BJP’s rule has been bad for the econ­omy

Deccan Chronicle - - EDIT - Man­ish Te­wari

The NDA/BJP gov­ern­ment is look­ing in­creas­ingly cor­nered on ev­ery gov­er­nance par­a­digm. How­ever, its weak­est link is the gross mis­man­age­ment of the In­dian econ­omy.

As the count­down for the Lok Sabha elec­tions sched­uled be­tween March-May 2018 en­ters its semi-fi­nals with five state elec­tions to Rajasthan, Mad­hya Pradesh, Ch­hat­tis­garh, Mi­zo­ram and Te­lan­gana sched­uled be­tween Novem­ber 12 and De­cem­ber 7, the NDA/BJP gov­ern­ment is look­ing in­creas­ingly cor­nered on ev­ery gov­er­nance par­a­digm. How­ever, its weak­est link is the gross mis­man­age­ment of the In­dian econ­omy.

It would not be a cliché to state that the In­dian econ­omy is up a creek with­out a pad­dle. The re­lent­less up­ward march of petrol and diesel prices de­spite crude oil prices not be­ing at the as­tro­nom­i­cal lev­els they were 10 years ago shows that the gov­ern­ment is com­pletely in­sen­si­tive both to the crush­ing bur­den of these tar­iffs and the in­fla­tion­ary mul­ti­plier ef­fect that it has on other com­modi­ties. On Oc­to­ber 11, 2018 petrol in Delhi was at `82.42, diesel at `74.67 and a 14.2 kg LPG cylin­der was at `879, while the crude oil price of the In­dia bas­ket was $77.88 for Septem­ber 2018.

Con­trast this with crude oil prices a decade ago. In May, June and July 2008, the In­dian crude bas­ket was av­er­ag­ing, $120.91, $129.72 and $132.47 re­spec­tively, while petrol was sell­ing at `50.56 a litre in Delhi, diesel was at `34.80 and an LPG cylin­der cost `344.75. These prices were there af­ter a `5, `3 and a `50 hike on petrol, diesel and LPG re­spec­tively as of on June 4, 2008.

Now if the UPA could sell petrol, diesel and LPG at half the price, why can’t the NDA gov­ern­ment when they have en­joyed a wind­fall in terms of crude oil prices? Be­tween 2004-09 the av­er­age price of crude was $62.78, while be­tween 2014-18 it is $58.58, but petrol, diesel and LPG are twice as ex­pen­sive.

The state of the other sec­tors of the econ­omy is no less fright­en­ing. On May 26, 2014 the ru­pee was at `58.50 and on Oc­to­ber 11, 2018 it stands at `74.38 — a de­val­u­a­tion of `15.88 in 52 odd months.

A spe­cious ar­gu­ment is be­ing floated that a weaker ru­pee helps In­dian ex­ports by mak­ing them com­pet­i­tive, but by the same mea­sure a frag­ile ru­pee makes im­ports more costly. As the monthly eco­nomic re­port of the min­istry of fi­nance for Au­gust 2018 points out “Mer­chan­dise ex­ports and im­ports in­creased by 19.2 per cent and 25.4 per cent re­spec­tively in US dol­lar terms dur­ing Au­gust 2018. Dur­ing Au­gust 2018, oil im­ports in­creased by 51.6 per cent and non-oil im­ports in­creased by 18.2 per cent over Au­gust 2017. The value of mer­chan­dise trade deficit in Au­gust 2018 was $17.4 bil­lion, which was higher than the level of $12.7 bil­lion in Au­gust 2017. Dur­ing April-Au­gust 2018, mer­chan­dise trade deficit in­creased to $80.4 bil­lion, from $67.3 bil­lion in April-Au­gust 2017”.

The re­port fur­ther It does not take rocket sci­ence to fig­ure out that with a bal­loon­ing trade deficit, that was the prin­ci­pal con­trib­u­tor to the widen­ing cur­rent ac­count deficit, a week ru­pee is not in In­dia’s in­ter­est points out that “In­dia’s cur­rent ac­count deficit (CAD) was $15.8 bil­lion (2.4 per cent of GDP) in the Q1 of 2018-19, as com­pared to $15.0 bil­lion (2.5 per cent of GDP) in the cor­re­spond­ing quar­ter of 2017-18 (Fig­ure 8). The widen­ing of the CAD on YoY ba­sis was pri­mar­ily on ac­count of a higher trade deficit”.

It there­fore does not re­quire rocket sci­ence to fig­ure out that with a bal­loon­ing trade deficit that was the prin­ci­pal con­trib­u­tor to the widen­ing cur­rent ac­count deficit a week ru­pee is cer­tainly not in In­dia’s in­ter­est.

The fi­nan­cial mar­kets are also in tur­moil. The re­peated de­faults by In­fra­struc­ture Leas­ing & Fi­nan­cial Ser­vices Lim­ited (IL&FS) have roiled the non-bank­ing fi­nance com­pa­nies (NBFC’s). Its des­per­ate takeover by the Gov­ern­ment of In­dia smacks more of a cover up. IL&FS has a debt of `91,000 crores odd out of which over `42,000 crores was ac­cu­mu­lated over the past four years. The eq­uity struc­ture of IL&FS is that LIC which is In­dia’s big­gest in­surer holds 25.34 per cent of its eq­uity; Cen­tral Bank of In­dia holds 7.67 per cent of its eq­uity; State Bank of In­dia holds 6.42 per cent of the eq­uity; and two for­eign in­vestors one from Ja­pan and other from Abu Dhabi hold about 35-36 per cent of the eq­uity and the rest is held by cer­tain other In­dian and for­eign in­vestors. The in­dis­putable fact how­ever is that 40 per cent of the eq­uity of IL&FS is held by LIC of In­dia, which is In­dia’s big­gest in­surer, State Bank of In­dia which is In­dia’s big­gest bank and the Cen­tral Bank of In­dia is also owned by the gov­ern­ment.

The ques­tion then arises: in a com­pany which is 40 per cent owned by LIC, SBI, Cen­tral Bank of In­dia and which has its nom­i­nees on the board of that com­pany, how did this sit­u­a­tion come to pass? How did the rep­re­sen­ta­tive of LIC, SBI, Cen­tral Bank of In­dia and other gov­ern­ment in­sti­tu­tions, al­low a debt of `91,000 crores to ac­cu­mu­late? Was there an in­vis­i­ble hand driv­ing the af­fairs of this com­pany?

Re­spected fi­nan­cial an­a­lysts are of the view that `57,000 crores out of this `91,000 crores is al­ready a non-per­form­ing as­set (NPA). It is only that the banks and fi­nan­cial in­sti­tu­tions are not clas­si­fy­ing it be­cause it has its im­pli­ca­tions for their bal­ance sheets. Rather than in­ves­ti­gat­ing this mess in which the rot goes right up to the rar­efied ech­e­lons of the NDA/BJP gov­ern­ment, the take over of the com­pany by a hand­picked board of the gov­ern­ment is a very pal­pa­ble at­tempt to sweep this hu­mungous malfea­sance un­der the car­pet. De­spite this fran­tic ac­tiv­ity by the gov­ern­ment it is still not clear as to whether In­dia’s Lehman Broth­ers mo­ment has fi­nally been averted?

The two is­sues that are how­ever the Achilles heel of the cur­rent gov­ern­ment are the un­remit­ting dis­tress in the farm sec­tor and jobs. Farm­ers’ or­gan­i­sa­tions have held that the NDA/BJP gov­ern­ment is the most anti-farmer gov­ern­ment in the his­tory of in­de­pen­dent In­dia. How­ever, the worst per­for­mance has been on the job front. In 52 months, the NDA/BJP gov­ern­ment should have cre­ated nine crore jobs go­ing by the elec­tion prom­ise it made, but its per­for­mance has not even touched nine lakhs. The writer is a lawyer and a for­mer Union min­is­ter. The views ex­pressed are per­sonal. Twit­ter han­dle @man­ishte­wari

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