Prime Minister Narendra Modi is protesting too much is a conclusion which is difficult to avoid after listening to his speech at the Company Secretaries annual meet. Mr Modi who normally speaks impromptu relied on slides and comprehensive notes to defend the performance of the Government on economic front. His defence that GDP has not fallen to a low level for the first time is true, but the unfortunate part is that it has happened because of self-inflicted wounds like demonetisation and hasty implementation of GST without doing the necessary ground work.
On these issues along with growing unemployment, farmers distress, fall in exports, growing non-performing assets of banks has created a situation which to say the least will make a recovery difficult. To prove the point Reserve Bank of India has lowered growth target and refused to reduce the bank rate as sought by industry as well as supporters of the Government. These conclusions were also reinforced by report of State Bank of India, economic survey and fall in manufacturing.
As for the employment statistics less said the better it will be as even companies making profits and considered leaders in their respective field like HDFC bank, Larsen Tubro and IT companies are retrenching instead of recruiting new hands. The worst hit are IT companies. The situation in the unorganised sector is even worse. The position with regard to formal sector is had as for informal sector figures are not available, but the situation is worse.
The Government has to realise that this downtrend has happened despite the fact that oil prices remained low allowing the Government to rake in huge sums by imposing high rates of excise duty. Another unfortunate fact was that allocations for sectors like Education and Health remained low despite spurt in revenues. Our fiscal deficit is low, foreign reserves are high, but it has not led to any hike in public expenditure which is necessary to give a push on the economic front.
On top of it there was a big economic upset following the demonetisation as a result people suffered as they were forced to stand in lines for hours to withdraw their own money. One had hoped that as a result of this step all those who were holders of black money will suffer, but the reverse has happened as black money has been turned into white, thanks to the help provided by bank officials who were ready to suggest ways to park huge amounts of money in banks without any questions being asked.
All goals of this drastic step have not been achieved. Black money holdings remain intact, terrorist activity has increased and counterfeiting of currency goes at the same speed except that now it is coming through Nepal, Bangladesh and is of very high quality and difficult to detect. Prime Minister has now discovered a new gain that is reduction in use of cash in economy which was falling in any case with more use of credit cards and banks for high transactions.
To overcome its inability to achieve any of the declared goals of demonetization, the Government has decided to investigate lakhs of transactions and bank accounts. A task which will take years to compete. The income tax department has been give a free hand to raid and search which to say the least marks return of inspector Raj. The job is being entrusted to an agency whose integrity has been always suspect. Many are predicting that as a result of this exercise income tax officials will gain as was the case with bank officials with no gains for the Government.
Hasty implementation of GST, one does not have to go far to seek evidence as Government alone has made over thirty amendments and issued large number of notifications making understanding of law not only difficult for ordinary traders but also experts. The Prime Minister has admitted need for change and promised even change of rates if necessary. One can not help but mention that a big tax reform has been made a heavy burden on traders. Changes are expected soon.
World over one rate is fixed while we have multiplicity of rates and large differences between them. Prime Minister in the first instance decided to do away with Planning Commission and left all decision making to a group of bureaucrats who lack economic expertise and we had a situation where disaster was inevitable. He has now appointed an group of economic advisors, but will advise come in time to be acted upon before 2019 poll. Prime Minister also felt hurt because criticism came from two persons who were Ministers in first BJP Government led by Atal Bihari Vajpayee. Even RSS chief and labour wing of BJP has also not kept silent. One hopes that there will be a course correction as making fun of critics alone will not work.