Pushing for growth

Persistent weaknesses in real sectors (manufacturing, mainly) and stressed banks choking credit flows are the afflicting factors for the medium term. These would not be amenable to strong corrections early enough to revitalise private investment and pull up GDP growth to potential, at around 8 per cent in the near term. The decline in household savings and gross capital formation has to reverse and demand and consumption to revive for triggering corporate investments in the economy. It also depends on the extent of improvements in basic infrastructure.

The Finance Ministry, whose job in current fiscal has become more of a crisis management to ensure macro-economic stability, having gone gung-ho all the time on its structural reforms, is now moving to repair GST and launch Budget-making for 2018/19 – the final year in the current term of the Modi Government.

The Budget will certainly be preceded by more sops designed to please voters, especially in Gujarat, the home state of Prime Minister Modi where he is battling against a Congress-led challenge. A victory is crucial for his prestige and it would also help the party to strengthen itself in other state polls and more confidently seek a renewal of mandate for the Prime Minister in 2019.

As the battle hardens in coming months, talk of major reforms would take a back seat. Even if BJP scrapes through in Gujarat to provide for its supreme leader a sigh of relief, there are other Assembly elections in 2018 in the run up to the Lok Sabha poll, scheduled for May 2019. So, Modi will remain in campaigning mode for votes for most of 2018.

It is true that in today's world, Mr Modi has raised the stature of India and earned kudos from leaders of nations, notably US President Donald Trump who sees Prime Minister Modi "doing a great job" At home, in the world's largest democracy, the irony of governance is, major decisions taken are highly individualistic on the part of the Prime Minister.

Those decisions affecting the daily lives of people ought to be taken in consultation with Parliament which has been sidelined on several key issues e.g. Aadhaar extensions and GST rates. The Modi Government has not shown itself to be concerned about the disastrous impact of arbitrary decisions imposed on the nation.

Demonetisation was enforced abruptly without careful preparations made to meet the legitimate cash needs of people and small traders and SMEs. This has drawn the attention globally and IMF/World Bank and other financial institutions as well as OECD have had to revise down earlier upbeat growth forecasts at 7 to 7.5 per cent in 2017 to well below 7 per cent in the range of 6 to 6.5 per cent with a corresponding moderation for 2008/19.

The factors cited by them are "lingering effects" of demonetisation and the hitches encountered in GST working with a multiplicity of rates. Immense misery for millions of poor deprived of cash has lasted for a year now and the paralysing effects for the small and medium sectors of business are still unfolding.

SMEs contribute nearly half the share of GDP and to exports. This sector ranks the highest in labour force, engaging over 110 million persons, as of 2014 data cited in OECD. Lakhs of jobs had been lost as a result of the note ban of November 8, 2016 from which the country has yet to recover fully and make the desirable transition to stable growth in the coming decade.

Notwithstanding a spate of changes in the hurriedly enforced GST and more "reliefs" promised with the eye on the electorate, the economy faces distortions. Big business could get well adjusted in course of time but MSE sector accounting for some 58 million enterprises would be left struggling for the longer haul.

On top of this, hangs over them the Modi Government's determined pursuit of a 'cashless economy' by digitalisation of all sectors of the economy, with which the informal sectors cannot easily cope with. The Government would be depriving cash needs of a vast magnitude of poor and the disempowered in terms of literacy, health, and other basic factors, let alone access to technology.

Prime Minister Modi is valiantly fighting black money eluding him, much of it laundered and invested abroad post-demonetisation, but has little to show up so far, on his promises in 2014 on recovery of such money and on jobs and inclusive growth. His henchmen made an ambitious start contending it would be non-inflationary and augment revenues to help fiscal deficit stand at the budgeted 3.2 per cent of GDP. They said GST would also raise the growth rate.

Not much chastened, they now claim that digitalisation of the economy would "create" more jobs. This again in the face of a shrinking job growth in IT sector and substantial retrenchments underway.

The Prime Minister, touched by criticism on demonetisation, has proudly told his counterparts at the East Asian and ASEAN Summits in Manila recently that India is achieving "formalisation" of the economy rid of evils of tax avoidance and black money generation.

Latest growth projections by economists are for GDP in fiscal 2018 to be between 6 to 6.5 per cent, and IMF 6.7 per cent. An upturn in inflation in October, both consumer and WPI, at 3.58 and 3.59 per cent respectively, and rise in food and fuel prices rules out further easing of RBI Monetary Policy in current fiscal. Widening trade deficit till October is cause for current account deficit moving toward 2 per cent of GDP, with higher oil prices and India's increased reliance at a little above 80 per cent of its requirements.