Swadeshi and statist mindsets will hold back economic reforms and growth.
Am I alone in thinking that the economy has become the stepsister of politics, receiving little or no attention from the rulers until it feels obliged to cry out aloud for help? I think so. Until they all, one by one, began to revise down their projections of growth for the current financial year, even the section of news media which ostensibly specialises in economic affairs was happy harping on corporates and related stories. But the Bank-Fund putting its stamp on slowdown made them realise the crisis at the door.
Despite a series of rate-cuts by the Central bank, and the panicky reductions in corporate tax by a Finance Minister who can certainly do with better outside advice, the slowdown seems irreversible. It cannot be talked into changing course, however glib the talker. Economic realities respond to fundamentals, not occasional tinkering and reactive rate-cuts and policy somersaults. Even winning Maharashtra and Haryana Assembly polls will not make a jot’s difference to the growth trajectory unless policymakers take drastic steps to rev up the economic engine.
Consider the facts. In the July budget, Nirmala Sitharaman set a target of 12% nominal growth. Assuming the rate of inflation to be 4%, the real expansion was projected at 8%. An optimistic target but doable provided other factors remained benign. Her maiden budget proved a huge disappointment, dampening further the sentiment and leaving markets and corporate boardrooms in a blue funk, considering they were yet to get a grip on the ongoing fallout of the huge NPA crisis. Corporate balance-sheets were highly leveraged, the bankruptcy proceedings against marquee names had cast a long shadow over the entire economic landscape, especially when hardly anyone was free from the taint of diverting borrowed billions into private pockets.
However, the penny dropped when growth slumped to 5% in the first quarter of the current financial year. Now, they all, including the RBI, rushed to revisit their earlier projections of 7% or near-7% growth. The Central bank lowered it to 6.1% from 6.9%. The World Bank and IMF followed suit. The IMF reduced it by a good 0.9% to 6.1%. Earlier the Bank had pared it by as much as 1.5% to 6%. The well-known ratings agency, the Moody’s, pegged it still lower at 5.8%.
Cyclical and global factors alone were not enough to explain the slowdown. At best, most economists reckoned, the Euro Zone crisis, the British and Japanese slowdown, the ongoing US-China trade war could shave off an overall 0.5% from global expansion. Domestic reasons mainly would account for the slide in growth.
Even while realising the enormity of the legacy issues, such as the NPA crisis resulting from the broad daylight loot of the banks during the UPA-II, it was expected that the Modi government in its sixth uninterrupted year would have overcome this big hurdle to growth. (But how deep-seated was the Manmohanomics nobody could fathom. It was ironic, therefore, that the hapless depositors of the PMC Bank should approach the former Prime Minister, given that he, more than anyone else, was singly responsible for the sector-wide bank heist, which left the public exchequer poorer by over Rs 10 lakh crore.) As a result, flow of funds to the commercial sector has sharply declined. Between April and mid-September, it was a mere Rs 90,995 crore as against Rs 736,087 crore in the same period last year. It confirms in no uncertain terms the general slowdown in fresh demand for credit. But the time for finger-pointing is over. Owning up responsibility for the slowing economy is unavoidable for the Modi government.
Wrong-headed economic policies informed by an inherent statist mindset at the top are clearly to blame. An example of policy confusion and indecisiveness is the continuing foot-dragging on Air India which has unfailingly bled the taxpayers to the tune of about Rs 5,000 crore annually for decades now. The fact is that despite setting itself a target of realising over Rs 1 lakh crore from sell-offs, the top policymakers in principle remain unconvinced about selling off the so-called public jewels. A Swadeshi and statist mindset holds back policymakers from pressing ahead with structural reforms and a further opening up of the economy.
While constantly enlarging the entitlement basket to cover more and more people and to offer more and more freebies, little thought seems to be given to the shrinking public purse. The slowdown is bound to impair the GST collections, making it harder for meeting the fiscal targets. Even if keeping the deficit within the budgeted limits was no longer sacrosanct—and there were pundits arguing for further opening of the purse regardless of the pressure on fisc—the fact that Nitin Gadkari’s infrastructure spend in Modi 2.0 is feeling the budget-pinch, the fact that the states have accumulated a sizable deficit of their own, it leaves little wiggle room for Sitharaman to expand the basket of freebies. Thus, there is no escape from reviving the dormant animal spirits of the entrepreneurs.
But not by tinkering. No. You need to be as bold a decision-maker in the economic sphere as you were in the political sphere when you gave Article 370 an open and most public burial. Take on the vested interests in the trade unions and free up the labour markets. Labour reforms are crucial to incentivise the small-and-middle sector manufacturing, say, in the readymade and leather export industries. Undoing the mischief of the UPA era on land acquisition to make it even-handed between owners and acquirers of land for industry and commerce, for infrastructure and other public purposes ought to be a priority.
When Modi first assumed power he undertook to change the amended law in order to make it just fair for both land owners and land acquirers, essentially the state-owned entities, but a silly jibe by the perennially maturing 47-year-old Rahul Gandhi about “suit-boot ki sarkar” derailed him from the right track. Now, he has the numbers and, six years later, Rahul is still growing up, therefore he should pick up the thread and push ahead with both labour and land reforms. The sputtering economic engine needs to make up for the lost momentum earlier in this financial and then go on to attain at least 7% growth in next financial year. But all available evidence points to the absence of conviction about further structural reforms. The government will try and take small but insignificant steps to boost economic expansion but to no avail. Even a 6% growth in the current financial year looks hard to achieve, given that the first quarter recorded a mere 5%.
WHITE LIE ON ARTICLE 370
They wheel out Manmohan Singh to try and get some traction, considering how low the stock of the party has fallen. Given that Singh had presided over what was easily the most corrupt government in free India, even his words are taken with more than a pinch of salt. Staring at defeat in the Assembly poll, the other day they made Singh claim in Mumbai that the Congress did not vote against the deletion of Article 370. This was a lie. Not only did it frontally oppose the deletion of Article 370 but voted against the bill in the Lok Sabha. Or take the belated effort to soften the Congress hostility towards Veer Savarkar. A number of senior Congress figures had hurled unprintable abuse against Savarkar, had vehemently opposed the renaming of the Port Blair airport after Savarkar. But in its hour of defeat, the Congress is chanting a different tune, embracing the Sangh Parivar totems for survival.
Apparently, about a hundred prominent citizens of Delhi had written an open letter to Chief Minister Arvind Kejriwal to stop wasting crores of taxpayers’ money on full-page ads. “…You can rest assured we will vote for you, but, please…please…do not waste this precious money…instead spend it on actually building class rooms, better roads, etc.” Meanwhile, we hope the ad blitz is not enriching the middlemen or ad agencies who act as an interface between the Delhi government and the media outlets. Amen.