EDITOR-IN-CHIEF

India Today - - CONTENTS - (Aroon Purie)

There was a time in 2016 when the In­dian econ­omy was grow­ing at over 7 per cent and it was sym­bol­ised as a tiger, even if a caged one. It con­veyed the strength of an econ­omy rar­ing to go. Now, with the steep fall in GDP growth for five suc­ces­sive quar­ters, fall­ing to 5 per cent in the AprilJune quar­ter of this fis­cal year—just a lit­tle bet­ter than the Hindu rate of growth and the bul­lock-cart econ­omy in the four decades af­ter In­de­pen­dence—it can be cat­e­gorised more as an ele­phant plod­ding along. For the first time in six years, In­dia’s eco­nomic growth can be counted on the fin­gers of one hand. It has made hol­low the much-touted gov­ern­ment claim of In­dia be­ing the fastest-grow­ing large econ­omy in the world. It has, in fact, slipped to num­ber five on the list af­ter Viet­nam, China, Egypt and In­done­sia. The com­par­i­son with de­vel­oped economies such as the US and Euro­pean coun­tries is also noth­ing but false equiv­a­lence.

The steep fall in GDP growth is caus­ing deep dis­tress across the coun­try. Auto sales across all cat­e­gories are at a two-decade low. Fac­tory out­put rate fell from 7 per cent in June 2018 to just 2 per cent in June 2019. There have been lay­offs across in­dus­tries—au­tomak­ers warn of a mil­lion job losses if the down­turn con­tin­ues. Agri­cul­tural growth, the largest em­ploy­ment gen­er­a­tor in the in­for­mal econ­omy, fell by nearly half to a woe­ful 2.7 per cent. The real es­tate and con­struc­tion in­dus­try re­main in the dol­drums. The fi­nan­cial sys­tem is weighed down with bad debts on the one hand and not enough bor­row­ers on the other. House­hold sav­ings and fixed in­vest­ments as per­cent­age of GDP have de­clined steeply. Busi­ness confidence is at its low­est com­pared to the past sev­eral years. Complaints against overzeal­ous tax of­fi­cials are ram­pant. The BSE Sen­sex recorded its big­gest intra-day fall in nearly 11 months. There is a pall of gloom all around.

The im­pli­ca­tions of low growth are enor­mous and here’s why the downslide should worry us all. Low growth means fewer jobs, lesser sav­ings and lesser tax col­lec­tions for the gov­ern­ment to mop up for its in­fra­struc­ture and pub­lic wel­fare schemes de­signed to lift peo­ple out of poverty. A slow­down af­fects not just In­dia’s global stand­ing and diplo­matic heft as a ma­jor world power but also na­tional se­cu­rity. Five per cent growth is way be­low the 9 per cent the Modi gov­ern­ment needs to reach its $5 tril­lion econ­omy tar­get by 2024.

Our cover story, ‘How to get the Econ­omy Go­ing’, by Ex­ec­u­tive Editor M.G. Arun and Deputy Editor Sh­wweta Punj looks at the deep pit the ele­phant seems to have fallen into. We con­sulted the top brains on the sub­ject for ways out. Our panel of eight econ­o­mists—N.R. Bhanu­murthy, Pronab Sen, R. Na­garaj, Ila Pat­naik, Maitreesh Ghatak, D.K. Sri­vas­tava, Ajit Ranade and D.K. Joshi—has in­di­cated the way for­ward. A ma­jor­ity rec­om­mend the gov­ern­ment im­me­di­ately pay its way out of the cri­sis. In­creased pub­lic spend­ing seems to be the only short-term solution to this cur­rent mess. The gov­ern­ment must step up pub­lic in­fra­struc­ture investment on ru­ral roads, high­ways and rail­ways by pub­lic bor­row­ing. For­tu­nately, the gov­ern­ment has kept in­fla­tion low, so there is no dan­ger of an in­crease in prices. There was some di­vi­sion among the econ­o­mists on whether the down­turn is struc­tural or cycli­cal. The gov­ern­ment, on the other hand, hasn’t even made up its mind on whether the down­turn is sec­toral or sys­temic. Its mea­sures have been ac­com­pa­nied by a lot of sound and fury, but have amounted to lit­tle. Some of the ac­tions are to cor­rect its self-in­flicted dam­age, oth­ers just cos­metic.

Now, if I may add my two pen­nies’ worth. The gov­ern­ment should take the bold step of cut­ting taxes and in­ter­est rates—they are some of the high­est in the world. Such mea­sures have been known to spur con­sump­tion, com­pet­i­tive­ness, growth and, eventually, tax col­lec­tion. This is a con­sumer-led down­turn and the gov­ern­ment needs to put money in peo­ple’s hands. Cut waste­ful pub­lic ex­pen­di­ture, in­clud­ing su­per­flu­ous min­istries. Not wel­fare schemes, but there is enough flab in the bu­reau­cracy to be trimmed. Pur­sue an ag­gres­sive PSU dis­in­vest­ment pol­icy, go­ing be­yond the Rs 1.05 lakh crore tar­get set in this bud­get.

The gov­ern­ment has in­fused Rs 2.5 lakh crore of tax­pay­ers’ money into the pub­lic sec­tor banks in the past five fi­nan­cial years. This fig­ure is 9 per cent higher than the to­tal mar­ket cap of the 18 pub­lic sec­tor banks (10 of which have since been merged into four big banks). An­other set of white ele­phants, the 71 pub­lic sec­tor en­ter­prises, in­curred to­tal losses of Rs 31,261 crore last year. There will never be a good time to sell. Just cut your losses and take the burden off tax­pay­ers. If money is lost in the fu­ture, it won’t be pub­lic money but that of the pri­vate in­vestors.

The gov­ern­ment should not, as they say, waste a good cri­sis. There is a greater prob­a­bil­ity cur­rently of ac­cep­tance of ma­jor struc­tural re­forms that ad­dress the fac­tors of pro­duc­tion—the golden square of land, labour, cap­i­tal and en­trepreneur­ship. Much has been done to im­prove the ease of do­ing busi­ness, but there is a long way to go be­fore the dead hand of gov­ern­ment is re­moved and an­i­mal spirits of the econ­omy are un­leashed. There is a per­cep­tion that the gov­ern­ment’s fight against crony cap­i­tal­ism, black money and cor­rup­tion has led to re­stric­tive eco­nomic poli­cies and, worse, a crack­down on busi­ness­men. Prime Min­is­ter Naren­dra Modi reached out to in­dus­try in his In­de­pen­dence Day ad­dress, say­ing that wealth cre­ators de­serve the na­tion’s re­spect. He needs to do more to walk the talk. He has to show the same au­dac­ity and courage on the eco­nomic front as he has in pol­i­tics by do­ing away with Ar­ti­cle 370 and triple ta­laq. The ele­phant needs to get back to be­ing a tiger. Ele­phants are un­af­ford­able in lean times.

Our Septem­ber 18, 2017 cover

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