Media reports suggest that the same old tinkering and incremental measures are being contemplated
The only good thing about the government looking busy about the economy is that at least it has recognized, at long last, that there is some problem. I said ‘looking busy,’ for there doesn’t seem to be either any urgency in the hectic activity on Raisina Hill or any direction in the confabulations. The very people who are primarily responsible for the mess, Prime Minister Narendra Modi and Finance Minister Arun Jaitley, are expected to clear it—a task for which they have neither the guts nor the competence.
Media reports suggest that the same old tinkering and incremental measures are being contemplated—fiscal stimulus, bank recapitalization, general revival through affordable housing, higher public expenditure and other Keynesian measures. It appears that policymakers are still unable to comprehend the magnitude of the crisis. In the first two years of the Modi government, there was jobless growth; now there is a jobless slowdown.
Quarterly growth has come down from 7.9 percent in the first quarter of last fiscal to 5.7 percent in same period of FY18. Exports have not risen as much as the government would have liked, especially against the backdrop of revival in the global economy. The growth was a modest 8.57 percent in the April-August period even as imports galloped 26.63 percent, jacking up the trade and current account deficits.
Prime Minister Modi had promised 10 million jobs a year, to help the young.
As for jobs, the less said the better. The recruitment firm TeamLease Services Ltd has estimated that there could be a 30 percent-to-40 percent reduction of jobs in the manufacturing sector compared with last year. Manufacturing, it may be recalled, is the second largest employer after agriculture. It may also be recalled that Modi had promised 10 million jobs a year, to help the young and reap the so-called demographic dividend.
It was not a fantastic promise; more than that was actually achieved by the government of his own party while Atal Bihari Vajpayee was prime minister. During 1999-2004, 60 million, or 12 million per year, were created. It needs to be mentioned here that the average growth rate in this period was below 6 percent. On the other hand, above 8 percent growth in the next six years of UPA rule could deliver just three million jobs, though later the situation improved a little.
There are little official data on the subject; this itself is symptomatic of Modi’s casual approach towards the subject of employment, though he had promised so much before becoming Prime Minister. Till last year his record was almost as bad as that of his predecessor’s. After the blunder called demonetization, and the hurried implementation of the goods and service tax regime, things have gone from bad to worse.
The predecessor, Manmohan Singh, has rightly slammed the government over the issue, “Both demonetization and the GST have had some impact [on GDP growth]. Both would affect the informal sector, the small-scale sector… The sectors today are responsible for 40 percent of GDP.” Ninety percent of India’s employment is in the informal sector, he added. He was talking to a news channel.
“There will be mass scale [repercussions]… Banks might collapse, factories might start closing,”
That this was not partisan comment is borne out by another interview that the senior Bharatiya Janata Party leader Subramanian Swamy gave to another channel. “Today, the economy is in a tailspin. Yes, it can crash. We need to do a lot of good things to revive the economy. Even a tailspin can be made steady. If nothing is done, we are heading for a major depression. There will be mass scale [repercussions]… Banks might collapse, factories might start closing,” Swamy, who is also a prominent economist, said.
The writing is on the wall, even in the documents prepared by the government’s own organs. The solutions are also known: a big dose of reforms along with the induction of knowledgeable persons like Swamy into the policy-making and executing apparatus. That doesn’t seem to be on the horizon as He Who Must Be Obeyed places a premium on control and loyalty rather than liberalization and talent. So, the big boys—or, to be precise, the boys who think that they are big—will do a lot of meetings and mouth a number of clichés, but little is likely to be done.
Note:
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
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Economy is the subject of experts. I see one thing, the experts guiding the FM are working for Congress and Opposition and are advising the FM, so that the economy does not grow and will drop. Time PM shuffles the advisory committee of FM or put Dr. Swamy as FM so that he will find out the crooked advices of the bureaucrats.
Instead of concentrating on real issues that affect and downgrade our economy, the present Govt is waving its arms and bringing non-issues to the fore like beef, gaurakshaks, Vande Mataram and the like! For the sake of our Bharat Mata, we just have to throw them out in 2019. Jai Hind!
Author writes that Modi n co.have neither the guts nor the competence to handle the economy. And He Who Must be Obeyed does not even consult policy making with Dr Swamy.He need not induct him but at least talk to him.
Who loses.? Our mother land. Pradhan sevak does not even consult for nation. Great !
Good article Reflects on truth. But, the blinds seldom see the light of the day. Now we have andhVyakt leading, all may now know the fall. Agricultural sector is slowly being destroyed for small amounts..but, big looters are being rewarded. Hope everyone wakes up before it’s too late…jaiHind
Talk numbers, quoting sources. Don’t talk rubbish like you guys do on your leftists’ platforms. Let this be an informed debate based on facts. Start quoting numbers to buttress your motherhood statements/claims about agriculture. If you cant do it for the lack of numbers or competence, let informed people talk and you be in a listening mode till you learn something worthwhile
Nice analysis. Dependence on imported economists is the big problem
Ravi Shankar Kapoor doesn’t seem to engage himself in serious root cause analysis of the situation. The only reason he seems to have penned this article is to implicitly engage in the advocacy of Dr. Swami as FM (nothing wrong in doing so but why pose as an economist then?). on the Economic policy front, whatever he has written is very mundane, devoid of any big-picture thinking and in fact can be read on any other news portal and is “off the shelf” stuff that is available nowadays with all and sundry. Can Mr. Kapoor be specific in talking about the root cause(s) of the situation and what needs to be done?. Few points below to steer him towards some indigenous thinking:-
In PM Modi’s initial days (in fact right through to Nov 2016) the consumption-led growth was the major driving force behind the GDP nos. Investment-led growth which was totally hampered–due to corruption, utter incompetence of MMS in managing the political economy side and the policy paralysis in UPA regime– was partly revived by PM Modi by ensuring greater public spending and speedy implementation of infra projects. Since banks are in dire straits and also due to twin balance sheet problem, the private investment is still some distance away.
If I look at economic growth from consumption led & investment-led growth perspectives, I think both demonetization and GST seem to have impacted the consumption-led growth side. The reduced domestic consumption demand seems to be at the root of the current downturn. This is also due to the fact that the hitherto thriving cash rich/parallel economy is now brought under check. The public investment is continuing unabated and won’t need significant loosening of the fiscal targets. To revive consumption growth, Govt can do few things with a clear end date in sight–1) lower GST rates slabs further (lower rates in 18% bracket to 12 or lower) and exempt many more items. 2) lower personal income tax rates significantly and few such measures. Interest rates could be another one. Basically, do everything to put more money in consumers hands, make goods and services cheaper and stimulate consumption demand. Fortunately, Govt has some headroom there due to healthy tax collections so far.
I think on the investment front, the Govt may only target SME segment and that too to a limited extent. In summary, monetary instead of fiscal policy could be the primary tool to deal with the situation.
It is an author’s opinion and he is entitled to one; just are you are entitled to yours and are being published. Nuanced observations are always welcome at PGurus.
STN -Good analysis
Reducing IT seems to be a safe bet rather than completely abolishing it as suggested by S.Swamy (that too with GST in a big mess) Also it will be politically difficult to bring it back later if needed
Lowering GST slab temporarily also good idea
STN- you can write columns, even better if you are in the advisory committee to Modiji
Let us see how Modiji gets the economy out of this mess Keeping Sinha, Swamy in the advisory committee would not hurt-both are experienced ex-ministers in relevant field-not sure what politics going on. Looks like AJ does not get along with SS