If one simply goes by the key economic data released by the Modi
government, the performance of the NDA over the last three years has
been subpar. We are far from experiencing the
achhe din Modi had promised in his election speeches in early 2014. Even after “refining”
the methodology for calculating
GDP and Index of Industrial Production the Modi government has ended up
making the last two years of UPA look better and its own three years
much worse. Remember, just a few months after taking charge, finance
minister Arun Jaitley had
confidently proclaimed that
the economy had bottomed out and was on a rising trajectory. Three
years later, most independent estimates of GDP growth for 2016-17 are
about the same or even lower than the worst year of economic growth
(6.9%) under UPA in 2013-14 when despondency was the dominant sentiment.
The BJP, in its run-up to the 2014 elections, had heavily exploited
this fact and raised the slogan of achhe din in its election campaign.
As things stand today, additional job creation in the organised sector under NDA has been
less than half
of what was experienced in the last three years of UPA. The Modi
government is most embarrassed about this data released every quarter by
the labour ministry. When the BJP president Amit Shah was pointedly
asked about the sharp slowdown in the formal sector jobs in a press
conference called to discuss NDA’s achievements,
his reply
was less than satisfactory. “It is impossible to provide jobs for 125
crores people … self-employment is a big source of employment,” Shah was
reported as saying.
An uncharitable interpretation of Shah’s statements could be that most
Indians in the job market must fend for themselves. Indeed,
data does suggest that
nearly 50% of incremental employment in recent decades has come from
the ranks of the self-employed. This is mostly in the unorganised sector
which constitutes about 85% of the total workforce of 480 million. No
study has empirically determined the quality of self-employment in India
though
the skill development ministry believes only 5% of the total workforce has formal skills. One can well imagine the quality of the remaining 95% of the workforce.
The larger point is that the NDA government in its three years has not
been able to reverse the status quo represented by jobless growth. The
government has made an astonishing claim that the Mudra Bank loans of Rs
3.15 lakh crore disbursed to 7.5 crore poor must be seen as providing
self-employment. The only problem here is that a substantial part of
this portfolio was pre-existing and transferred to Mudra Bank from other
public sector banks. Besides, many individuals who have borrowed up to
Rs 5 lakhs from Mudra Bank were already in the self-employed category.
And their commercial activity may not be big enough to provide jobs to
others.
However much Modi draws upon his considerable communication skills to
convince people that things are better today than in the pre-NDA era,
the stark truth of worsening joblessness is not easy to counter.
Agriculture U-turn
Another sector where data clearly points to a worsening situation is
agriculture. According to Ashok Gulati, the agriculture economist, “The
three years of the NDA produced 1.7% growth in agriculture. In the last
three years of the UPA, agriculture sector grew by 3.5%. Of course, NDA
was unlucky to experience two back to back droughts in its tenure.” The
fact, however, remains that Modi made a huge promise of ensuring 50%
profit over costs to all farmers. A promise that his government
has not been able to keep.
Later, the agriculture ministry scaled down its commitment by saying
farmer’s income would be doubled by 2022. This would mean at least
10-12% growth in their income every year until 2022. Recently, the Niti
Aayog has said even this will be difficult to achieve because farmer
incomes have hardly shown any significant growth over the last three
years.
Other leading indicators also suggest that the economy is yet to show a secular, upward growth trajectory. Bank credit growth
in the last six months
since November has been around 4% and this is the lowest recorded in 60
years. We were told bank credit would improve dramatically after
remonetisation as banks were flush with deposits. That does not seem to
be happening simply because there is little demand in the economy.
Private investment is still to pick up in three years of the NDA even
though the government departments such as roads and railways have
substantially upped their infrastructure spending. The Keynesian logic
of public sector spending crowding in private sector investment had not
happened so far.
In an article in
Business Standard,
Vinayak Chatterjee, a leading infrastructure consultant, has said
overall infrastructure spending as a ratio of GDP is falling short by
close to 4% of GDP annually in the 12th plan period (2012-2017). A
shortfall of 4% of GDP works out to $80 billion or Rs 5 lakh crore
annually. This is entirely due to the withdrawal of the private sector
from infrastructure. This is largely because the bulk of the big
infrastructure providing companies in India are among the 50 large
groups who owe the Indian banks an outstanding debt of over Rs 10 lakh
crore.
Finance minister Arun Jaitley recently said the problem created by these
50 companies had caused a paralysis in the activities of public sector
banks. The NDA has delayed fixing this problem for three years and
only recently it passed
an ordinance empowering the RBI to deal with these business groups who
fund elections of both Congress and BJP. The messy and corrupt political
economy of the large bank defaults by corporates is still to unfold
before our eyes. In its three years, all the NDA has done is to postpone
dealing with this problem by simply blaming it all on the UPA. During
this period the size of the problem loans has nearly doubled.
Since private investment has not been forthcoming, the slogan of
‘Make-in-India’ too remains unrealised. The NDA would find it difficult
to name just a few billion dollar plus greenfield projects that have
come in the stream.
The claim
of $45 billion plus foreign investment in 2016-17 is substantially in
the form of acquisitions and takeovers of existing ventures by foreign
companies. For instance, in 2016-17, the biggest chunk of FDI is in the
form of the $13 billion acquisition of the Essar refinery by a Russian
oil company. There are similar acquisitions in the new economy space.
Black economy and GST
Another claim by the NDA was to clean up the black economy. After
several stringent measures such as passing a law to bring back illegal
money from abroad and coming out with multiple income declaration
schemes in 2016-17, aided by demonetisation, the government doesn’t seem
to have collected much by way of taxes on undeclared incomes. The
outcome of these measures must be weighed against the serious damage
done to India’s informal sector by demonetisation. The NDA is still in
denial about the loss of output and employment caused in the informal
sector. Meanwhile, one still finds it difficult to sell property and
receive 100% cheque payment anywhere in India.
For the first time since independence, a tax was named after the prime
minister (Pradhan Mantri Garib Kalyan Cess), under which people who had
deposited their 500/1000 notes in the banks could declare black income
and then pay up 50% of that as tax. At the end of the exercise, the
government
has collected less than Rs 2,500 crore until March 31, 2017.
The Goods and Services Tax (GST) is another disruptive reform whose
benefits will flow depending on the way it is implemented. Coming as it
does just when the negative effects of demonetisation are yet to fully
recede, one will have to see what impact it has on small businesses and
traders. The government is worried that GST could cause inflation if
businesses don’t pass on the benefits of lower tax to the consumers.
After all, a lower inflation rate of 3-4% has been one achievement which
the government would not want to fritter away.
Overall, in his three years, Prime Minister Narendra Modi had been
hugely disruptive in his approach to the political economy. He has
deliberately chosen to be so in the name of pushing for “transformative
change”. But the prime minister has stopped short of real transformation
when it comes to making political party funding totally transparent.
Party ideologues like Ram Madhav argue that the people of India are
participating in Modi’s transformative ideas (demonetisation) even if
they have to make sacrifices for it. Sympathetic columnist and Rajya
Sabha MP Swapan Dasgupta
has said that Modi’s complex ideas seeking fundamental change are still a “work in progress”.
One doesn’t know how these disruptive forces, social and economic, will
play out in the future. The very people who are willing to make
sacrifices by reposing faith in Modi could start asking questions at a
later stage. After all, some of the most popular leaders in history have
had to face such questions from time to time. Modi should be no
exception.
Gramin Dak Sevak (GDS) Result 2017 merit list and cut off 2017