Between the lines of PM Modi’s speech
CLOSER LOOK Statistics suggest that the growing negativity visàvis the government might be a bottomup phenomenon rather than a topdown creation by a few opposition leaders
To be sure, public sector would include both central and state governments. However, given the fact that the BJP has come in power in more and more states after the 2014 elections, a large part of state government spending can also be attributed to the party.
It needs to be kept in mind that annual growth in gross fixed capital formation (GFCF) went down for five consecutive quarters from December 2015 to March 2017 .
The share of private sector in capital formation is much bigger than the government. Tracking overall investment activity is therefore a much better indicator of how effective a government’s economic management is.
There has been some revival in GFCF in the first half of this fiscal year. A sustained recovery on this front would have to deal with emerging headwinds from increasing interest rates and rising inflation. Had the cycle turned earlier, it would have benefitted from a more favourable environment. Successive disruptions from demonetisation and teething issues in implementation of Goods and Services Tax are a big reason for the delay in this recovery. Even chief economic advisor Arvind Subramanian admitted that these two policy decisions led to India losing out from exploiting the gains of global economic recovery.
BAD LOAN CRISIS
To be fair, not all of the blame for sluggish investment lies with this government. The problem of accumulated bad loans has been a major obstacle in revival of private investment in India. Banks do not have enough funds to lend and companies who have not repaid these loans are not in a position to borrow money. Modi rightly pointed out in his speech that the bad loan crisis is a legacy issue for his government. What is not right is his attempt to put the entire blame for this crisis on corruption under the previous government.
A lot of bad loans were a result of over-optimistic lending and borrowing decisions by banks and borrowers. These were based on expectations of economic boom during UPA government lasting forever. With the onset of the global economic crisis in 2008, these expectations ran aground.
Former RBI governor Raghuram Rajan had criticised the tendency to see the entire bad loan crisis as a result of corruption in a 2016 speech given in Bengaluru. The speech says, “I am not saying that there was no malfeasance..i am saying that, typically, there were factors other than malfeasance at play, and a number of genuine committed entrepreneurs are in trouble, as are banks that made reasonable business decisions given what they knew then.”
Also, it was the RBI, not the government (which Modi suggested in this speech) which initiated Asset Quality Review in 2015 and forced the banks to transparently declare much higher levels of bad debts than they had been doing earlier. The share of nonperforming assets in total advances of banks shows a big rise after this process was started .
OPPOSITION SPREADING NEGATIVITY
There is no denying the fact that the present government has successfully implemented schemes which promote welfare and better inclusion. Jan Dhan Yojna has helped in near universalisation of access to banking services. Ujjwala Yojna has given cheap cooking gas connections for millions of poor households in the country.
However it is also true that these schemes cannot ensure a permanent stream of income to their beneficiaries. In other words, there is no substitute for rapid employment growth when it comes to delivering on the employment front.
It is no surprise that the biggest debate on this government’s economic performance is focused on employment generation. Lack of credible employment data has also contributed to muddying of waters on the issue. National Sample Survey Office figures on employment, which is the main source of job data in India, will not be available until 2019.
It is naïve to assume that politics over jobs would wait for such figures. The government seems to be losing the public debate on the issue as of now. Consumer confidence surveys conducted by the RBI show that more and more people have been getting pessimistic about their present and future employment prospects in the recent period.