The schizophrenic BJP government

The BJP government’s hugely important problematic socio-religious policies, born out of its flawed ideas of majority-minority issues, have made it fashionable for liberals to trash the way the economy has been handled. But the paradox is that its economic policies have been the opposite of its non-economic policies.

Look at two things: The current economic indicators and the long-term reforms. On both counts, the Modi government has done far better than what its critics — intelligent, articulate, persuasive, and wearing a mantle of morality — would have us believe.

Start with the reforms. The latest in a list of much-needed changes was doing away with the retrospective amendment brought in by Pranab Mukherjee in 2012.

Regardless of the taxability of the transactions it sought to bring into the tax net, the retrospective aspect of the amendment did huge damage to India’s reputation as a reliable destination for investment. Undoing that is a major step in the right direction.

But then think about this. Even with the spectre of retrospective taxation hanging over their heads, foreign companies invested a record-breaking $81.72 billion in FY21. What makes foreign companies so optimistic about the Indian economy while so many economists can’t find a good word to say about it?

Maybe the answer lies in goods and services tax. Yes, it has not eased compliances as much as it should have but each year is seeing them get easier. Revenue from GST is on an upward trend. Nine of the last 10 months have seen GST revenues crossing ~1 trillion quite easily. Only in June 2021 did it dip below that mark, due in large part to the second wave and the lockdowns in various states.

Either way, a single tax rate for any particular commodity across the country was a much-needed reform. If the full benefits of GST accrue five years from now, that’s too bad for this government, but it’s good news for India.

Similarly, the Insolvency and Bankruptcy Code hasn’t resulted in any big victories yet but that doesn’t mean it won’t. The NPA mess left by the UPA needed to be dealt with, and the IBC is a solid attempt at it.

There are several other reforms that have been announced — RERA, the Public Sector Enterprises Policy, to name a few. Now comes the monetising of the dead public sector and government assets announcement.

The point is this: Far from the quagmire of policy paralysis, the Modi government’s economic handling has very much been on the ball. It will bear fruit in the next five years, which is why FDI is so strong. The foreigners clearly know what Indians don’t.

There’s no doubt that the lockdown dealt a body-blow to the economy. But what is less often mentioned by most economists is the speed of the recovery. True there is a base effect but so what? Look at the speed of the recovery.

By March 2021, just before the second wave really got going, the Manufacturing PMI was at 55.4, which is higher than it was all the way before the pandemic even started, in September 2019. Similarly, the Services PMI was at 54.6 in March 2021 compared with 48.7 in September 2019.

Power consumption in March this year was higher than in 2019, UPI transactions were at a whopping ~5 trillion in March. They were at ~2 trillion at the end of 2019. Average GST collections in 201920 were ~1.01 trillion.

So far this financial year, the average is ~1.13 trillion. Unemployment stood at 6.52 per cent in March 2021, down from 7.6 per cent at the end of 2019.

As with most things, this recovery needed some time and momentum before its effects could be really seen. But that was not to be.

The second wave came and again interrupted things. It was hugely exacerbated by the way the government handled it. Again, however, each of these indicators and several others are higher or back at the same level in July 2021 as compared to March.

The point I am trying to make is that the Indian economy has, contrary to what many would like you to believe, actually been handled well during this pandemic. It’s a different matter that the vaccines and crowd control and other important aspects have been grossly mishandled.