Written by P Chidambaram, former Finance Minister published in The Siasat Daily Udru dated July 29, 2018.
On Friday, July 20, the government reluctantly agreed to a debate on a motion of no-confidence, the first such motion in the four years and two months of the Narendra Modi government.
Numerous questions were raised by the members. Like you, I waited for the answers, especially on questions concerning the economy. What the country got by way of answers from the Prime Minister (in those 90-odd minutes) was more Congress-bashing, more repetition of tiresome phrases (main kaamdar hoon), more recitals from official handouts, and more self-congratulation (I am a partner of the poor in their sorrows, I am a partner of the youth in their dreams….).
The questions are being asked across the length and breadth of the country. Hence, I ask them in this essay (and also offer what would have been truthful answers).
Economy in a Mess
Q. In terms of economic growth, which was the worst year of the Modi government and why? A. 2017-18, because the government has given up on reforms and gone back to the days of a dirigiste economy. The government seems to have discovered the virtues of control, import substitution, price control, quantitative restrictions, non-tariff barriers, retrospective taxation, and punitive laws.
Q. Why are there no signs of recovery yet? A. Because, Gross Fixed Capital Formation (the investment ratio) has steeply declined from 31.3 per cent of GDP in 2013-14 and has remained stagnant in the last four years at about 28.5 per cent.
Q. How is ‘Industry’, especially manufacturing, doing? A. The Index of Industrial Production was a low 2.6 per cent between December 2016 and October 2017. There were some signs of revival between November 2017 and February 2018. However, in March, April and May, the growth rate faltered again — 4.6 per cent, 4.8 per cent , and 3.2 per cent, respectively. The slowdown is primarily in manufacturing.
Low Investment, No Jobs
Q. Did the decline in growth rate come as a surprise? A. No, because growth depends upon credit, and growth in bank credit to industry has been about 1 per cent in most months, and sometimes even going into negative territory. The worst sufferers of credit denial are the small and medium enterprises.
Q. Why is credit growth sluggish? A. Credit growth requires banks to be in good shape. The RBI’s Financial Stability Report states that, in March 2018, the Gross Non Performing Assets ratio of banks had climbed to 11.6 per cent of their advances, up from 10.2 per cent in September 2017. The government’s muddled response to the banking crisis is to simply put more taxpayers’ money into the banks or to sell a nearly bankrupt bank (IDBI) to LIC.
Q. What is the position of investment? A. In 2017-18, announcement of new investment projects declined by 38.4 per cent and completion of new projects declined by 26.8 per cent from the previous year. Foreign direct investment was also down by 15 per cent.
Many Negatives
Q. Are jobs being created? A. No. The Centre for Monitoring of Indian Economy reported that the number of persons employed in 2017-18 was 406.2 million — lower than the 406.7 million employed in 2016-17. The Minister of Industry, Tamil Nadu, told the state legislature that, in 2017-18, 50,000 SMEs had closed down and 500,000 jobs had been lost in his state due to demonetisation.
Q. What is the outlook on inflation? A. Wholesale inflation in June was 5.8 per cent, the highest in more than four and a half years. The consumer price inflation was 5 per cent in June, and may rise. RBI raised the policy rate in June and may do so again in August.
Q. What has the government done to relieve agricultural distress? A. Nothing. The Economic Survey 2018 authored by Dr Arvind Subramanian admitted that real agricultural incomes have been stagnant since 2014. The unanimous view among farmers’ organisations as well as noted farm scientists and economists (such as Dr M S Swaminathan and Dr Ashok Gulati) is that the recent announcement of increases in MSP was a jumla and, absent coverage beyond paddy, wheat and cotton and absent procurement in many states, it would not benefit the majority of farmers.
Q. Is the macro-economic situation satisfactory? A. Hardly. The current account deficit climbed to 1.87 per cent in 2017-18, which is the highest since 2012-13, and is poised to cross 2 per cent in 2018-19. The escalating trade wars will be a negative for India. Merchandise goods export growth has been negative in the four years and the trade balance is negative. The rupee has been in a free fall, going from Rs 64.50 to a dollar on June 23 to Rs 69.05 on 24 July. The government will struggle to meet the fiscal deficit target of 3.3 per cent in 2018-19.
All this means that the economy is in serious trouble and is yet to recover from the body blows dealt by the government — demonetisation, poor implementation of the GST, and tax terrorism. The BJP will get more desperate, its voice will become more shrill, the rhetoric of chest-thumping nationalism will rise, and polarisation of the electorate on religious and caste lines will be pushed harder.
There was evidence of all this in the reply given by the Prime Minister. The motion was lost, so was an opportunity to answer the questions of the people.
pchidambaram.india@gmail.com