Events
& Issues
New Delhi, 4
September 2017
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
(Copyright, India
News & Feature Alliance)
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