A BUMPY RIDE SO FAR
A dismal jobs scenario, high inflation and rural distress take the sheen off the government’s push for transparency and accountability
AMONG THE HIGHLIGHTS of the Bharatiya Janata Party’s (BJP) campaign for the 2014 Lok Sabha elections was the sluggish state of the Indian economy under Manmohan Singh, especially his second term. The 2G and coal scams gave the opposition enough ammunition to use against the UPAII government. In contrast, Narendra Modi showcased his ‘Gujarat model’ of development—a redcarpet welcome to industry, better infrastructure, including land, unhindered power supply and a disciplined labour force—that could take India on a highgrowth trajectory, resulting in more enterprises, more jobs, and more money with the people. It would be a departure from the socialist policies of the past, best encapsulated in the slogan: ‘minimum government, maximum governance’.
More than four years into the Modi government, the picture of the economy—as the MOTN survey shows—appears not so flattering. There are concerns on most fronts—jobs, industry, exports, inflation, fuel prices, banking, divestment and corruption at the grassroots.
How did it come to this? Here was one of the most industryfriendly administrations—enough for the prime minister to be targeted for his proximity to top industrialists. Driven by higher consumer demand, growth in India was reviving. The developed markets, especially the US, seemed to have come out of their worst economic distress. The jetsetting PM and his business delegations were wooing investments from all corners of the world under the Make in India campaign. India’s position in World Bank ease of doing business rankings was edging up. Aided by low crude prices, finance minister Arun Jaitley was able to keep fiscal deficit under a tight leash, earning a thumbs up from international rating agencies. Inflation, too, was kept under 4 per cent. All indices indicated a leap for the economy, possibly toward doubledigit
growth and improving the lot of Indians with it. Achhe Din seemed right round the corner. Except that they never came.
A sea of questions
What went wrong? Or did it? Is the economy in the throes of a big transition, and are the present tremors the aftershocks of stern measures that will lead to positive outcomes in the future? The July 2018 MOTN, like the previous few surveys, had questions on demonetisation and the Goods and Services Tax (GST) to gauge public opinion on these two ‘landmark’ moves of the government. Also significant was the move to clean up the bad loans in public sector banking—which crossed Rs 10 lakh crore in May this year—through an Insolvency and Bankruptcy Code (IBC), which imposed stringent norms on erring companies and promised faster resolution of bad-loan cases. Direct tax collections surged 18 per cent to over Rs 10 lakh crore in 2017-18, which the government attributed to greater transparency and compliance following demonetisation and GST. But did the shake-up leave too many businesses struggling for survival? Did the high-decibel ‘Make in India’ campaign fail to make a mark, resulting in manufacturing stagnating and job creation remaining slow? Did the rural economy, which has driven consumption even in times of economic stagnation, not get its due from the government in its initial years, leading to rural distress, farmer suicides and widespread agitation? Or is the economy at a tipping point, as the latest CII-ASCON survey points out, where over 63 per cent of the respondents expect the business situation in their respective sectors to improve, if moderately, in the next six months?
The jobs crisis
For the time being, the MOTN survey reflects a grim picture for the economy. Asked if their economic status (income, saving and spending power) had changed for the better in the past four years, only 42 per cent said it had; the majority said it had either remained the same (28 per cent) or worsened (25 per cent). In the January 2018 MOTN, 46 per cent had felt their economic status had improved. What has caused the 4 percentage point drop in six months? Read the above question together with the one on the single biggest failure of the Modi government, and the picture gets clearer. As many as 29 per cent list the lack of jobs in the country as the government’s single biggest
failure, followed by price rise of essential commodities (24 per cent) and demonetisation (13 per cent). It doesn’t help that 51 per cent think that the economic performance of the Modi government is better than the Manmohan Singh government’s, because there is a drop of 5 percentage points over the last survey in that perception, a concern for the government as it moves closer to the general elections in 2019. Moreover, 24 per cent feel the situation is worse than under the UPA government, which is the highest negative score over the past six surveys.
Let’s examine the job situation. Defending his government’s record on job creation, the prime minister, in a recent interview, insisted that over 10 million jobs had been created in the country in the past year. It is something he emphasised during the no-confidence motion debate in the Lok Sabha last month: “There is a way to assess employment in the formal sector—through the Employee Provident Fund.” In the nine months between September 2017 and May 2018, 4.5 million new subscribers had joined the EPFO, 77 per cent of them under 28 years of age. Taking the EPF and National Pension Scheme subscribers together, more than 5 million jobs were created in nine months and could reach 7 million for the entire year. However, revision of this data in subsequent quarters put its credibility into question.
Is the problem, as one economist put it, not that there aren’t enough jobs but that Indians are not getting the jobs they want. Since 2000, the Indian economy is at a Lewisian turning point—where more people are moving out of agriculture into other kinds of jobs. From 2004 to 2011, construction had emerged as a major job creator, but was soon hit by the slowdown in the real estate sector.
Again, between 2004 and 2011, the IT sector had emerged as a major hub for jobs. But subsequent lack of innovation in the sector led to its failure to address the changing aspirations of India’s youth.
The pessimism is reflected in the MOTN survey, where there is an increase of 7 percentage points over the past year in the number of respondents who say the job situation in the country has worsened in four years. While 60 per cent say jobs have not been created in the country at all or unemployment has become
slightly worse, only 14 per cent say the situation has improved. This is in sharp contrast to the January 2017 MOTN, when 35 per cent thought the job situation had improved, against 36 per cent who thought otherwise.
Have the country’s plans to attract more investments in manufacturing tripped? A recent FICCI survey of 300 manufacturing units in 11 sectors confirms this. The production outlook for the April to June quarter is weaker than the January to March quarter this year; output growth has slipped, capacity utilisation continues to be low, while private sector investment remains a drag. The high cost of raw materials, expensive finance, excess capacities, uncertainty of demand, poor availability of land and shortage of working capital continues to plague the sector. Most worryingly, nearly 69 per cent of the respondents say they’re unlikely to hire additional workers over the next three months.
Soaring prices
The other area of discontent—price rise— has been consistent across MOTN surveys. Some 70 per cent believe prices of essential commodities have risen in the past four years, an increase of 8 percentage points over the year. While the prices of food items keep fluctuating and measures such as crackdowns on hoarders help bring down prices, it is the unprecedented rise in fuel prices that has irked many. Forty-nine per cent respondents feel the government is not doing enough to control rising prices of petrol and diesel. In May, Brent crude prices had moved up to $75 a barrel, and the resultant increase in fuel prices to historic highs had led to a series of protests from the opposition. Crude oil continues to be in the $72 a barrel range; a further rise will not only drive up fuel prices even more but also disrupt the country’s fiscal discipline. According to research firm Dun & Bradstreet, all-time-high fuel prices in India are likely to feed into other segments and keep the rate of inflation higher. The Reserve Bank of India recently hiked interest rates by 25 basis points to contain inflation.
As mentioned earlier, the impact of demonetisation still lurks in the economy. While the plight of the micro, small and
medium enterprises as a result of demonetisation is well-documented, the perception that demonetisation itself failed to achieve what it set out to do seems to be gaining ground. Forty-four per cent feel black money is back in circulation in new currency notes, an increase of 7 percentage points over the previous MOTN.
Banking woes
The Nirav Modi and Mehul Choksi scams have exposed the vulnerability of the Indian banking system. With the extradition of industrialist Vijay Mallya on a slow path, and the ballooning bad loans of public sector banks, their credibility is at its nadir. No wonder, 34 per cent say they now have less faith in public sector banks as compared to the past.
Implementing GST, a most radical tax reform, has been a real torment for this government, and on the back of demonetisation. There were first a series of technical glitches, followed by much confusion over tax slabs, which kept changing. Only 19 per cent say they have gained because of GST; 39 per cent feel they have actually lost. For 35 per cent, nothing much has changed.
Will the government recover lost ground in the next few months? Unlikely, as oil prices threaten to upset the apple cart, while industry continues to lag. Trade wars set off by high US tariffs on steel and aluminium imports do not help either. Pushing through reforms isn’t easy either, as the failed attempt to sell Air India shows (though 42 per cent do feel privatising the behemoth is a good move). Much depends on the revival of private investment, but that seems a far cry given the continuing uncertainties for businesses.
—with Shweta Punj