Sum­mer of 2014 to au­tumn of 2017

People's Review - - NEWS - BY P CHIDAMBARAM

I did not set the cat among the pi­geons. In fact, my griev­ance was that noth­ing that more knowl­edge­able per­sons (leave aside my views) wrote or said seemed to have any ef­fect on the gov­ern­ment and its man­age­ment of the econ­omy. A course correction was not ef­fected or even hinted at. On the con­trary, the gov­ern­ment stead­fastly and stub­bornly main­tained that “God is in heaven and all's well with the world”. Quite un­ex­pect­edly, Mr Yash­want Sin­hawrote a cen­tre page ar­ti­cle in The In­dian Ex­press on Septem­ber 27, 2017. I did not rush to en­dorse him, I sim­ply pointed out that Mr Sinha had said the same things that many oth­ers and I had been say­ing for 15 months. Mr Sinha Agrees Let's look at the main points of Mr Sinha's ar­ti­cle ( and how they co­in­cided with the views I had ex­pressed in this col­umn on the dates men­tioned be­low): 1. that the BJP/NDA gov­ern­ment got an un­prece­dented oil bo­nanza that was wasted (Jan­uary 14, 2016) 2. that pri­vate in­vest­ment has shrunk as never be­fore in two decades (Jan­uary 15, 2017) 3. that in­dus­trial pro­duc­tion has all but col­lapsed (June 11) 4. that ex­ports have dwin­dled (Jan­uary 1) 5. that de­mon­eti­sa­tion has proved to be an un­mit­i­gated dis­as­ter (Septem­ber 3) 6. that a badly con­ceived and poorly im­ple­mented GST has played havoc with busi­nesses and sunk many of them (July 2) 7. that count­less mil­lions have lost their jobs with hardly any new op­por­tu­ni­ties com­ing the way of the new en­trants to the labour mar­ket (April 9) 8. that the growth rate of 5.7 per cent is ac­tu­ally 3.7 per cent or less Nat­u­rally, the gov­ern­ment is red-faced and livid and is pulling out all the stops to heap ridicule and abuse. The Prom­ise Belied The sum­mer of 2014 held great prom­ise. The BJP was the first party in 30 years to form a gov­ern­ment with an ab­so­lute ma­jor­ity. It in­her­ited an econ­omy that had ac­cel­er­ated from 5.5 per cent in 2012-13 to 6.4 per cent in 2013-14 (the gov­ern­ment's numbers). In­fla­tion had be­gun a steady de­cline from 10.5 per cent in Septem­ber 2013 (thanks to breach­ing the fis­cal deficit and ex­pen­di­ture lim­its) to 5.77 per cent in June 2014. The cur­rent ac­count deficit had been con­tained at 0.24 per cent in the quar­ter Jan­uary-March 2014. The stage had been set for bold struc­tural re­forms. The so­called ‘legacy' prob­lems is a fake ar­gu­ment. Ev­ery gov­ern­ment will in­herit some is­sues and it is ex­pected that the gov­ern­ment will ad­dress them. Fast for­ward 40 months. The au­tumn of 2017 presents a bleak pic­ture. Eco­nomic growth de­cel­er­ated to 5.7 per cent in April-June 2017; CAD climbed up to 2.4 per cent in that quar­ter; in­dus­trial pro­duc­tions shrunk by 0.17 per cent in June and grew by a pal­try 1.2 per cent in July; and an es­ti­mated 1.5 mil­lion jobs were lost be­tween Jan­uary and April 2017. How did we go from the great ex­pec­ta­tions of the sum­mer of 2014 to the dis­ap­point­ing au­tumn of 2017? We can­not blame global eco­nomic con­di­tions be­cause they have been be­nign. Ac­tu­ally, ac­cord­ing to the IMF, af­ter 3.2 per cent growth in 2016, the global econ­omy is poised to grow at 3.5 per cent in 2017 and 3.6 per cent in 2018. Be­sides, crude oil prices re­main low at USD 58.30 per bar­rel. It is point­less list­ing the causes once again. Let me ex­am­ine the deeper rea­sons be­hind the ap­par­ent in­ca­pa­bil­ity of the gov­ern­ment to tackle the causative fac­tors. The Deeper Rea­sons Firstly, the ab­sence of a de­lib­er­a­tive and in­clu­sive process of de­ci­sion-mak­ing. All au­thor­ity is con­cen­trated in the Prime Min­is­ter's Of­fice. The model may have worked in Gu­jarat (which I doubt) but it will cer­tainly not work in a fed­eral set-up and when there are so many min­istries and de­part­ments, au­ton­o­mous au­thor­i­ties, reg­u­la­tors and ad­ju­di­ca­tory bod­ies and courts. Se­condly, the bench strength of the BJP. If tal­ent is avail­able, why sad­dle a min­is­ter with mul­ti­ple port­fo­lios? Thirdly, by the ac­counts we hear, the present Cab­i­net is not a de­lib­er­a­tive body. It is more like the Cab­i­net of a Pres­i­dent that will meekly en­dorse the de­ci­sions taken else­where. Ex­am­ple: de­mon­eti­sa­tion. When a Cab­i­net does not func­tion as a Cab­i­net, good ideas will not take root and bad ideas will not be stopped. Fourthly, the gov­ern­ment failed to build a cred­i­ble eco­nomic pol­icy team at the be­gin­ning of its term. At any given time, there should be at least halfa-dozen in­ter­na­tion­ally re­puted econ­o­mists in the larger gov­ern­ment sys­tem. Nor did the gov­ern­ment place econ­o­mist-civil ser­vants in key po­si­tions in the ad­min­is­tra­tion. The gov­ern­ment did not wish to re­tain Dr Raghu­ram Ra­jan and could not re­tain Dr Arvind Pana­gariya. While Dr Arvind Subra­ma­nian has re­luc­tantly agreed to stay on for one more year, it is any­body's guess if he will ac­tu­ally do so. Fifthly, there is no ac­count­abil­ity. A wellinten­tioned but failed min­is­ter of rail­ways has been made min­is­ter of in­dus­try and com­merce. The en­gine of ex­ports was sput­ter­ing, yet the min­is­ter of com­merce is the new min­is­ter of de­fence. The re­deem­ing fea­ture is Mr Suresh Prabhu is an hon­est gen­tle­man and Ms Nir­mala Sithara­man's ap­point­ment is a blow for women's em­pow­er­ment and breaks an un­just glass ceil­ing. Fi­nally, it is pos­si­ble to in­fer that the BJP be­lieves it has forged an elec­tion-winning (UP) and/or deal-mak­ing (Bi­har) for­mula and hence it need not worry about per­for­mance or out­comes. I don't re­ally care about the deeper rea­sons as long as the gov­ern­ment will ac­knowl­edge the causes of the eco­nomic slow­down and ad­dress them.

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