Nearly 5 years after Prime Minister Narendra Modi came to power, it is worth stock taking so as to know if the Indian economy surged ahead as promised or is it that Modi is demitting office in May this year with shattered hopes and dreams of 1.3 billion of the people.
Development was the main plank of his campaign during the 2014 elections, which made him win hearts of the people and expectations were that he will change their lives for good, by ending rampant corruption, create more jobs, clean up government machinery so that governance got its pride of place.
Honestly, Modi did start off well, making the right noise, trying to improve governance and with Global economy looking up and oil and commodity prices falling, Indian economy, which was on a sweet spot, could not have been in a better position to leapfrog and make the economy fire from all sides.
But one wrong move in November 2016, demonetization, ensured that the engine of growth that was chugging along nicely derailed the economy and today farmers, who accounted for 50 per cent of the population, are out on streets protesting against their sorry state of affairs. The informal sector, which accounted for 85 per cent of the jobs in the country, are in doldrums and most of the small scale sector loans have turned into non-performing assets of banks, leave alone the big ticket lending to big corporate that have already become Rs 14 lakh crore of bad loans of public sector banks.
Demonetisation per se was not a bad idea but starving of cash in a cash-driven economy by withdrawing overnight 86 per cent of nearly Rs 17 lakh crore worth of Rs 500 and Rs 1000 rupee from circulation provided rude shock to the economy due to which Indian agriculture sector, exports and small scale industries virtually collapsed and they are yet to recover two years down the line.
The intent might have been good but doing such a major overhaul without preparation, only put the economic clock back by at least five years.
Instead of curbing black money, it created new set of black money with banking system in collusion havala operators made a big kill making the entire effort go waste totally. As it is demonetization could have dealt with only stock of black money and not the flow. That also did not happen.
Coupled with demonetization, the economy faced a double whammy as Goods and Services Tax rollout, though a game changing tax reform, was faultily thereby providing bigger jolt to traders and small businessmen, already hit by demonetization.
Of course, the wrongs in GST implementation are gradually being corrected by GST council and as Finance Minister Arun Jaitley indicated, GST is now moving towards single rate for most of the items barring a few. This is welcome development but the damage done in the last two years to the economy will take some years to be rectified.
Renowned economists Pronab Sen, formerly India’s chief statistician, said one action of Modi – demonetization—has put the economy into great difficulty and it has ensured that India not only witnessed jobless growth but as well job loss growth, which will take years to rectify. The worst part was may small industries have closed shop and standing back on their legs is going to be very difficult.
Rural economy is in shambles, particularly farmers, who could not take advantage of good monsoon in 2016 after two successive droughts, as the move came at a time when Kharif harvest was on and Rabi sowing started. Cash which was most needed at that time was not available to farmers.
The interim budget to be presented on February one, might role out some big announcements like universal income scheme and steps to provide jobs but it would be the headache of the new government that comes to power to find the resources for implementing the massive scheme, Sen said.
NIPFP economist N R Bhanumurthy too was of the view that the economy is in a mess and Modi government had missed an opportunity to take the economy to a new high after having secured a clear mandate in 2014.
Also the release of the so called recalculated GDP figures by Niti Aayog has made people lose faith on data released by CSO, There was faith in CSO data and global economists used to say Indian data is not fudged like that of Chinese. Now, that belief has been shattered.
The revised figures released by NITI Aayog show India’s economy expanding faster during Modi’s first four years in office than during the previous five years under a government led by the Congress party, in a complete reversal of previous findings. The recalibration exercise by the CSO lowered India’s average annual GDP growth from 2009-14, when the Congress was in power, from 7.7 per cent to 6.7 per cent. The average annual growth under Mr Modi stands at 7.35 per cent.
The most drastic revision was for the 2010-2011 financial year, which lowered growth from 10.3 per cent to 8.5 per cent. The new figures strengthen Mr Modi’s position six months before the next general election is due, but the fact that his government revised the methodology for calculating GDP is one of several signs that it is anxious about its economic performance, analysts say.
Revising the methodology is in itself not the problem, said John Raja, the founder of How India Lives, a company that analyses public data. As economies change, GDP calculations must change as well. Ordinarily, revised methodologies are detailed in extensive documents released by the CSO, but no such document has been released in this case, Mr Raja said adding the claims of higher GDP growth are not reflected by ground realities. If growth is high, companies should be out there, recruiting. Where is any recruitment happening now? Those numbers are low.
The CSO said it calculated the new figures using 2011-12 financial year as the base, rather than 2004-05 as was the earlier practice. Base years are routinely changed to reflect structural shifts in the economy, but the choice of 2011-12 had the convenient effect of shrinking GDP figures during the Congress’ tenure.
In August, an academic committee appointed by the government to link economic data under the old and new methodologies reported that the economy grew faster under the Congress than under Modi. It said India clocked GDP growth of more than 10 per cent in at least three of the 10 years for which the Congress was in power before Modi took office in 2014. The government has since dismissed that report as a draft, and Niti Aayog vice chairmen Rajiv Kumar said its methodology was flawed.
While roughly 5 million Indians enter the workforce every year, just 1.43 million new jobs were added in 2017, according to the Centre for Monitoring Indian Economy. Generally job creation data looks at employment in the organised or formal sectors, counting companies that have 10 or more workers. But in March the government decided to include establishments in less formal sectors, with fewer than 10 workers. A man setting up his own kiosk selling soap and toothpaste could, in theory, be counted as a new employee, providing a fillip to jobs data.
Keen to push the economy faster, the government got into a tussle with the central bank earlier this year. While the Reserve Bank of India (RBI) was focused on reining in inflation and containing the slabs of bad debt in the country’s public-sector banks, the government wanted it to lower interest rates to stimulate lending and economic activity.
It is not only RBI, the government is at war with several other institutions destroying their sanctity. It started with Planning Commission, which was wound up and new institution called Niti Ayong came up in its place. Even Election commission and Central Bureau of Investication have not been spared.
According to Raja there are other indicators by which to assess economic growth, such as the index of industrial production or export statistics, but they’re sending very mixed signals about how healthy the economy is. And on top of that, if the government cherry picks a few numbers, then it presents a distorted picture of the economy.
But having burnt its fingers, the outgoing Modi Government may come with a big announcement to help the agitating farmers. According to eminent economist Surjit Bhalla, who was until recently in Prime Minister’s Economic Advisory Council, the government should consider income transfer instead of higher minimum support price (MSP) and loan waivers.
The government should remove the ban on exports and imports on agricultural goods and we should move towards income transfer for farmers, like it is in Telangana, rather than doing it through MSP, Bhalla said. In Telangana, TRS party led by K Chandrasekar Rao came back to power in the state assembly elections with thumping majority and analysts attributed this scheme for his success.
Sen was however of the view income support might work in southern states barring Kerala whey the owner and tiller are same in ryotwari farming system dominant there. In North India it might lead to further mess as land owner is not same as the tiller, who happens to be tenant. Tenancy rights have not been provided in most of the north Indian states. Only West Bengal had done some work during communist rule there. So the income support could lead to huge problem and tenants will still remain where they are.
India’s exports entered the negative zone after five months, by contracting 2.15 per cent to $27.95 billion in September, even though trade deficit narrowed to a five-month low of about $14 billion. India’s exports crossed $300 billion mark in 2013-14 and since then it has only slipped to fall below$300 billion only to recover in 2017-18 to get back to little over$ 300 billion. During the UPA government, the average exports growth was around 20 per cent, considered to golden period. Nearly half or India’s merchandise exports were from Small scale sector.
Though India may claim to be fastest growing major economy, the picture is not all that rosy. It has not seen evenly distributed prosperity. Inclusive growth has not happened as inequality has widened during the last five years. A 2018 Oxfam report said during Modi’s administration more and more of the country’s income is going to the top 10% and top 1% of the population.
Overall inequality also appears to have grown, according to Credit Suisse’s Global Wealth Report, which said the 2018 Gini coefficient for wealth in India rose to 0.854 from 0.83 in 2017 and 0.804 in 2011. The closer a country’s Gini value gets to 1.0, the more unequally distributed is its economy.On most indicators, India is now among the countries with the highest level of inequality.
Overall, Modi government has been tall on promises and short on implementation. The Centre for Monitoring Indian Economy estimated that about 1.5 million jobs were lost during January through April 2017 after implementation demonetization.
(K R Sudhaman, a senior journalist, who has served as Editor of Press Trust of India and Economics Editor in TickerNews and Financial Chronicle)