Economic Slowdown

Can Modi undo mistakes?

By Dhurjati Mukherjee

The recent fall of the GDP to an all-time low has not only led to severe criticism of Prime Minister Modi for bringing the economy to such a state, but brought fears that the next quarter may not be better. Worse, this happens to be the second straight quarter where growth in India’s economy has lagged behind China’s 6.9 per cent and CSO figures show there is little indication of any effort to pump a faltering economy. Further, investment growth went down sharply to a mere 1.6 per cent from 7.4 per cent.
The argument that all this has been a fall-out of demonetisation has gained currency. Apart from the effect on the economy, banks are flushed with funds and borrowing has not increased but remained stagnant. Did the Government not plan what it intended to do with the money that would come back to the different banks?
Former Senior Vice President of World Bank Dr Kaushik Basu noted that demonetisation mistake and inadequate performance of the export sector has been responsible for the current state of affairs. Not just Basu, but leading economists, including Prof Amartya Sen have criticised demonetisation as this has really failed to unearth black money. Politically, CPM General Secretary Sitaram Yechury has observed: “demonetisation is the biggest scam of independent India. It was an exercise in money laundering to convert black money into white and legitimise counterfeit (cash). This has taken corruption to hitherto unknown levels.” He demanded a white paper on demonetisation.
Modi’s over-powering personality and his reluctance not to heed anybody’s advice and even those of institutions, advisors and ministers was rightly aired by Congress’ Anand Sharma who stated that senior BJP leaders were too frightened to speak their mind in front of him.
Economists believe that the informal economy, which accounts for 45 per cent of the country’s GDP of $ 2.264 trillion, was in tatters in the first six months of this financial year, obviously due to demonetisation induced cash crunch. The decision to rush through with GST may also have an effect not just on the informal economy but also in the overall growth in the coming quarter. It is understood that manufacturing companies, specially the small ones, have cut back production and trimmed inventories.
What the government intends to do to tackle the situation is unclear, but it would have to put a check to the slowdown by adopting reforms and boosting public spending when private investment has declined. First priority would obviously be to help the informal economy and take necessary measures to ensure that overall growth is not affected in the remaining months of the current fiscal. The lower segments of society are normally employed in the informal sector and its growth should not be allowed to be hindered. All possible support needs to be extended in the form of subsidies and make bank credit easily available.
Though Finance Minister Jaitley has been trying to defend the decision of demonetisation by speaking of long-term effects, the present 5.7 per cent GDP growth, which may finally be around 6.2 for entire year is undoubtedly a matter of great concern. Added to this is the spectre of jobless growth whose effect has been that the educated young generation is being misled into activities detrimental for the growth of a healthy society. Statistics of the government’s labour bureau figures reveal that job growth plummeted in key sectors to its lowest levels in eight years in calendar years 2015 and 2016 at 1.55 lakh and 2.33 lakh respectively.
It is understood that among the measures being considered are single window clearances from the Centre and States where industrial zones are coming up, easier environmental permits and self-certification for a host of processes, including labour standards. The government rightly believes cutting red tape, speeding up clearances and facilitating actual proposals would push investment stuck in the pipeline.
The other dimension of the farm crisis is well known. The Supreme Court recently stated that it was the responsibility of governments to ensure that farmers distressed by crop failure did not commit suicide. This was the observation of the bench of justices Dipak Misra and E M Khanwilkar who wanted the government to take preventive steps in this regard so that farmers do not take the extreme step of taking their lives.
“The policy for welfare of farmers must be implemented at the ground level. The approach of the governments should be preventive rather than compensatory”, the bench observed while hearing a PIL on farmers’ suicide in Tamil Nadu. However, the only redeeming feature has been that after the widespread rains in the country this year, there are expectations of a bumper crop this year and early 2018.
Modi’s somewhat autocratic style of functioning may not augur well for the country when all political philosophers, had emphasised the need for decentralisation. It would have been better if major economic decisions are taken at least after consultations with his advisors. Meanwhile, the recent overhauling of the Ministry is said to demonstrate Modi’s intention to have people who deliver — though the commerce minister has been allocated defence in spite of the fact that exports have been declining — but that may not be enough to revive the economy. Railway accidents also don’t come down by changing ministers and changing a professional and technocrat like Suresh Prabhu does make little sense.
The revival of the economy depends to a large extent on developing and encouraging micro and small units in the village and semi urban areas and encouraging self-employment in a big way. All these are part of the informal economy which needs to be strengthened. The first step towards skill development has already been taken and in this regard entrepreneurship development – whether technology driven or labour intensive — has to be encouraged in a big way. All necessary support and bank finance has to be made available which, in turn, would help generate employment and change the face of the village economy. It is expected that the new skill development minister would come out with a better performance.
The government has to be serious in this regard and monitor steps being taken at the grass-root level. As we cross the 70th year of Independence one need not find satisfaction in the fact that Indians own a billion cell phones and around 60 per cent have a TV set. The challenges before us are to provide the majority of the population with the minimum benefits like potable drinking water, electricity, affordable shelter and pollution free environment. It is indeed distressing that in spite of numerous plans and programmes, the conditions of the bottom 30-35 per cent are quite deplorable whatever be the reasons.
Thus curbing corruption and good governance should not just be glorifying words to be aired by politicians in their speeches but ensuring compliance through strict action. The mind-set of the politicians as also that of planners and economists has to change in evolving the new economic policy aimed at rural transformation, thereby upgrading the living standards of the lower echelons of society. The time is running out before the situation goes out of hand.—INFA