Modi fails to deliver ‘good days’ for India GDP

Just as some analysts were starting to believe in a reset for the Indian rupee, with the government becoming more relaxed about letting it weaken, history got in the way. The history in question is past GDP data, which haven’t been officially released after India reworked its calculation methodology in early 2015. But the report of a subcommittee tasked to suggest ways to link the old and the new GDP series was recently made public.

The panel’s calculations suggest growth averaged a tad above 8 per cent in the 10 years through fiscal 2014, compared with 7.4 per cent since then. The opposition Congress Party lost no time in pouncing on the report. India’s economy, it said, had fared better under its last prime minister Manmohan Singh than it has in the four years of Narendra Modi’s leadership.

How does this history lesson tie in with the outlook for the rupee? Before the GDP back-series, some officials and analysts were beginning to shrug off this year’s 8.3 per cent depreciation of the currency, the worst in Asia. The Reserve Bank of India would “let go” of the rupee, Bank of America Merrill Lynch wrote in an August 15 note, “because there is only so much they can do to limit the sell-off.”

Technically, a hands-off approach may be the right position. The currency may still be overvalued, based on India’s inflation differential with trading partners and rivals. Besides, the nation has already spent $24 billion defending the rupee since April.

Politically, though, Mr Modi can ill afford a laissez-faire stance. Could he allow the Congress to claim that the rupee at 80 to the dollar (it’s around 70 at present) is a symbol of the prime minister’s failure to deliver the “good days” he promised in 2014? Mr Modi might have bitten the bullet if he could give his social-media warriors the cover of GDP data that make his performance look good while rendering the previous regime’s record indecipherable.

Now that a direct, unflattering comparison with the past has suddenly sprang up, however, my bet is he can’t let the rupee go. Every milestone in that weakness – 70, 75, 80 – would make him vulnerable.

Five years ago, Team Modi succeeded with great aplomb in nailing the Singh government with simple but lethal social-media memes around anaemic growth, high gasoline prices, a weak rupee and a string of corruption scandals. Now, the Congress wants to return the compliment in next year’s elections by using the same narrative.

In the absence of reliable employment data (the Modi administration has stopped surveys), all that was missing from the Congress’ attack was clinching evidence that the prime minister’s policies were growth-unfriendly. The subcommittee on past GDP has given it that weapon. Never mind that the new GDP series is still full of holes. At least now the opposition can stop blaming Mr Modi for fudging data and instead rush to take credit for the 10.8 per cent expansion it apparently delivered in fiscal 2011.

As for the 5 percentage-point decline in growth on its watch in the two subsequent years, the shocks are reverberating even now. Companies that made bold, debt-financed investment bets in the expectation of rapid economic growth are now being dragged through bankruptcy courts; the banking system is grinding its way through more than $200bn in stressed corporate loans.

However, that story is too complicated for Mr Modi’s supporters to tell in WhatsApp groups. Good luck to any finance minister who tries to explain on Facebook the not-so-minor detail that world output grew by more than 4 per cent in four of the 10 years of Mr Singh’s tenure, while the fastest expansion in the global economy during the Modi years was 3.15 per cent in 2017.

India’s economy, Congress Party said, had fared better under its last prime minister Manmohan Singh