that the country is passing through. They blame demonetisation as the major factor for this followed by a grossly erroneous Goods and Service Tax. Indian Think Tanks have cautioned the Modi government against centralised decision-making in the Prime Minister's Office and disallow the tendency of tax terrorism and regulatory overkill by the administrative machinery. But the government seems adamant and indifferent to these observations.
One-and-a-half-years back, Modi government's claimed growth rate in GDP was 8 per cent. It went down to 7 per cent in the next quarter. It was 6.6 per cent for the next quarter. It went down to 5.8 in the next, 5 after that and it is 4.5 per cent now. Economist Arvind Subramanian has said that 5 per cent under Modi government is actually less than 1.5 per cent because of suspect methodology. It reveals the gravity of the real economic situation.
International bankers, global rating agencies and directors of renowned companies across the world have expressed their apprehensions about India's economy that it is going in the direction of a floundering economy. They sense a very difficult time for the country where rural consumption is going down heavily, rural wages are sliding massively, producer prices are down, daily wage earners get work for no more than 15 days a month and durable and non-durable products are selling poorly.
The former finance minister P Chidambaram has underlined the 'complete incompetence' of the Reserve Bank of India while commenting on its forecast recently. He mentioned how in a matter of 7 months, RBI has reduced its forecast from the original 7.4 that was made in February 2019 to 7.2 in April, to 6.1 a month ago and to 5.1 now.
The Congress-led UPA government lifted 140 million people out of poverty between 2004 and 2014. The BJP-led NDA has, since the demonetisation in 2016, pushed millions of people below the poverty line. The Modi government finds GDP irrelevant. To make India strong, it has various funny ideas of reforms to implement at the cost of poor people, small traders and street vendors.
Despite the grim economic situation, Prime Minister Modi does not miss any opportunity to tell us and the world at a large that he will make India a 5 trillion dollar economy by 2024. Herein lies a definitional problem. Is it 5 trillion in nominal terms or is it 5 trillion in exchange rate terms? Former RBI Governor and the former Chairman of Economic Advisory Council Dr C Rangarajan has calculated that it will take 8 years at the current rate of growth to achieve the five trillion mark.
Former Prime Minister Manmohan Singh has stated that India's economic slowdown is not just a result of poor economic policies but also due to a lack of mutual trust. He has shown his concerns about the unemployment rate which is at a 45-year high while a junked NSO survey from 2017-18 showed the steepest fall in consumer spending in over four decades. There are many other sectors that are coping with higher losses due to a sharp demand slowdown. "Mutual trust and self-confidence are the bedrock of such social transactions among people that foster economic growth. Our social fabric of trust and confidence is now torn and ruptured," he has written in an article.
Rajiv Kumar, the head of the government's think tank NITI Aayog, recently claimed that the current slowdown was unprecedented in 70 years of independent India and called for immediate policy interventions in specific industries. Chief Economic Adviser K Subramanian disagreed with the industry-specific incentives and argued for structural reforms in land and labour markets. Are these not signs of increasing unease even within the government?
A recently published review of Indian economy says, "To make matters worse, Mr Modi embarked on a quixotic move in 2016 to withdraw all high-value banknotes from circulation overnight. This effectively removed 85 per cent of all currency notes from the economy. This move destroyed supply chains and impacted agriculture, construction and manufacturing that together account for three-quarters of all employment in the country. Before the economy could recover from the currency ban shock, the government enacted a transition to a new indirect taxation system of the Goods and Services Tax (GST) in 2017. The GST rollout wasn't smooth and many small businesses initially struggled to understand it."
India is neither making goods for itself nor for the world. Modi's 'Make in India' has proven to be baloney. India today imports from China the equivalent of 6,000 rupees ($83; £68) worth of goods for every Indian, which has doubled from 3,000 rupees in 2014. This is the legacy what Modi will leave behind; an economy in ruins.
Pankaj Sharma is the Editor & CEO of News Views India and national office bearer of the Congress party. Views expressed are strictly personal