The prime minister’s recent proposal to make it compulsory for doctors to prescribe generic drugs has provoked a welcome debate on the quality of drugs being sold in India

The Debate Around Drug Regulation Should Prioritise Price and Quality Equally

Many believe that bioequivalence testing is necessary for only a handful of medications. In reality, it should be the norm for virtually all drugs.

The prime minister’s recent proposal to make it compulsory for doctors to prescribe generic drugs has provoked a welcome debate on the quality of drugs being sold in India. Until now, it has been the norm to paint those of us raising these issues of drug quality as agents of foreign, vested interests. The recent debate has however exposed the fact that a vast majority of Indian doctors lack faith in the country’s drug supply and its drug regulator’s ability to ensure uniformity and consistency in the quality of generic drugs sold in the country.
A pertinent issue now that the administration has recently made bioequivalence studies mandatory for a certain class of drugs is whether we should allow discretion to the regulator to provide waivers to the industry from this requirement. We have argued in our previous writings that bioequivalence testing is of paramount importance because it establishes that the generic drug has a therapeutic effect that is identical or similar to that of the innovator drug that has been tested through clinical trials.
However there are others, like George Thomas and S. Srinivasan, who dismiss concerns regarding bioequivalence testing as “misinformed”. They state, in pertinent part “Of the approximately 800 useful drugs known to modern medicine, bioequivalence is really only important for a few drugs with low solubility and high or low permeability, so the debate about BA and BE is somewhat misinformed.”
This is a dangerous line of argument that trivialises the importance of bioequivalence and we would like to counter these assertions. The reason for bioequivalence testing Bioequivalence testing was introduced in the US and EU in the 1980s to ensure that generics were not required to repeat large-scale clinical trials in order to prove efficacy and safety of a drug that had already received marketing approval. This testing was required by all formulations administered orally and expected to dissolve in the bloodstream. The purpose was to test whether the generic drug dissolved at the same rate in the bloodstream of a volunteer and acted in a manner similar to the innovator product that was evaluated through clinical trials. Such testing is required because although the active ingredient of the generic and innovator are the same, inactive ingredients and the method of manufacture can influence the manner in which the drug behaves physiologically. For example, if the generic manufacturer uses different excipients or adds greater quantities of a binding agent, it is possible that a drug will not dissolve in the blood stream at the rate comparable to the innovator drug for which clinical studies establish therapeutic action.
Although much cheaper than clinical trials, bioequivalence testing still costs a pretty penny and takes time to conduct. This is one of the reasons that Indian companies have been caught fudging bioequivalence studies. The second author of this piece discovered large scale manipulation of BE studies at Ranbaxy and worked with the US FDA to hold the company accountable for this fraud. The Indian government at the time famously dismissed the Ranbaxy fraud as a “documentation” issue despite the company pleading guilty to seven counts of criminal felony and paying $500 million to the US government.
Thomas and Srinivasan, in their piece, argue that bioequivalence studies are required for only “few drugs with low solubility and high or low permeability” and hence they argue that the debate is “misinformed”. There are several factual and logical problems with their line of argument.
On facts, it should be noted that after initially insisting on bioequivalence testing for all drugs administered orally, the USFDA released guidance in 2000 on granting “bio-waivers” based on a “Biopharmaceutics Classification System” (BCS) that it developed. The BCS created 4 categories of drugs based on their solubility and permeability: Class I (high solubility, high permeability), Class II (low solubility, high permeability), Class III (high solubility, low permeability) & Class IV (low solubility, low permeability). For drugs in Class I & Class III, generic companies can request the waiver of ‘in-vivo’ bioequivalence studies i.e. testing on human volunteers. Rather generic companies could test these drugs ‘in-vitro’ i.e., use the solubility of the drugs as a surrogate for their physiological behavior. Such waivers are not automatically granted; they are evaluated on certain factors to be assessed by the regulator on a case by case basis.  For example, even if a drug  rapidly dissolves in the stomach acid and is rapidly absorbed into the blood stream, how much of it is available in the body to treat the illness varies widely.
An additional factor to be considered in India is that the supply chain is littered with irrational fixed dose combinations (FDC). The US FDA guidance issued in 2015 states categorically that biowaivers cannot be granted if there is any pharmacokinetic interaction between the components of the FDC. The Kakote Committee report tells us how little we know about such interactions.
Most importantly, there appears to be very little faith in the system of ‘bio-waivers’. As per figures attributed to a study by the European Federation for Pharmaceutical Sciences Global Bioequivalence Harmonisation Initiative, the number of bio-waiver requests submitted to the USFDA, between 2000 and 2015 have averaged approximately two per year – a drop in the ocean. Another study attributes the lack of enthusiasm in the bio-waiver pathway to the lack of a global consensus between the three most important agencies, the USFDA, the European Medicines Agency (EMA) and WHO. The situation was similar in Europe, with an EMA document from 2007 noting that “Although frequently discussed, BCS-based biowaivers are still rarely used probably attributed to uncertainties on both, pharmaceutical companies and regulatory authorities.” In other words, bioequivalence testing is the norm for virtually all drugs, with only a miniscule few escaping this requirement.    
This may change in the future because the EMA and the International Pharmaceutical Federation have started the long drawn process of classifying all drugs under BCS. This requires extensive research and will take several years.
In any case, it is pertinent to note that the argument put forth by Thomas and Srinivasan that the debate on bioequivalence is important for only a few drugs misses the point. Several important drugs fall outside BCS Class I and Class III. According to the EMA, this includes important cancer medication like Dastinib, Erlotinib, Sorafenib and diabetes medication like Repaglinide. For a few of the other drugs studied by the EMA, like Imatinib (Glivec ®) and antibiotics like Telithromycin, it was unable to classify them in any of the categories and required applicants to generate their own data.
The Indian position on bioequivalence was scandalous until April 3, 2017 when the government made bioequivalence testing mandatory for all generics. The problem with the government’s new position is that it falls backs on the BCS system created by the USFDA and grants a blanket exemption from bioequivalence testing for all drugs in Category I and Category III without paying any attention to the regulatory uncertainty faced by far more experienced regulators who insist on a case-by-case determination of such waivers. And it assumes that the CDSCO has the scientific expertise to analyze the data presented to determine whether a company’s claim of their product conforming to BCS Class I or III is adequate. History shows that such discretion was the primary reason for we are straddled with such a dysfunctional regulatory system for drug approval in India .The 59th Parliamentary Standing Committee report on the functioning of the CDSCO adequately addresses this question.
For far too long, the Indian debate on access to medicine, exemplified by the approach adopted by Thomas and Srinivasan, has focused solely on price with no attention to quality. But of what use is affordable medicine if it doesn’t work as intended? Is an Indian life any less valuable than an American or European life?       Prashant Reddy T. is a research associate at the School of Law, Singapore Management University. Dinesh S. Thakur is a public health activist and chairman of Medassure Global Compliance Corporation.

'Modi' kurtas, cow urine products online

AGRA: Believers in the medicinal properties of cow urine and manure will shortly be able to order products made from them at a Rashtriya Swayamsevak Sangh (RSS)-run laboratory online. Also to go online will be signature 'Modi' and 'Yogi' kurtas, said RSS leaders.

The products are manufactured at a pharmaceutical lab at Deen Dayal Dham, a facility run by the RSS, at Farah in Mathura.
"Products of our 'Kamdhenu' line (which include claimed medicines for cancer and diabetes, face packs and soaps), with cow urine as ingredient, and the kurtas will be available online soon," said Manish Gupta, deputy secretary of Deen Dayal Dham, talking to TOI. So far these are available at the dham and at RSS camps

source Times of India 

Demonetisation has Exposed Flaws in the Way India Measures Economic Growth

The confused narrative surrounding post-demonetisation growth consequences shows that we simply don’t have enough hard data on the non-agriculture, unorganised portion of India’s economy.

GDP growth in the fourth quarter of the previous financial year, 2016-17, has turned out to be below the expectation of most economic analysts. The median forecast of 36 economists polled by Reuters showed a growth rate of 7.1%. The official figure of 6.1% is below the lowest prediction of 6.5%. But the surprise is that the actual number should have been even lower than 6.1%, given the ground reality. Surveys showed in December and January that demonetisation, the biggest economic event of 2016-17, had severely dented major parts of the economy.

Prime Minister Narendra Modi had announced that there would be pain for 50 days and later modified it to say that the pain would become less after 50 days. Pain meant that there would be economic hardship due to demonetisation. The image of soldiers standing at the frontier for the country was invoked to exhort citizens to bear the pain willingly for the greater good of the country. The Indian people have not failed the PM.
What was the pain felt by the people? People, instead of going to work, stood in lines at the banks. In the harsh winter months, people with quilts queued up during the night and slept in the lines outside the banks. Many lost work and had to go back to their villages. The demand for MGNREGS work shot up in December and January. While Rs 38,000 crore had been allotted for it in the previous budget, the actual expected expenditure was Rs 47,500 crores. The extra demand was Rs 9,500 crore, which translates over two months to 150% increase in monthly expenditure. Many small and cottage businesses closed down, affecting output and employment. Jamshedpur, Aligarh, Ludhiana and so on reported large scale impact on their industries. Reports were of small traders, wholesale markets and transporters being adversely affected. Even sales of luxury cars dipped for the first time in 25 years.
The economy consists of two parts: the organised and the unorganised. The organised sector is the large and medium scale units which depends much less on cash. The unorganised sector consists of the small and cottage sectors and agriculture. These depend heavily on cash transactions due to habit and lack of access to formal money markets. So, a cash shortage caused by demonetisation did not affect the organised sector as much as the unorganised sector.
It is the unorganised sector which was badly hit by the demonetisation-induced shortage of cash. The RBI has not yet released figures for how much of the old currency has come back but this author’s analysis shows that by January 13, 98% of the Rs 15.44 lakh crores of demonetised notes had come back into the banks. However, by then, the currency in circulation with the public had only come to half of November 8, 2016 levels, which is when demonetisation started. Even by the end of April, remonetisation had taken the currency in circulation back to only 80% of what it was on November 8, 2016.
Agri growth only on paper
So, currency shortage continued well into May and that is why there have been persistent reports of shortage of cash in ATMs even now. This continues to effect the unorganised sectors of the economy. Reports in November and December showed an impact on up to 80% on the non-agriculture unorganised sectors. Even in February, reports were that while workers returned from villages they could not get employment.
Agriculture was also adversely affected with delay in Rabi sowing in North India and collapse in prices of vegetables. Farmers distributed vegetables free in Ranchi because taking it back to the farm was more expensive. Tomatoes and potatoes were thrown on the roads because of unremunerative prices. Partly this was a result of the higher output but there was also a reduction in demand due to cash shortage and rise in unemployment. So, while output increased, a larger part of it than usual was lost due to wastage. So, agriculture’s rate of growth can be taken to be less than on paper.
The question is how is all this factored into the data handed out by the government. While the government gets some data from the organised sectors of the economy fairly quickly, even this is not very robust and is often revised. Consequently, the government gives advanced estimates and then revised ones and this process of revision goes on for several years – the final data sometimes takes several years. This would be especially true when there is a big shock to the economy and data for 2016-17 can be expected to be revised considerably in the coming quarters and years.
Methodology problems
Government agencies have admitted that they do not have data on the non-agriculture, unorganised sectors of the economy. The chief economic adviser and the chief statistician of the country have admitted as much. However, they have made little attempt to try to rectify this big gap for the post demonetisation phase of economic growth. They should have been working overtime to inform the public about the impact rather than only repeating that they do not have the data. This is what is opaqueness and lack of transparency. Is there a political angle to this?
Chief statistician TCA Anant is helpless because he is unable to clarify matters further and seems to want to politically defend the government’s stand that demonetisation had little impact on the economy. The finance minister, recently at the third anniversary of the NDA government, said that there was no impact of demonetisation. Is the former justifying this stand of the government?
First, Anant said analysts should not jump to conclusions on the basis of limited data in one quarter. At the time of announcing the results, he said, “Analysis …. cannot be done through post hoc ergo procter hoc. Because it is after this, so it is because of this…” The next day he was even sharper in his comments, stating that note ban hit is overstated by pre-conceived notions.
The issue is that he, as the chief statistician of India, has more data available than anyone else in the country and he has more analysts working on data than any other agency. Why has his department not come up with a proper analysis of the impact of demonetisation in the last seven months? This is a long enough period of time for a competent economist to say something more definitive than what he has been saying. If he did what he should have then no one need guess what is happening to the economy post demonetisation.
At least he could have clarified whether the methodology of calculation of quarterly and annual advance estimates of GDP or GVA apply in a situation where there is a demonetisation-like shock to the economy? If it was a shock, then what kind of shock was it and how much impact is there likely to be after separating out the past trends? Is it not the case that if the shock was large enough, it would overwhelm any trends from the past? What we get instead is opaqueness all the way.
For the last year, the Modi government has consistently maintained that India’s economy is on the upswing and doing well. Suddenly now it is saying that the economy has been slowing down for the last few quarters. The slowdown in Q4 FY’17 is now stated to be a part of that trend of rate of growth declining from 7.9% in Q1 to the present 6.1% in Q4. Data suggest that even this latter figure was buoyed by the massive growth in ‘public administration, defence and other services’ which grew at 17%. Industry grew at a higher rate because of the revision of the way IIP is calculated otherwise the rate of growth would have been even lower. Agriculture is also being assumed to have grown faster but the negative factors mentioned above have not been accounted for.
For agriculture, data on crops and the areas sown for each of them is collected routinely. So, an estimate of the production can be made fairly quickly. However, net output would be lower due to wastage. The problem is for the non-agriculture unorganised, sectors consisting of Q4’s  services and industry – industry, trade, finance and so on. No data is collected for these activities. It is periodically collected every three to five years. Thus, the question arises as to how does the government calculate how this part of the economy is doing and how to get data for most of the unorganised sector?
Data based on the new series for 2011-12 suggests that about 45% of the output of the economy comes from the unorganised sectors. The old series had put it at over 50%. Assume that these percentages still hold for 2016-17. Agriculture is 14% and it can be taken that data for this sector is available. So the balance is non-agriculture unorganised sector and it amounts to 31% and it is for this sector that the government does not have any direct data.
So, for close to one third of the economy, data is not available. Then, how can the actual rate of growth of the economy in the post-demonetisation phase be given with any certainty? The truth is that government’s database for calculating the economy’s growth is incomplete. The RBI and ministry of finance have admitted that they cannot tell the impact of demonetisation on this part of the economy.
Inches and centimeters
Analysts in the government, based on expert advice, have devised methods to calculate the contribution of this part based on what is happening to the organised sector and by looking at labour productivity and employment in the unorganised sectors.
However, none of this applies in abnormal times like, when there has been massive cash shortage. The usual methodology of calculating the contribution of the unorganised sector to GDP would not apply and if used would be incorrect.
The days, weeks and months after November 8 was not a normal period of time. While the organised sector was hit less, the unorganised sector was hugely impacted. So, the ratios available from earlier data of organised and unorganised sectors would not be relevant. There was massive unemployment in the latter so one cannot project from the pre November 2016 data. A new methodology was needed but this is nowhere in sight.
Most analysts turned out to be wrong because their forecasts are based on government pronouncements. They have not questioned the methodology used to calculate GDP when there is a shock to the economy. Why? For the financial analysts polled by Reuters, it is crucial that they give correct analysis because they advise people on investments. Mistakes by them or a wrong reading of the situation by them costs people a lot of money. As chief economic adviser Arvind Subramanian has recently stated, most experts are sycophantic. He said that they literally toe the government line.
International agencies also do not collect independent data and also more or less give data which is close to what the government says. They are often constrained to give out their analysis in consultation with the ministry. So, there are few independent voices which can hold government to account.
V-shaped nonsense
Soon after the people’s difficulties started mounting and industry and trade started to complain of adverse impact due to demonetisation, the government’s analysts began saying that there would be a quick V shaped recovery. What it means is that after a sharp dip in the economy there would be an equally sharp rise. Analysts bought this line without doing their own proper macroeconomic analysis.
The government data suggests that there was hardly any impact on Q3 (September to December) numbers with the economy continuing to grow at 7%. So, where was the sharp dip? Analysts should have questioned this. Now instead of a sharp rise, government data shows a further fall. So, those who accepted a V shaped behaviour theory need to take another look at their assumptions.
A short-term shortage of cash for 15 to 20 days would have reversed itself quickly as this writer pointed out in November 2016. Anything longer would have a more permanent impact. This is especially so when the other major macroeconomic factors are taken into account.
Credit off-take from banks was at a historic low in October 2016 and declined further, suggesting a slowing economy. NPAs were already high and would have only increased after the slow down in the economy. Demonetisation added to that slow down. Capacity in much of industry was down to about 75% and demonetisation would have made it worse. So, private investment which was already low deteriorated further. This has a long term impact on the economy and delays any possibility of recovery.
The government could have increased demand by increasing its fiscal deficit but that was not allowed to happen since global credit rating agencies would have frowned on that. The government claims that it collected much more taxes than earlier and that would dampen demand in the absence of enhanced expenditures by the government. Exports did see a surge but so did imports with the result that the external sector did not provide a stimulus. Post Trump and Brexit, there are more uncertainties on the export front and it is difficult to visualise a stimulus from this source.
Much store is laid on an increase in consumption. This is a statistical illusion. When the investment rate of the economy declines then the consumption ratio rises (all else remaining the same), but that does not mean a rise in aggregate consumption. In fact, consumption from the unorganised sector would have contracted even if it remained unaffected in the organised sectors of the economy. Reports of slowdown in FMCG sector and two wheelers and other sectors suggests that.
The issue of growth in the economy is not an emotional one or one of politics. It is about reality on the ground and of hard data – how is the economy doing post demonetisation?
A simple calculation with some reasonable assumptions on the unorganised non-agriculture sector based on the few private surveys available from December to February would suggest that the rate of growth of the economy in November 2016 to January 2017 would be negative and in February-March 2017 possibly close to zero. That is why demand is low and so is capacity utilisation.
What is the likely scenario in the coming quarters? Quite dismal given that credit off-take is not robust, NPAs continue to rise, employment is down and so is capacity utilisation. So, private investment is unlikely to show any rise. Any increase in government expenditures cannot compensate for this continuing decline with the self imposed constraint of keeping fiscal deficit to 3%. Export stimulus is very uncertain given the global situation.
In this post-truth world, analysis on the basis of partial data should not be allowed to trump reality. The economic picture is far from rosy as the government is trying to depict and demonetisation has played a big role in that no matter what the government says.
Arun Kumar is an economics professor, formerly at JNU, and is author of Indian Economy since Independence: Persisting Colonial Disruption.

Income Tax department warns against cash dealings of Rs 2 lakh

New Delhi, June 2:  

The Income-Tax Department today warned people against indulging in cash transaction of Rs 2 lakh or more saying that the receiver of the amount will have to cough up an equal amount as penalty.

It also advised people having knowledge of such dealings to tip-off the tax department by sending an email to blackmoneyinfo@incometax.gov. in’ The government has banned cash transactions of Rs 2 lakh or more from April 1, 2017, through the Finance Act 2017.

The newly inserted section 269ST in the Income Tax Act bans such cash dealings on a single day, in respect of a single transaction or transactions relating to one event or occasion from an individual. “Contravention of Section 269ST would entail levy of 100 per cent penalty on receiver of the amount,” the tax department said in a public advertisement in leading dailies.

In the 2017-18 Budget, Finance Minister Arun Jaitley had proposed to ban cash transaction of over Rs 3 lakh. This limit was lowered to Rs 2 lakh as an amendment to the Finance Bill, which was passed by the Lok Sabha in March. The restriction is not applicable to any receipt by government, banking company, post office savings bank or co-operative bank, the tax department said.

The move to ban cash transaction above a threshold was aimed at curbing black money by discouraging cash transaction and promoting digital economy. The tax department had started the email address ’blackmoneyinfo@incometax.gov.in’ in December last year post the demonetisation of 500 and 1,000 rupee notes.

It had then asked people having knowledge about conversion of black money into black/white to inform the government through this mail id. Post the demonetisation of 500 and 1,000 rupee notes, people with unaccounted wealth had illegally converted their black money held in old notes to new 500 and 2,000 rupee notes.

The government had come out with a tax amnesty scheme PMGKY (Pradhan Mantri Garib Kalyan Yojana) under which people holding unaccounted cash could come clean by declaring their wealth and pay 50 per cent as tax and penalty. Also, a mandatory deposit of 25 per cent of the black money was to be made in a zero-interest bearing account for four years.

7th Pay Commission Allowances related report submitted to Cabinet by Empowered Committee Secretaries

7th Pay Commission Allowances related report submitted to Cabinet by Empowered Committee Secretaries – Highest HRA at 27% as against 30% demanded by Staff Side – Reports Zee News in its website

As per Zee Business News report, Empowered Committee of Secretaries has presented its report on 7th Pay Commission Allowances to Cabinet for its approval. It is further reported that Cabinet is likely take crucial decision on this issue involving around 50 lakh Central Government Employees during next Week.

Earlier, the Lavasa Committee appointed by the Govt for examining the Allowances related recommendations of 7th Pay Commission submitted its report to Govt recently. Following the usual procedure of examination by Empowered Committee of Secretaries in the case of Financial decision to be taken by Cabinet, the report relating to 7th Pay Commission allowances was also examined by Empowered Committee.

The Empowered Committee of Secretaries (E-CoS) has submitted its report on higher allowances like House Rent Allowance (HRA), Dearness Allowance (DA) and Transport Allowance (TA) under 7th Pay Commission (7th CPC) to Union Cabinet, sources told Alok Priyadarshi of Zee News.

However, the demand of the central government employees that HRA of 10%, 20% and 30% on revised 7th CPC Pay based on classes of cities was not considered in favourably, reports Zee News. Instead, Empowered Committee have recommended highest HRA slab ranging between 25%-27% of the basic as against demand of 30%

7th Pay Commission has earlier recommended house rent allowance at the 24%, 16% and 8% of the 7th CPC revised Basic Pay for Class X, Class Y and Class Z cities respectively.

If the report of the Empowered Committee is acceptable to the Cabinet, it more likely that final decision on revision of 7th Pay Commission Allowances will be taken by Cabinet next week.

Compilation of information about appointments made on the basis of fake/ false caste certificates and follow up action taken there on

No.36027/1/2017-Estt. (Res) 

Government of India 
Ministry of Personnel, Public Grievances and Pensions 
Department of Personnel and Training 
Establishment (Res-I) Section

North Block, New Delhi
Dated : 01.06. 2017

OFFICE MEMORANDUM

Subject: Compilation of information about appointments made on the basis of fake/ false caste certificates and follow up action taken thereon – regarding 

This Department have been 3 receiving references from various Ministries/ Departments regarding appointments made on the basis of fake/ false caste certificates despite the instructions contained in the Department’s OM. No. 11012/1/91-Estt.(A) dated 19.05.1993, which have been re-iterated vide OM. No. 3601 1/1/2012 Estt.(Res.) dated 10.01.2013. The instructions provide that if it is found that a Government servant had furnished false information or produced a false certificate in order to secure appointment, he should not be retained in service. Thus when an appointing authority comes to  know that an employee had submitted a false/ fake caste certificate, it has to initiate action to remove or dismiss such an employee from service as per the provisions  of relevant Service Rules.

2.It has been decided to collect information from all the Ministries /Departments about appointments made on the basis of fake/ false caste certificates and follow up action taken thereon. Therefore, all the Ministries /Departments are requested to collect information from all Organisations under their administrative control about the cases where the candidates got/ alleged to have got appointment against vacancies reserved for Scheduled Cates, Scheduled Tribes and Other Backward Classes on the basis of false/ fake caste certificate and send a consolidated report in this regard in the enclosed Proforma to this Department by 15.07.2017 positively.

Encls: As above.

sd/-
(Raju Saraswat)
Under Secretary to the Government of India

 

Unemployment has risen and the corporate sector has taken a hit, but the Modi government is relying on statistics to create an illusion of economic growth.=Three Years Into Modi’s Regime, the Cracks Are Beginning to Show

Unemployment has risen and the corporate sector has taken a hit, but the Modi government is relying on statistics to create an illusion of economic growth.

Prime Minister Narendra Modi. Credit: Reuters/Yuya Shino

The completion of three years of Prime Minister Narendra Modi’s government has released a flood of assessments. Most of these are paeans of praise. In a recent article in Indian Express, Ram Madhav, the national general secretary of the BJP and its former spokesman, has labelled Modi India’s most trusted leader, whom he perceive as “working towards a new vision of India”.
Madhav is Modi’s subordinate, so his assessment of his boss should carry about as much weight as an assessment of Donald Trump’s first hundred days by Rex Tillerson, his secretary of state. But on one of his claims there can be no dispute: Modi has put his stamp so firmly upon this government that he has been able to extend the honeymoon period of his government, and delay the onset of anti-incumbency, by at least 18 months longer than any previous government.
Madhav ascribes this to Modi having the courage to make unpopular decisions and his ability to make the people support them. “Modi is undisputedly the most trusted leader in the country today…after many years the people of the country feel the presence of a strong and decisive leader…” What Madhav has overlooked is that while a decisive leader makes people feel secure, he also raises their expectations. Modi may have done the first, but despite being in power for three years, he has completely failed to meet the second. The failure stretches across every realm of policy, but let us start with the economy, and his promise to bring acchhe din back again.
Madhav claims that in the last three years, growth and development have been “more than satisfactory”. The truth is the exact opposite: When Modi came to power, the economy was in deep trouble. Today, three years later, it is in even deeper trouble. Far from ushering in acchhe din, Modi and his ministers have floundered around making microscopic changes to the micro economy, while the macro economy has edged steadily towards ruin.
The Modi government did not cause the downslide of the economy. But the past three years have shown that it does not have the faintest idea of how to stop it. What is more reprehensible is that instead of acknowledging that every macro economic indicator is heading south, the government has resorted to statistical legerdemain to create an illusion of growth where there has been only decline.
Let us take the most frequently quoted yardstick first – the GDP. The government has claimed a rise from 5.1% in 2012-13 to 7.9% in 2015-16. But Rajeshwari Sengupta, professor of economics at the Indira Gandhi Institute for Development Research in Mumbai, pointed out a year ago that India’s GDP growth in calendar year 2015 was actually only 5% and not 7.1% as the official statistics claimed. The growth rate was inflated because the official statistics grossly underestimated the correction needed to discount inflation in the services sector, which contributes more than half of the GDP, to obtain their estimate of growth at constant prices.
Failure to correct fully for inflation has been a problem with all recent GDP data, so the BJP cannot be blamed for taking advantage of it to claim a growth that does not exist. But what is inexcusable is its claim that the sharp jump in GDP growth from 5.1% in 2011-12 and 2012-13, in the penultimate years of UPA rule, to 7.2% in 2014-15 and 7.9% in 2015-16 is a measure of  its success, when it too is a statistical illusion caused in part by a change in the way GDP has been calculated since 2013-14, and in part by the result of a crash in world commodity prices that has followed China’s abrupt slowdown. This has brought down input costs for industry, and thereby raised value added in manufacture without any physical increase in output (GDP is measured by value added and not physical output).
Not content with massaging the GDP figures, the government has also changed the base year for the calculation of the industrial production index from 2004-5 to 2011-12, and claimed that the average industrial growth in the past three years was not the paltry 1.96% shown by the old series, but the 4.1% shown by the new series. What it has not mentioned is that this bump happens every time the base year is moved forward because it increases the weightage within the index of sunrise industries and decreases that of sunset ones. The same updating has also bumped up the industrial growth rate in the last two years of the UPA from 0.5% to 3.35%.
Neither of these figures is impressive. Even in the three decades of the closed economy till 1981, the average growth of industry was 4.8%. It was over 9% from 2004 till 2009, and 13.5% between July 2009 and June 2011. But even the small blip in growth from 3.35% to 4.1% shown by the new index is an anomaly.
For during these years, employment in industry has fallen sharply. This is the one infallible indicator that no amount of wrangling over numbers can hide. For reasons that defy understanding, the Indian government has not created a single index for change in employment. But since 2008 it has been collecting quarterly data on job growth in eight labour intensive industries, and these show that there has been a seven-fold decline of job growth in them, from an average of 900,000 a year in 2010 and 2011, to 135,000 in 2015 and 2016. Even the vastly reduced job growth in each of the UPA’s two final years, of 420,000, was more than three times this number.
It is possible to make a rough extrapolation of the change in employment growth in the entire economy by comparing these figures with the estimates of total employment growth given by the decennial Census and the quinquennial National Sample Survey. Both put the figure for 2009-10 and 2010 at over seven million a year. This means that at least during Modi’s tenure around eight million young people who join the labour force every year are being forced to join what our statisticians call the “involuntarily self-employed”. They have no security, no future and, therefore, no stake in stability. So it is no surprise that tens of thousands of them have found ‘self-employment’ as cow vigilantes, and prey upon others who are even poorer than they, to survive.
The other victim of our policymakers’ failures has been India’s much vaunted corporate sector. A moribund share market in which initial public offerings of equity shares have dried up because people are not willing to invest in them has forced promoters to rely heavily on domestic and external bank borrowing at sky high borrowing rates of 11-14%. This have combined with a crash in the exchange rate after 2012 to more than double the cost of servicing debt in the last six to seven years, while simultaneously choking domestic demand and drying up their current revenues. Once the envy of China’s policymakers, much of the new corporate sector is now on its last legs, gasping for breath as it dies a slow death.
Nearly all the entrepreneurs who had embarked on the modernisation of India’s stone age infrastructure are facing bankruptcy today. Fifty of these owe the banks more than Rs 10 lakh crore, or one seventh of the country’s GDP.
The most recent victims are the mobile telecom companies that transformed the face of India a decade ago and created millions of jobs. Burdened under the debt created by the 4G auction and crippled by the no holds barred competition launched by Mukesh Ambani’s Reliance Jio, the telecom sector’s debt, (Rs 8 lakh crore), is almost 16 times its gross earnings before tax, interest, depreciation and payback of the principal. No one holds any serious hope that they will be able to survive on their own. The government has set up a committee to examine its problems, but the measures that will be required to save the sector are not within its terms of reference.
The credit for the destruction of India’s growth has to go to the RBI, which first snatched control of money supply from the government in January 2007, and began squeezing credit relentlessly by raising interest rates to control the continuing price rise, and persisted with this suicidal course unmindful of its failure. The resulting high interest rate regime – perhaps the highest real rate regime in the world, has been in place for eight of the last ten years – has destroyed India’s future.
Wise investors, who saw what was coming, simply abandoned their projects to cut their losses. As a result, two years ago there were Rs 880,000 crores worth of abandoned projects, nearly all in infrastructure and heavy industry.
Older, cannier corporates, who had not taken up infrastructure projects, simply stopped investing in India and took their money elsewhere: between 2008 and 2015, $70 billion of Indian corporate capital found its way into fixed investments abroad. Not surprisingly, the gap between existing and required investment in infrastructure has widened to Rs 500,000 crore a year .
The RBI justified, and still continues to defend, its actions on the ground that lowering inflation and then pegging it at a low level is essential for achieving sustainable economic growth. But there is no empirical evidence in developing countries to back this up. On the contrary, South Korea achieved its three decade long explosive growth with an average inflation rate of 21% a year.
What has been unforgiveable is the RBI’s failure to grasp what any second year student of economics knows: that curbing credit lowers prices only when there is too much money chasing too few goods. But as former chief economic adviser Kaushik Basu pointed out in his most recent book, this was never the case in the 2000s.
All the inflation India experienced between 2006 and 2014 was caused by occasional droughts and freak weather occurrences; steadily increased administered prices of food and cash crops; rampaging global commodity prices caused by China’s runaway growth till 2013; and a mounting shortage of public goods like health, land for housing and education.
Crushing domestic demand in a single country to remedy this was akin to the medieval remedy for a fever, which was to attach leaches to the patient’s body to suck out his blood. As often as not, the fever came down, but the patient died. Despite their impressive degrees, the RBI’s governors and their advisers have known little more about the economy than the medieval European doctors knew about the human body.
Modi came to power with no baggage of past policies to defend. So he had the chance to make policy on a clean slate. What is more, in July 2014, China went into a severe recession and global commodity prices crashed. So in India, wholesale price inflation became negative and even the cost of living index, which mostly reflects shortages of public services created by government failure, fell sharply.
Modi and finance minister Arun Jaitley, therefore, had a golden opportunity to instruct the RBI to bring down policy interest rates very sharply. Had the RBI halved borrowing rates as Yashwant Sinha had done between 2000 and 2002, all but a few of the 50 companies now facing bankruptcy proceedings today would have survived and many of the abandoned projects would have been revived.
But Modi kept every seasoned economic minister of the Vajpayee government out and asked a lawyer to become an instant economist. These are sins, born of incompetence and hubris, for which his government will be called to a reckoning before very long.