AIMING AT STABLE ECONOMIC ORDER

Bad news on the economy keeps piling up. Retail inflation touched a 68-month high at 7.59 per cent last month. It may be partly due to the seasonal rise in the prices of food and vegetables but other factors too were at play some of which might still persist once fresh farm supplies moderate fruit and vegetable prices. Wholesale price inflation climbed to a ten-month high at 3.1 per cent in January, the culprit again, as per officials, being the seasonal spurt in fruit and vegetable prices. Other economic data too was far from encouraging. Industrial output declined by 0.3 per cent year-on-year in December. Growth registered by the Index of Industrial Production during the first nine months of 2019-20 was a mere 0.5 per cent. Electricity generation, a good marker of growth, actually contracted in the above period. Thermal power plants are running on average at half of their capacities for want of demand. Mining grew 5.4 per cent in December while manufacturing recorded a 1.2 per cent decline. In line with the domestic production, exports continued to contract. Data released by the Commerce Ministry last week showed exports fell by 1.6 per cent in January, 1.8 per cent in December. In seven of the last ten months exports have registered varying percentages of declines. Imports too have suffered due to domestic slowdown, declining monthly. Overall, there has been a 8.1 per cent decline in imports between the April-January period. Despite the grim data, the Government remains optimistic, though the real economic actors differ with its assessment privately. Even the reputed global ratings agency remains hopeful, retaining India’s sovereign rating on the assumption that growth will pick up in the next two to three years. In other words, it too reckons the cause for the slowdown is cyclical, not structural. Affirming the official view is the latest Purchasing Managers’ Index for manufacturing and services. It counted on the banks having finally emerged from the bad debt crisis. However, the Supreme Court diktat against the telecom operators to pay up-front dues linked to adjusted gross revenue (AGR) is bound to splash red ink on the balance-sheets of several banks. As per the latest SC order, telecom companies, including those in the public sector, would have to pay Rs. 1.47 lakh crore of AGR by March 17. This can squeeze the funds with the lenders and impact their bottom-lines. The crisis in the telecom sector with one of the major private operators most likely to go belly up can jeopardise millions of jobs and impact overall growth. Despite the Government agreeing to extend the deadline, the SC remained firm on the old payment schedule. This was unusual, to say the least, given that the market conditions beyond the control of the companies in question needed to be taken into view. Collapse of the telecom major with over 33 million subscribers most likely will bolster further the economic viability of a relatively new player but it would do little to improve trust in the country’s ability to establish a fair, transparent and stable economic order. In one word, it will be a warning to other foreign players against entering India.

Unfortunately, the Modi Government seems not to be unduly concerned about foreign players and foreign investments, having resorted to protectionism and import substitution à la the bad old pre-reforms days. Even in the short-term it most likely will prove counter-productive. Shunning competition only shields the shoddy and cheats the consumer. Meanwhile, a manifestation of the hidden protectionism at work is also seen in the mounting woes of the two major foreign-owned e-marketing players who are now sought to be subjected to investigations by the Competition Commission and are being dragged to the courts by little known traders’ organizations. The pattern is familiar. Powerful hidden forces seem to be again at work. In such murky conditions, if someone raised a question in foreign corporate boardrooms as to why one should invest a dollar in India he would not be entirely wrong. It is a question today’s policy-makers will evade only if they want to imperil growth. We cannot be a banana republic, inviting major foreign players to set up shop here and then change the rules of play midway. That is neither fair nor pro-growth.