Modi faltering on the growth promise

Between the promise and the performance falls the shadow. You get over this by either forgetting the promise or by changing the parameters of the performance. Or you keep making promises in the belief that your oratorial skills will make people forget them or not take them seriously. The overconfidence of the Narendra Modi government believes that performance does not matter as long as the promise can be made convincing.

Thus, the Independence Day speech by Prime Minister Narendra Modi makes the extraordinary promise that farmers’ incomes will double in five years. This at a time when in a good year agricultural production has gone up by four per cent, after stagnating during the two drought years that preceded it. For incomes to double they would have to grow at a compounded rate of around 17 per cent, something that has never happened over five years for any country in the world.

For agriculture output to double in even two decades, serious and massive investment is required in irrigation, or setting up the infrastructure of cold storages, food processing and concentrating on value-added foods like milk, meat, fruits and vegetables. With no significant investment in these areas (and with a drop in meat production because of attacks on meat traders and transporters), there is no sign of any resurgence in rural incomes. In fact, farmer suicides go on increasing because of the debt trap they have fallen into.

There is also a disconnect between what the Economic Survey, released just three days before the PM’s Independence Day speech, reveals and what Mr Modi maintained. The survey revealed that all indicators “pointed to a deceleration in real activity since the first quarter of 2016-17, and a further deceleration since the third quarter”. It also noted that private sector thermal power had become unviable and another shock to the financial sector would come from the telecom sector, with a vulnerable debt of `1.5 trillion.

Mr Modi, in his speech on August 15, took care not to boast of economic gains made under his leadership. He did not even once refer to the economic challenges before the government. These would include rising unemployment, despite a runaway stockmarket corporate earning being at a low with falling sales and earnings, the rise in bad debts, endangering not only banks but large companies in the power, steel and infrastructural sectors, and the rise of deflationary tendencies. But he promised a new India within five years, without specifying how this miraculous state would be achieved.

Mr Modi, once again, talked about the benefits of demonetisation, which he insisted was proof that he had waged “a big war against corruption and black money”. This massive disruption which saw 86 per cent of India’s currency sucked out of the system, led to a number of deaths and affected the economy in ways we do not as yet fully understand. Mr Modi made many dubious claims about the benefits of demonetisation which have been disputed elsewhere. Among them are claims that the government confiscated `1.75 trillion or that the government has identified three lakh shell companies. None of these and other claims have been substantiated by the government.

Former finance minister P. Chidambaram, in a “health check” of the economy as free India completes 70 years, maintained there was more evidence of jobless growth, and “acccording to the Centre for Monitoring of Indian Economy (CMIE), between January and April 2017, the economy shed 1.5 million formal sector jobs.”

He also maintained that there was a steady decline in the growth rate of Gross Value Addition (GVA) since Q4 of 201516 and, correspondingly, in the growth rate of GDP. Besides this gross fixed capital formation (an indicator of investment in the economy) fell to 28.5 per cent compared to a high of 34.31 per cent in 2011-12. Besides this, credit growth was down to 8.16 per cent, less than one-half of the average annual growth during the last 10 years. Also, he maintained: “In the last three years, the index of industrial production has moved, sluggishly, from 111 in May 2014 to 119.6 in June 2017.”

In the past 70 years after Independence though growth in India has be substantial, it is not as much as China. Around 1950, both the Asian giants were roughly at the same level of industrialisation. By 2010, however, China became world’s second largest manufacturing nation, and India ranked 10th, producing one-third of China’s industrial output. After a quarter century of market-oriented reforms, India failed to catch up with the Asian economies. The only time it seemed India would catch up was during the dream years from 2003 to 2008, when it had an unprecedented annual economic growth of about nine per cent.

Now we are back to trying to configure how to reindustrialise, given India’s persistent economic backwardness. This is behind Mr Modi’s not very successful campaign of “Make in India” seeking to raise the manufacturing sector’s domestic output to 25 per cent. In essence, it is like the earlier UPA government, it is trying to raise the manufacturing sector’s share in GDP to 25 per cent by 2022, though the scheme had few takers so far.

Now we are back to trying to configure how to reindustrialise, given India’s persistent economic backwardness. This is behind Mr Modi’s not very successful campaign of ‘Make in India’ seeking to raise the manufacturing sector’s domestic output to 25 per cent.